Apex Global Brands Inc
Q1 2016 Earnings Call Transcript

Published: 12 Jun 2015

[Operator:]

Greetings, and welcome to the Cherokee Global Brands' First Quarter Fiscal Year 2016 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, Kimberly Esterkin of Investor Relations. Thank you. 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. You can also find accompanying slides for today's call on Cherokee's Investor Relations Web site. 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 also 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 known and unknown risks 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 and uncertainties and other matters can be found in the company's Annual Report on Form 10-K for the fiscal year 2015. 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. The earnings release is posted on the company’s Web site at www.cherokeeglobalbrands.com. And with that, I'll hand the call over to Cherokee's Chief Financial Officer, Jason Boling.

[Jason Boling:]

Thank you, Kim. Good afternoon, and thank you for joining us today. We are pleased to report first quarter 2016 revenues of $10.2 million, up approximately 3% from $10 million in the first quarter of 2015. The improvement in revenue is primarily attributable to increased sales from Cherokee branded products at international retailers and increases with our other brands. Given the U.S. dollar strength from the prior year period, the estimated FX effect on our revenues during Q1 2016 was approximately $200,000, decreased from the first quarter of 2015. We are transitioning in Canada from Target Canada to Sears Canada for our Cherokee and Liz Lange brands and from Tesco to Argos in the United Kingdom and Ireland for our Cherokee brand. We expect no sales of these brands in Canada, the UK or Ireland for the second and third quarters of the current fiscal year and minimal revenues from these new licensees during the fourth quarter of fiscal 2016. With our new partnerships with Sears Canada and Argos, we are well positioned to grow both our Canadian and UK businesses as these partnerships begin to really take hold in the first quarter in fiscal 2017. Our plans for growth remain consistent, first and foremost to generate organic growth by utilizing our proprietary 360-degree platform to further expand the product categories in geographies, and secondly to pursue new brand acquisitions such as our recently announced acquisition of Everyday California. Henry will speak to each of these growth areas in more detail later. Selling, general and administrative expenses for the first quarter decreased 7.4% to 4.4 million or 43% of revenues from 4.8 million or 48% of revenues in the first quarter of 2015. We do anticipate some additional operating expenses in the second quarter related to our recent acquisition of Everyday California as well as adding some new hires as related to our Sears Canada and Argos deals. Operating income improved for the quarter and was up 12% totaling 5.8 million versus 5.2 million in the same period last year. Our performance continues to demonstrate the strength of our business model. Our operating margin for the first quarter totaled 57% compared to 52% in the first quarter of 2015. We ended the first quarter with net income of 3.6 million or $0.41 per diluted share compared to 3.6 million or $0.43 per diluted share. For the quarter ended May 2, 2015, we recorded a tax provision of $2 million, which equates to an effective tax rate of 36.4% compared to 1.3 million or an effective tax rate of 27.1% in the prior year period. Turning to our balance sheet and related metrics. Total cash and cash equivalents as of May 2, 2015 were 8.9 million compared with 7.6 million at January 31, 2015. Our balance sheet remains very strong with low debt and increased cash. Cash flow from operations was 2.2 million for the first quarter of 2016 compared to cash used in operations of 0.3 million for the prior year period. Thank you all for your time. I will now turn the call over to Henry.

[Henry Stupp:]

