First Quarter Highlights:
Cherokee Global Brands (NASDAQ:CHKE), a global brand marketing
platform that manages a growing portfolio of fashion and lifestyle
brands, today reported financial results for its first fiscal
quarter ended May 5, 2018.
Non-GAAP Financial MeasuresThis press release
includes non-GAAP financial measures as that term is defined in
Regulation G. Reconciliations of amounts on a GAAP basis to
amounts on a non-GAAP basis are presented in tabular form later in
this release under the heading “Reconciliation of GAAP to Non-GAAP
Financial Data.”
CEO Commentary “We are pleased with the
progress made during our first quarter of fiscal 2019 as we
continue to streamline our operations and reduce our operating
expenses,” said Henry Stupp, chief executive officer. “With the
sale of Flip Flop Shops complete, we look forward to leveraging our
more focused platform to drive profitable growth within our
existing brand portfolio and partners while building awareness and
traction among new partners.”
“With this in mind, we are pleased to report that momentum with
our Hi-Tec portfolio continues to accelerate – with licensed
revenues increasing 58% year-over-year,” added Stupp. “It is
increasingly apparent that our strategy to globalize Hi-Tec beyond
footwear into a full family, lifestyle brand is proving
successful.”
Mr. Stupp concluded, “We continue to take actions to resolve our
liquidity challenges, and we’re optimistic that our efforts to
resolve the noncompliance with our existing credit agreement will
result in an acceptable outcome.”
Operating ExpensesSelling, general and
administrative expenses, which comprise the Company’s normal
operating expenses, were $4.4 million, compared to $6.0
million in the first quarter of the prior year. The $1.6
million, or 27% year-over-year decrease, is due to reduced spending
for personnel along with lower professional fees and other
operating expenses following the completion of the Hi-Tec
consolidation.
In addition, the Company is undergoing additional restructuring
efforts that will support the long-term health and profitability of
the organization. The restructuring includes headcount reductions
and lower operating expenses as the Company implements a more
streamlined management structure.
Profitability MeasuresThe Company’s operating
loss was $0.2 million as compared to a loss of $2.3 million in the
first quarter of the prior year. Net loss was $2.7 million,
or $0.20 per share on a diluted basis, as compared to a net
loss in the prior year period of $3.3 million, or $0.25 per
share on a diluted basis. Adjusted EBITDA increased 20% to
$1.0 million compared to $0.9 million in the first quarter of the
prior year. This improvement was due to the decrease in
selling, general and administrative expenses versus the first
quarter of the prior year.
Balance SheetAt May 5, 2018, the Company had
cash and cash equivalents of $2.5 million and $49.1 million of
borrowings outstanding under its credit agreement.
Fiscal 2019 Outlook The Company is updating its
guidance for the fiscal year ending February 2, 2019, to
account for cost reduction efforts, the sale of Flip Flop Shops and
the corresponding loss of revenues.
- Revenues are anticipated to be in the range of $25.0 to $27.0
million
- Adjusted EBITDA is expected to remain in the range of $8.0 to
$10.0 million
- SG&A run rate is now expected to approximate $17.0 million,
a reduction of $8.4 million from fiscal 2018
Going Concern The Company continues to face
liquidity challenges with recurring operating losses and negative
cash flows. Based on the Company's forecasted cash flows for
the next twelve months, the Company has concluded that material
uncertainties regarding its ability to meet its commitments to
lenders raise significant doubt as to the ability of Cherokee
Global Brands to continue as a going concern. Please refer to
Note 1 of the Company's condensed consolidated financial statements
for the three months ended May 5, 2018 included in the Company’s
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission today for more information.
Management plans to address the Company’s ability to continue as
a going concern through further negotiations with its lender and
with other potential sources of capital. The Company will
further evaluate its ability to meet its obligations as they come
due over the next twelve months, and the resolution of the
noncompliance with its credit facility is a critical part of
management’s plans to meet its obligations as they come due.
There is no assurance that management will be able to execute these
plans.
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 Company’s website at
http://www.cherokeeglobalbrands.com. For those unable to
participate during the live broadcast, a replay will be available
through Thursday, June 21, 2018, 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: 13677858.
