Insiders React to KCP, Iconix Deal Buzz

Insiders React to KCP, Iconix Deal
Kenneth Cole

Industry insiders were mixed last week on whether a marriage between Kenneth Cole Productions Inc. and Iconix Brand Group Inc. — and brothers Kenneth and Neil Cole — would be beneficial to the companies.

“A union could help to globalize and maximize the commerciality of the Kenneth Cole name,” said an industry exec who did not wish to be named.

 

“[On the other hand], Iconix is not in the business of operating retail stores. And if Kenneth Cole were to agree to sell the brand and become a licensee, it would have to pay royalties on sales and make a smaller margin [on operations].”

Bloomberg News recently reported that the two companies are in talks, citing unidentified sources familiar with the situation. The chatter sent Kenneth Cole’s shares up 26 percent to $18.49 on Monday morning. The stock price later settled around $15.50 at press time on Thursday.

Kenneth Cole has been showing solid improvement this year, following a net loss of $63.3 million in 2009.

So the timing for a deal “does not make total sense,” said Sterne Agee analyst Sam Poser.

“Iconix is strictly a licensing operation and does not own inventory, [so] running a direct-to-consumer operation … would be a break from what appears to be a successful business model for Iconix,” Poser wrote in a research note last week.

 

He added, “We do not believe Kenneth will remove himself from the frontlines of the business he built.”

Kenneth Cole CEO Jill Granoff recently told investors at the Best Ideas Conference, hosted by CL King & Associates, that the firm’s business “has turned the corner,” having “successfully delivered four consecutive quarters of positive operating profit.”

 

“We are on track for [the third quarter and] are showing growth across all segments, and believe there are ongoing opportunities across brands, channels and geographies,” said Granoff.

Kenneth Cole operates 37 full-priced doors and 70 outlet locations.

Both Iconix and Kenneth Cole declined to comment this week.

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