Apex Global Brands Inc
Q2 2016 Earnings Call Transcript

Published: 11 Sep 2015

[Operator:]

Greetings and welcome to the Cherokee Inc. Second Quarter 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 Patricia Nir, VP of Addo Communications. Thank you, you may begin.

[Patricia Nir:]

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 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 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 may 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 these forward-looking statements contained herein to reflect future events and developments. The earnings release is posted on the Company’s website at www.cherokeeglobalbrands.com. And with that, I'll hand the call over to Chief Financial Officer, Jason Boling.

[Jason Boling:]

Thank you, Patricia. Good afternoon and thank you for joining us today. I will provide a quick financial overview of our second quarter results, and then turn the conversation over to Henry who will address the announcement regarding the future of the Cherokee brand in the US. Second quarter of fiscal 2016 revenues were $8.5 million, a slight decline of approximately 3% from $8.8 million from the second quarter of fiscal 2015. The decrease is primarily attributable to the stronger US dollar and lower sales of Cherokee branded products in Canada as a result of the Target Canada closure and no sales from Tesco when compared to the prior year period. Both the UK and Canada have already successfully transitioned to move strong committed retail partners. Our partnership with Sears Canada will launch during the first quarter of calendar 2016. We are also pleased to announce that Cherokee adult and children’s products are now once again global in the United Kingdom and Ireland through Argos Stores catalogues and online. Both these partnerships came to fruition as a result of the strength of our name sake brands. The infrastructure that has been put in place and most importantly, the customers’ desire, interest and passion for Cherokee branded products in over 50 countries. We also have negative currency headwinds, primarily from the Japanese Yen and Mexican Peso, which impacted revenues in the quarter by approximately $300,000. On a year-to-date basis, revenues remained consistent with prior year totaling $18.7 million for the first six months of fiscal 2016. We are pleased with our results and are encouraged by the strength of our brands and continued global expansion. In the second quarter, net income was $1.9 million or $0.22 per diluted share, compared to $2.3 million or $0.27 per diluted share in the prior year period. Our Q2 results were in line with our internal fiscal 2016 plan. On a year-to-date basis, net income totaled $5.5 million or $0.62 per diluted share compared to $5.8 million or $0.69 per diluted share in the first half of fiscal 2015. Selling, general and administrative expenses increased by 5.8% during the second quarter to $5.3 million or 63% of revenues from $5.1 million or 58% of revenues in the second quarter 2015. The increase in SG&A was primarily due to an increase in professional fees related to the protection of intellectual property, transaction cost related to potential acquisitions and stock-based compensation. During the quarter, operating income was $3.1 million or 37% of sales versus $3.7 million or 42% sales in the prior year period. As discussed on prior calls, we managed our expenses to our annual financial plan. As expected, our operating margin during the quarter decreased 5% year-over-year. Our year-to-date results continue to demonstrate the strength of our business model. Our year-to-date operating margins totaled 48% compared to 47% in the prior year period. For the quarter ended August 1, 2015, we recorded a tax provision of $1 million, which equates to an effective tax rate of 35.1% compared to $1.2 million or an effective tax rate of 35.7% in the prior year period. Turning to our balance sheet and related metrics, our balance sheet remains very strong. Total cash and cash equivalents as of August 1, 2015 were $9.8 million compared with $7.6 million at January 31, 2015. Cash flow from operations was $5.4 million for the first half of fiscal 2016, compared to cash flow from operations of $4.3 million for the prior year period. We remain in a strong financial position as we actively explore additional strategic brand acquisitions and support the organic growth of our global business. Thank you all for your time. I will now turn the call over to Henry.

[Henry Stupp:]

