Cherokee Global Brands (Nasdaq: CHKE), a global brand marketing
platform that manages a growing portfolio of lifestyle brands that
it owns, brands that it creates and brands that it elevates for
others, today reported financial results for its first quarter of
Fiscal 2020, which ended May 4, 2019.
Chief Executive Officer Henry Stupp commented, "We have entered
a new chapter in our operational model that is highlighted by
reducing corporate spend, improving our bottom-line performance and
driving revenue growth through our expanded brand portfolio and
service model. However, European revenue during the first quarter
was negatively impacted by the economic uncertainty surrounding
Brexit. Organic revenue in the quarter grew 9%, excluding
discontinued licenses and divestitures, and adjusted EBITDA grew
14%."
Mr. Stupp continued, "We believe that the strength of the
combination of our unique platform of capabilities and our
portfolio of brands will translate into growth, stability,
profitability and industry relevance well into the future."
Towards the end of June 2019, Cherokee Global Brands will
officially rebrand to Apex Global Brands to appropriately reflect
the Company’s expanded brand portfolio and design services. The
Company’s Nasdaq ticker symbol will be changed to APEX at this
time.
Revenues Revenues were $5.1 million in the
first quarter, a decrease of 6% from $5.4 million in the prior
year. The year-over-year decline largely reflects the non-renewal
of the Company’s Cherokee license in South Africa at the end of
Fiscal 2019, the sale of Flip Flop Shops in June 2018 and the
impact of the economic uncertainty related to Brexit affecting
several of the Company’s European licensees. Decreases in revenues
were partially offset by revenues from the Company’s new design
services agreement in China.
The Company believes that its domestic licensees are taking
proactive steps to offset the potential impact of higher tariffs on
apparel and footwear, including moving production to countries not
subject to higher tariffs and negotiating lower costs with existing
suppliers. Nonetheless, if these higher tariffs are enacted, the
result may be a rise in consumer prices that could lead to slower
retail sales, which in turn would result in lower royalty revenue
for the Company in future quarters.
Operating and Non-operating ExpensesSelling,
general and administrative expenses, which comprise the Company’s
normal operating expenses, were $3.9 million, compared
to $4.4 million in the first quarter of the prior year.
The $0.5 million, or 12%, year-over-year decrease reflects the
positive impact of the Company’s restructuring efforts, which have
resulted in reduced spending for payroll and general operating
costs.
The Company’s other operating expenses, including stock-based
compensation, non-recurring costs and depreciation and
amortization, were $0.6 million, compared to $1.2 million in the
first quarter of the prior year. Interest expense increased in
comparison to the first quarter of the prior year as a result of
higher debt levels.
Profitability MeasuresOperating income was $0.6
million for the first quarter compared to an operating loss of $0.2
million in the first quarter 2019. Net loss was $2.3 million in the
first quarter of Fiscal 2020, or a loss of $0.15 per diluted share,
compared to a net loss of $2.7 million, or a loss of $0.20 per
diluted share, in the first quarter of the prior year.
Adjusted EBITDA increased to $1.2 million for the first quarter,
compared to $1.0 million in the prior year. This improvement was
due to the year-over-year decline in selling, general and
administrative expenses along with the organic growth of existing
licensees and design services.
Balance SheetAt May 4, 2019, the Company had
cash and cash equivalents of $1.7 million, compared to $2.5 million
at May 5, 2018. Outstanding borrowings under the Company’s term
loans were $44.8 million, including $1.4 million reflected as a
current obligation.
Fiscal 2020 Outlook The Company is updating its
guidance for the remainder of its fiscal year ending February 1,
2020 to account for the potential continued negative impact on its
licensees’ revenues due to economic uncertainty surrounding Brexit
and potential tariff rate increases on domestic apparel and
footwear. The Company has also taken steps to further reduce its
selling, general and administrative expenses.
- Full year revenues are now anticipated to be in the range of
$24.5 million to $26.5 million, an increase of up to 8% year over
year;
- Selling, general and administrative expenses are now
anticipated to be in the range of $14.0 million to $15.0
million;
- Adjusted EBITDA is now expected to be in the range of $10.5
million to $11.5 million, an increase of 7% to 17% year over
year.
