Apex Global Brands Inc
Q4 2017 Earnings Call Transcript

Published: 12 May 2017

[Operator:]

Greetings and welcome to Cherokee Fiscal Fourth Quarter and Full Year 2017 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ms. Laura Bainbridge with Addo Investor Relations. Please go ahead.

[Laura Bainbridge:]

Thank you. Speaking today will be the company’s Chief Executive Officer, Henry Stupp; and Chief Financial Officer, Jason Boling. You can find accompanying slides for today’s call on Cherokee’s Investor Relations website. 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. Forward-looking statements included in this conference call involve known and unknown risks and uncertainties that may cause the actual results or achievements of the company to be materially different from any future results or achievements expressed or implied by such forward-looking statements. A further list and description of these risks and uncertainties can be found in the company’s Annual Reports on Form 10-K and the company’s Quarterly Reports on Form 10-Q. 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 or developments. Certain of the information in today’s call, including non-GAAP SG&A, non-GAAP operating income, EBITDA and non-GAAP net income may be considered non-GAAP financial measures. Management believes this information is useful to investors because it provides a basis for measuring the company’s available capital resources, the capital performance of its business and its cash flow, excluding expenses relating to professional fees from legal and due diligence for actual and potential acquisitions and business developments related to the identification and establishment of new brand licensees that would normally be included in the most directly comparable measure calculated and presented in accordance with GAAP. 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-financial measures as reported by the company may not be comparable to similar titled amounts reported by other companies. The non-GAAP measures described above are reconciled to the corresponding GAAP measures in unaudited condensed consolidated financial statements included in the company’s earnings release under the heading GAAP to Non-GAAP Financial Metrics, which is posted on the company’s website, cherokeeglobalbrands.com. And with that, I’ll hand the call over to Cherokee’s Chief Executive Officer, Henry Stupp.

[Henry Stupp:]

