Cherokee's (CHKE) CEO Henry Stupp on Q1 2018 Results - Earnings Call Transcript

Cherokee Inc. (CHKE) Q1 2018 Earnings Conference Call July 6, 2017 4:30 PM ET

Executives

Laura Bainbridge - IR, ADDO Communications

Henry Stupp - CEO

Jason Boling - CFO

Analysts

Eric Beder - FBR

Dave King - ROTH Capital Partners

Operator

Greetings, and welcome to the Cherokee First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. And interactive question-and-answer sessions will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Laura Bainbridge. Thank you. You may begin.

Laura Bainbridge

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. Forward-looking statements are neither a prediction nor a guarantee of future events or circumstances, and are based on currently available market, operating, financial, and competitive information and assumptions.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expected or projected including, among others, risks that the financial results to be reported in the Form 10-Q will differ materially from those disclosed on this call. Cerberus will terminate its obligations under the credit facility, accelerate the payment on any unpaid balance of the credit facility, and exercise any other rights it may have including foreclosing on the Company's assets disclosed as collateral to the loan, but the Company's quarterly report on Form 10-Q will not be filed as anticipated, and that further delays in such filing could cause the Company's lenders to exercise the rights under the credit agreement or the Company's stock to be de-listed from NASDAQ.

The anticipated benefits of the Hi-Tec acquisition will not be achieved; global economic conditions and the financial condition of the apparel and retail industry and/or adverse changes in licensee or consumer acceptance of products bearing the Company's brands may lead to reduced royalties; the ability and/or commitment of the Company's licensees to design, manufacture and market Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Carole Little, Tony Hawk and Hawk Brands, Liz Lange, Everyday California and Sideout branded products could cause the Company's results to differ from its anticipations.

The company's dependence on a select group of licensees for most of the Company's revenues makes them susceptible to changes in those organizations; and the Company's dependence on its key management personnel could leave them exposed to disruption on any termination of service. The risks included here are not exhaustive. Other risks and uncertainties are described in the Company's annual report on Form 10-K filed on May 18, 2017, its periodic reports on Forms 10-Q and 8-K, and subsequent filings with the SEC we make from time to time, including the preliminary prospectus supplement that we filed in connection with the offering described herein.

Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Certain of the information set forth herein, including non-GAAP SG&A, non-GAAP operating income, EBITDA, and non-GAAP net income may be considered non-GAAP financial measures.

Cherokee believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the operating performance of its businesses and its cash flow, excluding expenses related to professional fees from legal and due diligence for actual and potential acquisitions, and business development related to the identification and establishment of new brand licensees that would normally be included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles, GAAP. In addition, the Company's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company's operating performance, capital resources, and cash flow.

Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP, and non-financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. The non-GAAP measures are described above and are reconciled to the corresponding GAAP measures in the condensed consolidated financial statements portion of this release under the heading GAAP to Non-GAAP Financial Metrics.

And with that, I'll hand the call over to Cherokee's Chief Financial Officer, Jason Boling.

Jason Boling

Thank you, Laura, and good afternoon everyone. I will start today's call with a detailed review of our first quarter fiscal 2018 financial results, and we will then walk through our brand and partner highlights before we open up the call for your questions.

So, starting with a recap of our financial results, consolidated GAAP revenues for the first quarter, which includes the first full quarter of revenue from Hi-Tec were $11.1 million. Cherokee Global Brands revenues, excluding Hi-Tec, were $5.2 million compared to $10.7 million in the prior year period. The year-over-year decrease of $5.5 million which excludes revenue from Hi-Tec reflects the expected decrease in North American revenues relating to the Cherokee brand as we transition from Target to our new wholesale licensees.

Historically, the deescalating royalty rate associated with our legacy Target relationship drove higher revenues in the first half of the year, although the actual retail sales of Cherokee products at Target were weighted to the back-half of the year. Moving forward, we expect our financial performance to more closely reflect traditional retail seasonality with higher revenue and profit in the second half of the year.

