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Actionable news in ICON: Iconix Brand Group, Inc.,

Iconix: Massive Sell-Off Leads To Deep Discount

Summary

Prior results were materially overstated and guidance has been revised downward; shares have declined 56%.

While credibility has been shaken, uncertainty related to the SEC investigation is now resolved.

The negative data regarding the brands is quantifiable; shares are selling at just 3x FCF.

Risks Have Become Reality

Risks: Further brand weakness, accounting fraud (overstated revenue/earnings/assets; understated expenses/liabilities), and/or investigation related fines.

This excerpt is from my first article on Iconix (NASDAQ:ICON) and it turns out that management, purposefully or not, misled shareholders on a major level. Through a press release, the company offered financial restatements and newly revised forward guidance. For the time being, data remains unaudited and while creditability is very low, the results issued are likely accurate. The adverse items were an overstatement of account receivables, underpayment of taxes, overstated of SG&A expenses, and other instances that we will discuss below. For Q3 2015 adjustments, management provided preliminary diluted GAAP EPS of -$0.13, well below the mean estimate of $0.53.

For FY2015, management issued guidance revenue of $370 to $380mm for the year (this was the median figure in-line with my worst case scenario in one of my previous articles). For diluted EPS, management expects between $1.55 to $1.60, or $0.75 below their previously revised target. No information on free cash flow was provided, however using a free cash flow conversion, we estimate the amount will stand at...


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