After its share price plunged to a 52-week low of $6.60 last week, Iconix Brand Group is seeing its stock rally — up nearly 12 percent at press time — around its better-than-expected Q3 earnings release.
Although the firm posted a net loss and revenues were well below market watchers’ earlier predictions, investors may have been expecting much worse following last week’s announcement that the company will restate its earnings due to “errors in accounting” for much of the past three years.
“We are obviously disappointed to restate historical results. And we are taking all appropriate steps to ensure that this is fully remedied starting with the leadership,” said Interim CEO Peter Cuneo during the company’s Q3 conference call.
Cuneo added that Iconix is actively searching for a permanent CEO to replace Neil Cole, who abruptly stepped down in August.
The third-quarter results, Cuneo said, reflect mixed performance across the firm’s businesses and also reflect “a number of special items,” including fees associated with “continuing correspondence” with the staff of the Securities & Exchange Commission, which has been investigating the firm’s accounting practices.
Revenue in the men’s segment was down 17 percent in the third quarter; sales in the women’s division grew 5 percent; revenue in the entertainment segment climbed 8 percent, driven by the acquisition of the Strawberry Shortcake brand; and the Peanuts brand is forecast to grow 20 percent, excluding one-time charges, by the end of the year.
“If we exclude the impact of foreign exchange, we experienced double-digit growth, driven primarily by strength in Europe, Japan, Southeast Asia and the Middle East,” Cuneo said of the company’s international performance. “And we remain very excited about building our global business.”
Iconix had started the fiscal year with its share price markedly higher than its approximate value of $7.70 (at press time) — the company’s stock hit a 52-week high of $41.03 last November.
Net Income: Net losses for the third quarter, ending Sept. 30, 2015, totaled $6.3 million, compared with the year-ago quarter, when the company posted a profit of $33.7 million.
EPS: Diluted losses per share were 13 cents in the quarter, compared with diluted earnings per share of 58 cents in the year-ago quarter.
Net Revenue: Revenues declined 19 percent year-over-year, to $88.9 million, from the year-ago comparable quarter, when revenues, including “other revenue,” totaled $110.3 million.
Hit, Miss or Beat: Iconix missed forecasts for revenues and EPS. Analysts polled by Yahoo Finance had predicted revenues of $105.7 million and EPS of 52 cents.
Executive Insights: “ I would like to emphasize that the underlying fundamentals of our business are strong. While we are going through a difficult transition period, I am confident we could be successful. Iconix continues to benefit from a diversified portfolio of consumer brands, a profitable business model and strong free-cash-flow generation.”
— Cuneo on the Q3 conference call
Looking Ahead: The company now expects non-GAAP earnings per share to be in the range of $1.35 to $1.40, compared with its previous guidance of $2 to $2.15. Iconix still expects to generate significant free cash flow, though it is narrowing its current guidance range to $170 million to $175 million of free cash flow for 2015. The company now expects licensing revenue to be in the range of $370 million to $380 million for 2015, down from its previous guidance of $410 million to $425 million. The revenue revision includes an approximate $24 million reduction in the Peanuts revenue forecast.