Iconix Brand Group, Inc. Q2 2009 Earnings Call Transcript

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 |  About: Iconix Brand Group, Inc. (ICON)
by: SA Transcripts

Iconix Brand Group, Inc. (NASDAQ:ICON)

Q2 2009 Earnings Call

August 4, 2009 10:00 am ET

Executives

Warren Clamen – Chief Financial Officer

Neil Cole – Chairman and Chief Executive Officer

Yehuda Shmidman – Executive Vice President of Operations

Analysts

Todd Slater - Lazard Capital Markets

Robert Drbul - Barclays Capital

[Spencer Hill] for Omar Saad – Credit Suisse

[Helena] for Robert Ohmes - BAS-ML

Jeffrey Klinefelter - Piper Jaffray

Eric Beder - Brean Murray, Carret & Co.

Mimi Bartow - Telsey Advisory Group

Jim Chartier - Monness, Crespi, Hardt & Co.

Michael Weisberg - Crestwood Capital

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2009 Iconix Brand Group earnings conference call. My name is [Antoine] and I’ll be your operator for today. (Operator Instructions)

The Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this conference call are forward-looking statements and involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the company. This may cause the actual results, performance or achievements of the company to be materially different from the result, performance or achievements expressed or implied by such forward-looking statements.

The words believe, anticipate, expect, confident and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statement was made.

I would now like to turn the call over to Neil Cole, Chairman and Chief Executive Officer, Warren Clamen, Chief Financial Officer and Yehuda Shmidman, Executive Vice President of Operations. I will now introduce Warren Clamen. Please proceed.

Warren Clamen

Good morning everyone, and welcome to the Iconix Brand Group second quarter 2009 earnings conference call. Reviewing our results for the second quarter ended June 30, 2009, revenue was approximately $56.4 million, a 9% increase as compared to $51.7 million in the prior year quarter. EBITDA in the second quarter was approximately $41.8 million, a 19% increase as compared to approximately $35.2 million in the prior year quarter. Our EBITDA margins improved over 600 basis points to 74%, demonstrating the continued scalability of our business model.

Our non-GAAP basis, which excludes non-cash interest related to the adoption of the new accounting treatment for the convertible debt, net income increased 29% to approximately $21.3 million as compared to approximately $16.5 in the prior year quarter. Diluted non-GAAP earnings per share for the second quarter was $0.33, $0.06 higher than the prior year quarter of $0.27 and $0.03 above the consensus of $0.30.

Our GAAP net income, which includes the adoption of the new convertible debt accounting treatment for all periods reported, increased 32% to $19.3 million compared to $14.6 million in the prior year quarter. And GAAP diluted earnings per share was $0.30, $0.06 higher than the prior year quarter of $0.24.

Free cash flow for the quarter was $35.1 million, a 34% increase as compared to approximately $26.3 million in the prior year quarter. Free cash flow per diluted share for the second quarter 2009 was $0.54. The four largest components of the $15.8 million cash add back in the quarter were non-cash taxes, non-cash interest expense, non-cash compensation and depreciation and amortization.

Our strong results in the second quarter offset our sales decline in the first quarter and thus for the six months ended June 30, 2009 revenue was flat at approximately $107 million. EBITDA for the six month period increased by 6% to approximately $78.2 million as compared to approximately $73.9 million in the prior year period, and free cash flow increased 10% to approximately $64.9 million as compared to approximately $59 million in the prior year period.

Free cash flow per diluted share for the six month period was $1.03. Non-GAAP net income as previously defined for the six month period increased 12% to approximately $38.9 million as compared to approximately $34.7 million in the prior year period, and non-GAAP diluted earnings per share increased to $0.62 versus $0.57 in the prior year period.

For the six month period GAAP results, please see our press release from this morning. EBITDA, free cash flow, non-GAAP net income and non-GAAP EPS are on non-GAAP metrics and reconciliation tables for each can be found in that press release sent earlier this morning and on our website, IconixBrand.com.

This quarter we raised $153 million through our equity offering which brought our cash balance at the end of the quarter to approximately $200 million. We felt this was a good opportunity to reload our balance sheet and position ourselves to be opportunistic on executing acquisitions. The current face value of the debt related to our debt facilities at the end of the quarter was approximately $625.5 million and the earliest of any of our debt maturities is not until 2012.