Subsequent EventsOn June 6, 2019, Cherokee
Global Brands filed an appeal with the Nasdaq Hearings Panel to
remain listed on the Nasdaq Capital Market. This appeal stays the
delisting of the Company’s securities pending the Hearings Panel's
decision. In addition, on June 10, 2019, Cherokee’s shareholders
authorized the Company’s Board of Directors to enact a reverse
stock split if necessary to remain in compliance with Nasdaq’s
$1.00 minimum bid price rule, consistent with Nasdaq’s listing
standards. If Cherokee’s stock trades over the minimum bid price in
the coming months, then it may not be necessary to enact a reverse
stock split. Additional details regarding these requirements are
included in the Company’s Form 10-Q, which was filed with the
Securities and Exchange Commission today.
Conference CallThe Company will host a
conference call today at 1:30 p.m. PT / 4:30 p.m. ET. To
participate in the call, please dial (877) 407-0784 (U.S.) or (201)
689-8560 (international). The earnings call will also be broadcast
over the Internet and can be accessed on the Investor Relations
section of the Cherokee's website at
http://www.cherokeeglobalbrands.com. For those unable to
participate during the live broadcast, a replay will be available
through Tuesday, July 2, 2019, at 8:59 p.m. PT / 11:59 p.m. ET. To
access the replay, dial (844) 512-2921 (U.S.) or (412) 317-6671
(international) and use conference ID: 13690995.
About Cherokee Global Brands Cherokee
Global Brands is a global brand ownership and marketing
organization that manages, creates and elevates a growing portfolio
of high-equity fashion lifestyle and sports lifestyle brands. The
brand portfolio spans multiple consumer product categories and
retail tiers around the world and includes Hi-Tec®, Magnum®, 50
Peaks®, Interceptor®, Cherokee®, Tony Hawk®, Liz Lange®, Point
Cove®, Everyday California® & Sideout®. The Company currently
maintains license agreements with leading retailers and
manufacturers that span over 110 countries in 12,000 retail
locations and digital commerce.
Forward Looking StatementsThis news release may
contain forward-looking statements regarding future events and the
future performance of Cherokee Global Brands. Forward-looking
statements in this press release include, without limitation,
express or implied statements regarding: the company’s forecasted
operating results for Fiscal Year 2020, including impacts from
potential tariffs and Brexit; the company’s expectations regarding
its new and existing license agreements and the performance of its
licensees thereunder; the company’s ability to sustain necessary
liquidity and grow its business; and anticipated market
developments and opportunities. A forward-looking statement is
neither a prediction nor a guarantee of future events or
circumstances and is based on currently available market,
operating, financial and competitive information and assumptions.
Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those expected
or projected, including, among others, risks that: the company and
its partners will not achieve the results anticipated in the
statements made in this release; global economic conditions and the
financial condition of the apparel and retail industry and/or
adverse changes in licensee or consumer acceptance of products
bearing the company’s brands may lead to reduced royalties; the
ability and/or commitment of the company’s licensees to design,
manufacture and market Cherokee®, Hi-Tec®, Magnum®, 50 Peaks®,
Interceptor®, Carole Little®, Tony Hawk® and Hawk Brands®, Liz
Lange®, Everyday California® and Sideout® branded products could
cause our results to differ from our anticipations; the company’s
dependence on a select group of licensees for most of the company’s
revenues makes us susceptible to changes in those organizations;
our level of indebtedness and restrictions under our indebtedness;
and the company’s dependence on its key management personnel could
leave us exposed to disruption on any termination of service. A
more detailed discussion of such risks and uncertainties are
described in the company’s annual report on Form 10-K filed on
April 23, 2019, its periodic reports on Forms 10-Q and 8-K, and
subsequent filings with the SEC the company makes from time to
time. Except as required by law, the company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
The company’s guidance is based on current plans and
expectations and is subject to a number of known and unknown
uncertainties and risks, including those set forth under the
company’s safe harbor statement. This forecast is made as of the
date of this release, and the company undertakes no obligation to
update or amend this guidance whether as a result of new
information, future events or otherwise.