Thank you, Jason and thank you everyone for joining us this afternoon. As we announced today, Target Corporation has elected to not renew the license agreement for the Cherokee brand in the United States, which will expire at the end of its current term on January 31, 2017. The company does not expect that this non-renewal will have any material financial impact on our fiscal 2016 revenues or results. The Target license including the existing royalty obligations will remain in effect and continue to generate revenues to Cherokee for fiscal 2016 and 2017 through its expiration and Target will continue to sell Cherokee branded products during this timeframe. I am grateful for the nearly 20 year relationship that we have enjoyed with Target and we are excited about exploring new possibilities for one of America’s most beloved brands. Target guests have embraced the Cherokee brand from generation to generation for almost two decades and moving forward, Cherokee Global Brands is in a strong position to bring that level of resonance to new partners in the United States. Cherokee Global Brands anticipates that it will establish new channels to Cherokee branded products with new platform partnerships that will expand the presence of the brand in multiple categories in the United States that will be available starting early 2017. Bottom-line, consumers of all ages have made Cherokee’s success for over four decades and we are looking forward to many more. The license agreement with Target for the Liz Lange brand remains in place at this time and the Target non-renewal does not have any impact on other licenses of the Cherokee brand that other partners around the world where the Cherokee brand maintains high visibility and continued growth and success. The transitions in our business continue to present exciting opportunities. So let’s talk about a few of our many new programs that are launched and expanding around the world. Sears Canada has entered into a multi-brand, multi-year partnership with us as they support programs with our Cherokee and Liz Lange. We are seeing continued growth in Europe through our partnership with Argos for Cherokee. And we view partnerships for our brands in the United Kingdom, Ireland and Canada came as a result of our ability to successfully transition to new partners that have embraced our unique 360 degree platform. We continue to expand our global reach with our new licensees Sports Direct and Tony Hawk, not to mention our ever expanding business in Latin America, India, South Africa, and Asia and we are looking forward to soon to be announce partnerships in Europe. So all of our brands that will generate new revenue. And so during Cherokee five years ago, large-scale retailers and wholesalers has expressed the continued interest in Cherokee brand based on its multi-category relevance and high consumer awareness. These potential new partnerships have expressed some interest in becoming part of the Cherokee family from expanded range of products that are from kids and make it for categories including home, accessories, baby and in clothes further. Given the strong multi-category interest in our name sake Cherokee family lifestyle brand and our ability to move quickly, I am confident that we will establish strong new channels for Cherokee branded products in the United States. With each product, Cherokee Global Brands prioritize from the strategic development of our global brands, our dedication to our licensing partners’ needs and to their customers’ desires, all the while continuing to generate strong financial returns to our shareholders. Now more than ever, retail is in a state of complete transformation and Cherokee Global Brands has always been at the forefront of change. For example, we pioneered with Direct-To-Retail or DTR model which many have gone on timely and we continue to perfect and expand upon. Our mantra Think Like a Retailer, continues to guide us as we focus on in-roads our solution is around the outcomes that matter most of our global partners in this new world of retailing. They tell us now that more than ever provision, agility and scale that we bring are critical to their success as they must make unprecedented investments in other areas including visual integration, new store formats and store upgrades, all the while continuing to streamline the organizations. Our 360 degree brand design, marketing and execution platform allows us to do the heavy lifting for retail and licensing partners so they can confidently embrace the future, at the same time, we know that in this new world of retail cut and paste just won’t cut it. Every market is different and each management team and customer is unique. That’s why a platform is designed to flex with our partners’ unique needs we are making the most of the assets they already have on board. As stated during our last earnings call, every bit is relevant today than somebody said, the measure of who you are is what you do with what you have and our retailer partners are telling us that this is job one and that we have providing them with the brands and tools they need to continued success. Let me share some examples of our platform and action. Think our last earnings call; Reliance Trends launched Point Cove, a guy from the clothing company in India. This is a brand that we solely develop to them in-house. Sports Direct launched Tony Hawk and Argos launched Cherokee in the UK and Ireland. These do not just sign deals the turnkey service is an extension of our licensees and partners and Argos they have been investing and dedicated teams that supported last month’s launch in the UK and Ireland and we are now working with the Argos team to drive sales and scale. With these and other partners, fiscal 2017 plan on those is well under way and we are pleased with the new partnerships that have been introduced into our global retail platform. Bottom-line, our vision, agility and scale have provided unprecedented value while we continue to add operating leverage and drive organic growth for Cherokee Global Brands and our partners for many years to come. I’d now like to go a bit deeper into our international progress for the second quarter of fiscal 2016 and then I will discuss our US performance before turning to an exciting news for our Liz Lange Maternity and Completely Me brands. Royalty revenues from international licensing activities totaled approximately 30% as total revenues for the second quarter of 2016. This figure will continue to grow as we enroll additional international retail partners. Sears Canada is fairly leveraging Cherokee’s 360 degree platform and we are excited to be launching with the Cherokee and the Liz Lange brands in Sears Canada partner stores for spring 2016. Sears Canada will launch the entire line of Cherokee family lifestyle