About Cherokee Inc. Cherokee is a global
brand marketing platform that manages a growing portfolio of
fashion and lifestyle brands including Cherokee®, Carole Little®,
Tony Hawk® Signature Apparel and Hawk Brands®, Liz Lange®, Everyday
California®, Sideout®, Hi-Tec®, Magnum®, 50 Peaks® and Interceptor,
across multiple consumer product categories and retail tiers around
the world. The Company currently maintains license agreements with
leading retailers and manufacturers that span approximately 80
countries and approximately 20,000 retail doors plus ecommerce.
Safe Harbor Statement This news release may
contain forward-looking statements regarding future events and the
future performance of Cherokee. Forward-looking statements in this
press release include, without limitation, express or implied
statements regarding: the Company’s forecasted operating results
for fiscal year 2019; the ability of the Company’s to resolve the
noncompliance with its credit facility on reasonable terms, or at
all; 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: Cerberus will exercise its rights to
foreclose on all of the Company’s assets; the Company will not be
able to resolve the noncompliance with its credit facility on
reasonable terms or at all; 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; and the Company’s dependence on
its key management personnel could leave us exposed to disruption
on any termination of service. The risks included here
are not exhaustive. Other risks and uncertainties are described in
our annual report on Form 10-K filed on April 19, 2018, its
periodic reports on Forms 10-Q and 8-K, and subsequent filings with
the SEC we make from time to time. Except as required by law, we
undertake 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 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 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 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 “Reconcilation of GAAP to Non-GAAP Financial
Data“.
Investor Contact:Cherokee Global BrandsSteve Brink,
CFO818-908-9868
Addo Investor RelationsLaura Bainbridge/Patricia
Nir310-829-5400
|
CHEROKEE INC.CONSOLIDATED BALANCE
SHEETSUNAUDITED(In thousands, except share
and per share amounts) |
|
|
|
May 5, |
|
February 3, |
|
|
2018 |
|
2018 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
2,531 |
|
|
$ |
3,174 |
|
Accounts
receivable, net |
|
|
5,631 |
|
|
|
9,805 |
|
Other
receivables |
|
|
500 |
|
|
|
472 |
|
Prepaid
expenses and other current assets |
|
|
1,002 |
|
|
|
1,258 |
|
Current
assets of discontinued operations |
|
|
— |
|
|
|
1,868 |
|
Total current
assets |
|
|
9,664 |
|
|
|
16,577 |
|
Property and equipment,
net |
|
|
869 |
|
|
|
1,090 |
|
Intangible assets,
net |
|
|
69,209 |
|
|
|
69,548 |
|
Goodwill |
|
|
16,352 |
|
|
|
16,352 |
|
Accrued revenue and
other assets |
|
|
838 |
|
|
|
30 |
|
Total assets |
|
$ |
96,932 |
|
|
$ |
103,597 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts
payable |
|
$ |
6,290 |
|
|
$ |
7,205 |
|
Other
current liabilities |
|
|
5,288 |
|
|
|
7,370 |
|
Current
portion of long term debt |
|
|
45,900 |
|
|
|
46,105 |
|
Deferred
revenue—current |
|
|
2,188 |
|
|
|
2,229 |
|
Current
liabilities of discontinued operations |
|
|
275 |
|
|
|
1,103 |
|
Total
current liabilities |
|
|
59,941 |
|
|
|
64,012 |
|
Long term
liabilities: |
|
|
|
|
|
|
Long term
debt |
|
|
— |
|
|
|
— |
|
Deferred
income taxes |
|
|
10,716 |
|
|
|
10,466 |
|
Other
liabilities |
|
|
4,303 |
|
|
|
5,004 |
|
Total liabilities |
|
|
74,960 |
|
|
|
79,482 |
|
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
