We are downgrading our recommendation on
Iconix Brand Group, Inc.
) to Underperform from Neutral, following the disappointing first
quarter 2012 results.
Iconix posted lower-than-expected first quarter 2012 adjusted
earnings of 43 cents per shar; 6.5% lower than the Zacks Consensus
Estimate and down 4.4% from the prior year earnings period. The
weak results were driven chiefly by revenue declines, primarily due
to continued weaknesses in men's brands of Rocawear, Ecko and Ed
Hardy. Total revenue in the quarter declined 4.0% to $88.5 million.
Revenue also missed the Zacks Consensus Estimate of $95 million.
The soft revenues were also brought about by the transition of the
company's Royal Velvet brand to
J. C. Penny Company, Inc.
), which is expected to impact Iconix in the near term.
Slow demand in the men's brands of Rocawear, Ecko and Ed Hardy
and the transfer of Royal Velvet brand also resulted in the
full-year 2012 guidance cut for revenues to $340-$350 million from
$370-$385 million. Iconix also slashed its 2012 guidance for
earnings to a range of $1.65 - $1.74 per share from $1.77 - $1.84
Although the company remains positive over the long term with
its strong brand portfolio and its continuous efforts to expand in
the emerging markets, we expect some near-term challenges for the
company. Iconix is currently experiencing a significant slowdown in
customer traffic, which has affected its revenues and margins. The
overall macroeconomic uncertainty and increased unemployment levels
have negatively affected the level of consumer spending for
discretionary items. In addition, Iconix remains exposed to
unfavorable foreign currency translations a nd faces severe
competition for its brands from various domestic and foreign
brands. We, thus, lowered our rating to Underperform from
ICONIX BRAND GP (ICON): Free Stock Analysis
PENNEY (JC) INC (JCP): Free Stock Analysis
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