products including men’s women’s and children’s fashion, baby’s – and accessories, just we are also be unveiling an expanded Liz Lange offering including maternity, sports wear and plus size clothing. We are delighted to have a true flagship partner with Sears Canada. Last month, August, completed the highly anticipated launch of the full assortment of Cherokee lifestyle products. We launched with the great examples of – merchant needed impact we drive with partners with fully leverage our platform. In-store welcome screens greeted shoppers. For the 1200 outdoor and bus shelter advertisements were displayed. In-store videos and even staff uniforms further expanded the impact at launch day. There is an 8 million catalogues we distributed to the UK and Irish households that featured the Cherokee brand, in addition to Cherokee being featured on the Argos.com landing page. They also leveraged social media feeds including tell us on Facebook and YouTube resulting in a massive total exposure of over 19 million impressions in a short 30 days. None of the reasons that Argos is such a great fit for us is that they are on the cutting edge of digital marketing and we were able to harness their digital strengths to further promote Cherokee branded products. Our launch with Argos was a true multi-touch point win and Cherokee is actually chosen to be the first span of life style brand featured in Argos which will drive and is driving further brand awareness throughout the entire European community. In conjunction with the acquisition of Everyday California, we’ve already signed two licensing deals with five horizons in MTD apparel. Everyday California is a brand in the state’s active and feel good heritage and it’s shaping up to be a perfect fit for our portfolio. The founders who operate retail stores in – which would drive brand authority and authenticity as we expand the brand into new categories through our licensees. These new categories will include back packs in bags, luggage, - accessories and additional pair of categories that offer kids globally. In addition to the products sold at the flagship location in Everydaycalifornia.com additional products will launch on retail during the spring of 2016. Some of our licensing partnerships will strengthen the brand’s presence throughout the US and Canada and fully leverage growth opportunities. Retail response for Everyday California has already been strong both domestically and internationally and we anticipate keeping the momentum growing by signing additional licensees all over the world in the coming months. We are also experiencing continued success for our Cherokee brand in Asia. Retail sales in China’s RT-Mart were up 12.1% in local currency from the prior year and in Japan, Nishimatsuya retail sales were up 13% from the prior year in local currency. The Cherokee brand is also experiencing success of Pick 'n Pay in South Africa, where retail sales improved nearly 55% year-over-year in local currency. And in India, retail sales of Megamart for the Cherokee brand increased 11.1% year-over-year in local currency. We also continue to see solid growth in Latin America where retail sales of Tottus Chile and Peru Cherokee branded products grew approximately 5.3 and 3.9 respectively over the prior period in local currency. Turning to the US, royalty revenues for Cherokee product to Target slightly increased to $3.62 million from $3.58 million in the prior year period. Retail sales of Cherokee branded products at Target is relatively flat at $229.9 million in the second quarter of fiscal 2016 as compared to $229 million from the prior year period. We believe sales was slightly impacted by a combination of a later Labor Day this year, as well as the shift in the timing of state tax – sales tax holidays which pushed the back-to-school shopping season from July into August. For Liz Lange Maternity branded Target saw an increase of approximately 14% in retail sales over the second quarter in fiscal 2015, we are also excited to announce that we are in advance discussions with a major European retailer for the Liz Lange Maternity and hope to announce further updates in the very near future. Further, we are thrilled with the scope of a commitment that Sears Canada has made through the partnership with Cherokee Global Brands and Liz Lange. The Liz Lange brand has been very successful in Canada and demand for Liz Lange products is high. So we are anticipating a very bright future of course. Now turning to Tony Hawk. Royalty revenues from our Hawk branded clothes was $1.3 million for the second quarter representing 13.1% of total royalty revenues for the period. Furthermore, we are in advanced discussions with a major Canadian retailer for expansion of the Tony Hawk brand and hope to make this announcement shortly. This is a very exciting time for the Hawk brand and Tony’s ongoing multimedia presence will continue to drive momentum. A few examples of the Tony’s endorsements with MINI Cooper and Sony in addition to the upcoming release of its highly anticipated video game Tony Hawk Pro Skater 5. Tony’s relevance particularly in the digital space and resulting increased exposure will continue to drive future growth opportunities for Hawk branded products. In summary, we are pleased with our year-to-date progress across our portfolio and with the breadth and depth of our brand and product assortments, multi-category, multi-brand opportunities that our global partners are seeking from us. This year alone we have signed new licensing agreements with Argos for the Cherokee brand in the UK and Ireland, Sears Canada for both our name sake Cherokee brand and Liz Lange Maternity and sportswear including expanded size ranges. We signed a multi-year extended agreement with Nishimatsuya in Japan, acquired Everyday California and then quickly lined up two agreements for the US and Canada. We also created the Point Cove brand in-house with our partner Reliance Trends in India and are looking to expand this brand globally and the continue to flex our platform capabilities with new partners. We remain very excited about the future of the company and our growth prospects ahead. With our strong 360 degree platform, the outperforming and exceptional talent that we have cultivated combined with our many new recent global business expansion activities, we are extremely confident that we will secure new license agreements for a broad assortment for Cherokee branded products in the coming months. Thank you again for your time today, and support the Cherokee Global Brands. We look forward to speaking further about our company’s developments on our next quarterly call and we will now open up the call to questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jeff Van Sinderen with B. Riley. Please go ahead with your question.

