By Eric Smith
Cherokee Global Brands ended fiscal 2018 with a loss due to difficulties with the integration of the Hi-Tech brand into the company’s portfolio. And now the start to fiscal 2019 is being marred by the sale of Flip Flop Shops, which occurred June 5, in the first month of the second quarter, but did impact guidance for the remainder of the year.
“[The] last 24 months have been disruptive as we navigated the acquisition and integration of the complex international business, as well as the broader retail environment that was very much in the state of the transition,” Cherokee CEO Henry Stupp said on Thursday afternoon’s earnings conference call.
Cherokee Global Brands reported a loss for the first quarter ended May 5 of $2.7 million, or 20 cents per share, missing analysts’ consensus estimates by 11 cents per share. The company’s revenue of $5.4 million beat estimates by $0.2 million.
For all the headwinds Cherokee faces, the company remains upbeat about prospects in the rest of the year with cost reductions completed and a cleaner, more balanced portfolio.
“We are pleased with the progress made during our first quarter of fiscal 2019 as we continue to streamline our operations and reduce our operating expenses,” Stupp said. “With the sale of Flip Flop Shops complete, we look forward to leveraging our more focused platform to drive profitable growth within our existing brand portfolio and partners while building awareness and traction among new partners.”
Cherokee Global Brands announced the sale of Flip Flop Shops to Bearpaw Holdings LLC earlier this month. Initially franchising in 2008, Flip Flop Shops consists of 59 retail locations globally with plans to continue expanding before the end of the year. Cherokee bought the company in 2015
The company on Wednesday updated guidance for the fiscal year ending February 2, 2019, to account for cost reduction efforts, the sale of Flip Flop Shops and the corresponding loss of revenues.
- Revenues are anticipated to be in the range of $25 to $27 million
- Adjusted EBITDA is expected to remain in the range of $8 to $10 million
- SG&A run rate is now expected to approximate $17 million, a reduction of $8.4 million from fiscal 2018
“We enter fiscal 2019 with a business that is more balanced and diverse across geographies, licenses, channels, retail and wholesale partners and product categories,” Stupp said. “We are marrying this increased diversification with an intense focus on profitable growth.”
The company is banking on e-commerce and “more interest from prospective retailers” as drivers for growth this year, Stupp said.
Cherokee also remains confident in the Tony Hawk brand, which the company transitioned from a direct-to-retail legacy partner in the U.S. to a new wholesale model.
“While this transition is reflected in our fiscal 2019 forecast, our U.S. distribution is building a demand for the Hawk product brand,” Stupp said. “Tony’s profile continues to build as you grow this commercial partnership, such as its recent announcement with Chase Bank. These efforts and Tony’s direct participation in our brand building and retailer outreach will allow us to penetrate a wider audience as renewed interest in the state culture continues to grow.”
Cherokee is a global brand marketing platform that manages a portfolio of fashion and lifestyle brands including Cherokee, Carole Little, Tony Hawk Signature Apparel and Hawk Brands, Liz Lange, Everyday California, Sideout, Hi-Tec, Magnum, 50 Peaks and Interceptor, across multiple consumer product categories and retail tiers around the world.
The company currently maintains license agreements with leading retailers and manufacturers that span approximately 80 countries and approximately 20,000 retail doors plus e-commerce.
Photo courtesy Cherokee Global Brands