Good afternoon, everyone, and thank you for joining us. Before we begin, I’d like to take the opportunity to welcome Carol Baiocchi and Susan Engel, both of whom joined Cherokee Global Brands as Independent Directors this past February. As we celebrate the global expansion of our high-equity lifestyle brand portfolio, Carol’s track record of successfully growing consumer products and retail businesses and Susan's private label and brand development experience will prove invaluable. We look forward to adding their extensive and diverse expertise to our board and their many future contributions. In my remarks today, I will start with an update on our acquisition of Hi-Tec and the entire portfolio of brands where early performance is encouraging. Jason with then briefly walk you through our fiscal fourth quarter and 2017 financial results. I will then provide additional brand highlights including retailer and wholesaler updates before turning it over to Q&A. So starting with Hi-Tec. I’m pleased to report that we are running slightly ahead of the six-month integration timeline previously communicated. Working closely with the Hi-Tec team and our operating partners, we're delivering a seamless retail transition to our branded licensing model. As Jason will detail further, in certain territories, we continue to operate through third-party distributors as preexisting contracts dictate the timing of conversion to our brand licensing structure. We plan to convert the vast majority of distribution deals to license deals over a multiyear period. Post-acquisition the early read from retailers and our new wholesale licensing partners and legacy distributors for our licensing model has been very positive. We've executed global license agreements for the core Hi-Tec, Magnum and related brands for the footwear category, allowing us to greatly expand our presence in the United States and Canada, the United Kingdom and across continental Europe and South Africa. Product sales were strong and year-to-date licensing revenue for the Hi-Tec, Magnum and Interceptor brands are in line with our expectations. We’re particularly encouraged by the interest we've received among retailers seeking to expand the Hi-Tec, Magnum and Interceptor brands into new non-footwear categories including apparel, accessories and outdoor equipment. And keeping with that, we are particularly pleased with the inroads; our pan-European licensee is making apparel and accessories for the Hi-Tec portfolio of brands. We feel very fortunate to have partners like the Batra Group onboard that embody the best in class standard we've established for our licensee partnerships. Batra brings immense direct expertise in launching marquee brands in Europe and in fact around the world and we look forward to introducing our first non-footwear categories such as apparel and accessories to specialty and department store retailers throughout Europe beginning late Q3 of fiscal 2018. We're also pleased to announce that we are in the process of finalizing additional master licensees for the Hi-Tec, Magnum and Interceptor brands in the U.S. across multiple categories. Apparel and warm weather and cold weather accessories are in process and near final and other categories including outdoor equipment, wearable electronics and essentials including hosiery, underwear and base layer categories will follow. We’re also hard at work expanding our product offering to our existing distribution networks in the Middle East, Asia and Latin America and we look forward to reporting on our progress in the near future. Hi-Tec acquisition represents a major strategic milestone in Cherokee Global Brands growth trajectory. Moreover, it is a powerful example of our dual approach to acquisitions whereby we acquire both brand assets and platform capabilities. In the case of Hi-Tec, for example, we not only gained access to multiple high-equity brands, but also category expertise in product development, management and sales talent and an established global supply chain. This approach not only brings benefits to the Hi-Tec business, but also drives efficiency of scale and global expansion opportunities for all our brands across the entire Cherokee Global Brands global enterprise. This acquisition marks one of many ways in which we are aligning our vision with that of our retail partners. And this too will drive greater efficiencies and scale for our business in the coming years even if the overall retailer pool does shrink. As retailers increasingly look to partner as a means of enhancing their portfolios and platform capabilities, we will be able to build our business by going deeper and wider without retailers across multiple consumer touch points. We expected this consolidated multiplatform model to accelerate over the next few years on the retailer side and our model is uniquely suited to benefit. I look forward to sharing ongoing examples of this as we move forward. Through Hi-Tec we also gained a strategic brand headquarters and event hub in Europe under a very favorable tax structure. Last month we leveraged this facility to host our Global Brand Vision Summit, where we showcased an immersive multi-brand multi-category experience that included our newly acquired Hi-Tec, Magnum, Interceptor and 50 Peaks brands along with a showcase for our Cherokee, Tony Hawk, Everyday California, Point Cove and Flip Flop Shop brand opportunities. I'll provide additional details on this exciting event later in our prepared remarks. Following the Hi-Tec acquisition, we expect our financial performance to be more balanced across geographies, retailers, brands and product categories. Including Hi-Tec, we now have 124 continuing licensing agreements worldwide plus distribution agreements in 30 countries that service over 12,000 doors plus an ever expanding e-commerce business. Looking ahead, we will continue to explore additional scalable acquisitions that leverage and expand upon our existing platform and our portfolio of high equity brands. We're pleased that we maintain a leverage ratio that is amongst the lowest in the industry at approximately 2.2 times our estimated fiscal 2018 adjusted EBITDA compared to a peer group that is leveraged at a greater than 7 times in many cases. This provides us clearly with the financial flexibility to pursue both our organic and acquisition initiatives. With that, I'll be back to talk about our brand performance in greater detail, but first I'm pleased to turn the call over to Jason to discuss our fiscal fourth quarter and 2017 financial results in greater detail.

[Jason Boling:]

Thank you, Henry, and good afternoon, everyone. I'll start today's discussion with a recap of our fourth quarter and full fiscal year 2017 financial results. Consolidated GAAP revenues for the fourth quarter, which includes the revenue from Hi-Tec, were $15 million. On a year-over-year comparable basis, Cherokee Global Brands revenues excluding Hi-Tec, was $7.2 million, a decrease of 8.8% from $7.8 million in the prior year period. The year-over-year decrease of $600,000 in Cherokee Global Brands revenue is largely due to the expected decrease in North American revenues relating to the Cherokee brand as we transition from our legacy partner to our new wholesale licensees. During the quarter, some of the decrease was offset by revenue increases globally particularly in South America, India, South Africa and Asia as the demand for Cherokee branded product continues to grow. Hi-Tec revenue for the quarter was $7.8 million and is comprised of two components

[Henry Stupp:]

