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Q3 revenues of $8.1 million – GAAP net income totaled $1.5 million, or $0.17 per diluted share – Acquired Flip Flop Shops, a leading franchise retail chain – New Tony Hawk License Agreement with Walmart for Canadian Market- Continued European Expansion of the Cherokee Brand
Cherokee Global Brands (NASDAQ:CHKE), a global brand marketing platform, today reported financial results for the third quarter Fiscal 2016 ended October 31, 2015.
“The agility of our business model and our global scale allow us to swiftly forge new platform partnerships around the world and successfully navigate the transitions that are inherent within our industry,” said Henry Stupp, Chief Executive Officer. “Over the long term, we believe transitioning our business away from legacy relationships will provide us the opportunity to establish new, more profitable partnerships that fully leverage the Cherokee Global Brands platform.”
Mr. Stupp, continued, “Our recent large-scale brand partnerships and acquisitions have set the stage for growth as retailers such as Walmart Canada, Sears Canada, and Argos in the UK & Ireland invest in multi-category, and in some cases, multi-brand programs with us. Our acquisition of Flip Flop Shops Stores and Everyday California promise to further accelerate our global reach and relevance with today’s consumers. The transitions in our business are teeing Cherokee Global Brands up for a very bright future.”
Third Quarter Fiscal 2016 Financial Results
GAAP revenues were $8.1 million, compared with $8.7 million in the prior-year period. Overall, the revenue decrease of $0.6 million is primarily attributable to three factors. First, zero revenues for Cherokee and Liz Lange-branded products in Canada due to Target’s Canada bankruptcy and its subsequent exit from the Canadian market. This business has been replaced with a new, direct-to-retail license agreement with Sears Canada for a comprehensive program that includes Cherokee brand adult and children’s apparel, footwear, accessories and home products and Liz Lange sportswear, maternity and plus-size clothing. Both Cherokee and Liz Lange will launch in Canada during the Spring 2016 season. Second, zero revenues from Tesco in the UK and Central Europe. The UK business has been replaced with a direct-to-retail license agreement with Argos that launched at the end of the second quarter of this year. Third, the transition of the Tony Hawk brand in Canada from a wholesale licensee to a direct-to-retail license agreement with Walmart. Again, sales and royalty revenue from Walmart will begin with the Fall 2016 season. The Company also experienced currency headwinds primarily from the Japanese Yen, South African Rand and Mexican Peso, which negatively affected revenues in the quarter by approximately $0.2 million.
In total, these factors offset revenues by nearly $0.8 million versus the prior year period. Partially offsetting this revenue decline were international revenue increases for the Cherokee brand in Asia.
Selling, general and administrative expenses were $5.6 million, or 69% of GAAP revenues, compared with $4.9 million, or 56% of GAAP revenues, in the prior year period. The $0.7 million increase in SG&A was due primarily to transaction costs associated with the acquisition of Flip Flop Shops and intellectual property protection costs from a recent legal settlement.
Operating income totaled $2.5 million or 31% of GAAP revenues which is down from $3.8 million, or 44% of GAAP revenues in the prior year period. For the first nine months of Fiscal 2016, operating income as a percent of GAAP revenue were 43% as compared to 46% in the prior year period. Costs associated with the acquisition of Flip Flop Shops and intellectual property protection costs reduced operating margins by 6% and 2% for the third quarter and year to date, respectively.
Net income totaled $1.5 million, or $0.17 per diluted share including costs associated with the acquisition of Flip Flop Shops and intellectual property protection costs, which reduced diluted earnings per share by $0.05. This compares to $2.3 million, or $0.27 per diluted share, in the prior year period. For the first nine months of Fiscal 2016, net income totaled $7.0 million, or $0.79 per diluted share including acquisition costs and intellectual property protection costs, which reduced diluted earnings per share by $0.05. This compares to $8.2 million or $0.96 per diluted share in the prior year period.