Hi-Tec revenues for the quarter were $5.9 million, and are comprised of two components: indirect product sales and licensed revenue. Indirect product sales, which carry a cost of goods sold, were $4.2 million and represent sales to certain distributors and government contracts. Licensed revenues stemming from new and existing licensing deals from the Hi-Tec portfolio of brands including Hi-Tec, Magnum, and Interceptor were $1.7 million in the first quarter.

As we previously noted, we plan to transition the majority of our distributor agreements to territorial license agreements, with the timing to be dictated by the nature of the individual contracts. By way of example, during the first quarter, we transitioned our Magnum indirect sales business to a new [French] [ph] distributor who has assumed the role and responsibility for sales, inventory, and servicing, and growing the business in this territory.

GAAP selling, general, and administrative expenses were $10.2 million, compared to $6.4 million in the prior year period. The year-over-year increase was primarily due to the inclusion of operating costs for Hi-Tec, of $3.6 million, which includes accounting, legal, integration, and restructuring costs incurred during the first quarter.

As we've noted in previous filings and earnings calls, our SG&A expenses have been elevated relative to historical periods as a result of our integration activities and the infrastructure buildup relating to the introduction of apparel, accessory, and outdoor product categories which would begin to hit retail during the third quarter of this year. We expect to see a reduction of the aforementioned expenses during the remainder of fiscal 2018 as we complete our integration activities and launch with our new licensees. Non-GAAP SG&A, which exclude certain accounting, legal, integration and restructuring costs with $8 million.

Excluding Hi-Tec non-GAAP SG&A, of $2.9 million, Cherokee non-GAAP SG&A rose $5.1 million compared to $5.7 million in the prior year period. Non-GAAP operating income excluding the aforementioned costs totaled $100,000 or 1% of revenues for the first quarter of fiscal 2018. This compares to $5 million or 47% of revenues in the prior year period. This change is largely due to the transition to new U.S. wholesales licensees for the Cherokee brand and the change in seasonality of our business as Q1 will no longer be at the largest revenue quarter, and is reflective of the switch from a DTR model to a wholesale model in the U.S.

GAAP net loss for the quarter was $3.3 million or a loss of $0.25 per share compared to GAAP net income of $2.6 million or $0.29 per share in the prior year period. Excluding the aforementioned costs, non-GAAP net loss for the quarter totaled $900,000 or $0.07 per diluted share. This compares to non-GAAP net income of $3 million or $0.34 per diluted share in the prior year.

Adjusted EBITDA for the first quarter of fiscal 2018 was $700,000 compared to $5.4 million for the prior year period. Adjusted EBITDA also excludes the aforementioned legal due diligence integration and restructuring costs. At April 29, 2017, our cash and cash equivalents were $5.7 million, compared to $8.4 million at January 28, 2017. Net debt for the quarter was $43.3 million.

As you know, we have not yet filed our quarterly report on Form 10-Q, but we are optimistic that we will be filing in the next few days. Part of the reason for the continuing delay has been our desire to complete a pending amendment to our credit agreement with Cerberus.

On June 27, 2017, the company obtained forbearance from Cerberus regarding the company's failure to company with certain covenants set forth in the Cerberus credit facility. Pursuant to the forbearance Cerberus has agreed that it will not exercise its rights or remedies under the Cerberus credit facility through July 7, 2017. The company is in advanced discussions with Cerberus to amend the credit facility, but the terms and timing are subject to uncertainty. Of course the situation exposes us to risks, including Cerberus' right to terminate its obligations under the Cerberus credit facility and accelerate debt.

At this time, however, we expect that we will be able to obtain the appropriate amendments and waivers in the credit facility prior to the end of the forbearance period of filing of the Form 10-Q in the near term. And Cerberus has also indicated that they will extend the forbearance period while we finalize the term of the amendment. We will provide further updates to our guidance during our September earnings call as we head to the important fall and holiday season. Additionally, the company expects to provide an outlook of its fiscal 2019 business specifically relating to brand and territory expansion and normalized run rate.

Thank you for your time. I will now turn the call over to Henry.

