After several high-profile executive departures, an investigation by the Securities & Exchange Commission, slipping sales and news that the firm will restate official financial filings for most of the past three years, many investors and market watchers have walked away from the company.
In the past few weeks alone, Iconix has shed more than half its share price, valued at roughly $7 now, while analysts have dropped the firm from their coverage lists, citing — among other concerns — “insufficient visibility” into the company’s financials.
“[We are] discontinuing coverage due to the meaningfully different environment, set of risks and significant management turnover compared with several months ago,” noted Robert Drbul, an analyst at Nomura Securities International Inc. “[And] we believe the likelihood of continued SEC investigations, legal risks and related fines remains high, and do not anticipate an unadulterated view into the company’s business model or historical financials in the near to medium term.”
Citi Research analyst Kate McShane also dropped the company from her coverage area, while CL King & Associates analyst Steve Marotta downgraded the stock but continues to cover the company, albeit cautiously.
“Clearly, they’ve got some issues,” Marotta said. “They’ve got some good brands and some not-so-good brands. They have to separate the good from the bad, and we’ll see how they shake out. Their business is under a tremendous amount of pressure, and given the leverage on the balance sheet, that’s really what’s causing the issues.”
But Iconix’s struggles may not be isolated. Now, experts warn that the brand’s challenges could have a chilling effect on other brand-management firms.
Canaccord Genuity Inc. analyst Camilo Lyon warned that the perception of private equity brand managers could become tainted — with Sequential Brands Group, Lyon noted, as one example.
“We believe the recent turmoil at Iconix Brand Group, coupled with cautionary comments by department stores, has weighed on Sequential — undeservedly so,” Lyon wrote on Friday. “While we fully understand why the negativity around Iconix has clouded the view on the sector, we believe there are distinct differences between Sequential and Iconix that necessitate noting.”
Lyon pointed out Sequential’s recent acquisitions of Martha Stewart Living Omnimedia and Joes brand as well as its “strong, sound financial partners” as key distinctions.
Marotta suggested that the current cheapness of Iconix’s stock may present a rare buying opportunity. However, he admits near-term upside remains slim.
“Given the free cash flow metrics, it’s a very cheap name,” Marotta said. “But with the topline under as much pressure as it has been and with earnings estimates continuously [faltering], I can’t be compelled to be very constructive on the name in the near term.”
Iconix’s brands and licenses include Candie’s, Peanuts, Badgley Mischka and Rocawear.