Thanks, Jason. I will now provide additional highlights. It's been widely reported that U.S. mall-based retail continues to face challenges largely stemming from shifting buying patterns among consumers. As noted previously however, our platform portfolio business model and the vision, agility and scale that we bring to all our partners domestically and internationally uniquely prepares us and defines our purpose as we navigate the fast evolving retail environment and to succeed despite or even because of these shift. Never have we been more aligned with where retail is going next as we focus on how to support our partners by thinking as they do. So, starting with the Cherokee brand, revenues for Q4 were $4.6 million, a decrease of $14.5 million over the same period last year. Revenues for the full year of fiscal 2017 were $23 million, a decrease of 10.3%. This decrease was entirely due to the wind down of our relationship with Target stores in the U.S. partially offset by revenue increases as the global demand for Cherokee branded products continues to grow. On regional basis, starting with the Americas, it’s a time of transition and expansion for Cherokee in the U.S. with our spring 2007 multi-category launch now underway. Through our greatly expanded relationships with best-in-class licensees, our most comprehensive assortment of Cherokee branded products has started hitting retail shelves and e-commerce sites with national and regional retailers. We are pleased that a full assortment of Cherokee branded products will be available to Cherokee loving consumers across the U.S. satisfying continued strong demand. In fact recent NPD data confirms that Cherokee brand enjoys over 65% domestic awareness, placing it among the top 10 apparel brands in the U.S. It is the strength and reputation of Cherokee that has and continues to secure new distribution among leading national retailers. Including, amongst others, Amazon.com, Walmart.com, Jet.com, Babies"R"Us, Buy Buy Baby and, as I said, other. Through new channels of distribution including Amazon and Walmart.com, we are also attracting new audience and drive even greater awareness to authentic high-quality and affordable family lifestyle brand. While it's still very early in the launch with product hitting the shelves of select retailers as we speak, response among our retail partners is already very positive and we are very encouraged by initial sell-throughs and multiple reorders. Over the next 12 months, we expect to aggressively grow the number of distribution points for Cherokee domestically and we’ve set a target of 5,000 locations plus continued online expansion. At the same time our fall and holiday launches for Cherokee will be supported by a robust fully integrated marketing campaign and I look forward to providing additional details in the coming weeks. I reiterate that we are confident in the prospects of the Cherokee brand in the U.S. and we’re taking a thoughtful multiyear approach to fully replacing our legacy relationship. Cherokee really is the jewel in our crown and it's important that we secure long-term partners, who are capable of helping strategically grow the business across multiple categories and channels. Outside of U.S., we continue to build our DTR partnerships with retailers such as Albert Stores in Czech Republic, a relationship that is generating additional product expansion and marketing opportunities across Europe. For the year, we saw retail sales growth with Nishimatsuya, which was up 22% in Japan; Pick 'n Pay, which was up 18% in South Africa; and a strong merger between Comercial Mexicana and Soriana, which will allow us to grow from a current 110 locations to over 700 locations in next three years in what is quite simply a very important market for us. Overall, we continue to be very pleased with the growing consumer awareness and demand for Cherokee’s iconic lifestyle products across the globe. I’ll now turn to our Tony Hawk brand where strong brand awareness and global demand continues to fuel our expansion efforts. Revenues for Q4 were $1.4 million, an increase of 13% over the same period last year. Revenues for the full year fiscal 2017 were $5.1 million, an increase of 1.6% Starting with the Americans, the performance within Walmart Canada has been strong and we are increasing the category offerings with the launch of our Hawk girls [ph] program in Canada later this year. In the meantime, our new spring collection is garnering favorable reaction and positive initial sell-throughs. We are pleased that our performance in Canada has led to an expansion of our business with Walmart in other regions including South America and Argentina. U.S. demand for Hawk product is strong consumers seeking an expanded assortment of Hawk product beyond what is currently available at Kohl's stores. Based on this demand and in partnership with Kohl's, we've recently converted our agreement to a not exclusive relationship, which sets the stage for an immediate expanded distribution of Hawk products throughout the United States. Further driving expansion for Tony Hawk will be our new U.S. wholesale licensee relationships, which have already secured orders for an expanded distribution of Hawk products hitting the floors this July. We're especially excited by expanding into additional distribution channels in U.S., which include specialty retail, e-commerce platforms such as Amazon.com, Walmart.com, and with additional national and regional retailers with a brand who has historically being underrepresented. And in Europe, our recently expanded agreement with Sports Direct provides for broader assortment of Tony Hawk, which will be available in their stores throughout the UK, as well as online. And through our partnership with Fashion UK, we will launch the Tony Hawk brand in over 500 C&A locations this November. As you know, C&A is the leading fashion retail business with approximately 2,000 stores in 23 countries worldwide along with it a growing online presence. We continue to advance discussions regarding new partnership for the Tony Hawk brand in Asia and we look forward to make an announcement on this front in the very short future. I’d like to now turn to the performance of Flip Flop Shops where we continue to drive productivity and deploy multipronged approach to grow. Revenue for Q4 was $450,000, an increase of 19% over the same period last year. Revenues for the full year fiscal 2017 were $1.6 million, a year-over-year increase of 250%. During the year, we made a strategic decision to close a handful of underperforming franchise locations in order to drive greater overall productivity and make way for innovative format launches. We're pleased with the overall quality of the retail portfolio and year-to-date performance where we have experienced 9% same-store sales growth domestically. We expect future performance to continue to benefit from these and other refinements that will allow us to more efficiently scale the concept both domestically and internationally. We're excited to launch our first fully owned e-commerce platform flipflopshops.com late in the fourth quarter. Post launch traffic to the site has built steadily as should only continue to do so as we head into the important summer season. Currently, the site is generating over 20,000 page views monthly. We’re very excited to also announce the debut of Flip Flop Shops’ first floating retail concept at the Stonebriar Mall just outside of