The company’s weighted average cash interest rate on out all of our debt in the second quarter was 3.7% and it is expected to be about 3.3% in the third quarter. Our trailing 12 month net debt to EBITDA is below 3 times, and we are comfortable at these levels given our controlled risk profile of the model and our strong free cash flows.

I will now turn the call over to Iconix Chairman and CEO, Neil Cole.

Neil Cole

Thank you Warren. Good morning everyone. I’m pleased with our performance this quarter and am excited to announce that we achieved record licensing revenue, record EBITDA and record net income.

Our strong results in this quarter represent a culmination of many initiatives that we have been working on including successfully investing in partnerships with leading retailers, streamlining our internal operations to further leverage our infrastructure, continuing to execute innovative marketing campaigns, maintaining a strong balance sheet with a low cost to capital and being opportunistic in our acquisition and our organic growth efforts. We are particularly energized about our direct to retail relationships, which were the primary driver of our growth this quarter. And these should continue to provide growth in the future as we expand into new categories and benefit as our partners open up new doors.

We were also very encouraged by the initial reaction to the new Mudd launch at Kohls and the Charisma launch at Costco. In the second quarter, our direct to retail brands accounted for 55% of our total revenue, up from 27% last year and just 46% just last quarter.

What attracts us to the DTR model is the premium support we receive from our partners with respect to placement within the store, placement on their circular and newspaper ads and general marketing, as well as the strong credit profile of our partners.

Starting with our Wal-Mart brands, we are thrilled with the performance of all 3 brands, OP, Starter and Danskin Now. OP expanded into all Wall-Mart U.S. stores this quarter and in May it received the premier real estate in the apparel section known as the hot spot. Given the success of the first OP hot spot, it receive the premier hot spot again this July with a full back-to-school assortment.

Starter continues to grow each week as we roll out additional categories such as socks and footwear. It is also receiving great publicity with Tony Romo as its spokesperson and we are excited about the new Tony Romo advertising campaign set to run this fall, as well as a Tony Romo product line called TR9 that will arrive in select Wal-Mart stores this October.

We are also introducing a co-branded line for the Danskin Now spokesperson, Gabby Reece. Danskin Now has continued to do well, maintaining high sell throughs since it re-launched in the hot spot this past January.

Looking ahead we anticipate strong organic growth from all three Wal-Mart brands through new categories and international expansion, which we will speak about later on in this call.

Another one of our brands that has seen a bright spot this quarter is Candies. We believe that the success that we are having with Candies speaks to the strength of our DTR business model. The Candies Britney Spears campaign was featured on the cover of Kohls Easter circular, and Candies was back on the cover this July with a new back-to-school Britney ad campaign. The ads are also featured in a major television campaign that is presently on the air that will run through back-to-school.

We are also excited about our newest direct to retailer agreement with Kohls for our Mudd brand, which arrived in stores just a few weeks ago and has had a very strong initial response. To support the launch, Mudd product was featured on the cover of Kohls circular and has been given great placement within the store. We think this is a great opportunity for the Mudd brand and should provide growth for the second half and certainly well into next year.

Our Target brands were off, but in line with Target’s overall sales trends. Joe Boxer sales are up at K-Mart as new categories such as footwear have been introduced.

Sales of our wholesale apparel brands have been mixed. Rocawear continues to gain share in the urban market with continued growth at Macy’s. However, sales have been challenged by the closing of several specialty retail chains. Sales of our better department store brands such as Rampage and London Fog were both up over the prior year’s quarter.

As previously stated on prior calls, two of our brands that have been underperforming are Bongo and Badgley Mischka, but these brands are among our smallest of royalty basis. Ed Hardy royalties are up over 50% from last year on this quarter as the brand expands its new categories and grows its department store base.

Moving on to our home brands, we are most excited about the progress we are making with our Cannon brand at both Sears and K-Mart as it takes more and more shelf space from the exiting Martha Stewart business. K-Mart Sears has shown a great commitment to the Cannon brand, which has been featured in television spots and circulars. Cannon Kids and Teen product has arrived in stores for back-to-school and we’re working on some new possible brand extensions with Cannon.

