Fashion licensing company Cherokee Inc. just had one of its biggest customers walk out.

For nearly two decades, the Sherman Oaks company has had a deal with Minneapolis retail giant Target Corp. – a deal that accounts for more than 40 percent of Cherokee’s company’s revenue.

But Target told Cherokee executives earlier this month that their nearly 20-year-old licensing deal will expire in January 2017. Cherokee revealed the news during its second-quarter earnings report Sept. 10, and investors headed for the exits.

The day after the announcement, shares fell 39 percent. For the week ended Sept. 16, shares were down 36 percent to $15.80 – a price Cherokee shares hadn’t touched since the middle of last year. The company was by far the biggest loser on the LABJ Stock Index.

Losing Target as a customer doesn’t look good – in its filings with the Securities and Exchange Commission, Cherokee regularly notes that its business is “largely dependent on royalties from Target” – but analysts and Cherokee executives are surprisingly upbeat.

For starters, Cherokee isn’t losing all of its business with the retailer. Goods under its marquee Cherokee brand will disappear from Target’s clothing racks, as will Cherokee’s school uniform line. But the company will continue to sell its Liz Lange brand of maternity clothes at Target.

Then there’s the money. Cherokee doesn’t make or sell clothes, but rather manages and licenses brands to retailers. For that, retailers pay the company a small royalty fee, based on sales of branded goods. While Target was a big customer, it was also an old customer – one that was paying Cherokee a much lower royalty rate than the branding company has been able to get in recent years.

David King, analyst at Roth Capital Partners in Newport Beach, said the company has recently been signing licensing agreements that give it 4 percent of sales, compared with 1.4 percent for Target.

“That rate was low because it was signed under a prior management team several years ago,” King said. “They’ve been getting new licensing agreements at around 4 percent. If one were to assume they only replace half (of Target’s business), they would still make more money.”

Henry Stupp, Cherokee’s chief executive, said this isn’t the first time the company has had to shift gears. Just weeks after Target Canada filed for bankruptcy early this year, Cherokee was able to partner with Sears Canada, he said. Now, Sears Canada will be launching Cherokee’s entire line of family lifestyle products in the spring.

“We move fast,” Stupp said.

Roth’s King said he expects Cherokee will do the same after Target stops selling Cherokee goods: find another retailer – perhaps a Target competitor – interested in the brand.

“Yes, it’s disappointing,” he said. “(But) in the meantime, they have ample opportunity to potentially replace Target with different licensees.”