Cherokee Announces Record Third Quarter Sales and Earnings; Revenue Up 18% to $7.9 Million; Net Income Up 33% to $3.3 Million; Diluted EPS Up 31% to $0.38 Per Share.VAN NUYS, Calif. -- Cherokee Cherokee, Native American language Cherokee, language belonging to the Iroquoian branch of the Hokan-Siouan linguistic family. See Native American languages. Inc. (Nasdaq:CHKE), a leading global licensor and brand management company, today reported record revenue and earnings for the third quarter ended October 30, 2004. Net revenues for the three months ended October 30, 2004 increased by approximately $1.2 million to $7.9 million, an increase of 18% compared to net revenues of $6.7 million in the comparable period last year. Net income for the three months ended October 30, 2004 increased by approximately $820,000 to $3.3 million, a 33% increase compared to $2.5 million in the year ago period. Earnings per share were $0.38 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, a 31% increase compared to the $0.29 per diluted share reported in the third quarter of last year. Selling, general and administrative expenses for the period increased by about $326,000 from the prior year, but declined as a percent of sales to 35.5% versus 37.1% for the prior year. Income from interest and other income decreased to $91,000 from $130,000 in the third quarter of last year. In addition, Cherokee received about $425,000 in state tax refunds Tax refund Money back from the government when too much tax has been paid or withheld from a salary. in its third quarter, which resulted in a lower effective tax rate for the quarter of approximately 37.1%. The accounting effect of the state tax refunds (including interest of $57,000) contributed approximately $0.03 per diluted share to our EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. in the third quarter. The Company expects that its future effective tax rate will be approximately 41%. The Company ended the quarter with cash and equivalents of $11.3 million and no debt. Net cash provided by operations during the nine months ended October 30, 2004 totaled $19.7 million. Howard Siegel, President of Cherokee, stated, "Our continued focus and execution on our global licensing and brand management strategy resulted in another strong quarter for Cherokee. We were pleased with the 3% growth in our royalty revenues from Target in our third quarter, while we continue to further diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. our revenue stream, as evidenced by Target representing approximately 41% of revenues versus over 46% in our third quarter last year. Other highlights in the third quarter include Tesco reporting a 77.5% increase in royalty revenues, as well as an 11.7% increase with Mervyn's. In addition, during the quarter we began receiving a modest amount of royalty revenues from sales of Cherokee goods in Mexico. While our quarterly royalty revenues do not yet include any revenues attributable to sales from the other territories previously awarded to Tesco such as Hungary, Slovakia, Taiwan, Korea, Malaysia and Thailand, nor from the two brand representation deals announced by Cherokee in the past 12 months -- we expect these recent initiatives will start to contribute to our revenues during the next 9 to 18 months." Russell J. Riopelle, Chief Financial Officer, added, "We are very pleased to report record operating results and increased margins as we continue to successfully execute our business model. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses during the third quarter was approximately $6.6 million, and we ended the quarter with approximately $11.3 million in cash. In addition, on October 21st we declared a $0.50 per share dividend, payable in December, which represents our fifth consecutive quarterly dividend." Robert Margolis, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , said, "We have completed another record quarter from both an operational and financial standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the by leveraging our scaleable licensing and brand management infrastructure, and continuing to grow our revenues with increasing diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. . We are excited about our strong stable of existing brands, and will continue to focus on expanding our business with both existing accounts as well as pursuing additional growth opportunities. We remain committed to further enhancing shareholder value in the future." Cherokee Inc., based in Van Nuys, is a marketer, licensor and manager of a variety of brands it owns and represents. Currently, Cherokee has licensing agreements in a number of categories, including family apparel, fashion accessories Fashion accessories are items apart from the garment itself, which complement the whole outfit. Fashion accessories include jewelry, gloves, handbags, hats, or scarves. and footwear Footwear consists of garments worn on the feet. It is worn for a variety of reasons, including protection against the environment, hygiene and adornment. Usually, socks and other hosiery are worn between the feet and the footwear, except for sandals and flip flops (thongs). , as well as home furnishings furnishings the extra type or quantity of hair on the head, tail, ears or legs, specified for a particular breed. For example, the feathers in setters, the beard in Bearded collies, the eyebrows in Schnauzers. and recreational products. Some of Cherokee's premier clients around the world include Target Stores, Mervyn's, TJX Companies The TJX Companies, Incorporated (NYSE: TJX), is the largest international apparel and home fashions off-price department store chain, based in Framingham, Massachusetts, in the United States. , Hearst Publications and Solera A solera is a series of barrels or other containers used for aging liquids such as Sherry, Madeira, Marsala, Mavrodafni (a dark-red fortified dessert wine from Greece), Muscat, Muscadelle, Balsamic and Sherry Vinegars. Capital (U.S.), Zellers (Canada), Carrefour (selected countries in Europe and