Iconix Stock Sinks On Investigation Results & Lower Q3 Expectations

Badgley Mischka heels.
Badgley Mischka heels.
Zappos.

Iconix Brand Group has shed more than half its share price — down 56 percent at press time — after the company pre-announced lower-than-expected Q3 earnings and its intention to restate previously filed financial statements.

The brand-management firm — whose labels include Candie’s, Badgley Mischka, Rocawear, London Fog and Ed Hardy — said it will restate its historical financial statements for the fourth quarter, as well as annual results for 2013; the 2014 fiscal year and all four quarters; and the first and second quarters of 2015, to correct accounting errors.

The company said the adjustments will have no impact on its 2013 income, but they will likely reduce its 2014 operating income by approximately $6 million. It is estimated that they will increase operating income for the first half of 2015 by approximately $1.6 million.

Iconix has been the subject of investigations by law firms as well as a probe by the Securities & Exchange Commission regarding its allegedly “irregular accounting practices,” as outlined by various law firms involved in the matter.

Iconix said it worked with the SEC and a special committee of the company’s board, along with its independent legal and accounting advisors to review the firm’s accounting practices related to certain transactions.

The SEC had also been investigating whether the company should have consolidated its international joint ventures into its historical results for fiscal 2014.

In a release, Iconix stated that it “remains engaged in a previously disclosed comment letter process with the staff of the U.S. Securities & Exchange Commission relating to an ongoing review of the company’s form 10-K for the year ended December 31, 2014.”

The other source of slipping investor sentiment on the firm is its lower-than-expected Q3 preliminary results: Iconix expects zero “other revenue”; the third quarter’s licensing revenue is forecast to be $89 million; non-GAAP diluted earnings per share are expected to be 9 cents; adjusted non-GAAP diluted EPS are expected to be 33 cents; and GAAP diluted EPS are predicted at 13 cents.

Analysts were anticipating Q3 revenues of $105.7 million and diluted EPS of 53 cents.

Iconix had also been making headlines lately for its series of executive departures. Iconix founder and CEO Neil Cole abruptly stepped down from his post in August, and both CFO and COO exited the firm within two weeks of each other in March/April.

Iconix named existing board member Peter Cuneo interim CEO and chairman of the board while the search for a new CEO proceeds. Analysts speculated that Cuneo’s impact on the company will extend beyond his interim role.