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Iconix (ICON) Continues to Underperform: Should You Dump?

Iconix Brand Group, Inc.ICON has been grappling with various issues of late. The company currently carries a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 generally underperform the broader market in the near term.

What's Pulling the Stock Down?

Shares of this clothing brand licensing company have been underperforming the industry since the past two years due to near term headwinds. The stock has declined 73.5% in comparison to the Zacks categorized Shoes & Retail Apparel industry over the same time frame, which showcased growth of 7.5%. While the industry is part of the bottom 31% of the Zacks Classified industries (182 out of the 265), the broader Consumer Discretionary sector is also placed at bottom 25% of the Zacks Classified sectors (12 out of 16). The stock also exhibits a VGM Score C.

We note that Iconix has delivered sluggish results throughout 2015 and in the first nine months of 2016. Though Iconix reported better-than-expected third-quarter 2016 results and earnings surged about 72.7% from the year-ago level, due to higher operating income and improved margins, the company remains skeptical about its full-year performance. Iconix slashed its sales guidance and reiterated its earnings expectation for 2016. The lowered view was due to delayed timing in some new men's programs and difficult macro conditions in Europe.

The company has been witnessing sluggishness in the women's and men's segments in the last seven consecutive quarters. Also, it expects other headwinds like higher expenses, higher-than-expected fees from SEC investigation, adjustments related to the financial restatement, and transition costs to hamper its profitability.

Last year, Iconix sold the rights to the Sharper Image brand and related intellectual property assets to ThreeSixty Group, the brand's largest licensee, for $100 million in cash to pay down some of the company's debt, which totaled $1.29 billion as of the end of September.

The debt-ridden company, at present, is planning a sale of its majority stake in Peanuts Worldwide LLC, which owns the rights to cartoon strip characters Snoopy and Charlie Brown. The news came after U.S. insurance company MetLife Inc. MET dropped the Peanuts characters it had been using as mascots for more than 30 years. Besides Peanuts, Iconix is also looking to sell its Strawberry Shortcake brand, which is based on a character that rose to fame in the 1980s as a doll for young girls.

Estimates of this stock declined over the past 90 days for 2016 and 2017. Moreover, the company anticipates 2016 and 2017 earnings to decline 16.5% and 9.9% respectively, on a year-over-year basis.

Iconix Brand Group, Inc. Price, Consensus and EPS Surprise

Iconix Brand Group, Inc. Price, Consensus and EPS Surprise | Iconix Brand Group, Inc. Quote

Stocks to Consider

Some better-ranked stocks in the retail/apparel sector are Francesca's Holdings Corporation FRAN , Rocky Brands, Inc. RCKY and Foot Locker, Inc. FL . All the three companies hold a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

While Francesca's Holdings has an expected long-term earnings growth of 13.8%, Foot Locker has an expected earnings growth of 9.7% for the next three to five years.

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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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