Mossimo Inc. Signs Major Licensing Deal with Target Corporation and Reports Fourth Quarter and Fiscal Year 1999 Sales and Earnings

Business Wire, March 28, 2000

Business Editors

IRVINE, Calif.--(BUSINESS WIRE)--March 28, 2000

Mossimo, Inc. (NYSE:MGX), a modern lifestyle branded apparel company announced today that it has entered into a major, multi-product licensing agreement with Target Corporation (NYSE:TGT). The company also announced financial results for the fourth quarter and fiscal year ended December 31, 1999, as well as the resignation of its President and Chief Executive Officer, Edwin Lewis.

According to the licensing agreement, Mossimo, Inc. will contribute design services and license the Mossimo trademark to Target Corp. in the U.S., in return for royalties with substantial guaranteed minimum payments. Target will collaborate on design and be responsible for product development, sourcing, quality control and inventory management. Under this agreement, Mossimo will not be responsible for carrying any inventory. The licensed product line will initially include men's and women's apparel, but may be expanded to include all soft line categories, fragrances, other accessories and house wares, not subject to existing license agreements with other licensees, and will be distributed through all 923 Target stores across the U.S. Mossimo's existing licenses will remain in effect. Although specifics of the deal were not disclosed, the three-year sales guarantee beginning February 2001 is $1 billion.

Mossimo Giannulli, Chairman and Creative Director of Mossimo, Inc. commented, "We are pleased to announce this alliance with Target, as this arrangement combines our design vision and marketing philosophy with Target's national reputation, merchandising expertise and powerful distribution capabilities. By joining forces with what we believe to be one of the leading retailers in the market today, we can further leverage the strength of the Mossimo brand and significantly expand our reach. Target has had great success with other highly recognized designers such as Michael Graves and Phillipe Starck in home goods, and we believe the opportunities for us are tremendous. I truly believe this represents the next big evolution in retailing -- dominant retailers working together with marquee brands toward a common goal."

"Mossimo has a strong, loyal following among our design-savvy guests," said Bob Ulrich, Chairman and Chief Executive Officer of Target Corporation. "His vision and creativity will help us continue to provide cutting edge design at an affordable price."

As part of this deal, Mossimo, Inc. entered into an agreement with Cherokee Inc. (NASDAQ:CHKE), to assist and advise on the deal. Cherokee Inc. markets its Cherokee brand and other brands worldwide. "Cherokee has pioneered what I believe to be a truly successful and unique strategy for the retail industry," Mr. Giannulli continued. "While my personal involvement and product design makes this deal different from the Target/Cherokee agreement, the template established by Cherokee remains the same. Robert Margolis, Cherokee's Chairman, President and CEO, has been a tremendous help in executing this agreement."

Mossimo, Inc. also reported financial results for the fourth quarter and twelve months ended December 31, 1999. Net sales for the quarter decreased to $7.4 million, compared to $8.4 million for the fourth quarter of 1998. The decrease in net sales was primarily due to severe price reductions in department stores, resulting in greater markdown assistance from the Company. The Company reported a net loss of $7.0 million versus a net loss of $2.6 million in the same period in 1998, and the diluted earnings per share loss was $0.46 versus a diluted earnings per share loss of $0.17 in the fourth quarter of 1998.

Royalty income increased to $887,000 in the fourth quarter of 1999 from $756,000 in the corresponding quarter in 1998. The increase was primarily due to increased royalties from some of the Company's domestic licensees, which were offset in part by reduced royalties as a result of the termination of the Company's accessories license agreement as of December 31, 1998.

Gross profit as a percentage of net sales decreased to (35%) during the fourth quarter of 1999 compared to 23% in the corresponding quarter in 1998. The decrease was primarily due to additional production costs for product which did not clear or was delayed by U.S. Customs and additional markdown assistance, partially offset by increased men's and women's regular-priced sales and increased margins on sales of excess inventory during the fourth quarter of 1999, as compared to the fourth quarter of 1998. Total operating expenses remained flat at $5.0 million versus the corresponding quarter, despite increased marketing expenditures. However, operating expenses as a percentage of sales rose to 68% compared to 60% primarily due to the decrease in sales discussed above.

Net sales for the year ended December 31, 1999 increased 5% to $47.4 million, compared to $45.3 million for the year ended December 31, 1998. The Company reported a net loss of $12.9 million, versus a net loss of $13.8 million in the same period last year, and the diluted earnings per share loss was $0.86 versus diluted earnings per share loss of $0.92 in 1998. Excluding a one-time, non cash charge of $6.1 million related to insurance coverage recorded during the second quarter of 1999, the Company's net loss was $6.8 million and diluted earnings per share loss was $0.45 for 1999.