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Will Iconix's Strategy to Lower Debt Help Cushion the Stock?

Iconix Brand Group, Inc. ICON has been dealing with multiple headwinds such as high debt burden, sluggish segments' performance, soft international business and a tough retail landscape. These have been weighing on the stock’s performance that plunged over 24% in the last six months, against the Zacks categorized Shoes & Retail Apparel industry’s advance of 8.8%.

The industry is currently placed at top 39% (101 out of 256) of the Zacks Classified industries. In fact, this Zacks Rank #4 (Sell) stock has also underperformed the broader Consumer Discretionary sector that gained 8.7%.

Notably, 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 and Badgley Mischka, which is in-line with the company’s focus to reduce its debt and reshuffle its portfolio.

Management recently informed that it has lowered its debt level by a considerable amount of $362 million following the divestiture of its entertainment business. The company offloaded its 80% stake in the Peanuts brand and 100% interest in the Strawberry Shortcake brand, to DHX Media Ltd. DHXM for $345 million in cash.

The sale proceeds of the transaction along with available cash were utilized to pay down the outstanding balance of its Senior Secured Term Loan valuing $210 million along with compulsory payment of roughly $152 million of Senior Secured Notes issued under its securitization facility. Following the deal, Iconix had total debt of nearly $828 million that represents Senior Secured Notes of roughly $433 million, Variable Funding Note of $100 million as well as 2018 Convertible Notes of nearly $295 million.

Prior to this sale transaction, Iconix sold the rights of its Sharper Image brand and related intellectual property assets to ThreeSixty Group, the brand's largest licensee.

In addition to these concerns, Iconix’s business is highly dependent on the health of the retail industry as it only licenses brands to other retailers. Evidently, the company has been delivering weak results, particularly in the women's and men's segments for the last nine quarters now.

Though Iconix is making initiatives to spark a turnaround in its performance and is evidently reducing its debt level, we believe it might take some more time. Meanwhile, you can count on better-ranked stocks in the same industry that includes Deckers Outdoor Corp. DECK and Sequential Brands Group, Inc. SQBG.  

Deckers, with a long-term earnings growth rate of 9.8%, has delivered an average earnings beat of 74% in the trailing four quarters. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sequential Brands with a long-term earnings growth rate of 15% has delivered an average earnings beat of 25% in the trailing four quarters. The stock currently carries a Zacks Rank #2 (Buy).

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