Thanks, Jason, and thank you everyone for joining us this afternoon. Cherokee Global Brands continues to experience strong growth as we develop our brands organically through line extensions and with new international retail partnerships as well as welcoming new and exciting brands into our portfolio. The first quarter presented some new challenges as our U.S. revenues were impacted somewhat by the Los Angeles port closures, we ended our partnership with Tesco in the United Kingdom and Target Canada closing its doors. What our past experiences either good or bad have taught us is that great brand companies, those that really make an impact on the fashion, lifestyle retail industries create and leverage their brands by superb marketing, strong execution, innovative product development and exceptionally strong leadership. Cherokee Global Brands is doing just that. We are creating value through our three pillars; vision, agility and scale with all our licensees and partners globally. Consider for example our swift turnaround in Canada. Target Canada closes its doors on April 12, 2015 and on April 14, just two days later, Cherokee Global Brands executed long-term licenses with our new partner Sears Canada who shared our vision for our brands and will benefit from the agility associated with our 360-degree platform as they achieve rapid scale in Canada for both the Cherokee brand and adult and kids apparel, accessories, footwear and home and of course the Liz Lange brand for maternity, plus sizes, contemporary sportswear and accessories. We are certainly differentiating ourselves from our competitors by utilizing these three growth pillars; vision, agility and scale. We are able to do a lot of the heavy lifting for our partners by bringing the vision, agility and scale that retailers crave and at a time when they simply cannot get the markups that they used to get nor can they afford the infrastructures that they have built up over the last few decades. At the same time, retailers are having to invest heavily in digital infrastructure so they are being stretched thin. By partnering with us, they can dedicate those resources to digital and other areas that are so important to their future. Through our 360-degree platform, we are providing each of our best-in-class retail partners and licensees with the tools necessary from sales to marketing to product design or organic growth initiatives to produce high-quality lifestyle products on a global scale. Sears Canada is a great example of a retailer that is equally partnered with Cherokee Global Brands and we look forward to our spring 2016 launch. Our 360-degree platform provides us with the agility to bring product to market in an efficient timely manner to share our brand vision with consumers by setting up shop-in-shops with ease and to quickly get up to speed on each of our licensees business models and targeted consumers. Our product with new partnerships is hitting retail floors in as little as six to eight months where the industry average is closer to 18 to 24 months. With this improved agility and success comes scale, our ability to generate large quantities of diversified well-designed quality-branded products globally. These value pillars have led to much accomplishment over the past few years and will continue to add operating leverage to Cherokee Global Brands and our partners’ success in the future. We believe the retail world will continue to flatten as retailers increasingly struggle to maintain their margin requirements. I found last week’s announcement by Walmart about bringing sourcing in-house to be indicative of this fact, and a further reinforcement that we have the correct strategies to succeed in this business and that is to support our partners as an extension of their teams by delivering agility, scale and a focused thought-out vision for our branded product offering. I’d like to begin by updating you on our international progress in the first quarter of fiscal '16, then I will discuss our U.S. performance before turning to some exciting news regarding our recent brand acquisition, Everyday California. Revenues from international licensing activities totaled 26% of our revenues for the first quarter of 2016. We believe this figure will keep growing as we unveil additional international retail partners for our portfolio of brands such as the recent announcements with Sears Canada, Sports Direct in the United Kingdom and Argos as well in the United Kingdom. Let’s begin with Argos. Tesco officially liquidated all of their Cherokee products by the end of March. While we do recognize there will be a bit of a delay between when we ended with Tesco in March and when we start up with Argos this August, we are very excited by the prospects for the Cherokee brand in the UK and Ireland. We believe that our collaboration with Argos will provide a great home for Cherokee with this successful growth-oriented forward thinking partner that is able to fully realize the potential of our brand and can leverage our proprietary 360-degree platform. Cherokee will be the first family lifestyle brand to be featured at Argos and both Cherokee Global Brands and Argos believes that this introduction will help further the brand and the retailers’ continued success. The Cherokee launch at Argos will begin with a fully integrated marketing plan that includes online, social and digital efforts, in-store experiences, print, radio, television ads in addition to staff, press and PR events. Argos has made many advances in their digital marketing and we look forward to leveraging the retailers’ Internet and mobile strengths to further promote Cherokee-branded products. Argos currently has 750 retail stores including 125 hub locations that serve more than 500 click and collect locations. Let’s now discuss Canada, another Cherokee success story. Sears Canada is one of Canada’s leading multichannel department stores. The retailer has fully leveraged Cherokee’s 360-degree platform and we are excited to be launching both the Cherokee and Liz Lange brands in Sears Canada department stores for this coming spring of 2016. Sears Canada is paying our standard royalty rate and retail sales for both Cherokee and Liz Lange. We believe that this will be a significant contribution to our