[Jeff Van Sinderen:]

Good afternoon. So, Henry, you walked us through a lot of things. Obviously, you have plenty of positive things going on and the Cherokee, Target, they had to give you plenty of notice and they are, so it’s not going to impact your business in the near-term. I wonder if maybe you can touch on what you think was behind Cherokee’s decision to not renew, did they gave you any reasons for that? And then also maybe just when we are thinking about finding a new license partner for Cherokee in the US and I mean, I know that the royalty rate with Target maybe was not optimal in their commitment to the adult portion of the business was limited to e-com. So I would think that there probably is some opportunity there and maybe opportunity to expand the reach of the Cherokee brand in the US or maybe you can start with those things?

[Henry Stupp:]

Hi Jeff. So, Target’s decision to not renew was not related to consolidated performance of the Cherokee brand. Simply put, retail is moving very fast with the changing business and against this backdrop, we are very thankful to the 20 plus year relationship we had with Target. Certainly, I would think 100 plus years is more than exception in – and we’re excited to have earned that with Target. Our platform today is built to address this kind of agility within a very fast-moving changing retail landscape and we certainly have demonstrated our ability to move fast. We do foresee a lot of opportunities. We’ll contact quite frequently over the years, certainly since I have joined Cherokee by numerous retailers, numerous manufacturers and distributors who wanted to be part of the Cherokee family. So, we are certainly in a position now to explore and examine all of the opportunities that are available to us as we look forward into the future. As we stated, we do not anticipate any financial impact on our fiscal 2016 revenue and furthermore Target, the license agreement with Target will stay in focus in effect through fiscal 2017. Target was very kind to give us prompt notice and it allows us to leverage all of the skills, ability and talent and infrastructure that’s been put in place to address the future opportunities that are ahead of us.

[Operator:]

Thank you. Our next question comes from the line of Eric Beder with Wunderlich Securities. Please go ahead with your question.

[Eric Beder:]

Good afternoon. Hey, so I want to expand with the Target piece, I know what the agility piece that you have the ability to respond quickly, but how much lead time do you need with a big contract like that to ramp it up to get it to levels? And then, given the low licensing rate that Target had and the somewhat limited category, as you can see or you could actually generate more business from Cherokee than you do right now through Target?

[Henry Stupp:]

Well, I will answer that in two-parts. As you know, Eric, since I joined, our royalty rates have increased dramatically. The original Target agreement was written in 1993 entered into 1995. The royalty rates have not changed since that time. Business has certainly evolved, businesses have changed, we have changed and the royalty rates that we are commanding from our partners around the world are significantly higher. In terms of replacing the revenue as you know, we built an infrastructure that’s designed to speed up the process of getting into new markets by having turnkey platform that designs product and delivers a very robust supply chain involve the marketing assets. Two great examples are what we gave in Canada when we transitioned from our former partner we identified Sears Canada and we quickly made that opportunity happen. Our agility which really took place over a matter of a few short weeks allowed us to form a partnership for – not just the Cherokee brand but for multi-brands in multi-categories and Sears is launching the entire line of Cherokee family lifestyle products in spring of 2016. Another one, another great example is what took place in the United Kingdom with the replacement from Tesco where we transitioned our business from Tesco to Argos and we knew that Argos had a lot of strength particularly in the digital space and we invested in teams to support a July 15 launch when the former partner exited in March. So we know how to work directly with retailers to drive sales and most importantly drive scale, it’s a combination of what we know and the infrastructure that’s been in place and the new financial dynamics of our business lead us to believe that there is strong opportunity for us in the future here at home.

[Eric Beder:]

And conceptually, I know this year, pretty much the Target product has been – should we be thinking for next year that pretty much Target will do kind of the minimum levels for the fiscal 2017 before they transition across? I know, so, I assume this agreement does not include buying and so paying a target?