13,997,200 (May 5, 2018) and 13,997,200 (February 3,
2018) |
|
|
280 |
|
|
|
280 |
|
Additional paid-in capital |
|
|
74,700 |
|
|
|
74,377 |
|
Accumulated deficit |
|
|
(53,008 |
) |
|
|
(50,542 |
) |
Total stockholders’
equity |
|
|
21,972 |
|
|
|
24,115 |
|
Total liabilities and
stockholders’ equity |
|
$ |
96,932 |
|
|
$ |
103,597 |
|
|
|
|
|
|
|
|
|
|
CHEROKEE INC.CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED(In thousands, except per share
amounts) |
|
|
|
Three Months Ended |
|
|
May 5, |
|
April 29, |
|
|
2018 |
|
2017 |
Revenues |
|
$ |
5,402 |
|
|
$ |
6,817 |
|
Operating
expenses: |
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
4,356 |
|
|
|
5,948 |
|
Stock-based compensation |
|
|
300 |
|
|
|
536 |
|
Business
acquisition and integration costs |
|
|
307 |
|
|
|
2,046 |
|
Restructuring charges |
|
|
— |
|
|
|
128 |
|
Depreciation and amortization |
|
|
601 |
|
|
|
445 |
|
Total operating
expenses |
|
|
5,564 |
|
|
|
9,103 |
|
Operating
loss |
|
|
(162 |
) |
|
|
(2,286 |
) |
Other income
(expense): |
|
|
|
|
|
|
Interest
expense |
|
|
(1,737 |
) |
|
|
(1,522 |
) |
Other
income (expense), net |
|
|
(4 |
) |
|
|
(181 |
) |
Total
other expense, net |
|
|
(1,741 |
) |
|
|
(1,703 |
) |
Loss from continuing
operations before income taxes |
|
|
(1,903 |
) |
|
|
(3,989 |
) |
Provision (benefit) for
income taxes |
|
|
838 |
|
|
|
(447 |
) |
Net loss from
continuing operations |
|
|
(2,741 |
) |
|
|
(3,542 |
) |
Income from
discontinued operations, net of income taxes |
|
|
— |
|
|
|
283 |
|
Net loss |
|
$ |
(2,741 |
) |
|
$ |
(3,259 |
) |
Net (loss) income per
share: |
|
|
|
|
|
|
Basic
loss per share from continuing operations |
|
$ |
(0.20 |
) |
|
$ |
(0.27 |
) |
Diluted
loss per share from continuing operations |
|
$ |
(0.20 |
) |
|
$ |
(0.27 |
) |
Basic
(loss) earnings from discontinued operations per share |
|
$ |
— |
|
|
$ |
0.02 |
|
Diluted
(loss) earnings from discontinued operations per share |
|
$ |
— |
|
|
$ |
0.02 |
|
Basic
loss per share |
|
$ |
(0.20 |
) |
|
$ |
(0.25 |
) |
Diluted
loss per share |
|
$ |
(0.20 |
) |
|
$ |
(0.25 |
) |
Weighted average common
shares outstanding: |
|
|
|
|
|
|
Basic |
|
|
13,997 |
|
|
|
12,953 |
|
Diluted |
|
|
13,997 |
|
|
|
12,953 |
|
CHEROKEE INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL DATA
(In thousands)
Adjusted EBITDA is defined as net income before (i)
interest expense, (ii) interest income and other income, (iii)
provision for income taxes, (iv) depreciation and amortization, (v)
intangible asset impairment loss, (vi) restructuring charges, (vii)
business acquisition and integration costs and (viii) 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 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, our provision for
income taxes, the effect of our expenditures for capital assets and
certain intangible assets, or the costs of acquiring 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 5, 2018 |
|
April 29, 2017 |
Net loss from
continuing operations |
|
$ |
(2,741 |
) |
|
$ |
(3,542 |
) |
Provision (benefit) for
income taxes |
|
|
838 |
|
|
|
(447 |
) |
Interest expense |
|
|
1,737 |
|
|
|
1,522 |
|
Interest income and
other income |
|
|
4 |
|
|
|
181 |
|
Depreciation and
amortization |
|
|
601 |
|
|
|
445 |
|
Restructuring
charges |
|
|
— |
|
|
|
128 |
|
Business acquisition
and integration costs |
|
|
307 |
|
|
|
2,046 |
|
Stock-based
compensation and stock warrant charges |
|
|
300 |
|
|
|
536 |
|
Adjusted EBITDA |
|
|
1,046 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
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