fiscal 2017 profitability with sales and royalties commencing during the first quarter of fiscal 2017. Sears Canada will be launching the entire line of Cherokee family lifestyle products including men’s, women’s and children’s fashion, footwear and accessories and Sears will also be unveiling an expanded Liz Lange offering including maternity, activewear and plus size clothing. We are also experiencing continued success in Asia where we recently resigned a multiyear extension with our exclusive Japanese retail partner Nishimatsuya for Cherokee’s children’s wear products. Retail sales in Nishimatsuya for the quarter were up roughly 7.3% year-over-year in local currency. And in China, sales of Cherokee brands and products in RT-Mart were up 22.5% local currency from the prior year. We continue to rollout additional in-store shop-in-shops at RT-Mart to further reinforce the Cherokee brand vision. The Cherokee brand is also experiencing much success in Megamart in India where retail sales improved 14% year-over-year in local currency. We are also making solid progress with Reliance Retail, our fourth and newest partnership in India where we will be launching our new brand Point Cove fully designed in-house by the Cherokee Global Brands team for Reliance. This brand will be launched later this summer. We continue to see solid growth in Latin America as well where retail sales of Cherokee-branded products at Comercial Mexicana where we now have over 20 shop-in-shops grew 6% over the first quarter of 2015 in local currency. At Tottus Chile and Peru, retail sales of Cherokee products climbed approximately 6% and 9%, respectively, over the prior year period in local currency. And we have been actively rolling out shop-in-shops locations throughout Tottus stores to continue to drive growth in South America. On the U.S. side of the globe, retail sales of Cherokee-branded products at Target were slightly lower in the first quarter of fiscal 2016 as compared to the prior year period and totaled 267 million versus 274 million in the first quarter of '15. Impact of the L.A. port closures contributed to the year-over-year decline in retail sales. Despite softer revenues in the first quarter, we did see strength in our baby and toddler categories at Target. In addition, Cherokee Global Brands is now partnering with Target for the joint development and execution of extensive marketing plans for both Liz Lange and Cherokee school uniforms by sharing our vision in order to enhance brand awareness, drive consumer traffic and increase basket size for both brands. Separately and although still in its infancy, Cherokee adult products sold exclusively online for Target.com performed well. We continue to work with Target to grow the Cherokee adult online business as they emphasize their ecommerce platform. Importantly, we continue to remain engaged in Target’s ecommerce business as they transition from brick and mortar stores to an omni-channel retailer. The Liz Lange maternity brand at Target was also impacted by port delays in the first quarter but did see a roughly 3% increase in retail sales from the first quarter of 2015 which we anticipated as Target amended their merchandizing and buy plans to adjust from last year’s softness. I believe that Target is demonstrating great ability in identifying and remediating last year’s sales and merchandizing low points, as we continue to progress through this year. Now turning to Tony Hawk. Royalty revenues from our Hawk brand at Kohl’s were 1.2 million for the first quarter representing a 12% of total consolidated royalty revenues for the period. We have been actively working with Kohl’s to offer shoppers a new in-store experience and just this past March launched Tony Hawk shop-in-shops within approximately 400 Kohl’s department stores. Unfortunately, spring sales were impacted somewhat by the port closures during the quarter. Further, last quarter we announced the Pan European license for the Tony Hawk brand with Sports Direct, one of the largest sporting goods retailers in the world. We are in advanced discussions to finalize additional distribution of the Tony Hawk brand internationally in addition to launching our new Tony Hawk performance brand, 900 by Tony Hawk, which we officially unveiled at this week’s licensing show in Las Vegas. Before opening the call to your questions, I’d like to take a few moments to speak further about our acquisition strategy. At Cherokee, we continue to look for exceptional brands to add to our growing portfolio of style-focused family lifestyle brands. A good acquisition is one that aligns with our value pillars. Brands that benefit from and fully leverage our agility, our brand category and merchandizing vision and our ability to quickly grow scale. The most recent brand to fit this criteria was Everyday California. With its flagship retail store in La Jolla, California, Everyday California was born out of a desire to share the California state of mind. Founders Michael Samer and Christopher Lynch will maintain ownership of their retail store and touring [ph] business and will serve as global brand ambassadors leveraging Cherokee’s existing design, marketing and supply chain infrastructure to expand Everyday California’s presence internationally. Although not formally announced, we have recently signed a first licensee from North America for the activewear category with a large licensed branded wholesale company. Further details will be announced shortly. In summary, we are pleased with our start to fiscal 2016. Our licensees continue to renew early and for longer periods of time. Our mantra “Think like a retailer, market like a brand owner and enhance the consumer experience” is resonating now more than ever. Many of our existing partners are embracing the value proposition associated with our value pillars; vision, agility and scale and we shall continue to identify new partners who will embrace our unique approach as we continue to expand our global footprint. We look forward to speaking further about our company’s developments on our next quarterly call. Thank you for your time today. We will now open up the call to questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Eric Beder with Wunderlich Securities. Please go ahead with your question.