We are also excited about a new DTR we signed this quarter with Costco for our Charisma brands. Since the Charisma launch, Costco has already seen a spike in its towel sales which we believe is attributable to the power of the Charisma brand. Based on these strong initial sales results, we believe there will be opportunities to expand this program later this year and into next.

Royal Velvet has been on plan, and we are working to expand into new categories with Bed Bath and Beyond. Waverly has been soft at Target, but still has a strong paint DTR at Lowe’s and is performing well through its other distributions.

On the international front, this quarter we signed our third deal in China for our Rocawear brand. Between Rampage, London Fog and Rocawear we expect our brands to have well over 500 stores in China within the next three years. To reiterate our China strategy, we are targeting the masses and rather than opening up a handful of stores in a few major cities, our partners anticipate opening up hundreds of stores in the densely populated, non-major cities all over Greater China.

While longer term in scope, we believe this is a large opportunity for us and expect to see significant upside through monetization events over the next few years. We are also making great progress with our Latin America joint venture. We now have an office open in Panama and have hired a key executive to run the business and work on signing new licenses in the area.

We are also working hard through the JV to maximize Wal-Mart Mexico, Brazil, Argentina and Central America. In terms of Wal-Mart International, the OP assortment is now available across Canada and Mexico and will be going into Argentina this fall.

Acquisitions continue to be a major focus for us. This quarter as Warren mentioned we raised $153 million through an equity offering and now have well over $200 million of cash on hand, which should allow us to move quickly, given the right acquisition. We are seeing many new opportunities for great brands and believe that our pipeline consists of actionable opportunities in the near term. That being said, we will remain disciplined and we are looking to stay within our target metrics.

Now I would like to take you through our 2009 outlook. Based on the strong performance of our brands this quarter, we are raising our full year 2009 revenue guidance from a range of $218 to $225 million to a range of $223 to $230 million. Although top line guidance is being raised, and we are seeing improved EBITDA margins, we are maintaining our full year non-GAAP EPS guidance of $1.30 to $1.35, and GAAP EPS guidance of $1.16 to $1.21 due to the impact of the equity offering this quarter in which we raised $153 million. We expect to continue to generate strong free cash flow, and are forecasting to free cash flow to be approximately $130 million this year. This guidance relates to the existing portfolio of brands only and assumes no acquisitions.

In closing, I believe that this quarter more than any other in our recent history demonstrates the strength and relevance of our business model. In what continues to be a challenging retail environment, we are executing a sustainable strategy that is delivering both top and bottom line organic growth. Our brands now generate retail sales in excess of $8 billion and Iconix is recognized as the second largest licensing company in the world by Global License Magazine.

With our domestic business performing well, our international strategy beginning to take shape and a balance sheet with well over $200 million of cash on hand to execute against our acquisition strategy, our company has never been in a better position.

With that, I’d like to thank you all for listening this morning and I’d like to turn it over to the operator for question and answers. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Todd Slater - Lazard Capital Markets.

Todd Slater - Lazard Capital Markets

Very impressive quarter with EBITDA margins up 450 basis points. I think that illustrates the strong leveragability of the model. Do you guys think you can sustain these types of margins, especially during your cost disciplines? And also if you look back at the equity dilution, it seems like you’re really raising your operating earnings, your EBITDA guidance by about $0.06 and so if I’m correct, I don’t know, calculating the deal dilution of about $0.06 in the back half, maybe if you could tell us what your EBITDA expectation is for the year on your $130 million free cash flow number, because that looks like its nicely higher as well.

Warren Clamen

Yes, I think we do expect the EBITDA margins to remain where they are. I think for the full year we’re counting on mid-seventies or around 75%. So they should improve slightly in the back half of the year as revenue continues to rise. We’re pretty satisfied with where SG&A is right now in this quarter. It’s pretty much going to be flat for the balance of the year.

Todd Slater - Lazard Capital Markets

So your $130 million in free cash flow gets you to about a 75% EBITDA margin.

Warren Clamen

Correct.

Todd Slater - Lazard Capital Markets

And is the dilution calculation correct, about $0.01 or so a month or $0.06 in the back half?

Warren Clamen

It’s probably a little bit more. It’s probably about $0.015 a month, Todd.

Todd Slater - Lazard Capital Markets

And just real quick, what impact if any of the Gabby Reece and TR9, those co-branded lines, is that included in your guidance?

Neil Cole

It’s minimal. I mean TR9’s going to be in about 400 stores, you know, focused on the Dallas and Oklahoma where all the Cowboy fans are. And Gabby’s I think also in 300 stores. So, you know, minimal impact on a very large Wal-Mart business.

Operator

Your next question comes from Robert Drbul - Barclays Capital.

Robert Drbul - Barclays Capital

Two questions I have for you guys. First, Neil can you talk a little bit about the competitive environment out there, you know, for the deals that you’re looking at? And sort of any changes that you’re seeing? And the second question that I have is, are there any notable issues that you’re seeing with your non-DTR licensing partners due to the financing environment that’s outside?

Neil Cole

Yes. You know, as far as competitive it’s very tough to tell who’s on the other side of deals unless it’s a public auction, which we did experience when we were looking at Eddie Bauer. But you know we think we’re in a pretty advantageous position, based on the fact of our cash and how quickly we could move and the type of deals we’re looking at. So we’re pretty excited about the acquisition opportunities that are out there and you know feel confident that we can get some deals done before the end of the year.

You know, as far as what’s happening on the Street with CIT and Titan Credit, it’s a small impact for us. You know we have about 100 licensees that are very small, you know, which definitely will be facing some pressure in finding if they’re with CIT probably a lower borrowing level. But it really hasn’t affected us yet. We’re just very, you know, we’re looking at it but basically 60% of our revenue comes from DTRs, another 20% comes from really strong licensees like Li & Fung and a couple of other big ones. So I would say the exposures about 20% and it’s over 100 licensees, so we’re not that concerned of it having a material impact on us, what’s happening in the market.

Operator

Your next question comes from [Spencer Hill] for Omar Saad – Credit Suisse.

[Spencer Hill] for Omar Saad – Credit Suisse

We were just hoping you could talk a little more about the China opportunity. In near term, you know, how the London Fog breathe into this fall launch is looking and I think the Rampage potential roll out? And then finally just how we should think about the cadence of Rocawear growing in that market?

Yehuda Shmidman

Sure. Hi Omar. Yehuda here. I mean in terms of the near term opportunity in China, we’ve signed three deals to date, kind of in a short order. I believe we’ve only been operating shy of a year out there with our partners Silas Chou and Novel. We expect between our three deals with London Fog, Rampage and Rocawear to have over 500 stores over the next three years. We do plan on monetizing all 17 brands so that there will be some sort of an event planned within a three or five year period for each. And, you know, in terms of again back to the near term, we have a fourth deal in works in the pipeline and we expect several others to take place with our partner over there.

[Spencer Hill] for Omar Saad – Credit Suisse

And can you discuss I guess the existing brand awareness, both with these 3 brands and the other key brands in China and as well the advertising strategies that you and your partners are employing there to grow that brand awareness?

Neil Cole

Probably very little, because we’re really going into mainland China, into over 80 cities and not necessarily into the big cities that would be aware of our brands. But they are aware, the way they’re being marketed, you know, seeing how Rampage is being done because it’s more developed, about a year ahead, and watching how London Fog and continuing to work on the Rocawear concept is they’re American and that’s a good concept because they’re looking for American brands. And then when we bring over the marketing that we have and, you know, with Rampage we had Gisele and now Bar Rafaeli, so it’s kind of bringing new, exciting American brands into mainland China where the people probably don’t have recognition but we’re going to build it. And we’re working on some very innovative marketing, both print television, and we’ve got a great team over there headed by the Chou family, so we’re pretty excited about the opportunity that’s going to happen throughout China.

Operator

Your next question comes from [Helena] for Robert Ohmes - BAS-ML.

