Iconix Falls on Q2 Earnings & Sales Miss; Lowers View

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New York-based Iconix Brand Group, Inc.ICON reported sluggish second quarter 2015 results wherein both earnings and revenues missed the Zacks Consensus Estimate. Further, this clothing brand licensing company lowered its full year 2015 guidance due to weak results. Shares fell more than 2% on Aug 10 in after-hours trading.

Quarter in Detail

Iconix reported second-quarter adjusted earnings of 45 cents per share, which missed the Zacks Consensus Estimate of 68 cents by 33.8%. Earnings also declined 40% from the year-ago level, mainly due to double-digit decline in revenues.

Iconix Brand Group Inc. - Earnings Surprise | FindTheBest

Quarter in Detail

Total revenue of $98.459 million lagged the Zacks Consensus Estimate of $117.0 million by 15.8% and also decreased 17.2% year over year. While licensing revenues increased 1%, the absence of "Other revenue" in the second quarter of 2015 led to the decline in overall revenues. The company did not generate any "Other revenue" in the quarter compared with approximately $21.4 million of Other revenue recorded in the year-ago quarter, related to the sale of the Sharper Image e-commerce business and a transaction related to the Southeast Asia joint venture.

Total licensing revenue was also negatively impacted by foreign currency headwinds of approximately $3.7 million. Excluding currency impact, licensing revenues increased 5%.

On a year-over-year basis, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 34% to $51.2 million due to no "Other revenue" generated during the quarter.

Guidance for 2015 Lowered

Following weaker-than-expected second quarter results, Iconix lowered its earnings and revenue guidance for 2015.

For 2015, the company now expects licensing revenue to achieve low single digit growth and to be in a range of $410-$425 million. The company also anticipates approximately $5-$15 million of "Other revenue" in 2015, as the company looks for opportunities. This is lower than the company's prior guidance range of $490 million to $510 million. This guidance relates to the portfolio of existing brands and does not assume any additional acquisitions.

The company also revised its adjusted earnings guidance to a range of $2.00-$2.15, compared with its prior range of $3.00-$3.15 per share. The Zacks Consensus Estimate is pegged at $2.98 per share, within the company's new guidance range. The company has also lowered its guidance for free cash flow and now expects it to be in the range of $170-$190 million, compared with the previous range of $208 million to $218 million.

We note that the company's shares have been tumbling since the beginning of this year. Further, with the departure of Neil Cole, the CEO of the company on Aug 7, soon after the exit of both CFO (Mar 2015) and COO (Apr 2015), investors have, kind of, abandoned the stock. The lowered guidance for the full year signals some serious problems within the company.

Many firms have also filed a class action lawsuit against Iconix. It has been accused of misleading investors by underreporting the cost of its brands and overstating its earnings and revenues, by engaging in irregular accounting practices related to the booking of its joint venture revenues and profits, free-cash flow, and organic growth.

Separately, the company is working on a comment letter process with the staff of the Securities and Exchange Commission related to the ongoing periodic review of the company's Form 10-K for the year ended Dec 31, 2014. The current correspondence relates to the accounting treatment for the formation of the company's international joint ventures under U.S. Generally Accepted Accounting Principles and whether such joint ventures should have been consolidated in the company's historical results.

The company's board also formed a Special Committee to review the accounting treatment related to some of the company's international joint venture transactions.

Iconix did not comment upon the outcome of the staff's comment letter process. However, it expects this to have a material effect on the company's historical financial statements but does not expect this to impact the company's reported results for the first half of 2015.

The company's overall business strategy remains strong. Iconix is pinning its hope on its strong brands and expects to continue forming joint ventures to expand its portfolio. However, these issues have adversely impacted the company's growth for the time being. Iconix currently holds a Zacks Rank #4 (Sell).

Some better-ranked stocks in the consumer discretionary sector are Nike, Inc. NKE and Skechers USA Inc. SKX with a Zacks Rank #1 (Strong Buy), and Sequential Brands Group, Inc. SQBG with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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