Note Regarding Use of Non-GAAP Financial
Measures Certain of the information set forth herein,
including Adjusted EBITDA, may be considered non-GAAP financial
measures. Cherokee believes this information is useful to investors
as a measure of profitability, because it helps them compare our
performance on a consistent basis by removing from our operating
results the impact of our capital structure, the effect of
operating in different tax jurisdictions, the impact of our asset
base, which can differ depending on the book value of assets and
the accounting methods used to compute depreciation and
amortization, and the cost of acquiring or disposing of businesses
and restructuring our operations. In addition, the company’s
management uses these non-GAAP financial measures along with the
most directly comparable GAAP financial measures in evaluating the
company’s operating performance and cash flow. Non-GAAP financial
measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with
GAAP, and non-GAAP financial measures as reported by the company
may not be comparable to similarly titled amounts reported by other
companies. A reconciliation of net loss from continuing operations
as reported in our consolidated statements of operations is
reconciled to Adjusted EBITDA in tabular form later in this release
under the heading "Reconciliation of GAAP to Non-GAAP Financial
Data".
Investor Contact:Cherokee Global BrandsSteve Brink,
CFO818-908-9868
Addo Investor RelationsKimberly Esterkin/Patricia
Nir310-829-5400
CHEROKEE INC.CONSOLIDATED BALANCE
SHEETS (UNAUDITED)(In thousands,
except share and per share amounts)
|
|
May 4,2019 |
|
|
February 2,2019 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,656 |
|
|
$ |
4,284 |
|
Accounts receivable, net |
|
|
4,121 |
|
|
|
4,363 |
|
Other receivables |
|
|
293 |
|
|
|
339 |
|
Prepaid expenses and other current assets |
|
|
568 |
|
|
|
857 |
|
Total current assets |
|
|
6,638 |
|
|
|
9,843 |
|
Property and equipment,
net |
|
|
539 |
|
|
|
620 |
|
Intangible assets, net |
|
|
64,614 |
|
|
|
64,751 |
|
Goodwill |
|
|
16,252 |
|
|
|
16,252 |
|
Accrued revenue and other
assets |
|
|
6,281 |
|
|
|
1,645 |
|
Total assets |
|
$ |
94,324 |
|
|
$ |
93,111 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,197 |
|
|
$ |
3,120 |
|
Other current liabilities |
|
|
4,312 |
|
|
|
4,714 |
|
Current portion of long-term debt |
|
|
1,400 |
|
|
|
1,300 |
|
Deferred revenue—current |
|
|
1,687 |
|
|
|
1,626 |
|
Total current liabilities |
|
|
9,596 |
|
|
|
10,760 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
53,350 |
|
|
|
53,154 |
|
Deferred income taxes |
|
|
12,442 |
|
|
|
12,055 |
|
Other liabilities |
|
|
6,000 |
|
|
|
2,807 |
|
Total liabilities |
|
|
81,388 |
|
|
|
78,776 |
|
Commitments and
Contingencies |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.02 par value, 1,000,000 shares authorized, none
issued |
|
|
— |
|
|
|
— |
|
Common stock, $.02 par value, 20,000,000 shares authorized, shares
issued 15,945,953 (May 4, 2019) and 14,700,953 (February 2,
2019) |
|
|
319 |
|
|
|
294 |
|
Additional paid-in capital |
|
|
77,467 |
|
|
|
76,633 |
|
Accumulated deficit |
|
|
(64,850 |
) |
|
|
(62,592 |
) |
Total stockholders’
equity |
|
|
12,936 |
|
|
|
14,335 |
|
Total liabilities and
stockholders’ equity |
|
$ |
94,324 |
|
|
$ |
93,111 |
|
|
|
|
|
|
|
|
|
|
CHEROKEE INC.CONSOLIDATED STATEMENTS
OF OPERATIONS(UNAUDITED)(In
thousands, except per share amounts)
|
|
Three Months Ended |
|
|
|
May 4,2019 |
|
|
May 5,2018 |
|
Revenues |
|
$ |