South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. ), Tesco (U.K., Ireland and certain other European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. and Asian countries Noun 1. Asian country - any one of the nations occupying the Asian continent Asian nation country, land, state - the territory occupied by a nation; "he returned to the land of his birth"; "he visited several European countries" ) and Shanghai Shanghai (shăng`hī`, shäng`hī`), city (1994 est. pop. 12,980,000), in, but independent of, Jiangsu prov., E China, on the Huangpu (Whangpoo) River where it flows into the Chang (Yangtze) estuary. Bolderway (China). Statements included within this news release that are not historical in nature constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. for the purposes of the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provided by the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. When used, the words "anticipates," "believes," "estimates," "objective," "expects," "may," "likely," "should," "could," "possible," "plans," "goals" and similar expressions are intended to identify such forward-looking statements. In particular, the forward-looking statements in this news release include statements concerning the potential future issuance of dividends, which would be declared in the sole discretion of the Company's Board of Directors and may be declared only out of funds legally available therefore in any amount or not at all, the Company's pursuit of continued international growth and the potential retirement of additional debt. Forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the effect of national and regional economic conditions, the financial condition of the apparel industry and the retail industry, the overall level of consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. , the effect of intense competition in the industry in which the Company operates, adverse changes in licensee licensee n. a person given a license by government or under private agreement. (See: license, licensor) LICENSEE. One to whom a license has been given. 1 M. Q. & S. 699 n. or consumer acceptance of products bearing the Company's brands as a result of fashion trends or otherwise, the ability and/or commitment of the Company's licensees to design, manufacture and market Cherokee and Sideout branded products, the Company's dependence on a single licensee for a significant portion of the Company's revenues, the Company's dependence on its key management personnel, and adverse determinations of claims, liabilities or litigations, including our dispute with Mossimo, and the effect of a breach or termination by the Company of the management agreement with the Company's CEO. A further list and description of these risks, uncertainties and other matters can be found in the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended January 31, 2004, and in its periodic reports on Forms 10-Q and 8-K. Undue reliance should not be placed on the forward-looking statements contained herein because some or all of them may turn out to be wrong. The Company disclaims any intent or obligation to update any of the forward-looking statements contained herein to reflect future events and developments.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three months ended Nine months ended
----------------------- -------------------------
October 30, November 1, October 30, November 1,
2004 2003 2004 2003
---------- ---------- ----------- -----------
Royalty revenues $7,963,000 $6,742,000 $30,400,000 $28,711,000
Selling, general
and
administrative
expenses 2,825,000 2,499,000 9,073,000 8,977,000
Operating income 5,138,000 4,243,000 21,327,000 19,734,000
Other income
(expenses):
Interest expense (6,000) (161,000) (16,000) (590,000)
Investment and
interest income 91,000 130,000 722,000 346,000
Total other
income
(expenses), net 85,000 (31,000) 706,000 (244,000)
Income before
income taxes 5,223,000 4,212,000 22,033,000 19,490,000
Income tax
provision 1,937,000 1,748,000 8,868,000 8,068,000
Net income $3,286,000 $2,464,000 $13,165,000 $11,422,000
Basic earnings
per share $ 0.38 $ 0.30 $ 1.52 $ 1.38
Diluted earnings
per share $ 0.38 $ 0.29 $ 1.51 $ 1.34
Weighted average
shares
outstanding
Basic 8,664,685 8,323,449 8,643,555 8,269,163
Diluted 8,734,123 8,584,591 8,714,470 8,492,312
CONSOLIDATED BALANCE SHEETS
October 30, January 31,
2004 2004
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $11,273,000 $ 5,850,000
Restricted cash -- 2,627,000
Receivables, net 7,564,000 12,992,000
Prepaid expenses and other current
assets 666,000 747,000
Deferred tax asset 954,000 954,000
Total current assets 20,457,000 23,170,000
Deferred tax asset 1,316,000 1,589,000
Property and equipment, net of accumulated
depreciation of $379,000 (unaudited) and
$342,000, respectively 123,000 108,000
Trademarks, net of accumulated amortization
of $3,858,000 (unaudited) and $3,091,000,
respectively 9,221,000 9,726,000
Other assets 41,000 34,000
Total assets $31,158,000 $34,627,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 944,000 $ 529,000
Other accrued liabilities 3,559,000 4,315,000
Income taxes payable -- --
Dividends payable 4,334,000 --
Notes payable -- 2,625,000
Total current liabilities 8,837,000 7,469,000
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.02 par value, 1,000,000
shares authorized, none issued and
outstanding -- --
Common stock, $.02 par value, 20,000,000
shares authorized, 8,668,405 (unaudited)
and 8,595,916 shares issued and outstanding
at October 30, 2004 and at January 31,
2004, respectively 173,000 171,000
Additional paid-in capital 7,367,000 6,207,000
Retained earnings 14,781,000 20,780,000
Stockholders' equity 22,321,000 27,158,000
Total liabilities and stockholders' equity $31,158,000 $34,627,000
Further financial information and explanatory ex·plan·a·to·ry adj. Serving or intended to explain: an explanatory paragraph. ex·plan footnotes may be found in Cherokee's Form 10-Q Form 10-Q See 10-Q. , which the Company expects to file with the SEC on or about December 7, 2004. |
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