Henry Stupp

Thank you, Jason. Today I will focus on quarterly brand highlights, and in particular the retailer/wholesaler franchise and indirect revenue updates that occurred during our first fiscal quarter. I also look forward to updating you on Hi-Tec, our integration work, and other brand developments. And finally I'll provide some additional perspective on the consumer landscape, and how we are proactively addressing shifting consumer behavior and accelerating change.

Together with our shareholders, licensee partners, and our team, we enter fiscal 2018 as a year of significant transition for Cherokee Global Brands. Over the past few years we've established a platform that has created diversified and balanced revenue streams, and will have concluded several acquisitions to broaden our brand portfolio. As always, our priority is to remain focused on driving organic growth for our portfolio of high equity brands while we integrate these acquisitions.

We will continue to consider additional opportunistic acquisitions while still within our product competencies and our global distribution network. Before I delve into brand updates, I'd like to address shifts in our revenue patterns and timing. For the first time in our 20-year history we will follow revenue parameters that are more consistent with the retail and fashion industry metrics, whereby we expect to generate approximately 60% to 65% of our revenue in the back-half of the year. Our recently reported fourth quarter revenue is a strong indication of the power of our expanded brand portfolio, especially considering the timing of the Hi-Tec acquisition which closed late in the fourth quarter.

This change, largely driven by licensee generated sales is quite different from our legacy domestic DTR relationship through which our first quarter revenues were disproportionate to the actual product sales in the quarter due to the royalties paid in the high-end of the deescalating royalty rate. In our legacy model, even though retail sales of Cherokee probably grew as the year progressed, particularly in the all important Q3 and Q4 holiday seasons, the deescalating rate in place resulted in lower royalty revenues. Today, our business model is more balanced and demonstrative of our go-forward strategy, where revenues will be more balanced across brands, product category, and territory.

As we continue to evolve our model, we believe we will generate profits through diversified revenue streams and include direct to retail royalties along with wholesale royalties, franchisees, and gross profits through indirect sales, all of which are part of our deliberate diversification strategy. While we expect a shift in model, it will take time to be reflected in the Street's models, we're confident we're better positioned today to address retail's changing landscape than ever before. Retail as I've mentioned, is moving fast, and it is clearly a time of tremendous change, and Cherokee Global Brands has been ahead of change from the beginning. Just as we anticipated the needs to forge direct to retail license agreements and immersive brand relationships with retailers back in the early 90s, we're now pursuing a diversification strategy that over the next few years we bring our brands closer to consumers than ever before. Nothing else we'll do as retailer shift their resources to digital, and as consumers have elevated expectations for making direct connections with brands.

At the same time, convenience is often as important or even more important than price to today's consumer. As part of that, we must meet consumers, where they shop, which slowly aligns with our diversified go-to-market vision to include retail and wholesale and direct-to-consumer outreach on a global basis. The constraints of our past DTR relationships will no longer limit our future. And we're already seeing how incredible the opportunity is for our brands. For example, this fall, the broadest selection of Cherokee product categories for adults and kids in over two decades will be available to U.S. consumers. Along with our exceptional group of licensees, we are very proud of the early results we have worked so hard to achieve. The combination of our capabilities platform and our lifestyle brand portfolio will propel our future growth, ensuring that our brands stands out and reach out to consumers in important new ways.

The growing diversity of our lifestyle brand portfolio will further balance and synergize each of our Brand Portfolio segments, such as our Active, Wear to Work, and Retail Life style categories. We can strategically pursue emerging opportunities in key segments like the Active and Wear to Work Lifestyle spaces, which was a big driver for our Hi-Tec acquisition. The growing diversity of our capabilities platform drives similar synergies, leveraging our traditional strength in direct-to-retail, we're balancing it with expanded wholesale licensees and distributed partnerships and franchise retail, supported by our direct-to-consumer outreach.

