Second-Quarter Profits Fall at Cherokee

Weak retail climate reduces royalties from Target and Tesco.

Cherokee Inc. blamed retail weakness, including reduced royalties from Target, for a decline in profits and revenues in the second quarter, but the company will still pay out a previously announced dividend later this month.

This story first appeared in the September 9, 2008 issue of WWD.  Subscribe Today.

The Van Nuys, Calif.-based brand management firm reported a 17.7 percent drop in profits in the period, to $4 million, or 45 cents a diluted share, from $4.9 million, or 55 cents a share, a year ago. Revenues for the quarter ended Aug. 2, derived from royalties, dropped 11.4 percent to $10.5 million from $11.9 million in the same period last year.

Howard Siegel, president, said royalties from Target Stores declined 21.3 percent during the quarter, while those from British retailer Tesco were down 3.3 percent, with strength in Central Europe offsetting weakness in the U.K.

The company noted that 58 percent of revenues are attributable to international licenses.

Robert Margolis, chairman and chief executive officer, commented, “We are disappointed with our second-quarter revenue decline, and are focused on keeping our costs down in this difficult retail environment.”

To Margolis’ point, the firm cut second-quarter selling, general and administrative expenses 7.1 percent to $3.9 million from $4.2 million last year.

In the first half of the year, profits fell 12.2 percent to $8.7 million, or 98 cents a share, from $9.9 million, or $1.12 a share. Sales fell 7.8 percent to $22 million from $23.9 million a year ago.