LOS ANGELES — Cherokee Inc., which brokers licensing deals between retailers and brands, might be looking to align itself with a buyer.
The Van-Nuys, Calif.-based firm said in a press release Monday that it hired UBS Investment Bank to explore “strategic alternatives” and ways of “enhancing stockholder value.”
Officials at Cherokee and UBS both declined further comment.
Industry experts said the announcement suggests Cherokee’s interest in selling the company before the market turns cold. There has been consolidation in the apparel and retail industry in the past two years with the purchase of companies such as C&C California, Juicy Couture, Vans Inc. and Ocean Pacific Apparel Corp.
Cherokee, led by chairman and chief executive Robert Margolis, offers a different business model in that it licenses apparel lines, but doesn’t manufacture them. The brands in the firm’s stable include Cherokee, Mossimo, Sideout, Carole Little and Chorus Line, which are sold at retailers from Target Corp. to Mervyn’s in the U.S. and Zellers in Canada. Most recently, it has signed deals with Essence and Latina magazines.
The strategy, in place for the past 10 years, has served Cherokee well. Royalty revenues increased 9.6 percent to $36.3 million last year and income rose 8.7 percent to $14.2 million.
“The great thing about Margolis’ company is that he has several brands in diverse channels of distribution, and servicing different clientele,” said Benjamin Seigel, an apparel attorney with Buchalter Nemer Fields & Younger of Los Angeles.
Some of those brands, however, have shown signs of weakening. Sales of Cherokee products at Target Stores declined by 5.5 percent to $1.9 billion last year.
Seigel said Margolis might be looking to cash out while he’s still on top. Margolis was the fifth highest paid apparel executive of a public company in 2003 with a compensation package worth $3.8 million, according to a Women’s Wear Daily list.
Straight apparel deals usually go for two to three times income, Seigel said, but Cherokee’s potential sale could go higher.
“When you throw in licensing and international recognition, it could go higher to five to six times,” he said, which could mean a sale price ranging from $70 million to $85 million.In turn, the deal could drive up the worth of its stock. The stock closed at $34.26 on Monday, up 2.6 percent. It has risen 67 percent in the last year.
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