A month has gone by since the last earnings report for Iconix Brand Group, Inc.ICON . Shares have lost about 6.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Iconix Q1 Earnings & Sales Miss Estimates
After delivering positive earnings surprise of 153.3% in fourth-quarter 2016, Iconix Brand posted negative earnings surprise of 8.7% in first-quarter 2017. Notably, its earnings outpaced the Zacks Consensus Estimate in all the four quarters of 2016 by an average beat of 80%. The company's top line also lagged estimates and fell year over year.
The company posted adjusted earnings from continuing operations of $0.21 per share that lagged the Zacks Consensus Estimate of $0.23 per share and also plummeted 55% from $0.47 recorded in the prior-year quarter. This can be attributed to lower revenues and operating income.
Total licensing revenues of $58.7 million lagged the Zacks Consensus Estimate of $88 million by 33.3% and also declined 13% from the year-ago quarter. Revenues decline of nearly 11% in the reported quarter was due to the sale of Sharper Image and Badgley Mischka brands in 2016.
We note that revenues declined 12% to $28.1 million at the Women's segment, 20% to $10.2 million at the Men's segment and 8% to $13.1 million at the International segment. However, the same inched up 1% to $7.3 million at the Home segment.
The company's operating income decreased 27% to $33.6 million in the quarter. Excluding gains on sales of trademarks of $11.0 million and operating income of nearly $1.3 million associated with the Sharper Image brand incurred in the prior-year quarter, the same fell 2% during the quarter. However, adjusted operating margin came in at 57%, up from 52% recorded in the year-ago period.
Concurrent to the earnings release, Iconix has inked a deal with DHX Media Ltd. to divest its Entertainment business that includes Peanuts and Strawberry Shortcake brands worth $345 million in cash. The transaction is anticipated to conclude by the end of the second quarter this year. These brands were acquired by Iconix for a total cash outlay of $246 million.
In the reported quarter, management has showed the entertainment business' results as a discontinued operation. In fact, management intends the sale proceeds of the transaction coupled with available cash to pay off its debt by roughly $362 million. This includes a mandatory payment of nearly $152 million of the company's Senior Secured Notes issued under the company's securitization facility, along with the complete extinguishment of the outstanding balance of the Company's Senior Secured Term Loan of $210 million.
The company ended the quarter with roughly $208 million of total cash (including restricted cash of approximately $98.7 million) and $1.2 billion face value of debt.
Following the sale of the entertainment segment, Iconix anticipates a total cash balance of roughly $105 million with a total debt balance of nearly $840 million.
Further, it generated nearly $13 million as free cash flow from continuing operations in the reported quarter, compared with $36 million in the year-ago period.
With the sale of the company's Entertainment business, management expects to strengthen its balance sheet by reducing its debt level. Further, Iconix is likely to focus on its leading brands and in turn improve its performance. Also, it remains on track to boost organic growth to increase its revenues and overall profitability.
Iconix projects full-year licensing revenues in the band of $235-$245 million, down from $350−$365 million guided earlier. The projected range compares with the revenues of roughly $245 million in 2016, excluding revenues of $113 million from the entertainment segment and $9.9 million of revenue from other divested brands that comprise Sharper Image.
Additionally, management reiterated its 2017 adjusted earnings in the band of $0.70-$0.85 per share. Excluding the expected tax benefit realization of $0.51 per share, adjusted earnings are projected in the range of $1.21-$1.36 for 2017. Iconix updated its GAAP earnings in the band of $0.29-$0.44 per share for 2017 from $0.43-$0.58 per share range.
Moreover, Iconix maintained its free cash flow projection in the band of $105-$125 million for 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted lower by 13.6% due to these changes.
Iconix Brand Group, Inc. Price and Consensus
At this time, Iconix's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our style scores.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.