Cherokee Inc. Reports Second Quarter and Six Month Results; Year-to-date Retail Sales of Cherokee Branded Merchandise Exceed $1 Billion.Business Editors VAN NUYS, Calif.--(BUSINESS WIRE)--Sept. 12, 2002 Cherokee Cherokee, Native American language Cherokee, language belonging to the Iroquoian branch of the Hokan-Siouan linguistic family. See Native American languages. Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : CHKE), a leading licensing and global brand management company, today reported results for the three months ("Second Quarter") and six months ("Six Months") ended August 3, 2002. Second Quarter royalty revenue increased 2.6% to $8.6 million from $8.3 million for the three-month period ended August 4, 2001. Net income was unchanged at $3.3 million. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of were $0.38 versus $0.39 due to an increase in weighted average shares outstanding. Six Month royalty revenue increased 5.8% to $20.0 million from $18.9 million in the year ago period. Net income increased 6.6% to $8.4 million compared to $7.8 million and diluted earnings per share increased 4.2% to $0.99 compared to $0.95 for the six-months ended August 4, 2001. Worldwide retail sales of Cherokee branded merchandise increased 5.9% to $518 million during the Second Quarter and Six Month retail sales grew 7.2% to $1,021 million. The Company also reported momentum in the Sideout brand continued with retail sales of Sideout branded merchandise increasing 22.1% to $32 million during the Second Quarter and Six Month sales of $57 million, 25.5% higher than the year ago period. Howard Howard, English noble family. Landowners in Norfolk from the 13th cent., the Howards obtained the duchy of Norfolk through the marriage of Sir Robert Howard to Margaret Mowbray, daughter of Thomas Mowbray, 1st duke of Norfolk. Siegel Siegel, a surname, is associated with two ethnic groups. As a Jewish surname Siegel (סג"ל) it could be an acronym of Segan Levi (סגן לוי), meaning "Assistant Levite". , President said, "We are pleased with our results, both financially and at retail. With over $1 billion in worldwide retail sales of Cherokee branded merchandise for the Six Months, we believe our brands are stronger than ever. In addition to our continued growth in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , we are excited about the potential for additional growth with our Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. partner Zellers and our new international partners Carrefour and Tesco." 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. commented, "Our business is expanding. The sales of our own brands continue to grow, both domestically and in the international marketplace. Also, we recently successfully engineered a licensing arrangement with Toys 'R' Us on behalf of DIC DIC diffuse intravascular coagulation; disseminated intravascular coagulation. DIC abbr. disseminated intravascular coagulation Disseminated intravascular coagulation (DIC) Entertainment to create a complete merchandise line based on DIC Entertainment's new Liberty's Kids Liberty's Kids is a 40-part animated television series produced by DiC Entertainment, originally broadcast on PBS Kids from September 2, 2002 to April 4, 2003. Then after cancellation, aired reruns until August 16, 2004 when it was replaced by Cyberchase. , which begins airing this fall on PBS PBS in full Public Broadcasting Service Private, nonprofit U.S. corporation of public television stations. PBS provides its member stations, which are supported by public funds and private contributions rather than by commercials, with educational, cultural, . In addition to contributing to earnings growth in 2003 and beyond, this most recent licensing arrangement is further affirmation A solemn and formal declaration of the truth of a statement, such as an Affidavit or the actual or prospective testimony of a witness or a party that takes the place of an oath. An affirmation is also used when a person cannot take an oath because of religious convictions. of the direct to retail licensing model that we pioneered. We continue evaluating similar opportunities, assignments and potential new brands to acquire or represent." Commenting on the results, Carol Gratzke, Chief Financial Officer stated, "Second Quarter revenue increased from last year; however, SG&A expenses offset the earnings growth and resulted in a slight reduction in our operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. . The increase in SG&A expenses is attributable to costs associated with Carrefour's and Tesco's launch of Cherokee branded merchandise and legal fees relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc pending arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the . Our financial health and balance sheet continue to improve. We ended the quarter with $3.5 million in net working capital, our current ratio improved to 1.3x, and we continue using our strong cash flow to further reduce our debt. Over the last year we have reduced our debt by $10.5 million." Cherokee also announced it repurchased 7,500 shares during the Second Quarter at an average price of $16.99. Under the current authorization The right or permission to use a system resource; the process of granting access. See access control. , the Company is authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to an additional 442,200 shares of its common stock. Cherokee Inc., based in Van Nuys, is a leading global licensing and brand management company. Through its unique Retail Direct Licensing template (1) A pre-designed document or data file formatted for common purposes such as a fax, invoice or business letter. If the document contains an automated process, such as a word processing macro or spreadsheet formula, then the programming is already written and embedded in the , the Company receives royalties on brands it owns or represents with annual retail sales of $3 billion. Cherokee started out as a shoe and apparel manufacturing company in the 70's. The Company reinvented itself in 1995, taking advantage of its unique position and industry-wide relationships to completely transform its business model by creating radically innovative licensing strategies and business combinations. 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," "expects", "may", "should" and similar expressions are intended to identify such forward-looking statements. In particular, the forward-looking statements in this news release include statements regarding the Company's goals for future growth in revenues and earnings, the prospects of existing and new licensees such as Carrefour, and the Company's pursuit of additional brands to acquire or represent. 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 most of the Company's revenues, the Company's dependence on its key management personnel, and adverse determinations of claims, liabilities or litigations 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 Fiscal 2001, and in its periodic reports on Forms 10-Q and 8-K (if any). 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.
