Cherokee Q1 Net, Royalties Fall

NEW YORK – Cherokee Inc.’s first quarter profits fell along with its royalty revenues, reflecting the termination of its finder’s fee arrangement with Mossimo, the end of its relationship with Carrefour and declines for the Cherokee brand at Target.

The company also saw its expenses spike, partially due to a one-time payment of $254,000 related to its Carole Little brand.

In the three months ended May 5, the Van Nuys, Calif.-based brand marketer and licensor registered net income of $5 million, or $0.56 a diluted share, down 15.2% from the $5.9 million, or $0.67, recorded in the year-ago quarter.

Royalties, Cherokee’s sole source of revenue, declined 9% to $12 million from $13.2 million.

Expenses swelled 10.9% to $3.9 million from $3.5 million because of both the Carole Little payment and payroll taxes associated with the termination of the Mossimo finder’s fee. As a result, operating income was $8.1 million, off 16.2% from the $9.7 million logged in the 2006 quarter.

Russell Riopelle, chief financial officer, noted that Cherokee royalties were down 2.6% as those derived from Target fell 8.1%. “However, royalty revenues from Tesco for our first quarter grew at a 17.8% rate for our Cherokee brand throughout the Tesco territories,” he said, “and we continue to focus on executing our ‘World Brand’ strategy for Cherokee.”

The company announced separately that Tesco’s expansion into Central Europe, where it now operates 260 units, had enhanced the presence of the Cherokee brand. Tesco has 450 units in the United Kingdom and Ireland. Cherokee has extended its Cherokee agreement with Tesco for China, South Korea, Thailand and Malaysia, where the retailer is currently developing launch plans. There are also plans to introduce Cherokee in Saudi Arabia, Chile and Peru with other licensees.

Robert Margolis, chairman and chief executive officer of Cherokee, commented, “As a result of the sale/termination of our Mossimo finder’s agreement last October, along with our termination of the Carrefour agreement, lower royalty revenues are to be expected until we can replace those royalty streams with new licensing agreements. In any event, we are pleased with the large cash position which resulted from the Mossimo transaction.”

Cherokee’s fourth quarter earnings more than quadrupled after Iconix Brand Group paid $33 million to terminate the Mossimo finder’s fee after Iconix bought the Mossimo brand.

Margolis noted that Cherokee expects to announce new licensing agreements both for brands it owns and those it represents.

Howard Siegel, president of Cherokee, reported that the company had record growth in its international royalty revenues during the quarter.