Cherokee Inc. has terminated its long-standing licensing relationship with Tesco and is in “advanced negotiations” to sign a new license for the Cherokee brand covering the U.K. and Ireland.
The company, which now does business as Cherokee Global Brands, also is exploring opportunities to license the brand in other parts of Europe. Tesco’s license included a number of markets in Central Europe.
“Simply put, we felt that the challenges faced by Tesco in their home market will continue to impede our progress and after several years and failed attempts to satisfy the U.K. consumer’s appetite for Cherokee branded products, it was simply time to move on,” said Henry Stupp, chief executive officer of Cherokee, on a conference call to discuss the company’s third-quarter results.
He added that the Cherokee brand had achieved sufficient mass in global markets “where we have reduced the exposure associated with Tesco revenue, which a short five years ago represented 40 percent of our sales.”
Tesco has held the license for the Cherokee brand since 2001. The British supermarket chain has faced a series of challenges in recent years, most recently an investigation into possible fraud by British authorities that stirred the departure of its chairman.
In addition to its talks concerning its namesake brand in Europe, Cherokee is also negotiating to establish international distribution for the Tony Hawk brand, acquired from Quiksilver Inc. in January. “We have full confidence that the brand will be global in the not-too-distant future,” Stupp told analysts.
In the U.S., Tony Hawk is distributed exclusively through Kohl’s stores. Royalties associated with the brand totaled $1.3 million in the third quarter, $1.2 million of them attributable to the Kohl’s relationship.
Overall in the third quarter ended Nov. 1, Cherokee’s net income grew 48.2 percent to $2.3 million, or 27 cents a diluted share, from $1.6 million, or 19 cents, in the year-ago quarter. Revenues, all in the form of royalties, grew 30.3 percent to $8.7 million from $6.7 million in the comparable 2013 period.
The consensus estimates among analysts monitoring the firm was for EPS of 21 cents on revenues of $8.09 million. The earnings and revenues “beats” helped lift shares 8.7 percent to $19.88 in midday trading Wednesday.
Stupp said that, while Cherokee’s business with Target in Canada had performed well, sales of the brand in Target’s U.S. stores were flat during the quarter, although the recent trend was stronger.
“I think the breach is behind them,” he said of last year’s hacking incident at Target. “I think the marketing they’ve put in place going into this Christmas is some of the best work they’ve ever done. Their stores look good.”