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Can Iconix (ICON) Pull a Surprise This Earnings Season?

Iconix Brand Group, Inc. ICON is set to report second-quarter 2017 results on Aug 9. The question lingering in investors’ minds is, whether the company will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. We note that the company has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 45.2%.

Let’s delve deeper how things are shaping up for this announcement.

Which Way are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has remained unchanged over the last 30 days and is currently pegged at 19 cents, down 29.6% from 27 cents delivered in the year-ago quarter. Analysts polled by Zacks expect revenues of $61.4 million, down 35.9% from the prior-year period.

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

 

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

What the Zacks Model Unveils?

Our proven model does not conclusively show that Iconix is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Iconix currently has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 19 cents. Although the company’s Zacks Rank #3 increases the predictive power of ESP, we need a positive Earnings ESP in order to be confident about an earnings surprise.

Factors Influencing the Quarter

Iconix has been battling multiple headwinds such as high debt, sluggish segments' performance, soft international business and a tough retail landscape. These have been weighing on the stock’s performance which has plunged over 32% in the last six months. On the other hand, the industry advanced 13.6% while the broader Consumer Discretionary sector grew 9.3% over the said time frame. While the industry is part of the top 25% of the Zacks Classified industries (67 out of the 265), the broader sector is also placed at top 38% of the Zacks Classified sectors (6 out of 16).

Iconix has a huge debt burden and is taking various means to reduce the same. To this end, the company has already divested non-core brands like Sharper Image, Badgley Mischka, Peanuts Worldwide LLC and Strawberry Shortcake brand, which is in-line with the company’s focus to reduce its debt and reshuffle its portfolio. We have also noticed that Iconix has been witnessing sluggishness in the women's and men's segments in the last nine quarters.

Iconix’s international business has also been reporting softer than expected results for the last few months reflecting economic uncertainty across some of its regions. In first-quarter 2017, international revenues were down 8% despite double-digit revenue growth in the key regions of China, Brazil, Europe and India. The weakness was due to the joint venture businesses in Canada and Southeast Asia. Though the company expects international revenue to be flat for the year, we believe the recent purchase of the remaining 50% interest in Iconix Canada will expand international business, which is a vital aspect in Iconix’s growth strategy. Iconix is quite underpenetrated in Canada. Therefore, acquiring the remaining stakes in Iconix Canada will enable the company to strengthen its business in the region.

Though we believe Iconix’s strategic partnerships and consistent efforts for international expansion would improve its performance in the long run, we also note that the company is currently not in good shape due to near-term headwinds and might hurt results of the upcoming quarter.

Stocks With Favorable Combination

Here are some companies in the consumer discretionary sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Churchill Downs, Incorporated CHDN has an Earnings ESP of +3.23% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nike, Inc. NKE has an Earnings ESP of +2.04% and holds a Zacks Rank #3.

Coach, Inc. COH has an Earnings ESP of +2.08% and holds a Zacks Rank #3.

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