Iconix Eyes More Deals in 2010

Iconix Eyes More Deals in 2010
Neil Cole

BOSTON — Iconix Brand Group Inc. ended the year on a high note and expects to do the same in 2010, aided by the prospect of adding more brands to its growing roster.

“We’re energized about where our company is today. In 2010, our focus is on continuing to deliver organic growth, and we remain active but diligent in our search for iconic brands that are well-monetized,” Neil Cole, chairman and president of Iconix, said on a post-earnings conference call.

The firm, which purchased a 51 percent stake in Ecko and made a 50 percent investment in Ed Hardy during the year, ended 2009 with nearly $135 million in free cash flow and expects between $140 million and $145 million in free cash flow this year. The company said its brands represent $10 billion in annual retail sales.

Iconix reaffirmed a prior full-year 2010 revenue guidance of $260 million to $270 million, and earnings per share of $1.13 to $1.18.

Analysts were equally optimistic about Iconix in 2010. “The [21 percent] revenue acceleration in the fourth quarter provides a good model of what might occur in the first half of 2010,” Todd Slater of Lazard Capital Markets wrote in a report last week. “We view forward guidance as achievable/conservative given easy first-half [comparisons] at Target, Mudd at Kohl’s, Cannon expansion at Sears/K-mart, new Bongo direct-to-retail, as well as continued upside at Wal-Mart.”

And after a sharp drop in Iconix’s stock price last October, Eric Beder of Brean Murray wrote in a report that he believes the company “is rebuilding credibility through steady growth, strong free cash flow generation, high visibility and the potential for accretive acquisitions in 2010.”

 As for some of its specific brands, Cole cited strength at Candie’s, which he said has benefited from a marketing partnership with Britney Spears. Mudd is also doing well, he said, “and is continuing to expand rapidly throughout Kohl’s.”

Badgley Mischka, however, has weakened. “We’re continuing to explore new ways to expand the brand,” Yehuda Shmidman, EVP of operations, said on the call. Last quarter, the firm launched American Glamour by Badgley Mischka with the Home Shopping Network.

Cole added that thanks to a joint venture in China called Iconix China, his company is in the process of closing a Badgley Mischka deal there. Other contracts via Iconix China were recently announced for the London Fog and Rocawear brands, Iconix said.

“Between the three deals we have signed in greater China, we expect our partnerships to open up approximately 600 stores over the next three years,” Cole said.

Regarding the rumor that the firm was working on a contemporary women’s collection by Madonna, Cole said he would not comment. He did add, however, that the firm “wouldn’t do a deal like the deal rumored unless we owned equity. …. We would usually own at least 50 percent of the equity in the deal.” He added that Iconix continues “to work hard on completing a few different deals that we’re working on.”

The New York-based firm announced last Tuesday that fourth-quarter earnings jumped 36 percent to $20.8 million, or 27 cents a diluted share, up from $15.3 million, or 25 cents, a year ago. Licensing and other revenues rose to $65.8 million from $54.3 million last year.

Excluding non-cash interest related to the company’s convertible debt, earnings would have been 30 cents — matching Wall Street estimates — compared with 28 cents previously.

For the year, Iconix earned $75.7 million, or $1.10, up from $62.9 million, or $1.03, a year ago. Revenues totaled $232.1 million versus $216.8 million the prior year.

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