Cherokee reported net revenues for the three months ended July 31, 2004 increased by $294,000 to $10.2 million, compared to net revenues of $9.9 million in the comparable period last year. Net income for the three months ended July 31, 2004 increased to $4.3 million, or $0.50 per diluted share, compared to $3.7 million, or $0.43 per diluted share, in the year-ago period.

Selling, general and administrative expenses for the period decreased $304,000 from the second quarter of the prior year to $3.3 million, primarily due to lower legal and marketing expenses.

Income from interest and other income increased by $330,000 to $453,000 as compared to $123,000 in the second quarter of last year, primarily due to the receipt of an additional $375,000 from Mossimo pursuant to the reimbursement of our legal fees incurred in connection with our lawsuit with Mossimo, which was settled in favor of Cherokee in the second quarter.

The Company ended the quarter with cash and equivalents of $8.3 million and no debt. Net cash provided by operations during the six months ended July 31, 2004 totaled $13.1 million.

Howard Siegel, President of Cherokee, stated: “We continue to diligently execute our highly successful retail direct licensing strategy pioneered by Cherokee nearly ten years ago. We are pleased to report that our second quarter royalty revenues increased by almost $300,000. Our established and diversified portfolio of brands allows our royalty revenue to increase even when sales of Cherokee goods at some of our retail partners decline in a particular quarter. It should be noted that these second quarter results did not include any royalty revenue from sales of Cherokee goods in Mexico or Asia or from royalties attributed to sales of the House Beautiful brand at May Company stores — all of which we expect will contribute to our revenues during our next fiscal year.”

Russell J. Riopelle, Chief Financial Officer, added: “We are pleased to report record operating results and strong cash flow during the quarter. In addition, on July 27th we declared a $0.42 per share dividend, payable in September, which represents our fourth consecutive quarterly dividend. Furthermore, we continue to focus on managing our expenses as evidenced by a year-over-year decrease of over 8% in our SG&A expenses.”

Robert Margolis, Chairman and CEO, said: “We have completed another record quarter from both an operational and financial standpoint and stand poised to meet the challenges ahead. We continue to focus on expanding our business with our existing accounts as well as pursuing additional growth opportunities to further enhance shareholder value.” 

CONSOLIDATED STATEMENTS OF OPERATIONS
                               Unaudited

                       Three months ended        Six months ended
                    ------------------------ -------------------------
                     July 31,    August 2,    July 31,     August 2,
                        2004        2003         2004         2003

Royalty revenues    $10,206,000  $9,912,000  $22,437,000  $21,969,000
Selling, general
 and administrative
 expenses             3,282,000   3,586,000    6,250,000    6,479,000
                    ------------ ----------- ------------ ------------

Operating income      6,924,000   6,326,000   16,187,000   15,490,000

Other income
 (expenses):
Interest expense         (6,000)   (187,000)     (10,000)    (429,000)
Investment and
 interest income        453,000     123,000      631,000      216,000
                    ------------ ----------- ------------ ------------

Total other income
 (expenses), net        447,000     (64,000)     621,000     (213,000)

Income before
 income taxes         7,371,000   6,262,000   16,808,000   15,277,000
Income tax
 provision            3,035,000   2,600,000    6,929,000    6,319,000
                    ------------ ----------- ------------ ------------

Net income           $4,336,000  $3,662,000   $9,879,000   $8,958,000
                    ------------ ----------- ------------ ------------

Basic earnings per
 share                    $0.50       $0.44        $1.14        $1.09
                    ------------ ----------- ------------ ------------

Diluted earnings
 per share                $0.50       $0.43        $1.13        $1.06
                    ------------ ----------- ------------ ------------

Weighted average
 shares outstanding
    Basic             8,662,044   8,251,776    8,632,990    8,242,020
                    ------------ ----------- ------------ ------------

    Diluted           8,727,255   8,477,759    8,705,613    8,443,582
                    ------------ ----------- ------------ ------------