Cherokee Global Brands Posts Q4 Loss On Hi-Tec Charges

Cherokee Global Brands reported a loss in the first quarter due to costs related to its acquisition of Hi-Tec.

CEO Comments
“2017 was a year of considerable progress for Cherokee Global Brands, marked by brand and category expansion, channel diversification and geographic growth,” said chief executive officer, Henry Stupp. “Through our organic growth initiatives and platform acquisitions, we have transformed the company into a global, diversified enterprise. Our vastly expanded product assortments, growing e-commerce business, and distribution through more than 12,000 retail locations in over 110 countries are a testament to the strength of our platform. Our platform strengths – vision, agility and scale – are proving essential to navigating today’s rapidly-changing retail landscape.”

Stupp, continued, “We are very pleased with early results from our acquisition of Hi-Tec, which is a major strategic component of our future growth strategy. We’ve executed license agreements for the core Hi-Tec, Magnum and related brands in footwear, strengthening and expanding our presence in the United States, Canada, the United Kingdom, and across continental Europe. We’re particularly encouraged by the inbound interest we’ve received among retailers seeking expanded product category offerings including apparel and accessories.”

Stupp continued, “Our spring 2017 multi-category launch for the Cherokee brand in the U.S. is underway; the first step in launching our most comprehensive assortment of Cherokee-branded adult and children apparel, accessories, footwear and home products in many years. Response among our retail partners and their customers has been very positive and we are encouraged by initial product sell-through. Across our brand portfolio, we continue to identify new partnerships that will ensure continued territory and category expansion.”

2017 Fourth Quarter & Fiscal Year Financial Results
Consolidated revenues for the quarter, including the contribution from Hi-Tec, were $15 million. On a year-over-year comparable basis, Cherokee Global Brand revenues, excluding Hi-Tec, were $7.2 million, a decrease of 8.8 percent from $7.8 million in the prior year period. The year-over-year decline is largely due to the decrease in North America revenues related to the Cherokee brand as the Company continues to transition to new wholesale licensees. During the quarter, some of the decrease was offset by global revenue increases, particularly in South America, Europe, Japan and South Africa as the demand for Cherokee-branded products continues to grow.

Hi-Tec revenues totaled $7.8 million in the fourth quarter of fiscal 2017 and included $6.6 million in indirect product sales related to distribution and government contracts, as well as $1.2 million in licensing revenues stemming from new and existing licensing deals for the Hi-Tec portfolio of brands. Gross profit from Hi-Tec indirect product sales was $1.5 million, and is inclusive of $5.1 million in cost of goods sold.

Consolidated revenues for the year, including the contribution from Hi-Tec, were $40.6 million. On a year-over-year comparable basis, Cherokee Global Brand revenues, excluding Hi-Tec, were $32.8 million, compared with $34.7 million in the prior year. Cherokee-brand royalties earned by Target in fiscal 2017 were $10.5 million, a decrease of $4.4 million over the prior year.

GAAP selling, general and administrative expenses were $18.9 million in the fourth fiscal quarter of 2017, compared to $5.9 million in the prior-year period. SG&A expenses for fiscal 2017 totaled $38.9 million, compared with $21.3 million in the prior year. The increase in SG&A for the fourth quarter and fiscal 2017 was primarily related to an increase in professional fees from legal and due diligence expenses associated with the Hi-Tec acquisition of $11.5 million and $15.3 million, respectively, and which includes restructuring and integration costs associated with the acquisition of Hi-Tec.

Non-GAAP SG&A for the fourth quarter of fiscal 2017 was $7.4 million, compared with $5.5 million, in the prior year period. Non-GAAP SG&A for fiscal 2017 was $23.7 million, compared with $20.1 million, in the prior year period.

GAAP operating loss for the fourth quarter of fiscal 2017 totaled $9 million, compared with GAAP operating income of $1.9 million in the prior-year period. GAAP operating loss for fiscal 2017 totaled $3.4 million, compared with GAAP operating income of $13.3 million in the prior year.

Non-GAAP operating income for the fourth quarter of fiscal 2017 was $2.5 million, or 16.5 percent of revenues, compared with $2.3 million, or 29.9 percent of revenues, in the prior year period.

Adjusted EBITDA for the fourth quarter of fiscal 2017 was $2.9 million, compared to $2.7 million in the prior year period. Adjusted EBITDA for fiscal 2017 was $13.4 million, compared to $15.9 million in the in the prior year.

Source Hi-Tec Sports