By  on December 11, 2008

Brand manager Cherokee Inc. reported lower profits and royalties in the third quarter as a stronger dollar erased the impact of expense cuts and higher revenues from Target Corp.

Net income in the three months ended Nov. 1 dropped 12.1 percent to $3.3 million, or 37 cents a diluted share, from $3.7 million, or 41 cents, in the year-ago period. Royalty revenues fell 10.1 percent to $8 million from $8.9 million in the 2007 quarter.

President Howard Siegel said although domestic royalties declined “slightly,” those attributable to its business with Target increased to $3.67 million from $3.29 million in last year’s quarter. “However, this increase in royalties was due to a higher average royalty rate applied to the retail sales reported by Target for our third quarter, and the higher average royalty rate is a result of the year-to-date decline in retail sales from Target in the nine months.”

International royalties dropped about 18 percent in the quarter because of weakness in the U.K. and less favorable exchange rates.

A 12.8 percent reduction in selling, general and administrative expenses, to $3.4 million, helped offset lower royalties.

“We are not immune to the soft global retail environment, and are always disappointed with any revenue declines,” commented Robert Margolis, chairman and chief executive officer of the Van Nuys, Calif.-based firm. “However, we take comfort in our highly profitable business model with no inventory, no manufacturing and no debt.”

Cherokee owns brands including Cherokee, Sideout and Carole Little and also serves as a licensing representative for other brands.

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