[Eric Beder:]

Congratulations on a solid start to the year.

[Henry Stupp:]

Thanks, Eric.

[Eric Beder:]

Could you talk a little bit about leverage in the 360 model on both your side and the retailer side, and how does they take advantage of it and how does [place] [ph] you as you get more get more players involved over there, leverage your business?

[Henry Stupp:]

Well, the way we view it, Eric, is by delivering to our partners fully developed product that’s already [indiscernible] supply chain and various marketing assets. We’re improving our ability to bring product to market quicker at less expense to them by removing a lot of their below-the-line costs. In the past, a lot of the retailers or licensees had full development teams, product development teams that would design the product and then they would turn it over to their sourcing teams or to domestically based importers of product. Through our 360, we’re able to deliver our partners fully designed and developed product [indiscernible] manufacturers that have [indiscernible] to our compliance [indiscernible] and they are able to just tap in and speed up the whole process. And most importantly achieve a higher margin above the line and below-the-line through cost reductions. So that’s how it’s leveraging it from our partner side.

[Eric Beder:]

When you’re going to people who already have the traditional Cherokee model, how much of a process is it to teach them kind of the gains here and to get them to start using this model that I agree with you is much more of a future [indiscernible]?

[Henry Stupp:]

What we’re doing now is some of the legacy partners originally they were skeptical. We had come from a period in many years where we won’t design any product and we didn’t have much of a say in the point of view of where the brand was being taken. And as we started to implement the infrastructure, our partners have to get used to the fact that we were essentially taking the keys back and we were going to start driving the brand by bringing them a more robust offering. The new partners that we’re identifying are specifically being approached based on their acceptance of the fact that we are going to push forward our vision, our desire to deliver agility and to help them achieve scale, which is why we keep talking about these value pillars on today’s call. So the newer partners are embracing it. It comes at a great time where retailers are seeing more and more margin pressure than ever before, retailers are flattening, we’re seeing it almost daily now around the world where retailers are reducing headcounts and deploying additional costs towards building omni-channel and we’re coming in at a good time where we can pick up the slack and really drive our brands’ growth.

[Eric Beder:]

Great. And finally, you’re rolling out some new brands that’s somewhat unique among a licensing company to roll out a brand like Point Cove and expansion of 900 with Hawk’s. Where does that come from, where do you think that can go and is this something we should be looking upon as kind of an emerging trend for you going forward? Thank you.

[Henry Stupp:]

Thanks, Eric. The Point Cove was a fascinating example where we were approached by a very large conglomerate out of India who was a big fan of our company. They liked the Cherokee brand. Their initial inquiry was to become part of the Cherokee family. But we have an existing legacy relationship that we’re very pleased with, with Megamart and Arvind. So their comeback to us was if you understand the aesthetic and were looking for a uniquely American aesthetic, would you be interested in developing a brand using all of your existing infrastructure and resources that we could bring into the Indian marketplace. And after spending some time learning about where they’re taking their business and what their long-term goals were, we decided that it would be a great opportunity for us to leverage the infrastructure that’s already in place and take all of the findings that we have, all of the resources, be it product design, our sourcing infrastructure, and deliver a turnkey package to them. And they adopted it. We did a lot of research on the naming and the colors and the DNA of the brand, as we do, and we’re launching it there. And just coming back from the licensing show, we have a lot of interest globally because it’s a fully developed program that looks like a brand, feels like a brand, it’s going to be marketed as a brand and we’re excited by that rather unique situation that we found ourselves in.

[Eric Beder:]

Great. Thank you.

[Henry Stupp:]

Thank you, Eric.