I'll now share few brand updates with you, starting first with our Namesake Cherokee brand. Revenues for Q1 were $2.8 million; a decrease of 66% over the same period last year. The year-over-year decrease reflects the wind down of our relationship with Target stores in the U.S, which was offset by revenue increases driven by growing global demand from Cherokee branded products. As mentioned under our new U.S. distribution model, our quarterly revenue contribution will reflect more traditional retail seasonality as revenue is more heavily more weighted towards the second half of the year.

Speaking of the U.S, we're encouraged by the early sales performance of our spring 2007 multi-category launch for the Cherokee brand. Product sales were strong and reorder activity is accelerating and tracking positively. You can expect more products more often and in more doors as we continue our path towards realizing the full potential of our high-equity Namesake brand. During the quarter, our licensees began distributing Cherokee branded products regional and national specialty chains in addition to the e-commerce channel. We are confident that we will reach 5,000 U.S. retail doors by the end of this calendar year. And since we last spoke, we have further expanded our domestic retail base to include national retailers, regional specialty, and department stores.

Our strong performance of retail and expanded distribution increases our confidence in our brand prospects in the U.S. And I'll stress that we are taking a deliberate and strategic multiyear approach to replacing our legacy business in the U.S. for the Cherokee brand to ensure that it will continue to grow for many years to come. Also in the U.S, we're gearing up for the important back-to-school season, and are pleased to report that we have obtained several significant Cherokee school uniform commitments from partners who considered Cherokee a best-in-class brand with significant full year distribution upside. Outside of the U.S., we remain very pleased with the growing consumer awareness, demand for Cherokee's iconic lifestyle products across the globe.

I will turn now to developments in our Active Lifestyle Brands segment, specifically our Tony Hawk brand. Hawk revenues for Q1 were $1.3 million, an increase of almost 7% over the same period last year, reflecting continued growth in key international territories, including Canada. In addition to our very recent launches in Argentina, plus our future plans launches in South America, and our ongoing business in the U.K. with our planned expansion through our Europe later this year. Further driving expansion for Tony Hawk would be our new U.S wholesale licensing relationships, which have began to seek new orders for an expanded distribution of our products starting now.

We're especially excited about our expansion into additional distribution channels in the U.S., including specialty retail, Amazon.com, Walmart.com, and with national and regional retailers where the brand has historical been under represented. This newly expanded distribution will include additional categories that have been absent from retail for quite some time, including our recently signed Master Accessory Partner, and we're in final contract discussions with potential licensees for full leg socks, underwear, and sleep wear.

Internationally, we're finalizing our go-to-market strategy in Asia, which will encompass both freestanding stores and wholesale distribution with a particular emphasis on Japan, China, Korea, and Indonesia. We're particularly excited to be expanding our Tony Hawk presence in this important region.

I will now turn to the performance of the retail lifestyle brand, Flip Flop Shops; their newly refined model is starting to deliver positive results. Our revenues for Q1 were down slightly 6% to $336,000 on the same period last year. Same-store sales in the U.S are getting stronger with a year-to-date increase of 4.2% through June. And we're encouraged by our performances as we head into the important summer season.

A robust integrated monthly marketing campaign and promotional events calendar is driving growth and success for our franchisees. Product exclusives, such as Richmond's Marvel Time Spider-Man is an example of our efforts that are expected to drive sales and increase consumer engagement. As I mentioned in my opening remarks, the strength of our platform in this case, our marketing media support arm helps drive our portfolio success. We're expanding Flip Flop shops footprint in partnership with large scale franchisee partners, and we intend to announce new partnerships in the coming months. As I noted in previous calls, new distribution channels and format innovations, including freestanding stores, our floating retail, and shop-in-shop concept with specialty retailers are cornerstones of our strategic growth plan for Flip Flop Shops. At the same time we we'll continue to explore synergies between our profile of high equity brands and our Flip Flop Shops e-commerce platform.

Turning to our Active Lifestyle segment, the sales, marketing, and product development integration of Hi-Tec is on track and nearing completion, putting us in line with the six-month timeframe we identified at the time of acquisition. Overall, we continue to be very pleased with the acquisition of Hi-Tec, which builds upon a platform of high-equity brands while diversifying our global points of distribution. Licensing revenue generated from the sale of Hi-Tec-related brand products continue to align with our expectations.