Dallas, Texas, which is off to a very strong encouraging start. The new floating retail concept is situated in one of the most highly trafficked common areas and incorporates many of the recognizable features of the traditional Flip Flop Shop, while offering even more compelling financial economics to our franchisee partners. We have commitments from our franchisees to open additional five to eight floating stores during fiscal 2018. And we will grow our Flip Flop Shops footprint through other large scale franchisee partners around the world with announcements in the U.S. and Canada forthcoming. On the international front and through our future master franchisee in Australia and New Zealand, we plan to open two retail locations this fall with an additional two to three stores planned for 2018. New distribution channels and format innovations including freestanding stores, floating retail and shop in shops with specialty retailers will continue to driver our growth plans for Flip Flop Shops. At the same time we will continue to leverage the Flip Flop Shops’ platform to expand the reach of our brand portfolio with our Everyday California brand serving as a recent example. Everyday California just debuted in our Flip Flop Shop locations across the U.S. and internationally and we are exploring additional synergies between our portfolio of high-equity brand and our platform. Turning our attention to the Hi-Tec brand portfolio, revenues for Q4 and year were $7.8 million consisting of $1.2 million in licensing revenue from our licensees and $6.6 million of indirect product sales from our distributors. Through our new licensing arrangement with the Batra Group in the UK, we've been able to immediately establish a London-based design team to design and create the multi-category product expansion opportunity for the Hi-Tec, Magnum, 50 Peaks and Interceptor brands. The Batra Group is a very established UK-based branded apparel and accessory supplier that services the pan-European community with stable of blue-chip brands including Fila, Russell Athletic and Sergio Tacchini amongst others. And partnering with Batra Group, Cherokee Global Brands set up a global design development center for apparel and accessories to service all of our global partners. In fact in a mere two months, we are able to create and sample the spring and summer 2018 apparel and accessory offering, which is a fantastic example of the core capabilities that form the infrastructure associated with our forward thinking pillars and platforms. In addition to the quick multi-category product expansion, our new licensing partners including Batra and Carolina Footwear have been able to expand the current distribution of the core footwear programs for the entire family. In short, as we transition from the old operating model to a new more agile licensing model, the strength of our new licensing partners is bearing a very quick positive results. On the domestic front, we expect to announce our master apparel, accessory and outdoor equipment licensees in the coming weeks if not sooner. We have already started meeting with national and regional department stores, market-leading retailers in the sports specialty channel plus every major e-commerce retailer to introduce them to the expanded Hi-Tec, Magnum, Interceptor and 50 Peaks brand opportunities and we look forward to sharing our results in the coming weeks. Given the speed in which we've been able to develop the apparel and accessory ranges, we're announcing today that we have begun retail placement in certain key markets for our late Q3 fiscal 2018 program several months ahead of schedule. I want to thank our licensees dearly for their incredible efforts in securing such wonderful results in these very early stages of our new relationship. One other important note related to the Hi-Tec brand portfolio is the incredible performance of our Interceptor brand at Walmart, which has recently been expanded to include Walmart.com Jet.com, Sears.com and [indiscernible]. Sales have picked up significantly with unit volumes increasing from approximately 16,000 pairs per week during fiscal 2017 to over 25,000 pairs per week thus far in fiscal 2018. These strong results bode well for future category expansion of the Interceptor brand specifically as it relates to apparel, cold and warm weather accessories, base layers, hosiery and underwear. We’re also working to globalize the Interceptor with Walmart into additional countries with the first expansion slated for early Q3 of fiscal 2018. With respect to the Magnum brands, our government contract business continues to build and we expect our expansion into new categories will lead to additional expansion opportunities. On the retail front, Magnum continues to perform with increased bookings in many territories and we are hard at work preparing the autumn winter 2018 launch of apparel, warm and cold weather accessories, hosiery, underwear and base layers. In summary, we're excited about our future direction. Through our track record of successful acquisitions and organic growth initiatives – proven organic growth initiatives, we have transformed Cherokee Global Brands into a global diversified enterprise with a vastly expanded brand portfolio and diversified multi-category product assortments for the entire family that today are operating in more than 12,000 retail locations and a growing number of digital platforms in over 110 countries worldwide. We expect our performance in fiscal 2018 to reflect this diversity with greater balance across geographies, retailers, brands and product categories and we expect to see strong contribution from both organic and acquired growth initiatives. Our global perspective has always been one of our greatest strengths. And as I alluded to earlier, we shared our vision with our valued partners at our Global Brand Vision Summit, which was held this year at our new European brand headquarters in Amsterdam April 19 through April 21. This year's theme, Think Outside, speaks to our forward looking opportunities on multiple fronts. We retrofitted the event venue to provide an immersive multi-brand showcase for our growing portfolio, including of course our newly acquired Hi-Tec, Magnum, Interceptor and 50 Peaks brands in addition to name sic Cherokee, Tony Hawk, Everyday California, Point Cove and Flip Flop Shop retail concept. Over 160 retailers, licensees, distributors and media representatives joined us for the semiannual three day event. During the summit, we provided our partners a glimpse into the evolution of our capabilities platform and brand portfolio including a preview of our grand vision and a showcase of the latest in store in digital innovation. Attendees gained insight into shifting consumer purchasing behavior, the trends in technologies that we expect will change the game in 2018 and beyond. And we presented for the first time the full spectrum of categories that will continue to support enhance our global expansion including apparel, accessories, footwear and home products across our company’s entire brand portfolio for spring and summer 2018. Summit embodied the spirit of collaboration that defines our global partnerships and the value we place on aligning with retailers’ future. It exemplified the many reasons why this is a truly exciting time at Cherokee Global Brands. I thank you for joining us today and for your continued support and I will now open up the call for questions.

