Cherokee Net Leaps in Third Quarter

Royalties expand and expenses contract at a double-digit rate.

Increased royalties and lower overhead expenses led Cherokee Inc. to nearly double profits in the third quarter.

The company reported that improved sales of products licensed to Target in the U.S. and Zellers in Canada more than offset steep declines from its business with Tesco in Europe.

“With regard to Tesco, we continue to see strong progress in the relaunch of Cherokee and expect to see improved revenues from this relationship” during the first quarter of the next fiscal year, said Henry Stupp, chief executive officer. “In addition, we are gratified to say that we continued to see an uptick in sales at Target for our Cherokee brand, with year-to-date revenues increasing 19.2 percent year-over-year.”

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According to the quarterly report filed with the Securities and Exchange Commission, retail sales of Cherokee products at Target stores totaled $276.4 million, 13.1 percent above the $244.5 million registered during the comparable 2011 quarter. Sales at Tesco were down 93 percent, to $1.6 million from $22.2 million.

For the three months ended Oct. 27, net income rose 98 percent to $2.1 million, or 25 cents a diluted share, from $1 million, or 12 cents, in the year-ago period. Revenues, all derived from royalty payments, grew 11.9 percent to $6.7 million from $6 million in the 2011 quarter. Selling, general and administrative expenses declined 18.9 percent to $3.4 million during the period from $4.2 million a year ago.

The integration of the Liz Lange Maternity and Completely Me brands acquired from Bluestar Alliance for $14 million in September “is now fully complete, and we are currently working to build the brand with both Target and HSN while aggressively seeking new business opportunities internationally.”

At the time of the acquisition, Stupp told WWD that Cherokee believes it has an opportunity to establish partnerships for the Lange brands in the nearly 40 countries in which it does business.

“We expect the remainder of fiscal 2013 to show positive results for the company while we continue to refine our operating model,” the ceo said. “In addition, we will continue to seek new, successful brands to build our portfolio.”

For the nine months, net income slipped 3.6 percent to $5.8 million, or 69 cents a diluted share, while royalty revenues grew 4.8 percent to $20.6 million.