On Jan 09, 2015, we issued an updated research report on Iconix Brand Group Inc. (ICON).
This clothing brand licensing company reported upbeat third quarter 2014 results on Oct 28, wherein both earnings and sales exceeded the Zacks Consensus Estimate. Iconix also raised its earnings guidance for fiscal 2014.
Iconix’s third-quarter 2014 adjusted earnings of 73 cents per share were ahead of the Zacks Consensus Estimate of 63 cents by 15.9% and increased 23% from the year-ago level. The upside can be attributed to increased revenues and lower outstanding share count owing to share buybacks.
Total revenue of $113.8 million beat the Zacks Consensus Estimate of $111.0 million by 2.5% and also increased 6% year over year. Solid results across the Women's, Home and Entertainment businesses as well as international expansion aided top-line growth.
Iconix has been delivering solid results since more than a year on the back of solid revenues, strategic acquisitions and lower share count owing to share buybacks. Iconix’s overall growth story looks compelling as this clothing brand company has been aggressively acquiring brands and entering into joint ventures to expand its portfolio. It is also appealing that the company is signing new licensing partnerships with top retailers in the U.S. to increase its brand presence.
With the recent acquisition of the remaining 50% interest in Iconix Latin America in Feb 2014, Iconix’s royalty revenues have increased fourfold in the Latin American region, particularly in Brazil, Mexico, Chile and across Central America. Besides Latin America, the company has formed seven international joint ventures since 2008. The company expects the international business to grow in double-digits and over 40% of the total business in 2015 as the company continues to leverage its existing joint ventures, pursue new DTR opportunities and establish new partnerships.
New York-based Iconix has also acquired a number of brands and has also signed over 180 new Peanuts licenses around the world in the first 9 months of 2014, positioning the brand well for strong growth in 2015 and 2016.
Additionally, with the signing of the joint venture with Global Brands Group (which is a spin-off of Li & Fung) in the third quarter of 2014, the company is experiencing solid gains in both the top line and equity earnings. In fact, Iconix is expected to get significant revenues from this joint venture in China through its brands Lee Cooper (acquired in Feb 2013) and Umbro (acquired in Dec 2012).
Going ahead, the company also plans to create shareholder value through a combination of acquisitions and continued share repurchases. During fourth quarter 2014, the company’s board approved a new program to repurchase an additional $500 million of the common stock over the next 3 years.
However, Iconix is not immune to the volatile retail sales environment. Of late, Iconix’s sales have been impacted by weak consumer spending as consumers have become increasingly conscious of their spending habits and are avoiding any unnecessary expenses. We expect the weakness to continue in the near term as well.
Iconix holds a Zacks Rank #3 (Hold). However, better-ranked stocks in the consumer discretionary sector include Brown Shoe Co. (BWS), Sequential Brand, Inc. (SQBG) and Bebe Stores, Inc. (BEBE), all of them sporting a Zacks Rank #1 (Strong Buy).
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