[Operator:]

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Eric Beder of Wunderlich. Please proceed with your question.

[Eric Beder:]

Good afternoon and congratulations on a strong end to the year and appreciate the commentary.

[Henry Stupp:]

Thank you, Eric.

[Eric Beder:]

Could you talk a little – so I want to have a few things. One is that, Hi-Tec has materially more country focus than you guys do in terms of just diversity in countries. How are you going to bring – how are you looking to leverage that going forward with some of your core brands before Hi-Tec?

[Henry Stupp:]

Well, we had our vision summit and we leveraged it, we moved up our calendar. Our original goal was to bring all of our partners together in June. And when we looked at the calendar and we saw that Hi-Tec already had a global sales meeting planned for their licensees and distributors and the new operating partners, we moved our calendar up, retrofitted the brand headquarters in Amsterdam and we were able to walk our partners both existing and some future partners through an entire showcase – an immersive showcase of all of our brands. There is a thread that connects the brands that we bring into our portfolio. So if I may use an example, if we look at the global distribution for the Hi-Tec brand, there is a great synergy that exists between the distribution of Hi-Tec products and the opportunity to distribute the Tony Hawk brand – the same retail channels, same retail opportunities. As a result of bringing in all of the 110 representatives – representative countries for Hi-Tec, we were able to immediately introduce through the platform that existed with Cherokee Global Brands, new distributors and potential licensees to brands such Tony Hawk. Now not every brand has to be done through a license agreement in fact some of the existing Hi-Tec distributors are able to immediately tap in to our platform specifically our supply chain and bring brands such as Tony Hawk into new markets faster than ever before in the past where it could take as long as 12 months to 18 months to introduce a brand into a country, we are now looking to bring it down into 90 days or less because we have ready to go product that's already approved from best-in-class fully compliant supply chain. So we've had incredible interest, our guys are already in contract with multiple countries to leverage the Hi-Tec relationships for many of our existing brands and you could also expect that our footwear opportunity will be magnified significantly across all brands in our portfolio given the design talent that exists for footwear over in Amsterdam.

[Eric Beder:]

Great. I’m kind of switching gears here. In terms of Cherokee in the U.S., so you've been out there for about four months, what are kind of the takeaways you are getting and how do you see it starting to ramp as we go through the year?