[Henry Stupp:]

I am sorry, you trailed off in the last part of your question.

[Eric Beder:]

Is this line still going to be at Target?

[Henry Stupp:]

The license agreement of Liz Lange remains in place at this time.

[Eric Beder:]

And should we think about for 2017 a number more such as the minimum there for Target for the Cherokee brand?

[Henry Stupp:]

The commitment that Target has made is to continue marketing the Cherokee brand for the fiscal 2017.

[Eric Beder:]

Okay, all right. Thank you.

[Henry Stupp:]

Thank you.

[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.

[Nick Myers:]

Hello guys, this is Nick Myers on for Dave King. How are you doing today?

[Jason Boling:]

Good.

[Henry Stupp:]

Hi, Nick.

[Nick Myers:]

Hi, so, maybe I’ll take a step away from Target for you guys and I want to know do you guys have any color or initial feedback on the traction following the launch of Point Cove in India as well as the Hawk for Sports Direct.

[Henry Stupp:]

Just recently launched Point Cove in the last couple of weeks and Hawk can get tied to this week or next with Sports Direct to the United Kingdom. So it’s still early. I will tell you based on what both partners have done in terms of product execution and marketing we are extremely bullish and optimistic about results. Sports Direct is the biggest sporting goods retailer throughout Europe and have done an incredible job in both product execution and marketing. In fact, they were one of the title sponsors of the Bull House State Tour in Europe this summer along with MINI Cooper and Sony, so they really see they had in that ring and are going full force in building Tony Hawk in Europe and Point Cove with Reliance Trends where Reliance being a very large Fortune-100 company has made a huge commitment to the Point Cove brand and they launched it as well as four integrated marketing including video and in-store, customer in-store displays and fixtures. So we are very pleased with the product and we think we have a bright future. Generally, in India, we have a very strong future for all of our brands and it’s a focal point of our company as you could see from our slides and our presentation, our Cherokee brand is also performing extremely well in India and in fact most every market it had a great quarter and a great first half to the year.

[Nick Myers:]

All right , thank you very much. Just one more question, if we go look at longer term as we look ahead in about three years, it’s fully reflecting the currently announced licensing agreements but excluding any other future acquisitions. How should we be thinking about the incremental investments to support the current agreements and the EBITDA margins you will be targeting?

[Henry Stupp:]

Well, for the portfolio that’s in place, the infrastructure that’s in place, so it’s not baked into our business. We can see incremental additions, possible deletions as we become more fluid in our approach. We have a flexible system that for our current slate of brands, our product development, sourcing marketing teams are in tact and we don’t see any material additions to that.

[Nick Myers:]

Okay, perfect. Thank you very much and you guys have a good day.

[Henry Stupp:]

Thank you.

[Operator:]

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

[Elizabeth Pierce:]

Hey, good afternoon guys. So, Henry remind me on Argos, are you in all stores right now? I can’t remember.

[Henry Stupp:]

Yes, so Argos has 750 brick and mortar locations plus their catalogue business and their online digital marketplace.

[Elizabeth Pierce:]

Okay, so you are in all 750?

[Henry Stupp:]

Yes.

[Elizabeth Pierce:]

Okay, so, as you think about replacing Target, would it be possible, if we look at the United States to do something or you could be in different kind of channel with the brand, say one channel being online or one being value or something like that. Is that possible or would you even consider that?

[Henry Stupp:]

We obviously – approach to the business, you are absolutely correct, it’s a very good observation. The digital marketplace which many US retailers are still lagging on is a significant opportunity for the Cherokee brand and we plan to ensure that whatever future steps we take there will be a strong digital component of distributing Cherokee products. Separately, Liz, there are many categories that we are being – there are many categories that – from various retailers and manufacturers have expressed an interest in the past as we are now going to be able to explore and strategically address. For example, Cherokee Home and Cherokee Adults are two huge category opportunities that has beyond the interest by many retailers and many wholesalers. So we are going to now strategically segment our business. We are looking at DTR, we look at combinations with DTR and we will look at closer distribution as well.

[Elizabeth Pierce:]

Okay, yes and that would just seem as everyone else have kind of already alluded that given how the structure was with Target limited and rate and scope that, painful at first blush but perhaps longer-term much better and then next…

[Henry Stupp:]

We build Cherokee’s best gates in the United States or facing us with.

