Apparently losing Target isn’t going to hurt Cherokee Brands. During the B. Riley Consumer Conference on Wednesday, chief executive officer Henry Stupp said, “We don’t think there will be any material impact.”
Last week, Cherokee announced that Target had elected to not renew its licensing agreement, which will expire at the end of January in 2017. That news combined with light revenue in the second quarter caused the stock to plunge more than 30 percent.
Cherokee doesn’t sound concerned and sees the transition as an opportunity to expand categories in the U.S. Stupp pointed out that when Target Canada closed operations, it was able to replace the business with Sears Canada. The new deal saw royalty rates jump from 1.5 percent with Target to 4 percent with Sears Canada.
Cherokee was also pleased that Sears Canada made a multicategory commitment. Pointing out that Sears Canada is very different from the Sears in the States, describing it as more upscale. With regards to Liz Lange, Stupp said it gets a major placement on the Sears floor that includes not just maternity, but also extended sizes.
Cherokee also explained that Target held all rights and sat on everything related to the license and said there were some significant retailers that had expressed interest in the Cherokee brand. Cherokee also said consumers did not see Cherokee as a Target-only brand. Stupp was complimentary about the Target relationship saying they had given Cherokee plenty of time to seek other licenses. “They have been a great partner and as a result of their efforts we have been able to expand the brand globally,” Stupp said. He also suggested that it wasn’t the only company that was going to be affected by Target’s floor overhaul.
Stupp also said he anticipated a good back-to-school season with September performance looking good. “We picked up a lot of traction in the month of September and we anticipate a very good holiday season.”
Cherokee also said it would continue to make strategic acquisitions targeting “style-focused” lifestyle brands.
Cherokee stock took a beating last week on the earnings announcement and the Target news. The B. Riley analyst dropped the target price to $27 on Sept. 11, but at the same time upgraded the stock to a “buy” rating. Overall, it’s down 20 percent year-to-date, but began rising ahead of today’s presentation and added back 5 percent of value to trade lately at $15.45.