NEW YORK — Cherokee Inc. had a slightly better-than-expected first quarter as top-line growth fueled bottom-line gains.
For the three months ended May 4, the Van Nuys, Calif.-based licensing company reported net income increased 11.2 percent to $5.1 million, or 61 cents a share, compared to last year’s profits of $4.6 million, or 56 cents.
Royalty revenues likewise grew, gaining 9.1 percent to $11.5 million from $10.5 million a year ago. Also adding to company earnings was a 30.4 percent drop in interest expense to $348,000 from $500,000 in last year’s first quarter.
“The first quarter was a significant milestone for Cherokee,” said chief financial officer Carol Gratzke in a statement. “We ended the quarter with retained earnings for the first time since paying out a substantial one-time special dividend in fiscal 1998. Furthermore, we ended the quarter with $3.5 million in net working capital and further reduced our debt.”
Cherokee reported that the rise in first-quarter royalty revenues was primarily attributable to expanded retail sales of Cherokee branded merchandise by the company’s worldwide licensees and revenue from brand representations. Retail sales of Cherokee branded merchandise rose 8.4 percent to $503.3 million compared with $464.3 million last year, while retail sales of Sideout branded merchandise increased 30 percent to $25.1 million.
Revenue improvement is also tied to the success of Target, which is Cherokee’s most important U.S. licensee, accounting for 68 to 72 percent of the company’s royalties. Unlike some manufacturers who, according to published reports, have seen their payment terms altered to be more favorable for the discount giant, Cherokee, as a licensing company, has not felt that pinch.
“Target does a great job showcasing our brand in its stores,” Gratzke said. “We’re happy with them. Target is a good partner.”
In other developments, Cherokee reported that it has extended the expiration date of the company’s stock repurchase program to July 31, 2003. Under the plan, the company is authorized by the board of directors to buy back up to an aggregate of 449,700 shares of its common stock.