5,052 |
|
|
$ |
5,402 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
3,855 |
|
|
|
4,356 |
|
Stock-based compensation and stock warrant charges |
|
|
208 |
|
|
|
300 |
|
Business acquisition and integration costs |
|
|
66 |
|
|
|
307 |
|
Restructuring charges |
|
|
42 |
|
|
|
— |
|
Depreciation and amortization |
|
|
257 |
|
|
|
601 |
|
Total operating expenses |
|
|
4,428 |
|
|
|
5,564 |
|
Operating income (loss) |
|
|
624 |
|
|
|
(162 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,245 |
) |
|
|
(1,737 |
) |
Other income (expense), net |
|
|
1 |
|
|
|
(4 |
) |
Total other expense, net |
|
|
(2,244 |
) |
|
|
(1,741 |
) |
Loss before income taxes |
|
|
(1,620 |
) |
|
|
(1,903 |
) |
Provision for income
taxes |
|
|
638 |
|
|
|
838 |
|
Net loss |
|
$ |
(2,258 |
) |
|
$ |
(2,741 |
) |
Net loss per share: |
|
|
|
|
|
|
|
|
Basic loss per share |
|
$ |
(0.15 |
) |
|
$ |
(0.20 |
) |
Diluted loss per share |
|
$ |
(0.15 |
) |
|
$ |
(0.20 |
) |
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
15,385 |
|
|
|
13,997 |
|
Diluted |
|
|
15,385 |
|
|
|
13,997 |
|
|
|
|
|
|
|
|
|
|
CHEROKEE INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL DATA
(In thousands)
We define Adjusted EBITDA as net income before (i)
interest expense, (ii) Other income (expense), net, (iii) provision
for income taxes, (iv) depreciation and amortization, (v) gain on
sale of assets, (vi) intangible asset impairment charge, (vii)
restructuring charges, (viii) business acquisition and integration
costs and (ix) stock-based compensation and stock warrant charges.
Adjusted EBITDA is not defined under generally accepted accounting
principles (“GAAP”), and it may not be comparable to similarly
titled measures reported by other companies. We use Adjusted
EBITDA, along with GAAP measures, as a measure of profitability,
because Adjusted EBITDA helps us compare our performance on a
consistent basis by removing from our operating results the impact
of our capital structure, the effect of operating in different tax
jurisdictions, the impact of our asset base, which can differ
depending on the book value of assets and the accounting methods
used to compute depreciation and amortization, and the cost of
acquiring or disposing of businesses and restructuring our
operations. We believe it is useful to investors for the same
reasons. Adjusted EBITDA has limitations as a profitability measure
in that it does not include the interest expense on our long-term
debt, non-operating income or expense items, our provision for
income taxes, the effect of our expenditures for capital assets and
certain intangible assets, or the costs of acquiring or disposing
of businesses and restructuring our operations, or our non-cash
charges for stock-based compensation and stock warrants. A
reconciliation from net loss from continuing operations as reported
in our consolidated statement of operations to Adjusted EBITDA is
as follows:
|
|
Three Months Ended |
|
(In
thousands) |
|
May 4, 2019 |
|
|
May 5, 2018 |
|
Net loss |
|
$ |
(2,258 |
) |
|
$ |
(2,741 |
) |
Provision for income
taxes |
|
|
638 |
|
|
|
838 |
|
Interest expense |
|
|
2,245 |
|
|
|
1,737 |
|
Other (income) expense,
net |
|
|
(1 |
) |
|
|
4 |
|
Depreciation and
amortization |
|
|
257 |
|
|
|
601 |
|
Restructuring charges |
|
|
42 |
|
|
|
— |
|
Business acquisition and
integration costs |
|
|
66 |
|
|
|
307 |
|
Stock-based compensation |
|
|
208 |
|
|
|
300 |
|
Adjusted EBITDA |
|
$ |
1,197 |
|
|
$ |
1,046 |
|
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