Cherokee Inc. Thursday reported an increase in first-quarter royalty revenues while earnings fell on expenses incurred to upgrade its financial controls.
In the three months ended May 4, the Sherman Oaks, Calif.-based brand management firm generated net income of $1.6 million, or 19 cents a diluted share, 21.7 percent below the $2.1 million, or 25 cents, reported for the first quarter of 2012. Stripping out $958,000 in professional fees related to the review and upgrade of financial controls, net income was $2.2 million, or 27 cents, 7.9 percent higher than the year-ago period.
Royalty revenues expanded 7.2 percent to $8.1 million from $7.5 million in the year-ago quarter, with income from the Liz Lange business, acquired last September, and higher revenues from international licensees partially offset by the loss of royalties previously derived from Zellers. Target, which holds the license for Cherokee in the U.S., has taken over numerous Zellers locations in Canada and has added rights to the Cherokee name in Canada as well.
Henry Stupp, chief executive officer, noted double-digit growth with the company’s licensees in China, RT Mart, and Japan, Nishimatsuya, as well as a “solid start” in its relationship with Tesco, which has relaunched the Cherokee brand in the U.K. and several European markets.
“We also remain encouraged by our domestic growth potential as we head into the important back-to-school season,” Stupp said. “Target’s sales of Cherokee branded merchandise for the month of May alone experienced a double-digit increase.”
Cherokee in April delayed the release of its annual report after finding that its internal mechanisms for financial reporting “were not effective with respect to certain controls.” The delay followed the hiring of Jason Boling as its chief financial officer, replacing Mark DiSiena, and the appointment of Ernst & Young LLC as its auditor, replacing Moss Adams LLP.