Cherokee Global Brands reported a loss of $2.5 million, or 18 cents a share, in the third quarter and reduced its guidance for the year.

Highlights for the period ended October 28 include:

  • Consolidated revenues of $11 million; royalty revenues of $7.9 million
  • GAAP net loss of $2.5 million; non-GAAP net loss of $740,000
  • GAAP EPS of (18 cents); non-GAAP EPS of (5 cents)  
  • Adjusted EBITDA of $928,000
  • Initiated guidance for fiscal year ending February 2, 2019

“We’re pleased to share meaningful progress across key business and financial objectives, including the successful amendment of our existing loan agreement with Cerberus,” commented Henry Stupp, chief executive officer. “Our amended agreement with Cerberus is a significant, positive development, to position us for profitable future growth.” 

“In addition, we’ve taken actions to strengthen our financial and accounting capabilities and team leadership,” added Stupp. “In collaboration with this team, we are working to ensure the timely filing of future quarterly reports as well as identify opportunities to enhance our operating and financial performance, with a particular emphasis on reducing expenses and growing cash flow.”

Stupp continued, “With the financial and operational integration of Hi-Tec behind us, we look forward to advancing our strategic vision for Cherokee Global Brands. In addition to servicing new and existing licensees, we’ve executed several new license agreements to expand the reach of our brands into new markets and categories.  Most notably, we’re pleased to announce a pan European license agreement of the Cherokee brand in over 15,000 locations and 29 countries beginning early Fall 2018.  Our new license agreements are expected to generate meaningful new royalty streams beginning fiscal 2019.”

Fiscal 2018 Third Quarter Financial Results 

Consolidated GAAP revenues in the quarter were $11 million, which are comprised of royalty revenues and indirect product sales. Royalty revenues were $7.9 million compared with $6.5 million in the prior-year period.

For the nine-month period of fiscal 2018, GAAP consolidated revenues were $36.1 million, which are comprised of royalty revenues and indirect product sales. Royalty revenues were $22.7 million compared with $25.6 million in the prior-year period.

GAAP selling, general and administrative expenses for the third quarter were $10.4 million, compared to $7.7 million in the prior-year period. GAAP SG&A for the third quarter of fiscal 2018 was inclusive of $2.2 million in operating expenses related to the integration of the Hi-Tec acquisition. For the nine-month period, GAAP SG&A totaled $30.7 million compared to $20 million in the prior-year period.

Non-GAAP SG&A for the third quarter, which excludes the aforementioned Hi-Tec integration and certain accounting, legal and professional fees totaled $8.2 million. This compares to $5.3 million in the prior-year period. For the nine-month period, non-GAAP SG&A totaled $24.5 million compared to $16.2 million in the prior-year period.

GAAP operating loss for the third quarter totaled $1.7 million, compared with $1.2 million in the prior-year period. GAAP operating loss for the nine-month period totaled $4.7 million compared with GAAP operating income of $5.6 million in the prior-year period.

Non-GAAP operating income for the third quarter was $541 thousand, compared with $1.2 million in the prior-year period. Non-GAAP operating income for the nine-month period of fiscal 2018 totaled $1.4 million compared with $9.4 million in the prior-year period.

GAAP net loss for the third quarter was $2.5 million, or 18 cents per diluted share, compared to GAAP net loss of $873 thousand, or 10 cents per diluted share, in the prior-year period. For the nine-month period, GAAP net loss was $10.4 million, or 79 cents per diluted share, compared to GAAP net income of $3.2 million, or 37 cents per diluted share in the prior-year period.

Non-GAAP net loss for the third quarter was $740,000, or 5 cents per diluted share, compared to Non-GAAP net income of nearly $700,000, or 8 cents per diluted share, in the prior-year period.  For the nine-month period, non-GAAP net loss totaled $2.2 million, or 17 cents per diluted share. This compares to non-GAAP net income of $5.6 million, or 64 cents per diluted share, in the prior-year period.

Adjusted EBITDA for the third quarter was $928,000, compared to $1.6 million in the prior-year period. For the nine-month period, the company reported an adjusted EBITDA of $2.8 million, compared to Adjusted EBITDA of $10.5 million in the prior-year period.

At October 28, 2017, the company had cash and cash equivalents of $4.6 million.

Fiscal 2018 Outlook

The company is adjusting its previously issued guidance for the fiscal year 2018 ending February 3, 2018 as follows:

  • Gross profit is expected to be in the range of $36-38 million.
  • Adjusted EBITDA is expected to be in the range of $7-9 million.

Previously, the company expected gross profit for the full fiscal year to be in the range of $39 million to $41 million. Adjusted EBITDA for the full fiscal year was anticipated to be in the range of $10 million to $12 million.

Fiscal 2019 Outlook

Cherokee Global Brands is providing guidance for the fiscal 2019 year ending February 2, 2019 as follows:

  • Gross profit is anticipated to be in the range of $33 million to $37 million.
  • Adjusted EBITDA is anticipated to be in the range of $7 million to $9 million.

Cherokee’s brands include iCherokee, Carole Little, Tony Hawk Signature Apparel and Hawk Brands, Liz Lange, Everyday California, Sideout, Hi-Tec, Magnum, 50 Peaks, Interceptor and Flip Flop Shops.