We are upgrading our recommendation on
Iconix Brand Group
) to Neutral from Underperform, following the solid fiscal 2012
second quarter results.
The second quarter earnings of 45 cents per share beat the Zacks
Consensus Estimate by 12.5% as well as the prior-year quarter
earnings by 4.7%. Revenues went up 5% primarily driven by strong
performance of brands like Mudd, Bongo, Charisma and London Fog,
Peanuts. New product launches also benefited revenues.
Moreover, 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
Iconix also has direct-to-retail agreements with several retail
). 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.
Also, the company has been expanding in the emerging markets.
Iconix expects to expand its China's retail partners to 500 by the
end of 2012. In the second quarter of 2012, Iconix entered into a
joint venture (JV) with Reliance Brands in India. According to the
JV, Reliance brands will own the fashion and home brands from the
Iconix portfolio in India, including Ed Hardy, Mossimo, London Fog
and Ocean Pacific.
However, unfavorable currency translations and competition from
peers are matters of concern.
Currently, Iconix, which competes with
), holds a Zacks #2 Rank, which implies a short-term Buy
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