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Cherokee Royalties, Profits Slip in Second Quarter

Company continued to experience lower sales of its namesake brand at Tesco stores in western and central Europe.

Cherokee Inc. saw its royalties and profits decline in the second quarter as it continued to experience lower sales of its namesake brand at Tesco stores in western and central Europe.

For the three months ended July 28, net income slipped 3.8 percent to $1.6 million, or 19 cents a diluted share, from $1.7 million, or 20 cents, in the year-ago quarter. With selling, general and administrative expenses reduced 7.8 percent to $6.3 million from $6.7 million in the 2011 period, operating income receded 1.6 percent to $2.7 million.

Royalties, the firm’s sole source of revenue, fell 5.3 percent to $6.3 million from $6.7 million. Royalties attributable to Tesco, which holds the Cherokee direct-to-retail license in the U.K., Ireland and certain central European markets, dropped to $200,000 from $1.2 million in last year’s second quarter, while those from Target increased to $3.1 million from $2.8 million. With the drop in Tesco-related revenues, royalties from Target made up 49 percent of the quarterly total, up from 42 percent in the 2011 period, according to the company.

Henry Stupp, chief executive officer of Cherokee, told WWD he was optimistic that the company’s business with Tesco would gain momentum in coming months. “I just returned from meetings at Tesco’s London headquarters and look forward to the relaunch of Cherokee men’s, women’s, girls’ and boys’ clothing at Tesco in spring 2013,” he said, adding that growth had been strong “in Asia, Latin America and of course domestically with our largest retail partner, Target. The positive progress with Target has continued into the third quarter.”

Cherokee on Wednesday acquired the Liz Lange Maternity and Completely Me businesses from an affiliate of Bluestar Alliance LLC for $14 million. The Lange maternity business has been distributed in Target Corp. stores for more than 10 years. Stupp said Cherokee intends to expand the Lange business into international markets. Completely Me is carried by HSN Inc. in the U.S. and by The Shopping Channel in Canada.

In the six months, Cherokee’s profits declined 25.3 percent to $3.7 million on a 1.6 percent increase in royalties to $13.8 million.