Cherokee Inc. (NASDAQ:CHKE)
Shares of Cherokee Inc. (NASDAQ:CHKE) plunged to multi-year lows after the company reported a surprise first-quarter net loss. The stock was down 36.13% in Friday’s trading session, and ended the week at $4.95 a share, as investors questioned the company’s financial health after it failed to comply with certain credit facility covenants.
Q1 Net Loss
Cherokee Inc. (NASDAQ:CHKE) is a marketer and manager of a portfolio of fashion and lifestyle brands. The company also maintains license and franchise agreements with leading retailers and manufacturers in over 110 countries. Some of its notable brands include Liz Lange, Completely Me, Hawk and Tony Hawk. The company also performs a range of services that include solicitation of licensees, contract negotiations, and maintenance of licenses.
Investors continue to question the company’s growth prospects after it reported a first-quarter net loss of (-$3.3) million compared to a profit of $2.6 million in Q1 2017. Chief Executive Officer, Henry Stupp has sought to quash concerns by reiterating that 2018 has a solid start even with the massive loss.
“During the first quarter, we continued to make progress in diversifying our global points of distribution and building upon the relevance of our high-equity brands through category expansion and new format initiatives,” said Mr. Stupp.
Consolidated Revenues in the quarter totaled $11.1 million including royalty revenues of $6.8 million.
Revenue Growth Push
Cherokee Inc. (NASDAQ:CHKE)’s business model is more balanced than ever according to the Chief Executive Officer. The CEO expects 2018 revenue to be evenly split across brand, product, category, and geography going forward. Expanding the current distribution channel is top of the agenda as the company looks to generate a substantial amount of value during the back-to-school season.
The company is also working on expanding its domestic portfolio through the Tony Hawk brand. Cherokee has already inked deals with a number of US wholesale licensee expected to lead to more orders for Hawk orders starting this July.
Debt Refinancing Concerns
Compounding the stock’s woes on the Street after a Q1 net loss are reports Cherokee Inc. (NASDAQ:CHKE) failed to meet some of its financial obligations under the Cerberus Credit Facility. The company has confirmed it is in discussions with Cerberus as it seeks to amend the Credit Facility. Failure to reach an agreement and expiration of the Forbearance period would pave way for Cerberus to accelerate the debt.
I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.
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About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms