We are reiterating our Neutral recommendation on
Iconix Brand Group
) following its third quarter 2012 results.
Iconix reported third quarter earnings of 41 cents, ahead of
the prior-year earnings and the Zacks Consensus Estimate by a
penny. Total revenue, however, declined 6.6% to $86.6 million due
to decline in Men's businesses and transition of Royal Velvet
brand's license. However, revenue surpassed the Zacks Consensus
Estimate of $81 million.
Overall, Iconix has a diversified portfolio of brands. It
builds its brand portfolio by acquiring new brands, entering into
joint ventures or other partnerships, each of which enhances the
company's brand management expertise and existing infrastructure.
Most recently, Iconix completed its acquisition of the renowned
football brand Umbro from
) in order to strengthen its brand portfolio.
With this acquisition, the company now comprises 29 consumer
brands in the fashion, athletics, electronics, entertainment and
home industries. The company remains focused on international
expansion and expects many more acquisitions in 2013 with
improvement in Men's businesses.
Iconix has direct-to-retail agreements with several retail
Walmart Stores, Inc.
). Iconix makes use of the brand name of these retail giants as
well as their floor space. In Europe, Iconix launched two
direct-to-retail partnerships, Material Girl with Otto and Ocean
Pacific with UK-based SportsDirect during the second quarter.
Moreover, the long-term agreements and brand exclusivity
contracts are incentives to retailers and they make efforts to
promote Iconix's products, which in turn helps to boost the
Also, the company has been expanding in the emerging markets
and has formed four international joint ventures (Iconix China,
Iconix Latin America, Iconix Europe and Iconix India) and a 55%
owned joint venture (OP Japan).
However, unfavorable currency translations may increase the
company's cost of goods sold, thereby resulting in decreased
consumption, gross margins and ultimately earnings. Competition
from peers also remains a hurdle.
Currently, Iconix holds a Zacks #3 Rank (short-term Hold
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