On Mar 20, 2015, we issued an updated research report on Iconix Brand Group Inc. ICON.
This clothing brand licensing company reported upbeat fourth quarter 2014 results on Feb 26, wherein both earnings and sales exceeded the respective Zacks Consensus Estimate. The strong performance came on the back of increasing market share of its core brands and international expansion through joint ventures.
Iconix’s fourth quarter earnings of 56 cents per share increased 4% owing to increased revenues and lower outstanding share count. Total revenue of $112.4 million increased 7% year over year attributable to growth in licensing revenues, which offset the decline in other revenues. Positive results across the Women's, Home and Entertainment businesses as well as international expansion aided results.
Iconix’s growth story has been compelling as it has delivered solid results for more than a year. Iconix has aggressively acquired brands and entered into joint ventures to expand its portfolio. The company has also signed new licensing partnerships with top retailers in the U.S. to increase its brand presence.
Last week, Iconix acquired the remaining 50% interest in Iconix China from its joint venture partner Novel Fashion Brands Limited to expand in the growing market of China. Besides that, in 2014, the company acquired the remaining 50% of its Latin America joint venture and acquired a 1% interest in Iconix Europe, thereby increasing its ownership to 51%.
It also established a joint venture in the Middle East and North America and expanded its Southeast Asia joint venture partnership with Global Brands Group to include additional territories and brands, as a result of which the company experienced solid gains in both the top line and equity earnings.
New York-based Iconix has also acquired a number of brands. In early-March, Iconix acquired the Strawberry Shortcake brand from Cleveland-based American Greetings to expand its presence in the entertainment business. Then, in Feb 2015, Iconix Brand also announced the acquisition of the North American rights to the athletic brand PONY from Symphony Holdings, Limited to boost its existing sports platform, which includes the Danskin, Starter and Umbro brands.
In 2014, Iconix also benefited from its Peanuts brand. In addition to the renewal of its agreements with two key licensees, MetLife and ABC, the company signed hundreds of new licenses around the world. An animated film, "The Peanuts Movie," will be released by 20th Century Fox in Nov 2015 in over 75 countries. Iconix has positioned the brand well for strong growth in 2015 and 2016.
Following better-than-expected fourth-quarter and full-year 2014 results and the recent PONY and Strawberry Shortcake purchase deals, Iconix raised its earnings and revenue guidance for 2015.
However, Iconix’s results suffered as a result of a volatile retail sales environment in 2014. Though there is has been a gradual improvement in the macro-economic environment, it may take time to recover fully.
Also, the company’s strategy to acquire numerous iconic brands directly or through joint ventures results in huge cash outflows. Meanwhile, the company has a share repurchase program in place which utilizes a chunk of the cash flow. In addition, huge investments in its international business and increased marketing investments in certain brands, including Royal Velvet, Buffalo and Umbro also involve outflow of cash. Though these investments would aid the company’s growth over the long term, it would continue to dampen liquidity in the near term.
Iconix holds a Zacks Rank #2 (Buy).
Other well-positioned stocks in the apparel industry include Skechers USA Inc. SKX, Citi Trends, Inc. CTRN and Rocky Brands, Inc. RCKY. While Skechers and Citi Trends sport a Zacks Rank #1 (Strong Buy), Rocky Brands holds a Zacks Rank #2.
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