[Helena] for Robert Ohmes - BAS-ML

Would you be able to elaborate more on the Mudd launch at Kohls in terms of your marketing plans and just initial roll out in terms of the door count, categories, whether it’s apparel or non-apparel or both, and just a little more color on how the brand will be positioned versus Candies and other competing brands/private label within the Junior space?

Neil Cole

Well, Mudd is presently set up and it really looks amazing. I encourage all of you to get into a Kohls. And it’s being positioned as the casual brand at Kohls, where Candies is more club and more dress, Mudd is more everyday jeans and tee shirts. And it’s really kind of anchoring the department, where you see Candies on one point and you see Mudd on the other. So we’re pretty excited about the opportunity. It is in all doors and we’re now starting to expand throughout the store into all categories, presently started in all apparel, footwear, handbags and pretty much going across all 30 categories similar to Candies.

Operator

Your next question comes from Jeffrey Klinefelter - Piper Jaffray.

Jeffrey Klinefelter - Piper Jaffray

Neil, can you just share a little bit more on your view on Target? I mean, given you have a view really across all of retail at this point or a very good cross section, why do you think it is or share your thoughts on pricing within Mossimo? Also within the home products what do you think it would take to get those trends improving over there, particularly as it relates to your products successes in other retail channels right now?

Neil Cole

First of all I think Target’s, you know, a great company and they will flourish and survive and do better, you know, be back on top in the near future. I think they’re, quite honestly my personal view is they’re a victim of their own success. They had this amazing marketing over the last five or ten years where people thought it was more of a designer feeling and a more upscale and when we went into this recession I think their great marketing kind of hurt them, and kind of there was a kind of backlash on it. You know they’re starting to get back some momentum with, you know, going after more price and more value. So, you know, I think they’ll get back on track over the near future and, you know, total faith in them as a great retailer.

Jeffrey Klinefelter - Piper Jaffray

Do you see any strategic changes needed in terms of pricing? Are you able to provide some insights in terms of what you’re seeing out in the marketplace to get those prices reset?

Neil Cole

Where I think consumers may be missing it or maybe Wal-Mart’s beating Target on the fact that they do have great prices and they are very competitive and the product is priced well. I just think there’s a perception that it’s not as good as it is. And so, you know, they have great values at Target and I think that they will probably get that message across soon.

Jeffrey Klinefelter - Piper Jaffray

On Ed Hardy, what’s your strategy there in terms of distribution for that brand as you work with that partnership? You know, in terms of managing and controlling off price distribution or exposure to the brand versus traditional? Just give us a little bit more of a sense now that you kind of have a quarter under your belt with it.

Neil Cole

Right. Well, Ed Hardy is the only brand in our portfolio where we’re a partner and it’s the only brand that we’re not controlling, both marketing and distribution. Christian Audigier is doing so. And in speaking to Christian over the last, you know, month or two and trying to understand the strategy because, you know, it is broadly distributed in a lot of different product categories, they’ve really pulled back the distribution on the apparel and the main product categories. And you’ll find very little now in off price where they used to, you know, last year there wasn’t a lot of off price, they’ve kind of cleaned it up. And it’s now in better department stores and so they’re trying to pull back on the distribution because it became so popular everywhere and the goods were turning up in places they didn’t want.

You know, as far as some of the licensees, I think we have some work to do because it is popping up in places that necessarily shouldn’t be. But it’s definitely a work in progress and Iconix is trying to understand and work with Christian.

Jeffrey Klinefelter - Piper Jaffray

Just one last thing, Neil. In terms of your second half outlook and more specifically Q4, what is that guidance predicated on? Is it predicated on the conservative guidance your retailers are providing you in terms of their comp outlook? Or how would you characterize the Q4 outlook at retail and how it translates into your guidance?

Neil Cole

I think it’s similar to what’s happening today. We see the consumer is still staying pretty cautious and, you know, we’re not expecting the world to get back to the normal that we remembered over the last 10 years. We think it’s going to be a slow recovery and that’s how we’re looking at the world and thinking it’s going to kind of inch back to where it once was over the next couple of years.

Operator

Your next question comes from Eric Beder - Brean Murray, Carret & Co.

Eric Beder - Brean Murray, Carret & Co.