CHEROKEE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three months ended Six Months Ended
Aug. 3, 2002 Aug. 4, 2001 Aug. 3, 2002 Aug. 4, 2001
---------------------------------------------------------
Royalty revenues $ 8,562,000 $ 8,348,000 $ 20,020,000 $ 18,852,000
Selling, general
and administrative
expenses 2,905,000 2,551,000 5,494,000 4,963,000
---------- ---------- ----------- ----------
Operating income 5,657,000 5,797,000 14,526,000 13,889,000
Other income
(expenses):
Interest expense (307,000) (462,000) (655,000) (962,000)
Investment and
Interest income 45,000 84,000 77,000 165,000
---------- ---------- ----------- ----------
Total other income
(expenses), net (262,000) (378,000) (578,000) (797,000)
Income before
income taxes 5,395,000 5,419,000 13,948,000 13,092,000
Income tax
provision 2,139,000 2,168,000 5,579,000 5,242,000
----------- ------------ ----------- ----------
Net income $ 3,256,000 $ 3,251,000 $ 8,369,000 $ 7,850,000
Basic earnings
per share $ 0.39 $ 0.40 $ 1.02 $ 0.95
Diluted earnings
per share $ 0.38 $ 0.39 $ 0.99 $ 0.95
Weighted average
shares outstanding
Basic 8,274,379 8,223,372 8,222,470 8,227,538
Diluted 8,534,656 8,246,835 8,448,393 8,266,389
CHEROKEE INC.
CONSOLIDATED BALANCE SHEETS
Aug. 3, 2002 February 2, 2002
------------ ----------------
(unaudited)
Assets
Current assets:
Cash and cash
equivalents $ 6,099,000 $ 4,394,000
Restricted cash 2,651,000 2,645,000
Receivables, net 9,236,000 6,232,000
Prepaid expenses and
other current assets 142,000 62,000
Deferred tax asset 886,000 886,000
---------------------------------------
Total current assets 19,014,000 14,219,000
Deferred tax asset 2,100,000 2,100,000
Securitization fees,
net of accumulated amortization
of $943,000 and $840,000,
respectively 298,000 401,000
Property and equipment,
net of accumulated
depreciation
of $297,000 and $265,000,
respectively 124,000 156,000
Trademarks, net of
accumulated amortization of 7,412,000 7,365,000
$1,762,000 and $1,433,000,
respectively
Other assets 15,000 15,000
---------------------------------------
Total assets $ 28,963,000 $ 24,256,000
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable $ 51,000 $ 400,000
Income taxes payable 1,356,000 22,000
Other accrued liabilities 2,292,000 3,584,000
Notes payable 10,500,000 10,500,000
---------------------------------------
Total current liabilities 14,199,000 14,506,000
Notes payable - long term 6,914,000 11,510,000
---------------------------------------
Total liabilities 21,113,000 26,016,000
---------------------------------------
Stockholders' Equity (Deficit):
Common stock, $.02 par value,
20,000,000 shares authorized,
8,289,764 and 8,163,405 shares
issued and outstanding at
August 3, 2002 and at
February 2, 2002, respectively 165,000 164,000
Additional paid-in capital 2,491,000 1,252,000
Retained earnings/(deficit) 5,194,000 (3,176,000)
--------------------------------------
Stockholders' equity (deficit) 7,850,000 (1,760,000)
--------------------------------------
Total liabilities and
stockholders' equity (deficit) $ 28,963,000 $ 24,256,000
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