New York-based Iconix Brand Group, Inc. ICON recently reported fourth quarter and fiscal 2015 results. It missed the Zacks Consensus Estimate for earnings in the quarter, while revenues came in line with the same. The company also lowered its earnings guidance for 2016. Shares of this clothing brand licensing company fell 4.79% on Mar 28 in after-hours trading.
It should be noted that the results reflect the historical restatement pertaining to some accounting treatment related to certain international joint venture transactions.
Quarter in Detail
Iconix reported fourth quarter adjusted earnings of 25 cents per share, which missed the Zacks Consensus Estimate of 27 cents by 7.4%. Earnings also declined approximately 45% from the year-ago level, mainly due to a decline in licensing revenues and the negative impact from currency.
Total licensing revenue of $94.7 million was almost in line with the Zacks Consensus Estimate, but declined 1% year over year. Licensing revenue included approximately $2.0 million of revenues related to acquisitions made in 2015 including the Strawberry Shortcake and PONY brands. Total licensing revenue was also negatively impacted by foreign currency headwinds of approximately $1.4 million. Excluding the effect of acquisitions and foreign currency exchange rates, licensing revenue declined approximately 2% in the quarter.
On a year-over-year basis, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 14% to $38 million.
2015 Results
In 2015, adjusted earnings were $1.33 per share, which missed the Zacks Consensus Estimate of $1.36 by 2.2% and were lower than the guided range of $1.35 – $1.45 per share. Earnings also declined approximately 33% from the year-ago level, mainly due to a decline in licensing revenues and the negative impact from currency.
Total licensing revenue of $379.2 million slightly missed the Zacks Consensus Estimate of $381 million but was within the guidance range of $370-$380 million. Licensing revenues also declined 3% year over year. Excluding the effect of acquisitions, five-year renewal of the Peanuts specials with ABC and foreign currency exchange rates, licensing revenues increased approximately 1%.
Revised Guidance for 2016
The company updated its 2016 guidance to reflect higher expenses associated with the new $300 million term loan, the impact of the sale of the Badgley Mischka brand, adjustments related to the financial restatement, transition costs relating to the hiring of the company's new chief executive officer, and current trends in the portfolio.
For 2016, the company continues to expect licensing revenues in a range of $370 million – $390 million, with no expectation of ‘Other revenue’. However, the company has lowered its adjusted earnings guidance to a range of $1.15–$1.30 per share from $1.35–$1.50 per share expected earlier. The Zacks Consensus Estimate is pegged at $1.36 per share, higher than the company’s new guidance range. The company has also lowered its free cash flow guidance to a range of $155 million – $170 million from $170 million – $185 million anticipated previously.
We note that the company’s shares have gone downhill 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. Now after the restatement the company is expected to resolve investors’ issues.
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. However, these issues have adversely impacted the company’s growth.
Iconix currently holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the consumer discretionary sector include American Eagle Outfitters, Inc. AEO, Express, Inc. EXPR and The Children's Place, Inc. PLCE. While American Eagle and Express Inc. sport a Zacks Rank #1 (Strong Buy), The Children’s Place holds a Zacks Rank #2 (Buy).
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