Cherokee’s net loss narrowed to $2.7 million in Q1 ended May 5 from $3.2 million despite revenue falling 20.5% to $5.4.

The downturn in revenue was tied to the non-renewal of several licensing agreements including those with Target (Cherokee) and Kohl’s (Tony Hawk). At the same time, revenue from Cherokee’s newer brands – Hi-Tec, Magnum and Interceptor – rose 58% to $2.58 million, Brink said. Cherokee also recorded $1.8 million in proceeds from the $3.1 million sale of Hi-Tec’s distribution business in Latin America, the Middle East, Russia and Asia Pacific to International Brands Group.

Revenue from the Cherokee brand declined 25% in Q1 to $2.1 million, while those from Tony Hawk fell to $181,000 from $1.2 million a year ago due largely to the ending of a DTR with Kohl’s. Revenue from the Liz Lange brand dropped to $14,000 from $506,000 a year earlier when a DTR with Target was still in place.

“The rebuilding effort has been slow and the transition from the strong legacy partner coupled with the unprecedented disruption in the U.S. retail is indeed difficult,” CEO Henry Stupp said told analysts.

Nevertheless, Cherokee is projecting a double-digit percentage sales increase for the second half of fiscal 2019 ending in October as “our licensees and new retail partners remain committed,” Stupp said.

Among the new retailers is the German grocery chain Lidl, which will carry Cherokee brand apparel across its stores in Western Europe and Scandinavia (Inside Licensing April 26). Cherokee will record royalty revenue from the Lidl agreement in Q2 ending in August, Stupp said. It also signed a pan-European pact with the Tharanco Group for Tony Hawk. Tharanco also is a licensee for the Hi-Tec brand in Europe.

Cherokee’s revenue from the European market rose 9.2% to $1.89 million, while those from the U.S. and Canada declined 45.4% to $1.8 million. In Asia, revenue declined 39.5% to $665,000.

Meanwhile, Cherokee has cut jobs and spent less on professional fees as part of  a restructuring program that comes as the company moves to regain compliance with its credit agreement, company executives told analysts.

Cherokee is in discussions with Cerberus Business Finance after violating a covenant governing a $5 million credit facility that requires it have $2 million in liquidity. Without a forbearance agreement with Cerberus, Cherokee faces “significant liquidity challenges,” CFO Steve Brink said. Cherokee expects to reach an agreement with Cerberus, Brink said. The restructuring is expected to lower annual selling, general and administrative expenses by 33%, Stupp said.

As part of the restructuring, Cherokee agreed to sell its Flip Flop Shops retail chain to Bearclaw Holdings and is using the proceeds to pay down long-term debt, which stood at $45.9 million as of May 5.

Contact:

Cherokee, Henry Stupp, CEO,  818-908-9868 x200, henrys@cherokeeusa.com