[Operator:]

Thank you. Our next question comes from the line of Jeff Van Sinderen with B. Riley. Please go ahead with your questions.

[Jeff Van Sinderen:]

Good afternoon, everyone. Henry, maybe you can just talk a little more about, since you mentioned the licensing trade show, maybe give us a little more color on what transpired for you there, maybe touch on the reaction to some of your newer brands by prospective licensees? And then maybe you could also just kind of frame the opportunity that you see in Everyday California where it sounds like you actually have your first license deal?

[Henry Stupp:]

Sure. So before we talk about some of the newer brands I think one of the nice surprises that we’re seeing right now is the new interest in our Sideout brand and Carole Little and Saint Tropez-West and that’s very exciting for us. We know we have something strong there and our team is really starting to look more closely at it. So we had some activity that is in there. So before I get to the new ones, I just want to remind everyone that we had some exceptional brands that have taken hold in the marketplace in the past and we are very much committed to fully developing all brands in our portfolio. With respect to new brands, Everyday California, we’ll make a formal announcement shortly about a North American master apparel licensee that we’re very excited about. They’ve already begun developing product in collaboration with our team. We are going to distribute it at the specialty and department store channel initially. As a result of that we have just started to receive additional interest in various markets particularly in Asia and Latin America where we believe the California design aesthetic resonates particularly strongly. So we think we have a good future there and I know that I would be remised to not acknowledge the fact that Chris and Mike, the founders of Everyday California are great collaborators and great partners and working as brand ambassadors with us, we couldn’t be more excited. They’re special guys and we’re proud to have them as part of our team, and they’re going to continue developing our retail operation that they have in SoCal and we think that lends tremendous authenticity to the brand, so we’re excited about that. I think I answered all your questions.

[Jeff Van Sinderen:]

You did. You did a great job. And then just one more follow up if you don’t mind. Just wondering if you can update us on how things are progressing with Argos and Sports Direct? And then relevant to expenses, which were actually lower than we expected in Q1, how should we think about increases in expenses from new programs and new brands?

[Henry Stupp:]

So with Argos, I couldn’t be more delighted. We’re working so closely with the team and we have a unique situation which will become part of our ongoing strategy in that we actually have Cherokee bodies working inside the Argos building so that we’re working with them every minute of the day making sure that we understand where they’re heading as a company, so that we are fully aligned with their strategy. I can’t get into too many specifics ahead of our partner, but I will say as I said in our prepared remarks, we have a fully integrated strategy that we’re very excited about. They brought in an exceptional marketing person to help kick-off the launch of the brand. He’s developed a wonderful campaign. They want to make a lot of noise in UK and Ireland about Cherokee at the staff level. Corporately in-store staff, we’ve been working with them on point of sale materials, updating our assets for the mobile application and the online application. They just completed one of the largest photo shoots that we’ve ever done for a brand in the United Kingdom and the assets that were developed are exceptional. And most importantly all the products is on the water, which means we will have a full on-time launch and we couldn’t be more thrilled by their level of detail and involvement in making sure they will have a successful launch.

[Jason Boling:]

As far as expenses, what I talked about earlier was the fact that with the Sears and Argos implementation, they’re actually doing a lot more product than any of our other 360 customers. So we’re going to have to add a few people just to keep up with the volume that they do. But again, I think I’ve mentioned this before, it’s not big numbers in relation to the revenue.

[Jeff Van Sinderen:]

Okay, good to hear. Thanks very much for taking my questions and continued success.

[Henry Stupp:]

Thank you very much.

[Jason Boling:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of David King with Roth Capital Partners. Please go ahead with your question.

[David King:]

Thanks. Good afternoon, guys. I guess just following up on Jeff’s question, last one, just a little bit in terms of the reduction SG&A, Jason, I guess can you just talk about what specifically drove that? Was that just higher marketing in the year ago period that didn’t continue, I guess what color can you give there. I think I’m good on how to think about the outlook.

