Cherokee Signs Deal With Hearst to Market Magazines CORPORATE FOCUS By JACQUELINE FOX Staff Reporter In the last quarter, Van Nuys-based Cherokee Inc. retired nearly $8 million of long-term debt and wrapped up licensing agreements in previously uncharted markets, including a deal to represent one of the country’s oldest publishing houses. Cherokee announced in November that it has signed an exclusive agreement with New York-based The Hearst Corp. to manage branding development and licensing opportunities for one of the company’s flagship publications, House Beautiful. The move takes the company into new territory, but officials insist they can do for magazines what they have done for platform shoes, casual wear, cookies and the soon-to-be launched toy line for DIC Entertainment’s “Liberty Kids,” which will air on PBS, a deal the company also cinched this fall. “This is a 100-year-old publication and historically the House Beautiful brand has really been limited to the magazine itself,” said Kyle Wescoat, Cherokee’s chief financial officer. “There’s no reason we can’t expand the brand to include home products, especially now when the home market is so strong. Move over, Martha Stewart. Wescoat indicated potential HB products down the line could include everything from linens to wallpaper, and could be wrapped up inside an already widely successful licensing agreement Cherokee has with Target Stores Inc. Analysts agree. “There’s no reason why a company with such solid branding success like Cherokee couldn’t do for House Beautiful what it has done for its own products, and the products of other companies,” said Jeff Van Sinderen, an analyst with B. Riley & Co. “The extension of the Cherokee brand into this market is timely because of the strong growth in environment, home d & #233;cor and home entertainment business.” Cherokee’s net income for the third quarter ending Nov. 2 slipped to $2.1 million, down from $3.3 million for the second quarter ending Aug. 2 but up from $1.9 million in the same quarter a year earlier. Revenues for the quarter were $6.1 million, compared to revenues of $5.5 million in the same quarter of 2001. Net income for the nine months ended Nov. 2 climbed to $10.5 million or $1.24 per diluted share on revenues $26.1 million, compared to $9.7 million or $1.18 per diluted share on revenues of $24.4 million for the same period in 2001. Cherokee’s stock was trading at $14.55 on Dec. 6. Its 52-week high was $23.40, the low was $9.96. The earnings dip from the second to the third quarter was due largely to a hold on a $2.4 million finder’s fee due to Cherokee for the $1 billion deal it brokered in 2000 between Irvine-based Mossimo Inc. and Target. “We consistently assumed we’d get the fee, so we booked the revenue associated with it,” said Wescoat. Mossimo claimed that an amended agreement with Target afforded it a refund in royalties due to Cherokee. Cherokee stands to get the money after all: In November an arbitration panel weighing the merits of the company’s claim to the fee ruled in Cherokee’s favor, ordering Mossimo to pay up. Cherokee has 14 licensing agreements with domestic and international wholesalers and retailers. The Target/Mossimo line represents roughly 70 percent of the company’s sales. According to Cherokee Chairman and CEO Robert Margolis, much of the nine-month sales growth is credited to a successful launch of the Cherokee brand in Europe through a deal it signed last year with the UK-based Tesco, a retail and grocery chain. Sales for Tesco, which launched its Cherokee program in August 2002, reached $43 million in its first full quarter.
