Cherokee Net Falls, Royalties Rise

Cherokee brand sales at Target up 38% in the first quarter.

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Investments in its brands and a higher tax rate lowered first-quarter profits at the Cherokee Inc. more than a third despite a pickup in its royalty revenues.

In the three months ended April 28, Cherokee’s net income declined 36.3 percent to $2.1 million, or 25 cents a diluted share, from $3.3 million, or 38 cents, in the 2011 quarter. Year-ago profits were lifted about 14 cents a share by a onetime refund from the California Franchise Tax Board.

Revenues, all derived from royalties from Cherokee and the rest of its portfolio of brands, rose 8.2 percent to $7.5 million from $6.9 million.

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“Despite the declines from Tesco and Norma Kamali during the first quarter, we reported a nearly 35 percent growth in the balance of our business over the past three months,” said Henry Stupp, chief executive officer of the Sherman Oaks, Calif.-based brand management firm. “This significant growth is emblematic of the emphasis we have placed on improving our product and brand penetration, developing our partnerships and refining our direct-to-retail model.”

Cherokee brokered Norma Kamali’s 2008 license with Wal-Mart, a three-year arrangement that ended in November without a renewal.

Stupp said that sales of the Cherokee brand at Target rose 38 percent, or about $72 million, versus the 2011 quarter, implying an increase to about $261.5 million from $189.5 million. Global sales of the brand were $335.3 million during the quarter, up from $302.3 million in the prior-year period, with the increase at Target offset by a $51.8 million decline in sales at Tesco, which holds the rights to the brand in the U.K., Ireland, the Czech Republic, Slovakia, Poland, Hungary and Turkey.

“Following our new mutual agreement with Tesco…Tesco’s management has shown a greater commitment to the Cherokee brand,” Stupp said. “You can expect to see a newly redesigned collection of Cherokee men, women, kids and baby for Tesco in stores later this year, with an even larger offering at Tesco stores in spring 2013.”

The new arrangement with Tesco, not unlike the agreements penned within the past eight months for Japan and Russia, incorporates what Cherokee has termed its “360-degree approach” to its direct-to-retail licensees, covering aspects of merchandising, marketing and presentation in and out of the store.

The company also said Thursday that Robert Galvin, former president of Camuto Group, had been added to its board, expanding the size of the body to six members from five. Galvin left Camuto on Jan. 1.

Prior to the firm’s earnings announcement, shares of Cherokee Thursday closed at $11.99, down 17 cents or 1.4 percent. In the past 52 weeks, they have traded as high as $18.69, last June 9, and as low as $10.15, on Jan. 26.

In addition to Cherokee, the firm owns the Sideout and Carole Little brands.

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