CONSOLIDATED BALANCE SHEETS
|May 2,||January 31,|
|Cash and cash equivalents||$||9,582,000||$||13,652,000|
|Income taxes receivable||1,177,000||1,609,000|
|Prepaid expenses and other current assets||74,000||75,000|
|Deferred tax asset||582,000||795,000|
|Total current assets||19,950,000||21,606,000|
|Deferred tax asset||987,000||894,000|
Property and equipment, net of accumulated depreciation of $744,000 and $725,000, respectively
|Liabilities and Stockholders' Equity|
|Accrued compensation payable||512,000||2,902,000|
|Income taxes payable||1,877,000||734,000|
|Accrued dividends payable||4,407,000||4,407,000|
|Total current liabilities||7,523,000||8,997,000|
|Preferred stock, $.02 par value, 1,000,000 shares authorized|
None issued and outstanding
Common stock, $.02 par value, 20,000,000 shares authorized, 8,814,187, and 8,814,187 shares issued and outstanding at May 2, 2009 and at January 31, 2009, respectively
|Additional paid-in capital||15,055,000||14,875,000|
Cherokee Q1 Net Income Slides on Lower U.S. Dollar Royalties
Cherokee Inc., the global licensor and brand management company, said total royalty revenues for the first quarter ended May 2, 2009 totaled $8.9 million, as compared to $11.5 million in the comparable period last year. This result is partly due to the stronger U.S. dollar, which resulted in lower U.S. dollar based royalties from the company's international licensees.
Operating expenses for the first quarter totaled $3.1 million, as compared to $3.7 million in the comparable period last year, representing a reduction of expenses of $0.6 million due to continued expense management policies. Cherokees net income for the first quarter decreased by a total of $847,000 to $3.8 million or 43 cents per diluted share, as compared to $4.7 million, or 52 cents per diluted share in the year ago period. The year ago period included $0.5 million of audit royalties, or an estimated 3 cents per diluted share, which represented several years of past royalties due.
The company estimates that first quarter diluted EPS would have totaled approximately 50 cents per share, or 7 cents higher, had exchange rates remained constant in the first quarter as compared to the prior year. However, first quarter earnings also benefited by approximately 4 cents per diluted share from amended tax returns filed in the first quarter. Normalizing for all of these adjustments to both periods, the company estimates that first quarter diluted EPS would have been 46 cents as compared to 49 cents per share last year.
Howard Siegel, President of Cherokee, stated, “Our domestic royalty revenues for the First Quarter decreased by $0.9 million from the prior year. This was primarily attributable to the reduction of Cherokee adult business at Target and the closure of Mervyns. These declines were partially offset by our growth in the Cherokee childrens business at Target and the Carole Little brand at TJX. We continue to discuss with Target expansion opportunities with the adult business for 2010. Internationally, we experienced retail sales growth in local currencies ranging from 11% to 28% in Hungary, Poland, the Czech Republic and Slovakia with Tesco. However, in the U.K. retail sales in local currency declined by 12.7%, and as a result of the stronger dollar the exchange rate difference totaled -27.6%. Although we expect that retail revenues may continue to be soft through the rest of this year, we believe we will benefit from our growing revenue streams from our Cherokee brand in Brazil, Chile, Peru and India, coupled with the continued growth of Norma Kamali at Wal Mart. In addition, we are excited about the upcoming launch of our Cherokee brand in Spain with Eroski, which is expected to occur in the second half of 2009, and believe this could grow to be a significant contributor to our future royalty revenues.”
Robert Margolis, Chairman and CEO, added, “We believe that our business model and debt-free balance sheet serve us well given the current challenges in the retail environment worldwide. Although we are not pleased with our First Quarter revenue results, we are pleased with our prudent expense management and are very certain that our sales teams are focused on some exciting growth opportunities we hope to announce over the next 6 months.” Russell J. Riopelle, Chief Financial Officer, commented, “We finished the quarter in another strong cash position, with cash and cash equivalents of $9.6 million, trade receivables of $8.5 million, and no debt. As we previously announced, we will pay a dividend of $0.50 per share on June 18th. Unless we see a prudent and compelling acquisition opportunity or some other growth opportunity, we expect to continue a dividend policy commensurate with our earnings and excess cash availability, while we continue to monitor any proposed tax law changes which could accelerate our dividend policy. We will continue to implement and execute strategies designed to maximize value for our shareholders.”