[Henry Stupp:]

Well, we found that it was definitely a challenge at the onset moving from a legacy partner, convincing new retailers to buy the Cherokee brand when we still had incredible placement through significant part of Q3 with Target. Now that Target has wound up and product has started to – retails were finding that the retail base domestically is growing more interested. So that's one facet that's very positive. The second is our licensee base was very carefully vetted and selected and very supportive. They have built incredible product, which was our first priority, value driven product and, in simple terms, every retailer that has acquired it has performed extremely well with multiple reorders coming in and in fact some retailers coming in and buying all the stock that’s on the floor. So the good news is we're chasing orders now from an inventory standpoint, we've set a new goal of 5,000-door placement towards the end of the year. Our e-commerce platform has grown significantly since our last call, the product is compelling, [indiscernible] Cherokee is a great brand and we have fantastic licensees who are in it for the long haul and we expect as quarter after quarter passes we will see continued growth, continued success with our brand.

[Eric Beder:]

Fantastic. And finally, Tony Hawk and Kohl's, I assume, you went to the non-exclusive agreement. How do you think that's going to affect the overall results in terms of – we know the minimums were for Kohl's, how do you look upon seeing that flows through and I assume when do you think that becomes a net-net positive in terms of revenues for you?

[Henry Stupp:]

Well, we had immediate interest from numerous retailers, so we openly candidly transparently had conversations with Kohl's. They recognize that we should not be restricted under a license agreement; it’s not good for the brand. We also behind the scenes prepared a free robust research survey, which showed Kohl's that the expansion of the brand into multiple channels would only elevate the profile of Tony Hawk in all likelihood would increase the business at Kohl's. The fact is is that the opportunity based on orders that are already coming in from some pretty significant scale retail partners leads us to believe that Hawk will grow beyond its current sales level and there are other factors that will increase the profitability specifically the royalty rate that we get on the wholesale business is very positive and the structure of the present deal with Kohl's had commissions tied in to third-party agents when we acquired the brand from Quicksilver, which will go away. So the net-net is it immediately becomes a more positive business, every dollar generated is significantly more positive for us and the category skateboarding is hitting a tremendous growth curve, so we're quite excited. There are some very large scale retailers that have already picked it up. We will only name them – in our next quarter we will begin to name them as goods start – being planned to hit the retail shelves. We do have orders secured in new merchandise for an expanded distribution will hit stores as of August 1 of this year. This is the first time we’re publicly announcing that.

[Eric Beder:]

Great. Congratulations. Good luck in 2017.

[Henry Stupp:]

Thank you very much, Eric.

[Operator:]

Our next question comes from Jeff Van Sinderen of B. Riley & Company. Please proceed with your question.

[Jeff Van Sinderen:]

Let me add my congratulations, it sounds like everything is going great. Henry, maybe you could just walk us a little bit more through spring 2017, obviously, you're still sort of in process it sounds like with the launch. Just wondering where the product has the biggest presence to retail or where it's going to have the biggest presence to retail talking about the Cherokee brand product? What categories are the broadest array of product and also what's selling through the best and then conversely are there any areas where you feel like product needs more work or you maybe need to focus more? And what sort of sales volume should we be thinking about for the first half of the calendar year in that brand?

[Henry Stupp:]

So, we’ve only given top line guidance in terms of sales volume. With respect to the Cherokee brand, we have stated we're looking at a 2- to 3-year period to replace the revenue basis that we had. It may happen quicker based on the speed in which retailers are starting to come on board. With respect to the categories that are performing best, the newborns, infant and toddlers and the little boy/little girl business, which has the widest placement thus far is performing the best. There have been some lessons that we’ve learned. Cherokee at Target was not a high/low price point, so the retailers that have followed an everyday low price, have set price on the brands have immediate positive returns. Retailers that traditionally use a high/low pricing confused the legacy Cherokee customers, so we're able to immediately insert ourselves and fix that because we’re aware. I think that the biggest future potential no surprise domestically is the dot com platform. We’ve been significantly embraced by Walmart.com, Jet.com, Sears.com and their portfolio there plus Amazon.com. So the combination of that plus the marketing plan that we will be introducing as we head into the latter half of this year, I think, will all be significant drivers. It's a first for us in how we're going to communicate directly with the consumer channel to support our retail partners. We have a multi-integrated approach. So we’ll really go in here and we're pleased with the results. We’re working hard. I will say, from a product standpoint, we are very delighted with the returns and the results. Most importantly and we only are mentioning it today, we've recently concluded our ladies license agreement with a best-in-class license partner. It was a company that we had wanted to work with for quite some time. And we finally came to an agreement a few weeks back. They've immediately started to secure placement as well. That's very exciting for us that as the quarters and months progress, we will be a full family lifestyle brand much in a way we were a decade ago. So I’m very pleased, we are going to take it slow and steady and we're going to win this race.

