Cherokee Fiscal ’03 Profits Rise 7.4% on 8.0% Sales Gain

Cherokee Inc. reported net revenues for the fourth quarter of fiscal 2003 rose 12.3% to $7.1 million, compared to revenues of $6.3 million in the fourth quarter of fiscal 2002. For the full year ended February 1, 2003, net revenues rose 8.0% to $33.1 million, compared to $30.7 million last year.

Net income for the fourth quarter increased to $2.6 million or $0.30 per diluted share, compared with $2.3 million or $0.28 per diluted share, in last year’s fourth quarter. Net income for the full year ended February 1, 2003 increased to $13.0 million or $1.54 per diluted share, compared to $12.1 million or $1.46 per diluted share last year.

Robert Margolis, Chairman and CEO stated, “We are pleased to report our seventh consecutive year of increased revenue and income. The Cherokee brand continues to gain strength worldwide as a result of the successful launch of Cherokee branded products at Tesco and our ongoing relationships with Target, Zellers and Carrefour. We also experienced growth with our Sideout brand, acquired the Carole Little and Chorus Line brands, and made further progress with the brands we represent. Overall, fiscal 2003 was another solid year for the Company.”

Selling, general and administrative expenses for the fourth quarter were $2.3 million or 32.1% of revenue, compared to $2.1 million or 33.1% of revenue for the same period last year. The quarterly improvement in selling, general and administrative expenses as a percent of revenue was due to an arbitration panel’s decision that the Company is entitled to recover its legal expenses incurred as a result of its arbitration with Mossimo. Selling, general and administrative expenses for the full year ended February 1, 2003 were $10.1 million or 30.6% of sales, compared to $9.1 million or 29.8% of revenue last year largely due to higher payroll and travel costs attributable to increased business activities overseas.

“We believe the Company had another exceptional year as we expanded our business in the international marketplace, as well as continued to penetrate the domestic market,” commented Howard Siegel, President. “We are excited about the retail direct licensing agreement with TJX Companies for the Carole Little brand, the Gilricho master license for the Chorus Line, All that Jazz and Molly Malloy brands and the recently announced agreement with Marshall Field’s for the Sideout brand. Our goal is to remain active in seeking additional opportunities to leverage our unique business model.”

Commenting on the financial results, Kyle Wescoat, Chief Financial Officer stated, “We continued to improve our balance sheet during the year by paying down an additional $10.5 million in long term debt. We expect to have fully repaid our secured notes by early next year. Our stockholders equity continued to grow, reaching $11.8 million by year-end. Our cash balance at year-end was $5.5 million. When operating effectively, a characteristic of our business model is powerful cash generation. We will continue to explore any strategic opportunities we believe will enhance shareholder value over the longer term.”

CHEROKEE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

                        Three months ended      Twelve months ended
                     ----------------------- -------------------------
                     February 1, February 2,  February 1,  February 2,
                     ----------- ----------- ------------ ------------
                        2003        2002         2003         2002
                     ----------- ----------- ------------ ------------

Royalty revenues     $7,063,000  $6,290,000  $33,143,000  $30,674,000

Selling, general and
 administrative
 expenses             2,269,000   2,083,000   10,152,000    9,133,000
                     ----------- ----------- ------------ ------------
Operating income      4,794,000   4,207,000   22,991,000   21,541,000

Other income
(expense):
Interest expense       (245,000)   (377,000)  (1,131,000)  (1,754,000)
Investment and
 interest income        130,000      43,000      245,000      292,000
                     ----------- ----------- ------------ ------------
Total other expenses,
 net                   (115,000)   (334,000)    (886,000)  (1,462,000)

Income before income
 taxes                4,679,000   3,873,000   22,105,000   20,079,000

Income tax provision  2,117,000   1,529,000    9,087,000    8,020,000
                     ----------- ----------- ------------ ------------
Net income           $2,562,000  $2,344,000  $13,018,000  $12,059,000