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Iconix (ICON) Q1 Earnings Beat, Sales In Line, Stock Falls

Shares of Iconix Brand Group, Inc. ICON fell 2.84% on May 5 after this clothing brand licensing company reported first quarter 2016 results. Earnings beat the Zacks Consensus Estimate, while revenues came in line with the same. The company reiterated its earnings guidance for 2016.

Quarter in Detail

Iconix reported first quarter adjusted earnings of 53 cents per share, which beat the Zacks Consensus Estimate of 23 cents by 130.4%. Earnings declined approximately 2% from the year-ago level, mainly due to a decline in licensing revenues.The impact of foreign exchange rates was nominal.

 

Total licensing revenue of $94.6 million was almost in line with the Zacks Consensus Estimate, but declined 1% year over year. Licensing revenues included approximately $1.3 million of revenues related to acquisitions made in the first quarter of 2015and were negatively impacted by approximately $1.0 million due to the sale of the Badgley Mischka brand in the first quarter of 2016.

Except the Entertainment category, all other categories, Womens, Mens and Home, declined on a year-over-year basis. The entertainment segment was up 16% in the first quarter, driven by the strength in the Peanuts brand, particularly in Japan, where the movie continued to be a success.

Adjusted operating income grew 6% to $59.7 million in the quarter. Operating margin however declined 100 basis points to 57%.

Guidance for 2016 Reiterated

The company has reiterated its 2016 guidance, which reflects higher expenses associated with the new $300 million term loan, the impact of the sale of the Badgley Mischka brand, adjustments related to the financial restatement, transition costs related to the hiring of the company's new chief executive officer, and current trends in the portfolio.

For 2016, the company continues to expect licensing revenues in a range of $370 million - $390 million, with no expectation of ‘Other revenue’. Adjusted earnings are expected in a range of $1.15–$1.30 per share. The Zacks Consensus Estimate is pegged at $1.26 per share, within the company’s guidance range. The company expects its free cash flow guidance in a range of $155 million - $170 million.

We note that the company’s shares have gone downhill since the beginning of this year. 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.

Though the company restated its historical statements along with the fourth quarter 2015 results, these issues have adversely impacted growth. Further, for 2016, the company expects other headwinds like higher expenses, adjustments related to the financial restatement, transition costs to hamper its profitability.

Nevertheless, the company’s overall business strategy remains strong. Iconix is pinning its hopes on its strong brands and expects to continue forming joint ventures to expand its portfolio.

Iconix currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the shoe and apparel industry include Carter's, Inc. CRI, Skechers U.S.A., Inc. SKX and Wolverine World Wide Inc. WWW. All of them hold a Zacks Rank #2 (Buy).

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ICONIX BRAND GP (ICON): Free Stock Analysis Report
 
CARTERS INC (CRI): Free Stock Analysis Report
 
SKECHERS USA-A (SKX): Free Stock Analysis Report
 
WOLVERINE WORLD (WWW): Free Stock Analysis Report
 
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