Iconix Brand Group Inc.
) recently completed the acquisition of the sport apparel and
footwear brand, Umbro from
) for a cash consideration of $225 million. The company intends
to fund the acquisition with the recently issued Fixed Rate Notes
worth $600 million.
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Iconix has a proven record of growth through brand acquisitions,
joint ventures or partnerships. The addition of Umbro is expected
to further strengthen its diversified portfolio.
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
Iconix has also entered into two direct-to-retail partnerships in
Europe, namely, Material Girl with Auto and Ocean Pacific with
U.K.-based SportsDirect. In the coming months, Iconix aims to set
up its third direct-to-retail partnership in Europe. As of
December 3, 2012, Iconix owns 29 brands that are sold
worldwide. Post Umbro acquisition, the company's athletic
brands are expected to contribute around $2.5 billion to overall
sales of approximately $13 billion.
On the other hand, by selling off its Umbro brand, Nike intends
to reduce costs and focus on its NIKE, Jordan, Converse and
Hurley brands. The company previously entered into an agreement
to divest its Cole Haan brand to Apax Partners for $570 million.
The Cole Haan acquisition is expected to be completed by early
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. We also expect the new
direct-to-retail agreements to boost the company's top line in
the upcoming quarters.
On the other hand, we appreciate better-than-expected
first-quarter 2013 results achieved by Nike. However, higher
input costs and a shift in mix towards low-margin businesses is
hurting the company's gross margin. In addition, intense
competition from peer companies and sluggish spending is expected
to weaken the company's performance in the upcoming quarters.
Iconix Brand Group carries a Zacks #3 Rank (short-term 'Hold'
rating) while its peer Nike Inc. carries a Zacks #2 Rank
(short-term 'Buy' rating). Longer-term, we are maintaining our
Neutral recommendation on both Iconix Brand Group and Nike