Cherokee Inc. (CHKE)

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Cherokee Inc. (CHKE)

F4Q13 Earnings Call

April 30, 2013 4:30 pm ET

Executives

Investor Relations – Director of Investor Relations

Henry Stupp – Chief Executive Officer

Jason Boling – Chief Financial Officer

Analysts

James Fronda – Sidoti & Co.

Jeff Van Sinderen – B. Riley & Co. LLC

Jason Stankowski – Clayton Partners LLC

Presentation

Operator

Greetings and welcome to the Cherokee Incorporated Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. At this time, all participants are in a

listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Kimberly Esterkin. Thank you Ms. Esterkin, you may begin.

Kimberly Esterkin

Thank you, speaking today will be the company’s Chief Executive Officer, Henry Stupp and Chief Financial Officer, Jason Boling. Before I hand the call over to management please note that on this call certain information presented contains forward-looking statements.

Certain statements contained herein may contain forward-looking statements for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. When used, the words “anticipates,” “believes,” “expects,” “may,” “should” and similar expressions are intended to identify such forward-looking statements.

Forward-looking statements included in this conference call involve risks, known and unknown and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

A further list and description of these risks, uncertainties and other matters can be found in the Company’s Annual Report on Form 10-K for Fiscal Year 2012, and in its periodic reports on Forms 10-Q and 8-K. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. The Company disclaims any intent or obligation to update any of the forward-looking statements contained herein to reflect future events and developments.

This call also includes the discussion of non-GAAP financial measure as the term is defined in Regulation G, including earnings per share excluding the effect of certain tax benefits. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP are included in the earnings press release which is posted on the company's website at http://www.cherokeegroup.com.

And with that, I’ll hand the call over to Cherokee’s Chief Financial Officer, Jason Boling.

Jason Boling

Good afternoon everyone and thank you for joining us today as we review our fourth quarter and fiscal year 2013 results. I am very happy to have recently joined the Cherokee Group and had such an exciting time in the company’s growth and expansion.

While I’ve only been at Turkey a few weeks, I recognize the hard work and efforts of the company has undergone for the past two years. I look forward to working with my colleagues to execute Cherokee’s long-term strategic plans.

We’re going to approach this earnings call a bit differently than in the past. I will first discuss our financial results for the quarter and for fiscal year 2013. Then I’ll turn the call over to Henry Stupp, our Chief Executive Officer to speaking further detail about our brands, our partners and our plans for growth before we open the call up to your questions.

Turning to the results, net revenues for the fourth quarter of fiscal 2013 were $6 million consistent with the prior-year quarter. For the full-year, revenues totaled $26.6 million, an increase of 3.7% from $25.6 million in fiscal year 2012 mainly driven by increased Royalty revenues from target in U.S., the addition of new retail partnerships such as Nishimatsuya in Japan and the acquisition of the Liz Lange brand late in the third quarter of fiscal 2013. Selling, general and administrative expenses for the three and 12 months ended February 2, 2013 including the amortization of trademarks were $4.3 million and $15.5 million respectively as compared to $3.5 million and $14.9 million in the comparable period last year.

The increase in our SG&A during the fourth quarter and fiscal 2013 was primarily related to increased cost associated with product development. These costs are essential requirements toward re-launching the Cherokee brand at Tesco, increasing the amount of services we offer existing licensees and for solicit in future licensees. Professional fees also increased as a result of cost associated with the work on potential acquisitions. Lastly, we had increased employee stock compensation mixed up with all partially offset by decreases in marketing expenses.

Operating income for the fourth quarter totaled $1.7 million versus $2.5 million from the same period last year. On a fiscal year basis, operating income totaled $11.1 million compared to $10.7 million for fiscal 2012. Our overall operating margins for the quarter were 29% of revenues and 42% of total revenues for the fiscal year, consistent with last fiscal year. For the year-ended February 2, 2013, we recorded a tax provision of $4 million, up from $2.9 million in the comparable period last year due mainly to the tax refund of $1.4 million from the franchise tax board in fiscal 2012.

We ended the fourth quarter with net income of $1.1 million or $0.13 per diluted share compared to net income of $1.5 million or $0.18 per diluted share in the fourth quarter last year. Our fiscal 2013 net income totaled $6.8 million or $0.81 per share compared to $7.5 million or $0.89 per share in fiscal 2012. We attribute this reduction in net income and earnings per share primarily to the FTB tax refund. Excluding FTB tax refund, fiscal year 2012 earnings per share would have been $0.72, therefore on a non-GAAP basis, EPS grew from $0.72 to $0.81 per share or 12.5%.

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