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Mossimo Loses Case to Cherokee

The state's high court rules that the Santa Monica design firm owes the Van Nuys company for brokering a deal with Target.

March 19, 2004|Arlene Martinez | Times Staff Writer

After nearly three years of legal wrangling, Mossimo Inc. lost its final appeal Thursday and must pay clothing marketer Cherokee Inc. a finder's fee and other costs that could total as much as $6.7 million plus a cut of future sales for helping the apparel designer land a lucrative deal with Target Corp.

The dispute was effectively ended when the state Supreme Court upheld a lower court judgment in favor of Van Nuys-based Cherokee.

Four years ago, Mossimo inked a design and licensing pact with Target to sell Mossimo brand apparel and accessories at its nearly 1,200 Target stores.

The contract stipulated that Mossimo was to pay Cherokee, which brokered the deal, 15% of its Target sales for the length of the relationship, which recently was extended to 2006.

Cherokee sued Mossimo two years ago when the Santa Monica-based company balked at paying Cherokee certain fees owed under the agreement. Attorneys representing Cherokee successfully argued that the contract called for Cherokee to receive 15% of all of Mossimo's Target revenue -- whether from product licensing or design.

That revenue is substantial. Sales from the Mossimo brand at Target stores represented 88% of Mossimo's total annual revenue of $19.9 million in 2003, according to the company.

Mossimo's deal with Target essentially rescued the once highflying apparel designer from near-bankruptcy, analysts said at the time.

Once a $100-million enterprise with 300 employees, the company founded in 1987 by Mossimo Giannulli had struggled through a series of unsuccessful business ventures in the 1990s.

"While we are obviously disappointed with the Supreme Court's decision ... we do find satisfaction in knowing that we exhausted all avenues of appeal in this matter," Mossimo President Edwin Lewis said in a statement.

The company declined to comment further.

In its year-end financial statement, Mossimo said it had set aside $6.4 million -- including commissions, interest and legal fees -- to pay Cherokee in the event it lost its appeal.

Last week, Mossimo reported fiscal fourth-quarter profit of $693,000, or 4 cents a share, including a charge for a deferred tax asset, compared with $5.4 million, or 35 cents, for the same period a year ago. Sales increased 15% to $3 million.

The outcome "was what we had been hoping for," said Cherokee Chief Financial Officer Russell Riopelle. "We're hoping we can all put this behind us and we can ... continue going forward."

For its most recent period, Cherokee reported fiscal third-quarter profit of $2.5 million, or 29 cents a share, compared with $2.1 million, or 25 cents, a year earlier. Sales rose 11.3% to $6.7 million.

Like Mossimo, Cherokee licenses its brand to Target for clothing and accessories.

Mossimo shares fell 5 cents to $3.86. They have lost 18% in the last year. Cherokee shares rose 1 cent to $21.80. Cherokee's stock has gained 46% in the last year. Both stocks trade on Nasdaq.

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