Cherokee Quarterly Report Hints at Insolvency

Cherokee Inc. could face the prospect of bankruptcy, the company announced in an earnings report on Thursday. The Van Nuys fashion licensing company, which conducts business as Cherokee Global Brands, has substantial liquidity issues and may be unable to pay down its long-term debt, raising “significant doubt as to the ability of Cherokee Global Brands to continue as a going concern,” the company stated in its quarterly filing. The company is carrying $49.1 million in liabilities, according to a filing with the Securities and Exchange Commission. Cherokee first acknowledged uncertainty over its credit situation in an annual report in April. To address its debt, Cherokee plans to negotiate new terms with one of its primary lenders, Cerberus Capital Management. It will also seek extensions from other creditors and attempt to raise additional capital investments. “We continue to take actions to resolve our liquidity challenges, and we’re optimistic that our efforts to resolve the noncompliance with our existing credit agreement will result in an acceptable outcome,” Chief Executive Henry Stupp said in a statement. Shares of Cherokee (CHKE) fell by as much as 6 percent in after-hours trading following the announcement of quarterly losses of $2.74 million (-20 cents a share). Analysts predicted a net loss of -9 cents a share, according to Thomson Financial. Net operating losses amounted to $200,000 for the quarter. Revenue fell 21 percent year-over-year to $5.4 million. Cherokee reported a net loss of $45.6 million last year, reflecting a $35.5 million impairment charge stemming from “significant changes to the company’s cash flow projections based on recent experience.” Cherokee shares closed Thursday unchanged at 85 cents a share on the Nasdaq.