Revenues for Q1 were nearly $6 million, which included $1.7 million in revenues from our licensees, and $4.3 of indirect product sales from our distributors. In partnership with our licensees, we're expanding the distribution of our core footwear and introducing Apparel and Accessory program for men and women, and children throughout Western, Central, Eastern Europe and Middle East, while expanding our core footwear businesses in the U.S., Latin America, and a fast-growing footprint in Asia. Under domestic front, we're excited today to announce that we have executed license agreements with two very established partners for apparel and accessories for the U.S. and Canada. The details of which we expect to announce in the coming weeks. These new licenses will join 28 Hi-Tec, Magnum, and Interceptor licensees around the world, and have over 50 distributors at service our brands in over 100 countries.

We also look forward to showing you details of our expanding distribution on major territories, which include national and regional department stores, market-leading retailers in the sport specialty channel, and major ecommerce retailers. As previously announced, we expect retail availability for new category introductions, including apparel and accessories to begin as early as the third quarter of fiscal 2018.

In our Wear to Work segment we're in the process of securing major contracts for the Magnum brand for tactical, military, service industry construction footwear. Today, we have over 60 government contracts, and we're focused on strengthening distribution for these high-growth categories domestically and internationally by expanding our product assortment to include apparel and accessories which we will launch midway through calendar 2018. Our acquisition of Hi-Tec is quickly rating to new opportunities with major retailers. By way of example, sales of our Interceptor brand footwear at Walmart have grown 30%year-over-year, and we anticipate more exciting news in the non-footwear product expansion and market penetration worldwide based on new distribution opportunities already in progress.

In summary, fiscal 2018 is off to a good start. During the first quarter we further diversified our global points of distribution, and growth upon the awareness of our high equity brands through category expansion and new format initiatives. Our financial performance will increasingly reflect the benefits of this diversification across geographies, channels, retailers, and product categories. And at the same time, we're focused on reducing corporate expenses with a focus on increased productivity, eliminating redundancies, and continued integration with our global operations to leverage the unique capabilities that we now control globally. We have a clear vision for our future and where we are taking our brands. The agility to move with the accelerating pace of retail and the ability to achieve success in a global scale as never before, and we remain confident in our proactive strategy.

One final note, we are pleased to announce that Bob Galvin has succeeded Jess Ravich as our new Chairman of the Board of Directors. On behalf of our Board and the entire management team, we couldn't be more pleased to have Bob assume greater responsibility where our team can benefit from his experience and strong industry knowledge. Jess Ravich shall remain on the board of Cherokee Global Brands. Jess has been and remains one of the strongest supporters of Cherokee Global Brands for which we offer our sincere gratitude for his availability, his guidance, and tireless support during these most interesting times. Notably, and with difficulty, Jess made the decision to step down due to his other roles which require more of his time.

Thank you for joining us today and for the continued interest in a more balanced, diversified enterprise. I believe that our focus on our long-term strategic plan has allowed us to navigate through the many transitions that remain inherent in our industry.

I'll now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Eric Beder from FBR, please go ahead.

Eric Beder

Good afternoon.

Henry Stupp

Hi, Eric.

Jason Boling

Hi, Eric.

Eric Beder

Hi. Could you talk a little bit about some of the online things you're doing, I know you took Flip Flop Shops online this quarter, and kind of what were the initial impressions and where do you think that can go?

Henry Stupp

So, our strategy is long-term we asked ourselves what is important as a brand owner. And we view that we must start developing direct connections with the end user of our products, whether it's through franchise retailer or direct through retail license relations, or wholesale license relations, in this particular case the ecommerce platform that we developed were Flip Flop Shops. In the few months since its launch we've had over 60,000 unique visitors, and we're now able to start marketing our brands directly to the consumers, and forging what we hope will be a long-term link and connection between the customers of our brands, and ourselves. And that will allow us to further maximize our marketing opportunities.

