NEW YORK — Cherokee Inc. said on Wednesday that second-quarter profits rose 18.4 percent on modest revenue growth and lower costs.

The Van Nuys, Calif.-based marketer and licensor recorded income of $4.3 million, or 50 cents a diluted share, for the three months ended July 31, which beat Wall Street’s estimate by 4 cents. Last year the company had earnings of $3.7 million, or 43 cents.

Royalty revenue increased 3 percent to $10.2 million from $9.9 million a year ago. A reduction of 400 basis points in selling, general and administrative expenses to 32.2 percent of revenue from 36.2 percent last year magnified the impact of the revenue gain. The decline was primarily caused by lower legal and marketing expenses, the company said. A Cherokee lawsuit with Mossimo over a finder’s fee dispute in connection with a licensing deal the company brokered between Target and Mossimo was settled in Cherokee’s favor during the quarter.

“Our established and diversified portfolio of brands allows our royalty revenue to increase even when sales of Cherokee goods at some of our retail partners decline in a particular quarter,” president Howard Siegel said in a statement. “It should be noted that these second-quarter results did not include any royalty revenue from sales of Cherokee goods in Mexico or Asia or from royalties attributed to sales of the House Beautiful brand at May Co. stores, all of which we expect will contribute to our revenues during our next fiscal year.”

For the first half of the fiscal year, Cherokee said net income grew 10.3 percent to $9.9 million, or $1.13, from $9 million, or $1.06, a year ago. Revenue improved 2.1 percent to $22.4 million from $22 million last year.

— Dan Burrows

This story first appeared in the September 9, 2004 issue of WWD. Subscribe Today.