|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||0||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
|Entry||04/30/2001 02:18 PM|
|Margolis is CHKE. He works 3 days a week and plays a lot of golf-- good thing he's well-connected in the industry. I'd worry that he might start to slack off (!), but his compensation agreement minimizes this risk, I guess.|
|Subject||Correction and Margolis|
|Entry||04/30/2001 09:28 PM|
|Tom- I agree that Margolis makes this company work. I mistakenly wrote that Margolis himself owns 20% of the company-- This is not true, but his compensation plan is tied directly to EBITDA. |
Perhaps he enjoys a golfing lifestyle, but the business is relatively hands-off. Target already owns exclusive rights in the US for the flagship Cherokee brand, and Carrefour is set to grow the brand around the world. And remember, design, manufacturing, and marketing responsibilities lie with the retailer/wholesaler, so CHKE only does occasional quality-control and lets the royalties roll in.
Margolis has inked favorable terms thus far in CHKE's deals, and based on his compensation plan and 20 year history with the company, I'm confident he'll get the job done going forward.
|Entry||04/30/2001 09:35 PM|
|Entry||04/30/2001 09:47 PM|
|I apologize, but I frankly don't see the "sheer value" here. A business based on licensing poorly supported brand names isn't all that attractive from my vantage point. One wonders what Margolis is being compensated for in the form of these agreements. One things for sure though...a dollar earned in the form of capital gains is more valuable than a dollar of ordinary income.|
There's little liquidity in the issue. Performance is erratic. There is no strategy for growth...and he doesn't need my money.
|Entry||04/30/2001 10:25 PM|
|We can argue all day about Margolis' bonus. It may not be ideal, but I don't see that as the main issue here. I think your description of "poorly supported brand names" is a bit off the mark. The value to Target or any other mass retailer of the Cherokee brand is not that it is glamorous and attracts customers, or draws them away from other stores, but it gives customers a recognizable name every time they come in the store. People who buy their clothes at Target aren't the same shoppers who must choose between Gap, Abercrobie, or AEOS.|
Licensing the brand from CHKE is a cheap and efficient alternative to the start-up costs of creating a new brand.
Also, just because CHKE isn't directly involved in the manufacture or marketing side of the brand doesn't mean that this is poorly done. The quality of the merchandise and the in-store display of the merchandise are the most important "support" factors for brands in this lower level of the retail market, and judging by Target's sales growth, they are hardly doing a poor job.
As for eratic performance, I assume you mean in the stock price. The underlying business has been steadily picking up steam for several years, with improving margins, cash flows, and profits. And to the true value investor, business perfomance is the important issue.
The bottom line is this is a fundamentally sound business that should pay for itself in free cashflow within the next 4 years. And that is what Margolis is being compensated for.
|Entry||05/01/2001 08:07 PM|
|I admit to being slightly off on my "erratic performance" comments as the company seems to have strung together a couple years of growth. |
How big is the market for licensing a names (which doesn't seem to receive much media support and likely has marginal customer recognition)to retailers? How sustainable is this business model?
|Subject||Market Size and Sustainability|
|Entry||05/01/2001 09:45 PM|
|Cherokee has no direct competitors, meaning they are the only ones out there with a retail/wholesale-direct licensing strategy. So it is impossible to pin down the market size. (Mossimo copied CHKE's model in Feb. 2001, with direct help from CHKE. This was due to impending bankruptcy)|
But think of it this way: In the US last year, mass retailers (Target, KMart, Wal-Mart, etc) did 10's of billions of dollars of retail apparel sales in a hotly competitive environment. (1.87B of Cherokee products) As retailers continue to work to keep margins up and prices down, more mid-sized, mid-market brands (such as Mossimo) will fail, and CHKE's licensing model will be an attractive escape. Target has been praised in the press for its ability to keep up with current fashion trends and still offer bargain prices. (there's been no mention of CHKE in connection to this, but one must wonder if this is Target's economies of scale at work...) It is a big win for retailers, and it seems to be the direction the industry is heading.
And CHKE, along with Margolis, is at the center of this. They've already capitalized on Mossimo's transition (though possible bankruptcy for Mossimo still stands in the way) and are well positioned to cash in on others-- whether it be through assisting other brands, or through an acquisition of a struggling brand. (Remember, the Sideout acquisition has already proved to be a plug-and-play success)
I hope this helps illuminate the industry and business model. And of course, the 10-k is a great place to hear it from management's mouth too.
|Entry||08/17/2001 08:26 AM|
I've been looking at CHKE, and have a few questions.
The 10Q states: "While all royalties paid under the Amended Target Agreement appear in our consolidated financial statements, since the issuance of the Secured Notes, most of such royalties have been, and most, if not all of such royalties received until the maturity of the Secured Notes, will be distributed to the holders of the Secured Notes."
What is the significance of the sale of the brand to Spell-C? And what is the significance of the zero coupon notes issued? It seems to me that the special dividend paid in 12/97 of $5.50 represented the bulk of expected earnings from the Target agreement as monitized by the zero-coupon notes. Therefore a current shareholder is really not reaping the benefit of the target agreement. Does anyone concur?
|Subject||are you a seller at these leve|
|Entry||01/24/2002 10:22 PM|
|are you a seller at these levels?|
|Entry||06/02/2002 08:38 AM|
|For anyone interested in this company, there is a good article in the June 10, 2002 issue of Forbes.|