So, Flip Flop Shops is the first of what is planned to be several platform operations where we're able to bridge the supply chain directly through the fulfilling the consumer orders, but that is taking on [technical difficulty] inventory position. And subsequently we intend to introduce additional platforms for other brands like Hi-Tec which we're already marketing online in certain countries. Of course Cherokee, Tony Hawk, et cetera. Separate to the platforms that we own, we are of course marketing through the largest ecommerce retailers like Shoes.com, Zappers.com, Walmart.com, Amazon.com, and we continue to grow quite quickly with those retailers. We are still very strong proponents of brick-and-mortar, but we also believe that we must market our brands to where consumers are shopping today more than ever before.

And clearly more and more consumer traffic is being driven to the ecommerce channel, and I'm very please with the -- not only the commitment that the ecommerce retailers have made to our brands, but when we review the number of categories that are being purchased specifically on Cherokee, for example, as we head into fall, the fact that we're going to have a broad representation of men's, women's, boys/girls accessories products and - accessory and apparel products is something that we're pleased is moving us into the right direction for the future.

Eric Beder

Great. And you've talked before about leveraging Hi-Tec's expertise in shoes into other brands, including your own portfolio. Where is that, and how do you see that rolling out as we go forward?

Henry Stupp

Well, there's a combination of things to answer your question. Presently Hi-Tec brand office in Amsterdam is taken over design of our Tony Hawk footwear, which we'll be announcing our plan probably in August. With great excitement we've redesigned what the future of the skate show should look like, and we've worked very closely with Tony who is working directly with our team of designers. And we're incorporating a lot of the technologies that we own, the patents that we own, the badges of honor as I've come to learn to call them, to incorporate them into what the future of the skate shoe should look like. But taking that knowledge we can then also leverage the distributors who sell the Hi-Tec product through a distribution channel that's relevant for, not only our Tony Hawk brand, but even our Everyday California brand.

So we're able to accelerate the distribution of our product by not always having to go through a license agreement, but by just making product available through an existing supply chain for brands that we own directly through distributors who are already used to dealing with the Hi-Tec operation in Amsterdam. So we believe that in the particular case of Tony Hawk and Everyday California we're going to be able to accelerate our growth on those two brands internationally just by leveraging the existing distributor relationships that exist.

Eric Beder

Great. And the final question, kind of little bit of the border, Henry, talk to us about Sears Canada, I know they were or are a Cherokee licensee for Canada. What are you guys going to do now that they've gone bankrupt?

Henry Stupp

Well, we have to -- we're in a bit of a standstill due to the CC-AA. We have for several months been introducing ourselves to other retailers in Canada. I suspect that while Sears is working through whatever steps they're going to take to work through, we're ready to service the Canadian market by expanding our U.S. licensees' territory. I personally met with the larger retailers in Canada who have expressed an interest in Cherokee. The fastest way for us to service that demand and that need for merchandise is to allow our U.S. licensees who already do business with Canada's larger retailers to just expand the territory, it'll be simple for us, products are already approved. They have familiarity, they have relationships, we have relationships. And ultimately we're disappointed with the turn of events with Sears but we started to see the writing on the wall several months back, and we took the steps necessary to move into the future.

Eric Beder

Okay. Good luck for the rest of the year.

Henry Stupp

Thank you.

Jason Boling

Thank you.

Operator

[Operator Instructions] And our next question comes from Dave King from ROTH Capital. Please go ahead.

Dave King

Good afternoon Henry and Jason.

Henry Stupp

Hi there Dave.

Dave King

I guess first off on the Hi-Tec side. I guess particularly the indirect business, it was a bit lower than I expected, and down sequentially. I get some of that seasonal, but it was also contributing from more the quarter. I guess can you talk about what might have drove that in the quarter. And then I guess more importantly how should we be thinking about that versus the annual guidance for gross profit that you originally laid out, of $19.2 million. I think that sort of implies 15%-16% seasonality in the first quarter. Is that the right way to think about it, and I guess just how you're feeling about that annual guidance for Hi-Tec.

