Last week, Iconix Brand Group (ICON) reported earnings for its first fiscal quarter. The company posted revenue of $105.1 million, a new first quarter record. Iconix earned $0.54 per share, beating the consensus target of $0.52. For those unfamiliar with the licensing giant, here is a list of brands the company owns or has a partial stake in:
· Candie's, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd, Massimo, London Fog, Op, Danskin, Rocawear, Starter, Peanuts, Ed Hardy, Artful Doger, Ecko Unltd, Marc Ecko, Zoo York, Material Girl, Truth or Dare Madonna, Umbro, Buffalo, Lee Cooper, Modern Amusement, Cannon, Fieldcrest, Charisma, Royal Velvet, Waverly, Sandra, Sharper Image.
As you can see, Iconix owns quite the diverse list of consumer product names, clothing brands, and sporting apparel. The company is transitioning into a worldwide leader in brand management. Here are six reasons why I think you should hold the stock in your portfolio.
Joint Ventures/International Sales
In 2012, Iconix had international sales that made up 24% of the entire fiscal year. The company has now forecasted that number to hit 33% in fiscal 2013. With recent international product launches and new joint ventures, it is only a matter of time before that number hits 50% and the company's revenue stream multiplies.
During the first quarter call, the company announced plans to bring joint ventures to Canada, Israel, and Australia. This is good news for investors in Iconix. Since launching a joint venture in the Latin America region, royalties quadrupled. A joint venture in India just signed its third licensee (Kapsons) and will have London Fog merchandise in over 150 new retail outlets.
In China, sales of Iconix brands are booming and the company will see a strong royalty revenue stream. Material Girl signed a deal with Peacebird in China. Peacebird has over 3000 retail channels and will begin opening Material Girl stores in the fall. Over 600 new stores and in store Material Girl channels will open in the next five years.
In a previous article, I discussed that Iconix was ready to bring the "Peanuts" gang back to the big screen. Charlie Brown, Snoopy, and friends, will get the big screen treatment in 2015 in an all new 3D movie. This is a huge move for Iconix as it will strengthen one of its strongest licensing brands even further.
During the conference call, the CEO touched on the topic briefly. Expect more details about specific new licensing deals to be announced over the next two years. Since that article about "Peanuts" and my recommendation to buy shares, Iconix is up 40%.
During the first quarter conference call, Iconix CEO Neil Cole said, "We are most excited about our athletic business." This was referring to Starter and Umbro, two sports brands that have gone unloved by their former owners and are now in Iconix's hands to turn around.
The most exciting offering coming from Starter is the revival of the "Starter Jacket". Once the most popular team jacket in sports, Iconix will re-launch this brand with deals from the NFL, NBA, MLB, and NCAA. The jacket is expected to launch in the third quarter. Jacket retail deals are in place with Sports Authority and Foot Locker (FL). This is a huge deal for Starter and Iconix and could have a big impact on fourth quarter revenue and guidance for the next fiscal year. I expect analysts to underestimate sales on this product launch.
Starter brand products already have a home in Wal-Mart (WMT) stores. This partnership places the acquired brand in front of millions of customers. Iconix spent $60 million to acquire Starter in 2007. With a strong presence in Wal-Mart and the re-launch of the Starter Jacket, expect that acquisition to be well worth the price. In the five years since Iconix bought Starter, it has tripled sales of the once ailing brand.
Umbro, a soccer brand, is one of three brands acquired by Iconix over the last five months. Iconix bought the soccer brand from Nike (NKE), who had been focusing on getting its namesake brand on soccer jerseys and merchandise instead. Essentially, Nike took contracts away from Umbro and made the brand worth less than what is was.
When Nike placed Umbro up for sale, Iconix swooped in and acquired the soccer brand for $225 million. Iconix's newest plan calls for expanding this brand in the United States, Brazil, and Europe. The company will focus on using key events like the 2014 World Cup and 2016 Summer Olympics to expand endorsement and shirt sponsorship deals.
Nike once bought Umbro for $580 million. Nike got some value out of the brand by switching several teams, like Manchester City, to the Nike Soccer brand. Iconix got a steal though, by acquiring the brand for less than half of Nike's original price. In 2012, Umbro posted sales of $262 million. With national sponsorships of Sweden, Ireland, and England soccer teams, the brand is well positioned to capitalize on the 2014 World Cup.
With the strength of the first quarter, Iconix raised its full year guidance. The company now expects revenue for fiscal 2013 in a range of $425 to $435 million. Earnings per share guidance also increased to a range of $2.10 to $2.20. The earnings raise was due in large part to planned share buybacks.
On Yahoo Finance, analysts are calling for fiscal year revenue of $431 million and earnings per share of $2.11. I think Iconix will raise their guidance at least once again during fiscal 2013. Keep in mind that several strong product launches, like the Starter Jacket in quarter three, and Material Girl stores in China, could bring a big revenue and earnings beat as revenue is recognized in the fourth quarter.
Iconix management is aggressively buying back shares of its own stock. The company believes shares are overvalued and continues to retire good chunks of the shares on the market. From January 1st to April 22nd, the company had bought back $210 million worth of its shares. In the past 1.5 years, Iconix has bought 17 million shares. This represents an amazing 23% of the company's outstanding shares retired in an eighteen month period. Currently, $146 million in buybacks remain on the board's current plan.
Due to the strong royalty stream that Iconix generates, the company can continue to aggressively buy back shares. In fact, the company said it would love to buy back 20% of shares a year, as it believes the shares are significantly undervalued.
Shares of Iconix reached new all-time highs on Friday and now trade above $28. This is double what shares traded for back in May. The company beat analysts' expected earnings per share and revenue targets for the first quarter. Long term investors are starting to see the picture for this company. As Iconix signs new deals and unlocks the potential of its brands, sales will continue to flourish. This is a company that should have a place in your portfolio.