Iconix Brand Group, Inc. (ICON) has formed a joint venture with Buffalo International ULC to acquire a 51% interest in the latter’s Buffalo David Bitton brand for $76.5 million cash. Per the deal, Buffalo International will be the core licensee for the joint venture. Iconix will control the joint venture, manage the brand’s operations and expand its retail footprint in the U.S. and Canada.
The brand offers denim, sportswear, activewear, and accessories and is primarily sold through 3000 department stores including stores of Macy's Inc. (M) and Dillard's Inc (DDS) and specialty store locations in over 18 countries around the world. It also has 30 standalone retail stores, mainly in Canada.
With the 51% stake in Buffalo, Iconix looks forward to further grow its business and expand it in the U.S. as well as internationally. The company also expects the Buffalo brand to generate approximately $25 million in royalty revenue with earnings before interest, taxes, depreciation and amortization (EBITDA) margin of approximately 75-80% for the new joint venture on an annualized basis.
Enhanced 2013 Guidance
Following the Buffalo acquisition, Iconix raised its earnings and revenue guidance for 2013. The company now expects its revenue in the range of $415 million–$425 million for 2013, up from $395 million–$405 million expected previously. The company has also raised its adjusted earnings outlook to a range of $2.00–$2.10 from $1.85-$1.95 per share expected previously.
The company also expects increase in share repurchase activity for 2013. The company has already repurchased shares worth approximately $175 million under its current $200 million share repurchase plan. The company expects its weighted average diluted share count to be approximately 67–68 million for 2013.
Iconix has a proven record of growth through brand acquisitions, joint ventures or partnerships. The addition of this renowned lifestyle brand Buffalo is likely to expand Iconix’s portfolio in all the categories for men, women and children. Recently, in early-Dec 2012, the company added sports apparel and footwear brand, Umbro from its peer Nike Inc. (NKE) to further strengthen its diversified portfolio. Also, Iconix completed its fourth international joint venture with Reliance Brands Limited in India during the second quarter of 2012, preceded by joint ventures in China, Europe and Latin America.
We believe Iconix’s strategic acquisitions and consistent expansion of licensing agreements will expand its global market share. Iconix is also increasing its penetration in the emerging markets where the middle class population is on the rise and consumer spending is positive. Iconix holds a Zacks Rank #3 (Hold).
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