[Henry Stupp:]

As the company matures since infrastructure is put into place, we do have an opportunity to refine all aspects. There were significant marketing expenses that were put into place over the last few years in terms of developing a completely new brand and guide for each of our brands. Those don’t get anniversaried year-over-year where we have to redo it. So we play catch up on certain assets that were required as a fundamental way for us to proceed with the development of our brands. And separately you get to a point where you start institutionalizing the teams in product development and sourcing and marketing which allows us to reexamine the headcount and determine what is the requirement short term. And then also we look at what is required long term. So Jason said there will be additional headcount coming in as we continue to progress with some of our newer partners who are taking very bold strides in building our brand, but we are able to adjust as needed proactively as we, for example, face the reality that Target Canada is going to away and we’re transitioning from Tesco to Argos. So we made the adjustments that we needed to make in the short term while still maintaining a long-term view of what is needed to support our partners.

[David King:]

That’s great and extremely helpful, Henry. I guess in terms of the Reliance deal Point Cove, if I understood that correctly, it looks like that’s about 109 doors or something I think. I think that’s maybe a little bit over half of what Reliance has got. I guess can you just talk about the longer term opportunity there? It seems like they’re growing their base pretty quickly, so opportunity to get from half the doors to all the doors and then grow with and going forward, can you talk about that? Thanks.

[Henry Stupp:]

There’s two things. Reliance is a Fortune 100 company that has bludgeoning retail operations. Before we talk specifically about Reliance in India, you have to understand what we believe is critical for us in terms of the Indian marketplace. Historically when politics change and retail consolidation starts to take effect, it’s a huge boom to the economy. And with the new political – the new government in place, which is a majority government, we’re taking a very long-term view at how significant all our brands can be in India. And we think that the retail consolidation is going to benefit each of our partners; Arvind, Landmark, Mahindra and Reliance. So we are very committed to building our brands in India. When Reliance approached us, we sat down with them to understand what their long-term game plan was and they plan on doubling and possibly tripling the store count over the next few years. That was critical for us because, as I said earlier, scale is one of our pillars that we are always trying to achieve. They also have the rights to market the brand wholesale into countries in the Middle East, so we anticipate that they will not only grow in India with the launch categories in children’s wear but they will also expand the store count and eventually the plan is to move the brand into adult apparel, and then also to develop it in the rest of the countries, particularly in Middle East where we’re seeing great success right now with the Cherokee brand. Domestically and internationally particularly in Asia and Latin America, based on the credibility and the success we’ve had in rolling out our brands, we can now command a good audience with perspective licensees and we’ve had very good interest on Point Cove. It only got heightened this past week at the licensing show, so we’re hoping in short order we’ll start adding additional partners around the world for all lifestyle categories not just fashion.

[David King:]

Okay, great color. And then two more really quick ones and then I’ll step back and allow room for some other staff [ph] questions. In terms of Hawk, I think last time we talked, there was thoughts about some other potential international licensees beyond Sports Direct. Can you talk about those? And then lastly, Henry, I think you touched on the acquisition environment, but any updated thoughts there, bid, spreads, et cetera? Thank you.

[Henry Stupp:]

In terms of Hawk, we are – there’s numerous partners that we’re in discussion with. We have every intention of Hawk being a global brand. And as the next few weeks and months progress, I think the market will be very excited to see how they’re going to roll this out and achieve phenomenal scale. Hawk was a great acquisition for this company. Tony is more popular now than ever before. He’s recently signed an entire sea of new global promotional deals, which speaks to the strength of his awareness and his clout [ph] the video game, which has been absent from the market for five years is launching this fall and that’s been a tremendous driver in Hawk sales, so we’ve excited about that and we’ll just – think that we really nailed that one. In terms of the acquisition marketplace, there is a lot of opportunity. We are approached several times a week at this stage but we’re going to stick to our plan of being discerning and identifying brands that fit the infrastructure and the core competencies that we’ve been building up the last few years. Most importantly, we’re looking to acquire brands where we have a lane that we can focus on without having to worry about our peer group cannibalizing our brands, and we’ve been very good about what we select and how we on-boarded and how we’re going to roll it out globally. So we’re going to stick to that and not make any sort of predictions on when and how many brands we’re going to buy because brands are in our view living, breathing entities that have to be very carefully developed as they get rolled out. But we are aggressive in our acquisition and we suspect that we’ll be adding to our portfolio in due course.

[David King:]

Great. Thanks and good luck.

[Henry Stupp:]

Thank you very much.

