Iconix Misses Street In Q2, Stock Still Down

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Iconix Brand Group Inc. shares were down more than 7 percent in midday trading following the company’s earnings release that missed Wall Street’s forecasts for revenues and earnings per share.

The firm has been making headlines lately for a series of seemingly abrupt executive changes including the departure of its CFO and COO in April and most recently the resignation of its founder and CEO Neil Cole last week.

In Q2, the firm said its revenue — which came only from licensing this quarter — was negatively affected by foreign-exchange rates.

Chairman of the board and interim CEO and Peter Cuneo said the firm is in discussions with the Securities and Exchange Commission regarding an ongoing periodic review of its 10-K form, or quarterly report, for the year ended December 31, 2014.

Iconix has been the subject of investigations by law firms as well as a probe by the SEC regarding its allegedly “irregular accounting practices,” as outlined by various law firms involved in the matter. The SEC is currently investigating whether the company should’ve consolidated its international joint ventures into its historical results for fiscal 2014.

“We continue to believe that the structure of our joint-venture transactions should not result in consolidation, and we have presented our views and supporting accounting literature to the staff [of the SEC],” said Iconix CFO David Jones, appointed to the slot back in June. “While the ultimate outcome of the [SEC’s] comment letter process is unknown and may have a material effect on the company’s historical financial statements, the company believes that the results of the comment letter process will not have a material impact on historical free cash flow, will not impact the company’s reported results for the first half of 2015 and will not impact the company’s overall business strategy of forming joint ventures.”

Meanwhile interim CEO Cuneo assured investors and stakeholders of his intentions of forging ahead despite legal issues.

“We realize that we’ve issued a considerable amount of news recently about Iconix,” Cuneo said. “So let me note for you up front that notwithstanding all of this news, I am very optimistic about the future of this company. And I believe that the issues disclosed by the company can and will be resolved.”

Cuneo also laid out a revised 2015 guidance for the firm noting that he plans to “restore [Iconix’s] growth trajectory and reach the high aspirations that we’ve always had for the business.”

Net Income: Net income attributable to Iconix for Q2, ended June 30, 2015, was $14.8 million, a 58 percent decrease, compared with $35.3 million in the same year-ago quarter.

EPS: EPS in Q2 declined 51 percent to 30 cents per share from 60 cents per share in the comparable quarter.

Net Revenue: Licensing revenue for the second quarter of 2015 was approximately $98.5 million, a 1 percent increase compared with $97.5 million in the second quarter of 2014.

Adjustments: Total licensing revenue was negatively affected by approximately $3.7 million due to foreign exchange rates, the company said. Excluding the effect of foreign exchange rates, licensing revenue increased 5 percent.

Hit, Miss or Beat: Iconix missed market watchers’ forecasts for revenues and EPS. Analysts polled by Yahoo Finance had predicted EPS of 70 cents and revenues of $113 million.

Executive Insights: “I served on the Iconix board for almost nine years. But please make no mistake, I don’t view this job as a job for me to put my finger in the dike so to speak. I will not be deferring any important decisions until the arrival of the new CEO. I’m really very energized about the opportunity to work with the board, and the company’s leadership team, to achieve our next phase of growth for Iconix.” –Interim CEO Cuneo, on the Q2 conference call.

Looking Ahead: Iconix will now provide separate revenue guidance in two components, licensing revenue and other revenue.  For the full year 2015, the company expects licensing revenue to achieve low-single-digit-growth, and to be in a range of $410 – $425 million.  The company said it will continue to look for strategic opportunities and is forecasting approximately $5 – $15 million of “other revenue” in 2015.  The company is revising its 2015 non-GAAP diluted EPS guidance to a range of $2.00 – $2.15, and its 2015 GAAP diluted EPS to a range of $2.24 – $2.39.  Iconix said it still expects to achieve significant free cash flow for the full year and is revising its 2015 free cash flow guidance to a range of $170 – $190 million.