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Iconix (ICON) Crashes on Soft Q2 Earnings, Women’s Unit Hurts

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Iconix Brand Group, Inc. ICON reported second-quarter 2018 results, with the top and the bottom lines declining year over year. The top line continued its dismal run, thanks to sluggishness in the Women’s and Home segments. Further, management now projects revenues and adjusted net income at the lower end of the previous range.

Clearly, these factors dampened investors' optimism, as shares of Iconix fell close to 18% yesterday. In fact, its murky past performance has causes the stock to plunge 28.1% in the past three months compared with the industry’s rise of 16.4%.

Q2 Highlights

Iconix posted adjusted earnings from continuing operations of 12 cents per share, down from 26 cents in the prior-year quarter.

On a GAAP basis, Iconix posted loss from continuing operations of $1.26, wider than a loss of 26 cents in the prior-year quarter.


Total licensing revenues of $50.2 million declined approximately 17% year over year. The downside was caused by transition of the company’s Danskin, Ocean Pacific and Mossimo DTR's into the Women’s segment. The quarter witnessed weak revenues in the Women’s and Home segments.

On an adjusted basis, operating income came in at $27.7 million, down 27% from the prior-year quarter’s figure. Adjusted operating margin was 55%, down from 62% in the year-ago quarter.

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


Segment Performance

The company’s Home and Women’s segments registered revenue declines of 11% and 39% in the second quarter, respectively. Notably, the Home segment has been reporting weak performance for a while. During the second quarter, performance in this segment was affected by shift in Charisma timing, renewal terms of Waverly inspirations contract with Walmart WMT and changes in revenue recognition which negatively impacted Royal Velvet license agreement. Moving on, during the second quarter, adjusted revenues in the Women’s segment was affected by DTR transitions.

These downsides were partially offset by an increase of 4% and 5% in revenues at the International and Men’s segments, respectively. The Men’s segment benefited from the multiyear Umbro agreement with Target TGT. The Buffalo brand also depicted a sturdy performance in the quarter. Also, the international segment continued with its stellar performance, backed by the Umbro and Lee Cooper brands. Strength across India, Europe and parts of Southeast Asia also boosted performance in the international segment.

Financial Update

The company ended the quarter with roughly $95.6 million of total cash and nearly $789.2 million face value of debt. Further, Iconix generated nearly $14.5 million as free cash flow from continuing operations during the second quarter compared with $10.6 million in the year-ago quarter.

Outlook for 2018

Management expects full-year licensing revenues at the lower end of the previous range of $190-220 million. Further, adjusted net income for 2018 is anticipated at the lower end of the $20-$30 million range. On a GAAP basis, net loss for 2018 is projected in the range of $94.4-$104.4 million. Further, the company is on track to deliver savings close to $12 million in 2018, though rightsizing expense structures. Additionally, management continues to expect free cash flow in the range of $50-$70 million for 2018.

Although brand transitions have been posing challenges for Iconix, management expects such moves to yield in the long run. Iconix remains on track with strengthening its brands. In this respect, the company announced the collaboration of the Starter brand with all Alliance of American Football Association. In fact, the launch of the Starter brand in collaboration with Amazon AMZN during 2017 and the multi-year agreements with Target (in relation with the Umbro brand), depict the company’s ability to develop long-term partnerships and ensure growth. Additionally, the company is on track with expanding its marketing and merchandising capabilities as well as achieving efficiency through cost reduction.

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