[Jeff Van Sinderen:]

That's great. And then just maybe if we can shift over to Hi-Tec for a minute. It sounds like that a little bit of a transitional thing as far as booking direct and getting the new licensees all signed up, I guess, is – I will look at it. So thinking about that, given I guess the nature of it as a stand, is there anything you can give us in terms of fall order book from retailers that are buying Hi-Tec or they planning Hi-Tec up, kind of where do we stand at this point in that?

[Henry Stupp:]

Generally bookings are up. We're sticking with our guidance for right now. Booking are up, sell-through is up. We are transitioning from an old operating model that was more inventory in hands and less pre-booking to new licensees, which are attacking the market frankly the way the market needs to be attacked, which is more pre-bookings and less immediate at once delivery. So, our goal was to not be the last supplier because we have goods and retailer X wants to buy something, they will call Hi-Tec. Our partners like Caroline and Batra are negotiating significant upfront commitments. And I will tell you that Carolina Footwear for example has had an immediate positive impact in terms of door count here, which for fall of this year, which is a very positive result in early stages. That combined with some pretty impressive growth that we're planning with the e-commerce business is exciting. If I look at my Interceptor business at Walmart, it’s off the chart, so that’s leading to new product opportunities, it lead to an immediate expansion with Jet.com, Sears.com, Walmart.com. It led to an expanded side range, so we'll be able to service a broader consumer audience. So we're delighted. The one thing I do want to point out also was – and it bears noting why don’t we – listening into a lot of the peer group calls, a lot of the domestic fashion guys, a lot of the domestic retailers, the global nature of our business today is release something that we’re most proud of. We frankly felt several years ago we identified that the U.S. market was going to hit a bit of a rough patch given the fact that there is double the retail square footage per capita here than the next closest country. The globalization of our brands, not simply buying a brand in a foreign market and saying we're global, but actually taking a brand and selling it in multiple countries for us, it was very important. We're able to sit here today despite the fact that there is some weakness in the U.S. market and we'll get through it and all of us get through it, we're very excited about the fact that we're global and that's been a very important transition and shift in our business. And so, I just wanted to make that one comment as well.

[Jeff Van Sinderen:]

Okay. But just to clarify that you're still saying that the domestic order book for Hi-Tec is up correct?

[Henry Stupp:]

Correct, correct.

[Jeff Van Sinderen:]

Okay.

[Henry Stupp:]

Also the retail partners have already expressed inbound interest in expanding the assortment beyond the legacy footwear business. So we're actually meeting with some of the larger retailers have been for several weeks now about introducing late Q4 or Q1 of next year a Hi-Tec, Magnum, full assortment of products, so that’s a key material plus for us.

[Jeff Van Sinderen:]

Okay. And then can you help us understand the split between Hi-Tec direct and licensed, how we should think about that for this year?

[Jason Boling:]

Yeah, so, right now, when we gave our guidance, the guidance is given to you based upon the gross profit number. So, we didn't want to confuse anybody with breaking out the distributor sales versus licensing.

[Jeff Van Sinderen:]

Okay. And then I didn't see a balance sheet, I'm sure that's going to be in your filing.

[Jason Boling:]

Correct.

[Jeff Van Sinderen:]

But are you – can you give us a sense or maybe you already said this and I missed it, but your inventory level at this point?

[Jason Boling:]

Well, we didn’t discuss inventory and that will be on the filing when we file it.

[Jeff Van Sinderen:]

Okay. And when is that due?

[Jason Boling:]

Well, it was due a while ago.

[Jeff Van Sinderen:]

Right, right. I’m sorry, but I mean given the extension that you got, when do you expect to actually file it?

[Jason Boling:]

We will be filing it soon.

[Henry Stupp:]

Yeah.

[Jeff Van Sinderen:]

Okay. Great. Thanks for taking my questions.