Could you talk a little bit about international expansion with Wal-Mart? I know you’ve done Canada, Mexico and you’re going to Argentina. How do you look at that process as you go into maybe Europe or other areas? And if you talk about how far penetrated you are and what your kind of expectations and penetrations for the Cannon roll out at Sears and K-Mart.

Yehuda Shmidman

Hi Eric. It’s Yehuda. I’ll take the first on Wal-Mart International. You know, as Neil mentioned before we continue to be very excited about all three brands, OP, Starter and Danskin Now at Wal-Mart. And as we look at that success here in the States, you know, we continue to try to export that throughout the system in Wal-Mart International. And believe today Wal-Mart’s operating in 15 countries outside the U.S. As a stand alone business it continues to be, you know, a high performing business, a growth vehicle for their company.

So as you mentioned we’re just trying to go throughout the system and we’ve got OP in Wal-Mart Canada. Today we’ve got OP in Wal-Mart Mexico. We’ve got Wal-Mart Argentina launching the back half of this year. And you mentioned Europe. I mean, we’re talking to ASDA, we’re talking to Wal-Mart throughout the globe which includes Japan, which includes China. So there is a full outlook of Wal-Mart International and I think that’s an important growth vehicle as you look at the Wal-Mart business in general.

Neil Cole

As far as Cannon goes we’re really, every day we’re making great progress. And, you know, we’re up to about two or three aisles in a lot of the K-Mart stores and the Sears stores. So I think it’ll only get bigger as the year gets over. One of their major licenses, I believe, is up at the end of this year and as we see that exit, Cannon’s getting more and more shelf space.

Operator

Your next question comes from Mimi Bartow - Telsey Advisory Group.

Mimi Bartow - Telsey Advisory Group

First, given the updated revenue guidance I’m just trying to get a sense of some of the larger brands. I know that Rocawear is the end of 2008 and you reported your fourth quarter we saw kind of down 10%, looked a little bit better after the first quarter. How should we be thinking about that brand?

Neil Cole

Yes, I think it’s about the same. You know Rocawear’s doing, it really is doing amazing in it’s, where it’s getting distribution. The big problem there, there’s been a lot of companies like Demo and Against All Odds and just, you know, there’s been a really contraction in the specialty stores in the urban market which has hurt the distribution. But where it is, it’s the best selling brand and so we’re pretty excited about the prospects. The fragrance is doing well and it’s really, you know, held its place. But we are a little, it is down as we discussed because of the specialty retail area.

Mimi Bartow - Telsey Advisory Group

Was also just wondering about kind of the deal sizes you’re seeing today. You know, is it more on the smaller side or given kind of Eddie Bauer and those types of sizes, I mean, what are you guys looking at or what are you seeing out there?

Neil Cole

We have about five deals that, you know, we have at the top of our pipeline that we’re working on and negotiating. You know, a couple of them are around $50 to $60 million in royalty and then there’s, you know, the other three are probably between $20 and $35 million in royalty. We’re trying to stay away from anything under $20 million because it really doesn’t move the needle. But, you know, so it’s a cross anywhere from $20 to $60 depending on the size of these iconic brands.

Mimi Bartow - Telsey Advisory Group

And then just lastly I know obviously a lot of opportunity in the international side, particularly in China. But how have you guys thought about Europe just given maybe DTR potential there and long term growth in that part of the world?

Neil Cole

You know, Europe has always been tough for us because, you know, I don’t really think Europe operates as a continent. You know the Italians and the Spanish and the Germans, they all seem to have different markets. So we have a lot of one off deals throughout the continent where we do make a few million dollars but there’s not a great global presence. The two big players over there are Tesco and Carrefour. We are talking to and engaged and as Yehuda mentioned before we have ASDA visiting us tomorrow and there’s big opportunities there. So we continue to work with Tesco and Carrefour and look for the right opportunity to do a deal, but Europe as a whole, you know, we see very different than, you know, the opportunity that we have in other parts of the world.

Operator

Your next question comes from Jim Chartier - Monness, Crespi, Hardt & Co.

Jim Chartier - Monness, Crespi, Hardt & Co.

How many Costco doors are you guys in now with Charisma?

Neil Cole

It’s in all doors.

