NEW YORK — Iconix Brand Group Inc.’s newly minted 51 percent stake in Marc Ecko Enterprises will likely be a growth opportunity for the firm’s footwear businesses.
On the heels of reporting a 25 percent jump in third-quarter earnings, Iconix last week said it entered into an agreement to take the majority stake in the Ecko Unlimited, Marc Ecko and Zoo York trademarks and other intellectual property owned by Marc Ecko Enterprises through a new joint venture. Iconix will pay $63.5 million in cash to fund the deal. The new partnership will obtain an additional $90 million in financing, making Iconix’s effective purchase price $108.5 million.
Ecko’s footwear lines are licensed to Skechers USA Inc. — and Iconix Chairman and CEO Neil Cole is upbeat about the new arrangement.
“Ecko has a wonderful footwear business that has been built with the help of Skechers,” Cole told Footwear News. “I look forward to working with Skechers to continue to build the business both in the U.S. and worldwide. Through the years, I have always wanted to work with Robert and Michael Greenberg, [chairman and CEO; and president of Skechers, respectively], and I am excited for this opportunity.”
One analyst said Skechers’ fashion footwear business brings in about $100 million in annual revenues, roughly 80 percent of which comes from the Ecko brands. Assuming Skechers pays a 6 percent licensing fee to Ecko, then Ecko makes roughly $4.8 million on the footwear portion of the business. Skechers did not return calls seeking comment.
Cole added on Iconix’s post-earnings conference call that Ecko’s footwear business is “strong.” Of the Marc Ecko business as a whole, Cole said, over “the last six months, the business is comping up in the high single digits, and they’ve really turned the business around and are doing really well.”
Cole said he expects the Ecko brands to generate gross royalty revenues of $45 million to $47 million a year after the deal closes in the current quarter. Co-founder Marc Ecko, who will continue in his role as chief creative officer, will receive an estimated $3 million of those royalties annually.
Analysts were mixed on the acquisition, though. “While the purchase is accretive and should help [Iconix] in terms of providing solid European exposure, we are not fans of the ownership structure and, frankly, question the need for another streetwear brand, given [Iconix’s] ownership of Rocawear and Ed Hardy,” Brean Murray, Carret & Co. analyst Eric Beder wrote in a research note.
However, at Lazard Capital Markets, analyst Todd Slater seemed pleased to see the brand owner seeking out deals. He wrote, “With [Iconix] back in acquisition mode, and what appears to be conservative [earnings-per-share] guidance, we see a built-in cushion in its earnings outlook.”
In fact, Cole said on the call that his company is “in the middle of several negotiations, trying to buy great iconic brands at good price points that match our purchase philosophy.”
For the quarter ended Sept. 30, Iconix reported profits of $20.5 million, or 28 cents a diluted share, a 25 percent jump from a year ago, when net income totaled $16.4 million, or 27 cents. Revenues in the quarter increased 8 percent to $59.4 million from $55.1 million in the comparable period.
Its adjusted EPS of 31 cents was 3 cents better than the consensus estimate of 28 cents, according to Yahoo Finance.
However, Iconix said it expects to earn between $1.25 and $1.30 a share in 2010, below the $1.34 predicted by analysts.