[Jason Boling:]

Thank you.

[Henry Stupp:]

Thank you very much, Jeff.

[Operator:]

Ladies and gentlemen, we have time for one final question. Our final question will come from Dave King of Roth Capital. Please proceed with your question.

[Dave King:]

Afternoon, guys.

[Jason Boling:]

Hi, Dave.

[Dave King:]

Unfortunately, it won’t be one final question, I’ve got several. But I guess first off on the Hi-Tec distribution contracts, it seems to me that the wholesale equivalent fees you're capturing on those are, I don’t know, several multiples higher than the license percentage versions? I guess if you convert those, can you talk about the ability to capture similar percentages there? And then, I guess, more broadly is there a potential to grow with similar kind a high fee relationships going forward?

[Henry Stupp:]

Yeah, I think, what we're seeing, Dave, is an evolution of the model, right. I think that when – Cherokee, which has been really – when Bobby introduced the direct to retail concept, it was pioneering, it was innovative, it was very smart, it was a great reaction to how the licensing model should evolve. And that really forms the foundation of what Cherokee Global Brands is about, pioneering and being innovative. When we introduced the 360 degrees platform that was next evolution of demonstrating innovation by us taking cues back, focusing on organic growth, focusing on globalization of our brands and being able to deliver a clear vision, more speed to all of our partners whether they are licensees, wholesalers or retailers. To answer your question about distributors, you are again seeing a further evolution of the business. We're able to monetize the supply chain work and the infrastructure that's been put in place over the last few years. To answer your question, we do believe that there are many opportunities for us to drive higher margins as we move into the future for all of our brands as we continue to centralize and globalize our supply chain and have better product at our prices in all major markets.

[Dave King:]

Okay. Okay, that helps. It’s great color. And I guess congrats on getting Cherokee and Hawk on the Walmart.com. I guess when do you expect to get Cherokee to launch on the site and I guess how many categories do you expect? And then, I guess, for Hawk, if we include Walmart.com, maybe a follow-up to Eric’s final question, if we include Walmart.com, but then assuming Kohl's maybe is lower, I guess, how should we be thinking about the full economics relative to, I think, the $4.8 million, I think, you’re getting on an annual basis previously?

[Henry Stupp:]

Well, the expansion is already underway. We've already started to get commitments from multiple retailers. We use Walmart and Amazon as examples for Tony Hawk and Cherokee. So we’ve got three licensees, they're all best-in-class partners who do significant business with all retailers. We are in negotiation for some pretty sizeable commit outside of Kohl's, which is why we believe that the guidance we provided is solid for this year and as we move into the fall, we will of course issue guidance for subsequent periods So we are – we think that we are taking the necessary steps to not have our brands captive because we've certainly seen what happened in that scenario and I think that we had to take a cold hard look at our business and how difficult it was to transition from our legacy relationship particularly – specifically with the Cherokee brand. We are thankful that we had a platform that was able to do it. We’re thankful that we have licensees who were able to swiftly pick up the ball. And I think we went back and looked at where are we exposed, what should we do, what actions should we take right now and that lead to fruitful discussions with Kohl's and new wholesale partners for us to immediately expand, so that we do not find ourselves in a position where we have to experience what we went through in 2006.

[Dave King:]

Okay. That helps. And then maybe on – I guess since we're in early May now, any color on April that you can provide at this point on the April quarter, anything worse or better than expected on any fronts?

[Henry Stupp:]

We're going to be reporting in a few weeks, so we’ll go through everything right then and there. We're kind of back to back right now, but we're planning on reporting early June, Q1.

[Dave King:]

Okay, okay. That's helps there. And then I guess one more for me. If I look at the non-GAAP tax rate, it look like it was about 21%, Jason, is that the right number for the quarter and then is that how we should be thinking about that on a go-forward basis?

[Jason Boling:]

So the non-GAAP tax rate is going to be its Hi-Tec in Amsterdam at 25% and the rest of Cherokee right now at roughly 36% something, so you would still based upon that. The guidance that we gave included some benefit to the tax rate. I do expect it to improve. I don't expect it to be in the low-20s at this point.

[Dave King:]

Okay, okay, perfect. Nice quarter guys. Good success on a lot of fronts and good luck with the rest of this year. Thanks.

[Henry Stupp:]

Thank you very much.

[Jason Boling:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.