Looking Beyond Cherokee's Earnings

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Cherokee (Nasdaq: CHKE  ) posted a more than 32% drop in its quarterly earnings. Let's take a look at the quarter and see what lies ahead for this company.

A look at numbers
Cherokee generates its revenue through royalties from licensing to retail stores such as Target (NYSE: TGT  ) , TJX (NYSE: TJX  ) , Tesco, and Zellers. Revenues for the quarter fell 11% to $6.7 million because of a 54% drop in sales at Tesco's stores. Cherokee's business is bound to take a hit since revenues from Tesco comprised 27% of the company's top line in the last fiscal year.

Apart from falling revenues, the company also had to deal with increasing operating expenses. The company increased its spending on marketing, service-related expenses, and personnel expenditures from additional hires, which resulted in higher selling, general, and administrative expenses of $3.95 million. Going forward, these will hopefully help Cherokee increase both its presence and sales.

What's ahead
Cherokee earns its revenue from marketing, licensing, and managing brands, and it depends on deals with retailers for its business. Looking to expand, the company has recently entered into a number of agreements to increase the presence of its brands across the globe. It has given exclusive rights of Cherokee brands to CJSC Tander for Russia and Nishimatsuya for Japan.

These agreements should start generating revenue for the company by the last quarter of this fiscal year. It also plans to start selling its Sideout brand in Mexico, as it has entered into an exclusive international agreement with Soriana. We should start seeing its effect on the company's income statement in the next fiscal year.

Cherokee is also trying to increase its presence in certain apparel categories at Target stores, which should have a positive effect in its revenues for the rest of the year.

Foolish bottom line
Though Cherokee might be going through a difficult phase trying to maintain its top line, I believe it would be worth keeping an eye on it considering its recent agreements with various retailers.

To stay on top of the latest news at Cherokee, add it to My Watchlist.

Navneet Bajaj doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/25/2016 1:41 PM
CHKE $10.34 Down -0.31 -2.91%
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