New York-based Iconix Brand Group, Inc. ICON plunged more than 20% yesterday when the company announced that it has received a formal order of investigation from U.S. Securities and Exchange Commission (‘SEC’) about its accounting treatment for some joint ventures. Iconix Brand stated that it will cooperate with the SEC.
The company, which sells apparel brands such as Candie’s, Joe Boxer and Mossimo, has also formed a Special Committee of the Board of Directors to conduct a review of the accounting treatment related to certain of the company's transactions.
Additionally, as part of the review process, the company would restate its historical financial statements from 2013 through this year to correct certain errors in accounting.
We note that the company’s shares have been tumbling since the beginning of this year. Many firms have also filed a class action lawsuit against Iconix. It has been accused of misleading investors by underreporting the cost of its brands and overstating its earnings and revenues by engaging in irregular accounting practices related to the booking of its joint venture revenues and profits, free-cash flow, and organic growth.
Further, with the departure of Neil Cole, the CEO of the company on Aug 7, soon after the exit of the CFO (Mar 2015) and COO (Apr 2015), investors have, kind of, abandoned the stock. The lowered guidance for the full year, during the third quarter 2015 conference call, also signaled that there are some serious problems within the company.
Nevertheless, the company’s overall business strategy remains strong. Iconix is pinning its hope on its strong brands and expects to continue forming joint ventures to expand its portfolio. This clothing brand licensing company remains optimistic on its Peanuts brand, its upcoming movie, new promotional partnerships and retail programs, despite concerns about mass retailers opting to allocate more shelf space than expected to the Star Wars movie franchise. In addition, the company remains concerned about its underperforming licensed businesses in China, negative foreign currency impact, especially that of yen and euro (the local currency in two of Peanuts’ largest regions), and shifting of certain media revenue streams from 2015 into 2016.
Iconix currently holds a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the consumer discretionary sector include Francesca's Holdings Corporation FRAN, Caleres, Inc. CAL and Skechers U.S.A., Inc. SKX. While Francesca's Holdings sports a Zacks Rank #1 (Strong Buy), Caleres and Skechers hold a Zacks Rank #2 (Buy).
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