Jim Chartier - Monness, Crespi, Hardt & Co.

And then Cannon is in all Sears and K-Mart doors?

Neil Cole

Yes.

Jim Chartier - Monness, Crespi, Hardt & Co.

And then sounds like you guys have a lot of potential acquisitions that you’re looking at. Can you talk about the debt financing environment and what kind of interest rates you’re seeing, you know, if you go beyond the cash you have on the balance sheet?

Warren Clamen

It obviously, the debt financing in the credit markets have definitely eased up. It all depends on what the acquisition is, what the credit profile is. We are seeing, you know, rates I would say ranging from, you know, 9 to 11%. But again that, I can’t put a stake in the ground. That changes weekly and it also changes in terms of what the acquisition target is.

Jim Chartier - Monness, Crespi, Hardt & Co.

And then, kind of last year you guys talked a little bit about India as an opportunity. Sounds like you’ve cooled on that but can you tell us where you are in regards to India?

Neil Cole

Yes. India’s going very slow. We’re a little disillusioned. We work with a couple of partners, or potential partners, and we just didn’t seem to get the volume that we thought was important. And so we’re going to keep watching and hopefully they’ll start actually building these malls they keep talking about.

Operator

Your next question comes from Michael Weisberg - Crestwood Capital.

Michael Weisberg - Crestwood Capital

What’s the fully diluted share count we should use going into the third quarter?

Warren Clamen

It’s probably about 73 million, 73, 74 million and for the full year weighted average should be about 68 million.

Michael Weisberg - Crestwood Capital

When you were talking about SG&A flat second half, Warren, were you talking about in dollars from the second quarter run rate?

Warren Clamen

Yes I was, Michael.

Michael Weisberg - Crestwood Capital

And Neil you mentioned the possible expansion of the Costco relationship. Does that mean you can see another DTR deal there in the near term?

Neil Cole

Yes. I don’t think I, I mentioned I think just Charisma is doing really well and I think we’ll be able to expand some product categories there. You know the club business is very interesting to us and, you know, both Costco and Sam and maybe BJ’s all are interesting great targets for us to look at possibly doing business with. But we have nothing on the near horizon.

Michael Weisberg - Crestwood Capital

The Wal-Mart expansion in Argentina, is that going to be part of the joint venture?

Neil Cole

Yes.

Michael Weisberg - Crestwood Capital

So everything in South America is part of the joint venture, everything away from South and Central America you’re doing is a direct business for you. Is that right?

Neil Cole

That’s correct except China is also a joint venture.

Operator

Your next question comes from Todd Slater - Lazard Capital Markets.

Todd Slater - Lazard Capital Markets

Just a follow up on how you can monetize your brands where there’s still a lot of white space either in Europe or Asia. And you kind of answered the, you know, the Tesco Carrefour question, but do you think you’ll penetrate with any of your brands for delivery next year in some of the big markets you’re not in like in Europe? And what about the rest of Asia which seems very under penetrated too? And would any of the deals and type of deals in Europe or Asia, would they look more like a sort of traditional licensing kind of framework? Or might they also be in a joint venture type of relationship?

Neil Cole

Right now they would probably look as a traditional licensing. We are having some conversations in Japan and other places about a possible joint venture, but I don’t think it’s going to go that way. And, you know, as I mentioned before I see, you know, the rest of Asia and the rest of Europe as good businesses for us that could definitely add in millions, but not, you know, move the needle being the ten or twenty millions and as we have opportunities in the States and possibly in our China JV. So you know we see Iconix continuing to do deals in those territories, but not mega deals or huge deals except possibly if we do something with the Tesco or Carrefour.

Todd Slater - Lazard Capital Markets

Okay. Thanks.

Neil Cole

Thanks Todd. Any other questions?

Operator

There are no further questions at this time.

Neil Cole

Okay. Well, once again thank you everybody. We are really pleased with our performance this quarter, as I mentioned are excited about the growth prospects for the balance of the year. Thank you for joining us today and for all your interest in Iconix. As always, Warren and I will be available and Yehuda for further questions throughout the day. Thank you.

Operator

Thank you for your participation in today’s conference call. This concludes the presentation. You may now disconnect. Good day.

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