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Iconix (ICON) Acquires Remaining 50% Stake in Iconix Canada

The Iconix Brand Group, Inc. ICON has recently bought back the remaining 50% interest in Iconix Canada from its joint-venture partner for $19 million. As per the agreement, Iconix paid $12 million, while the remaining $7 million would be paid in the next two years.  

Iconix has been forming international joint ventures since 2008 and seeks to monetize its brands through these operations, which have significantly contributed to its revenues. Moreover, expanding international business 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. Iconix Canada was formed in 2013 and has licenses for brands such as London Fog, Rampage, Charisma and Zoo York amongst many others.

Similar to that of Canada, Iconix has previously acquired full interest of its business in other territories. In 2015 and 2014, the company acquired the remaining 50% stake in Iconix China and Latin America, respectively. It has also established a joint venture in Middle East and North America.

Iconix also announced that it would retain its existing 51% interest in the Buffalo brand. The company had previously considered selling its interest in the Buffalo brand, but refrained from the same as the brand has been performing well in Canada and the U.S. Further, retaining the stake in the brand will facilitate gaining 100% control of Iconix Canada as well as solidify the company’s position for organic growth.

Of late, the company has been divesting brands to focus on its core portfolio and spending resources on businesses that generate significant volume. This includes the divestiture of non-core brands such as Sharper Image, Badgley Mischka, Peanuts Worldwide LLC and Strawberry Shortcake brand.

Though such divestitures are in line with the company’s efforts to develop a strong and yielding portfolio, they are mainly carried out to reduce its debt burden. We have also noticed that Iconix has been witnessing sluggishness in the women's and men's segments in the last nine consecutive quarters. These headwinds are clearly reflected in the share price of the company. Shares of Iconix have plunged 36.1% in the past six months, underperforming the industry’s 7.7% gain.

Despite such challenges, we expect Iconix’s strategic partnerships and consistent efforts for international expansion would improve its performance in the long run. Besides entering into joint ventures, Iconix also tries to achieve growth on the back of direct-to-retail partnerships and licensing agreements. Moreover, the long-term agreements and brand exclusivity contracts are incentives to retailers who make efforts to promote Iconix’ products, which in turn help to boost sales.

Iconix currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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