[Elizabeth Pierce:]

Okay, and then my next question was just about when you look at Cherokee on a global basis and all the different countries that you are in, where are you from a capacity position, like are you in all of those stores or is that still an opportunity for further expansion either from a product perspective or store perspective or both?

[Henry Stupp:]

Okay, so as I mentioned in our prepared remarks we are going to be announcing new partnerships to complete distribution in Western Europe. There are still a couple of other markets that we are looking to complete distribution on around the world deserving one of them. We have a lot of interest now throughout Europe and Asia, because Europe mostly because of the introduction of Cherokee with Argos rate or profile dramatically and we believe looking then at the flagship partner has created a big opening and a lot of interest from other retailers in the European territory and then in the Asia our continue d success, china and Japan is also bringing all the markets to us. Latin America has been strong and continued s to be very strong and of course the pending merger between Comercial Mexicana’s 120 stores with the Soriana 400 plus locations could dramatically change the nature of the Cherokee business in Mexico as well. So all around the world, the brand is performing, it’s performing well with delighting consumers and they will continue to bring great products to the marketplace with our partners.

[Elizabeth Pierce:]

And presumably, as you have all those products up and running in various different constituencies or geographies, the announcing of a new partnership there really – I think you said right, you don’t anticipate nay additional infrastructure investments that – it wouldn’t really require that much lead time, maybe some tweaking right, but not a lot of lead time?

[Henry Stupp:]

Correct, from an SG&A standpoint, we’ve worked really hard to get the business to where it is today over the last four years. We are very proud of our team. We will be developing exceptional products we are very proud of the assortment that was launched at Argos and our – in our fall 2016 planning with Argos was well underway with Sears Canada. The assortments are going to be very broad with Sears Canada. So, overall, we are seeing an expansion of our business in most major markets if not all major markets.

[Elizabeth Pierce:]

Great. Thank you so much. Best of luck to you guys.

[Operator:]

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Jeff Van Sinderen with B. Riley. Please go ahead with your follow-up.

[Jeff Van Sinderen:]

Henry, maybe you can just remind us what the Cherokee brand did historically in the adult category, because obviously that has not been a focus category, let’s say or it hasn’t been the brick and mortar category for Target. So maybe that would help frame things, I think that might be helpful?

[Henry Stupp:]

Days back into really 2000, up to 2005 it was in excess of $800 million to $1 billion in retail sales.

[Jeff Van Sinderen:]

And that’s just in the adult portion, right?

[Henry Stupp:]

Adults only with Target.

[Jeff Van Sinderen:]

Okay. And have you had interest in the adult business from Argos? I mean, it seems like just knowing kind of what we are not and what transpired with the Point Cove, you’ve actually had people sort of knocking down your doors, so to speak to get the Cherokee brand and you are sort of been in a position of how to turn some people away because it was already licensed and so it’s narrows. So I am just wondering if you think adult is something where there will be interest.

[Henry Stupp:]

Well, few things, first of all, we’ll tell you absolutely and definitively there is interest, secondly, I will tell you around the world, adults is in most major markets greater than children in terms of retail sales. So right out of the box with Argos the radius of our business was stronger than initially anticipated. And Argos is now looking at how to broaden their adult assortment with an even bigger concentration on ladies. And we are seeing the same and putting that to every market except Japan which our partnership is solely a children’s retailer. So the bottom-line is, it’s South Africa, India, China, adults apparel is really a significantly huge opportunity for us and we’ve got all those products set up, keyed up and ready to go.

[Jeff Van Sinderen:]

Okay, good to hear. And then maybe on – in terms of acquisitions, you haven’t changed your strategy there. You continue to be focused on looking at acquisitions correct?

[Henry Stupp:]

Correct. We’ve obviously had lot of discussions at the board level. The company is strong. The company is profitable. It’s profitable on a GAAP basis and we are going to continue to strategically identify additional brands and additional acquisitions that we’ll bring into our portfolio.

[Jeff Van Sinderen:]

Okay, great. Thanks very much.

[Henry Stupp:]

Thank you.

[Jason Boling:]

Thanks, Jeff.

[Operator:]

Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to management for closing remarks.

[Henry Stupp:]

I want to thank everyone who have joined us today. This is an exciting time obviously for Cherokee Global Brands and we look forward to sharing new developments for all of our brands as we continue to embark our new path. Thank you very much. Management is available for follow-up questions and we look forward to sharing additional information as it comes to fruition.

[Operator:]

Thank you ladies and gentlemen. This does conclude our teleconference for today. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.