Iconix (ICON) Up 26% Despite Y/Y Fall In Q1 Earnings, Sales

Iconix Brand Group, Inc. (NASDAQ:ICON) reported first-quarter 2018 results, with the top and bottom lines declining year over year. The top line continued with its dismal run, thanks to sluggishness in the Men’s, Women’s and Home segments.

Nonetheless, earnings grew year over year on a GAAP basis. Also, management is focused on augmenting revenues, evident from its efforts to enhance Umbro and Starter brand sales through multi-year agreements with Target (NYSE:TGT) and Amazon (NASDAQ:AMZN) , respectively. Such endeavors enabled management to retain guidance despite a dismal performance.

These factors perked up investors’ optimism. The Zacks Rank #2 (Buy) stock has gained 25.8% on May 4, following the earnings release. Let's see if the company can sustain the optimism and recover from a plunge of almost 89% in the past year, against the industry’s rally of 23.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

That said, let’s take a closer look at the company’s first-quarter 2018 results and management’s plans for 2018.

Q1 Highlights

Iconix posted adjusted earnings from continuing operations of 10 cents per share, which met the Zacks Consensus Estimate. However, the bottom line registered a plunge of 55% from 21 cents in the prior-year quarter.

On a GAAP basis, Iconix posted earnings from continuing operations of 51 cents per share versus 6 cents posted in the prior-year quarter.

Total licensing revenues of $48.5 million came below the consensus mark of $50 million and declined approximately 17% year over year. The downside was caused by transition of the company’s Danskin, Ocean Pacific and Mossimo DTR's into its Women’s segment. Excluding Southeast Asia joint venture revenues, the top line fell nearly 16%.

Moreover, the quarter witnessed weak revenues in the Men’s, Women’s and Home segments. Notably, the company’s Men’s and Home segments have been reporting weak performance for a while. During the first quarter, adjusted revenues at the Men’s, Women’s and Home segments declined 41%, 2% and 11%, respectively. These were partially offset by an increase of 29% in the International segment.

In fact, due to weak performance of the segments, Iconix’s top-line plunged 11%, 7%, 10% and 13% year on year, during the fourth, third, second and first quarters of 2017.

Further, operating income during the first quarter came in at $20.5 million, depicting a decline of 39% from the prior-year quarter’s figure. Further, operating margin was 42%, down from 58% in the prior-year quarter. Adjusted operating income came in at $25.8 million, down 28% from the prior-year quarter’s figure, while operating margin was 53%, down from 61% in the year-ago period.

Iconix Brand Group, Inc. Price, Consensus and EPS Surprise

Iconix Brand Group, Inc. Price, Consensus and EPS Surprise | Iconix Brand Group, Inc. Quote

Financial Update

The company ended the quarter with roughly $95.7 million of total cash and nearly $806 million face value of debt. Further, Iconix generated nearly $15.4 million as free cash flow from continuing operations during the first quarter, compared with $13 million in the year-ago quarter.

Outlook for 2018

Management commented that the company continues to focus on strengthening balance sheet. Additionally, the company is striving to expand revenues by bolstering long-term partnerships with licensees. Further, management stated that during the first quarter, the company launched the brand Umbro with Target. Iconix, which shares space with companies like G-III Apparel Group, LTD. (NASDAQ:GIII) , plans on managing its brands more efficiently in 2018.

That said, management reiterated its full-year licensing revenues in the range of $190-220 million. Further, the company is on track with delivering savings close to $12 million in 2018. Additionally, management projects free cash flow in the range of $50-$70 million for 2018.

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