Cherokee: Highish PE, but No debt, Top Line Growth to Increase – ValueWalk Premium

Cherokee: Highish PE, but No debt, Top Line Growth to Increase

Cherokee Inc.


Cherokee Inc. markets and licenses Cherokee and Sideout brand products. The Company has licensing agreements worldwide in a range of categories, including family apparel and fashion accessories, as well as luggage, cosmetics, and footwear. The company owns various trademarks, including Cherokee, Sideout, Sideout Sport, Carole Little, Saint Tropez-West, Chorus Line, and All That Jazz. It also assists other brand-owners, companies, wholesalers, and retailers in identifying opportunities as a licensee or licensor for their brands or stores.

Cherokee: Highish PE, but No debt, Top Line Growth to Increase

Stock Snapshot

As of 27th September 2012;  the stock for Cherokee Inc. (NASDAQ:CHKE) stood at USD 14.65 per share with a total market capitalization of USD 122.97 million. The stock is trading at a P/E ratio of   19.6, a P/S ratio of 4.7 and a P/B ratio of 10.7

Competitor Analysis

Limited Brands, Inc. (NYSE:LTD) operates as a specialty retailer of women’s intimate and other apparel, beauty, and personal care products and accessories primarily in the United States and Canada. The stock traded at USD 49.64 with a P/E ratio of 20.67 as on 27th September 2012.


Financial Highlights

Top line

For the 6MFY13, the company registered net royalty revenues of USD 13.8 million as compared to USD 13.6 million for 6MFY12 achieving YOY growth of 1.6%. Revenues from  Cherokee Inc. (NASDAQ:CHKE) brands were USD 12.9 million during 6MFY13 as compared to USD 11.8 million for the comparable period last year resulting in an YOY increase of 9.3% The major contributors to this increase were the royalties received from “Target Corporation (NYSE:TGT) stores ” and “Zeller stores ” which partially offset the declines in royalties from “Tesco PLC (LON:TSCO) (PINK:TSCDY) stores ”.

Net Earnings

For 6MFY13, the company reported net earnings of USD 3.68  million as compared to  net earnings  of USD 4.92  million in 6MFY12. The earnings per share of the company decreased by 24% YOY to finish at USD 0.44 per share for 6MFY13. Selling, general and administration expenses as a percentage of revenue were recorded at 56.4% for 6MFY13 as compared to 53.4% for 6MFY12. The selling general and administration expenses for 6MFY13 were higher by USD 0.5 million when compared to the corresponding period last year mainly due to higher stock option costs relating to directors. Also the company incurred a higher tax expense as indicated by an effective tax ratio of 38.3% during 6MFY13 as compared to a ratio of 21% for the comparable period last year. The lower effective tax rate in 6MFY12 mainly related to a tax refund received in that period.


Financial Position

As at 28th July’ 2012, the company had USD 2.1  million in cash balance translating in a cash value per share of USD 0.25. At the beginning of the period the Company had a cash balance of USD 7.4 million which decreased due to the company’s prepayment of interest and principal outstanding under an agreement with a U.S. bank. The company had no debt as of 28th July 2012 and had a book value per share of USD 1.37


Value Investors should watch out this stock due to the following reasons:

  • No debt!
  • The top line of the company is will be favorably impacted by revenues from “Target Stores” Future revenues from “Target Corporation (NYSE:TGT) Stores” , for the remaining six months of Fiscal 2013, will likely be higher when compared to the  revenues from “Target Corporation (NYSE:TGT) Stores” in Fiscal 2012 during such period, as the company’s  presence in certain apparel categories and existing categories at Target is expected to grow.
  • Low price in terms of relative value indicators!


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