[Jason Boling:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Liz Pierce with Brean Capital. Please go ahead with your question.

[Liz Pierce:]

Thanks. I’ll add my congratulations. So, Henry, when you think of the order of magnitude of something like in Argos or Reliance, Mahindra, are there other retailers of similar size in parts of the world that you have yet to penetrate? And if so, perhaps you won’t name them, but are you in discussions with any of these?

[Henry Stupp:]

Yes, we have made a structured list of what the priority markets are for each of our brands. There’s still a few pockets for us to complete which are around the world. We are focused now on completing our European distribution and the introduction by Argos has strengthened the general opinion of Cherokee. So, Europe will be our next major market. We are also looking to finalize a deal in Australia and New Zealand and we’ve had some interesting news [ph] there. On the Hawk brand Asia, Germany are core markets for us and we want to significantly pick up our business in Canada, so we’re focused on that as well. And Everyday California we have a strategic rollout plan to bring it to very specific markets who are usually very open to that American design esthetic. One thing on Everyday California that I want to make perfectly clear, this is not a surf brand, this is an outdoor active lifestyle brand that goes from beach to skiing, California being the only state in the nation when in the same day you can go snowboarding and skiing to standup paddle-boarding and kayaking and surfing. So this is being developed as a 12-month branded program and we are very excited by the esthetic that was put into place by Chris and Mike. So we have a lot of work to do but we couldn’t be more excited by the great package that they delivered to us.

[Liz Pierce:]

Okay. And then on Point Cove, can you just help us understand kind of visualize what the difference is esthetically versus the Cherokee, because obviously they’re going to be competing against Cherokee? Is there a price point difference? And if I missed that, I’m sorry. It wasn’t clear to me.

[Henry Stupp:]

The focus on Point Cove is there are similarities in terms of the product but there is a more youthful, colorful DNA that we’ve applied to Point Cove. It’s a little bit more aggressive driven print and pattern where Cherokee’s position more is in everyday classic casual brand. So we do have very specific limiters on how we develop our brands. So for all of the overlapping there is specific attributes that we apply to each one.

[Liz Pierce:]

And will they be priced similarly?

[Henry Stupp:]

Yes.

[Liz Pierce:]

Okay. And then in terms of Tony Hawk and the Sports Direct having had a chance to just see a couple of those stores this past week, I was trying to get an understanding of how Tony Hawk fits in there. It didn’t seem like there was much skate, which is the good news and I was just trying to figure out, get my arms around how it’s going to be marketed introducing the customer to the – you say that there is tremendous brand awareness but I’m trying to figure out where it fits inside that store?

[Henry Stupp:]

Well, they have a lot of performance brands in their store and they also, if you noticed, they have several casual lifestyle brands. Tony is bridged between the true performance and the casual. So the way we position Tony in the product development is to create a lane that’s unique. That’s why we call it skate to street to social as opposed to a pure skate brand or a pure casual denim brand. So he is in his own lane and that’s how we present it to our partners. We try and carve out a space, so it is a bridge brand between the true performance of the [indiscernible] Nike and the classic casual brands like Lee Cooper which they carry and we have a nice lane that we’ve created for it. And then from a marketing standpoint, we don’t want to get ahead of Sports Direct but we do have some exciting announcements shortly to support the brand launch in the United Kingdom and Western Europe, so stay tuned on that front, but Tony is very actively involved. He’ll be in Europe this summer and we plan on activating a lot of interesting opportunities to really drive traffic to Sports Direct.

[Liz Pierce:]

And that is for next spring, right, on Sports Direct or in Q4, sorry?

[Henry Stupp:]

Later this summer actually, in a few months.

[Liz Pierce:]

Okay, all right.

[Henry Stupp:]

That’s the benefit of the whole 360, Liz, is that we’re able to hit the markets faster now than ever before because there’s always product in development through our pipeline.

[Liz Pierce:]

Right. Okay, that’s all I have. Thanks and best of luck.

[Henry Stupp:]

Thank you very much.

[Operator:]

Thank you. Ladies and gentlemen, there are no further questions at this time and this does conclude our teleconference for today. You may disconnect you lines at this time. Thank you for your participation. Have a wonderful day.