ICON

Iconix Brand Group, Inc. (ICON)

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Iconix Brand Group, Inc. (ICON)

Goldman Sachs 2012 Global Retailing Conference

September 06, 2012 10:45 am ET

Executives

Neil Cole - President & Chief Executive Officer

Warren Clamen - Executive Vice President and Chief Financial Officer

Yehuda Shmidman - Chief Operating Officer

Analysts

Presentation

Unidentified Analyst

All right. We're going to continue here at Goldman Sachs Retail Conference. I'm (Inaudible). I'll be covering the consumer small and mid-cap stocks at Goldman, and we're pleased to have Iconix with us at the conference today. We have, Neil Cole, CEO, with us, Yehuda Shmidman, COO; and also, Warren Clamen, CFO; and Jaime Sheinheit here with IR in the front row.

With that, I'm going to turn it over to Neil, and we're going to go through some of the presentation. After that, we'll breakout into Q&A.

Neil Cole

Thank you. Good morning, everybody. I'm going to do, hopefully, a 10 to 15-minute just quick overview slide presentation, and then hopefully we have plenty of time for question and answers. On the cover you see here a lot of our brands and our latest campaigns with those brands.

For those of you that don't know us, we have a business model that's certainly unique. We believe it's a business model specialization, which one needs nowadays in this very competitive market.

On the left side is a tradition operating company that handles all aspects of marketing, licensing trend. We also have to do sales, sourcing, retail. Iconix is a very unique business model. In that, we handle the fun side of the business, which I call the fun part, the marketing, advertising, licensing and business development and we leave, what I call the heavy lifting, to our retail partners and we believe, as I tell you more, that we have the best-in-class in the world as far as operating retail partners.

What this business model does for us? It gives us transparency in earnings. As far as today, we have $700 million guaranteed royalties over the initial term of our agreements without renewals, which we've shown a pretty high record of renewal. The company has no operational risk or inventory risk, we've generated a very strong cash flow and we have minimal working and CapEx needs.

Diversification has been an important part of our strategy over the last few years. We look at diversification in three ways. Ones in the middle, you see a pyramid of all different types of retailers. Our brands are placed throughout the supply chain, we have a lot more business in the value chain, which is where more business is actually done, in the Walmart, Kmart, Target arena. We have pretty strong brands in the mid-tier, our Kohl's and other various partners in there and a big group of our brands are in the better area, our Macy's, Dillard's, Nordstroms and a few in the high end in the luxury side, but we are pretty diversified in who we do deals with and where our brands are distributed.

Also, very important to specify in that we are not just in "fashion business.". Even under the fashion headline a lot of those businesses are basics. We sell a whole lot of socks and a whole lot of white T-shirts and lot of towels. We also have a nice home business with five brands and our character business that's driven by the Snoopy is also an important, and we believe we will continue to diversify all three of these areas are an important part of our portfolio strategy.

A big impetus of our growth over the last few years is what we call our DTR model. DTR is direct-to-retail, and here we have made agreements directly with Walmart has three agreements, directly with Target has two agreements, Kohl's, and vice versa throughout this list of the best retailers in America, and hopefully soon around the world. What this relationship does? It gives the retailer a brand that people know that's very strong and kind of cutting out the middleman, who is usually charging 40% to 50% for these brands. Most of our partners have sourcing setups around the world, so now they have a powerful national brand without having to buy from someone in the middle with higher prices.

It also is so important in this new world of transparency of price, where consumers are shopping, whether it be with the iPhones or the iPads, et cetera, and looking, popping in the price and seeing where it's cheaper in the mall. Here, when we have exclusive branding, the retailer gets to control price, gets to control the markdown cadence and doesn't have to worry about where the price of that product is so we believe that this model continues to flourish.

Today, I believe, we have over 60 direct-to-retail deals around the world and growing. Roughly somewhere around $5.5 billion to $6 billion of our business is done through this type of relationship as it continues to grow. Iconix's big value-add is the marketing side. We have an ad agency that we are very proud of. That does a lot of great advertising and marketing for the retailers, where the retailer is focused on things like save money with better bull's eyes. We're focused on the individual brands in the stores to make them exciting and make people drive to the box.

Over the last seven years, this has been our track record, over 52% CAGR growth on both, revenue and income. One chart that's not here is cash flow which is even a lot more impressive. This year, we will generate close to $180 million of free cash flow, because we have some wonderful tax benefits the way we buy trademarks and assets and we see our business, although this year we are not projected to grow, we do see nice growth in the future and I'll take you through where we see growth coming from. The growth is going to, obviously, come from two areas. One is acquisition and one is through our organic business.

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