Henry Stupp

Yes, so in terms of the -- we can look at it sequentially going from Q4 into Q1. Q4 -- as we move through the year, Q1 is the smallest quarter, and Q2 is slightly larger, and similar to what we stated in our prepared remarks in the Cherokee business, we will now be weighted to 60% to 65% of our sales in the back-half of the year. So in terms of where our revenues came in for Q1, it actually did meet our internal forecasting. So I know the street models were different, but in terms of revenue we were in line with what our expectations were in Q1. And we do expect to build up as we progress through the year, not only on Hi-Tec of course, but in all of our brands. And so that's hopefully helpful to answer your question.

Dave King

All right that does help. And so -- and now - actually my next question was been on the legacy Cherokee side, when that's sort of 17% seasonality, which I think is a little bit lower than traditional retail seasonality. But it sounds, Henry, from your comments that it's still fair to be thinking about the annual guidance targets that you've laid out, are those still reasonable assumptions since you're on track with your internal plans? Or should we -- is it fair to be a little bit more cautious right now just given the retail environment?

Henry Stupp

So we're in line with our plans on Cherokee. I would like, in terms of our internal forecasting, we're in line with where we expected to be after the first quarter, and in the second quarter. We are cautiously optimistic. We did take a conservative approach to the Cherokee business domestically because we knew the transition would be tough. We knew it would be tough because Target was an exceptional partner for almost two decades. That's been good in terms of the awareness of the brand, but it also had to allow a punitive time for the brand to exit Target for other retailers to see that it was free and clear to move forward. Now that we've done that our licensees who are extremely supportive of the brand have started to buy more inventory to service the business.

So they are doubling down on Cherokee as we move forward by taking a bigger in-stock position because the initial sell-throughs were strong, albeit it was small, and I think I read somewhere that it was teaspooned in at the beginning, which is accurate. As each month progresses more and more business is being done and more and more doors are being opened. And we had to focus first and foremost on identifying good licensees, and we accomplished that. Secondly, we had to make sure that our licensees were able to develop great product, and we did that, not only great product, but great product at a great value. And then third, we had to make sure that what got put into retail was going to perform at whatever levels it was sold, whether it was a big owner or a small owner we had to make sure that the product performed. And product has been performing at retail. We now need more of it, and as time will progress we do expect that there will be more and more product available, and sales will grow.

Dave King

Okay, that's all very helpful commentary, so thank you there. And then I guess maybe one, I think for Jason, so regarding Cerberus, it sounds like you obtained the forbearance through tomorrow. I guess just -- I don't know what you can say, but what at this point is required to get another amendment, what covenants are in violation of - you know, would you have to get your Q then filed by tomorrow, or is that something that would be in the amendment. I guess can you just talk through some of the various items that we need to be thinking about, or that you can talk about…

Henry Stupp

So I'll answer that. So we're in ongoing discussions with Cerberus. We are quite confident that we will reach an agreement regarding an amendment to the credit facility. The covenant was more of a technical breach, which is being remedied and it related to mostly the timing of the cause of the acquisition. So we're not going to go into too much detail; everything will be obviously properly disclosed as we reach an amendment, which we're confident that all parties are working together, Cerberus has indicated that they will extend the forbearance period, while we work through the terms of the amendment. And we remain confident that we will work through this, and we will be back on track sooner.

Dave King

Okay, glad to hear. Thanks for taking all my questions, and thanks for the call. Good luck with the rest of the year.

A – Henry Stupp

Thanks, Dave.

Operator

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

Henry Stupp

I'd like to thank everyone for the continued support of Cherokee. Clearly, we are working on a new future and with the great portfolio of brands it's a combination of our pillars or platform in our portfolio that will allow the company to grow. As I mentioned earlier, coming September, we'll start to provide an indication of our business outlook as we head into next year. We're a growth-oriented company with solid fundamentals in place. And I believe that as we head into the future, the future will yield positive results. So, thank you for your attention. And Jason and I are available for separate phone calls as needed.

Operator

Thank you everyone. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.