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Why Iconix Brand (ICON) is Losing Sheen Post Q1 Earnings?

Zacks Equity Research

Shares of Iconix Brand Group, Inc. ICON have been declining since it reported dismal first-quarter 2017 results. This Zacks Rank #4 (Sell) stock fell 8.4% since the company posted its results on May 10.

In fact, we note that its shares have underperformed both the Zacks categorized Shoes & Retail Apparel industry and the broader sector on a year-to-date basis. The stock declined 31.4% against the industry’s gain of 0.9%. Meanwhile, the Zacks categorized Consumer Discretionary rose 6.5% over the said time frame. Additionally, a VGM Score of “C” signals serious concerns.

Let’s Take a Close Look

In the first quarter, earnings plummeted 55% from the year-ago level mainly due to lower revenues and operating income. Total licensing revenues also declined 13% from the prior-year quarter due to decline in all the segments, except the Home category. A challenging retail environment and competitive pressure also remain headwinds.

Furthermore, it witnessed sluggishness in the women's and men's segments for the nine straight quarters. We note that its international business has also been reporting softer-than-expected results for some time now, thereby reflecting economic uncertainty across some of its regions. International revenues were down 8% in the reported quarter.

Though the company remains on track to boost organic growth to increase revenues and overall profitability, we note that it is facing serious issues and is currently not in a good position. The company has huge debt burden and is thus looking to sell its brands to reduce the same and likely to focus on its leading brands and in turn improve its performance.

Iconix has inked a deal with DHX Media Ltd. DHXM to divest its Entertainment business and intends to pay off its debt by roughly $362 million out of the sale proceeds coupled with available cash. Earlier, it sold the rights of its Sharper Image brand and related intellectual property assets to ThreeSixty Group, the brand's largest licensee.

Consequently, Iconix lowered full-year licensing revenues to a band of $235–$245 million, compared with $350−$365 million, guided earlier. However, management reiterated its 2017 adjusted earnings in the band of 70–85 cents per share.

In addition, the Zacks Consensus Estimate of 19 cents and 78 cents for the second quarter and 2017 has declined 13.6% and 10.3%, respectively, over the past 30 days.

Now, it is to be seen whether the company will be able to stage a comeback. As of now you can opt for better-ranked stocks in the same industry, which are Rocky Brands, Inc. RCKY and Sequential Brands Group, Inc. SQBG.

Rocky Brands has surged 28.4% in the past one year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sequential Brands carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 15%.

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