Cherokee Global Brands, which recently acquired the Flip Flop Shops chain, reported a slight decline in earnings in the second quarter as sales for its Cherokee brand were hurt by the transition of the brand out of the Target chain.

“As we advance through fiscal 2017, we are pleased with our ability to further build our brand platform and diversify our global business,” noted Henry Stupp, chief executive officer. “In July, we launched the Tony Hawk Signature Collection in over 400 Walmart Canada stores with an exciting, large scale event at Toronto’s Yonge-Dundas Square hosted by Tony Hawk and a team of professional skateboarders. We also debuted the Cherokee brand in Ahold’s 80 Albert stores in the Czech Republic, building upon our strong consumer brand awareness in the region. We continue to make meaningful progress with the Cherokee brand in the U.S., signing another licensee partner for home decor, further setting the stage for an exciting, multi-category launch in the spring of 2017.”

Second Quarter And Six Month Fiscal 2017 Financial Results
Revenues of $8.5 million were flat with the prior-year period. During the quarter, increased revenues for the Cherokee brand in South America, India, Middle East, South Africa and Asia were offset by an expected decrease in North American royalty revenues as the company transitions the brand from Target to its new wholesale licensing partners. The company also recognized approximately $443,000 of revenues related to Flip Flop Shops. For the first six months of fiscal 2017, revenues increased 2 percent to $19.2 million from $18.7 million in the prior-year period.

GAAP selling, general and administrative expenses were $5.9 million, or 70 percent of revenues, compared to $5.3 million, or 63 percent of revenues, in the prior-year period. The increase in SG&A was primarily related to an increase in professional fees from legal and due diligence expenses for potential acquisitions. SG&A expenses for the six-month period ended July 30, 2016, totaled $12.4 million, compared with $9.8 million in the prior-year period. Non-GAAP SG&A for the second quarter of fiscal 2017 was $5.3 million, or 63 percent of revenues, consistent with the prior yea’s $5.2 million, or 61 percent of revenues. Non-GAAP SG&A excludes the professional fees from legal and due diligence expenses for potential acquisitions.

Operating income totaled $2.5 million on GAAP basis, or 30 percent of revenues, compared to $3.1 million, or 37 percent of revenues, in the prior-year period. Operating income for the six-month period totaled $6.8 million, or 36 percent of revenues, compared with $8.9 million, or 48 percent of revenues in the prior year period. Non-GAAP operating income for the second quarter of fiscal 2017 was $3.2 million, or 37 percent of revenues, consistent with $3.3 million, or 39 percent of revenues, in the prior-year period. Non-GAAP operating income excludes the professional fees from legal and due diligence expenses for potential acquisitions.

GAAP net income totaled $1.5 million, or 17 cents per diluted share, compared to $1.9 million, or 22 cents per diluted share, in the prior-year period. For the six-month period, GAAP net income totaled $4.1 million, or 47 cents per diluted share. This compares to $5.5 million, or 62 cents per diluted share, in the prior-year period.

Non-GAAP net income for the second quarter of fiscal 2017 totaled $1.9 million, or 22 cents per diluted share. This compares to $2.0 million, or 23 cents per diluted share, in the prior-year period. For the six-month period, non-GAAP net income totaled $4.9 million, or 56 cents per diluted share. This compares to $5.6 million, or 63 cents per diluted share, in the prior-year period. Non-GAAP net income excludes the professional fees from legal and due diligence expenses for potential acquisitions.

At July 30, 2016, the company had cash and cash equivalents of $6.6 million, compared to $6.5 million at January 30, 2016. Net debt totaled $12.7 million and the company’s leverage ratio was 1.5. During the second quarter of fiscal 2017, the company repurchased approximately 60,000 common shares at an average price of $12.24, for a total return to stockholders of approximately $735,000.

The company’s brands include Cherokee, Carole Little, Tony Hawk Signature Apparel and Accessories, Liz Lange, Everyday California, Sideout and Flip Flop Shops,