Iconix (ICON) Stock Down On Lowered 2016 Earnings Outlook

Shares of Iconix Brand Group, Inc. (NASDAQ:ICON) fell 8.04% on Jun 13 after this clothing brand licensing company lowered its 2016 earnings guidance following the repurchase of convertible notes.

Iconix recently entered into an agreement to repurchase up to approximately $105 million (out of $400 million) of its outstanding 1.50% Convertible Senior Subordinated Notes due Mar 2018. The company plans to retire up to approximately $105 million of these notes in exchange for aggregate cash payments of up to approximately $35.2 million, and approximately 6.8 million shares of the company.

The company believes this debt reduction, combined with the issuance of equity will boost its liquidity and create long-term shareholder value.

Following the issuance of the shares in this transaction, the company’s outstanding share count has increased, thus prompting the company to reduce its earnings guidance for 2016. The company now expects adjusted earnings in the range of $1.06 to $1.21 per share, down from the previous guidance of $1.15–$1.30 per share. The Zacks Consensus Estimate is pegged at $1.20 per share, on the higher side of the company’s new guidance range.

We note that Iconix shares have been tumbling since the beginning of this year. Many firms have also filed a class action lawsuit against Iconix. In Dec 2015, Iconix Brand announced that it has received a formal order of investigation from U.S. Securities and Exchange Commission (‘SEC’), pertaining to some accounting treatment of certain international joint venture transactions. It has been accused of misleading investors by underreporting the cost of its brands and overstating its earnings and revenues by engaging in irregular accounting practices related to the booking of its joint venture revenues and profits, free-cash flow, and organic growth.

Though the company restated its historical statements along with the fourth quarter 2015 results, these issues have adversely impacted growth.

Not only that, Iconix delivered sluggish results throughout 2015 and in the first quarter of 2016. Both earnings and sales have declined year over year in the last five consecutive quarters due to sluggishness in the women's, men's and home segments. In the women's segment, the largest component of the decline was in the wholesale business, with some pressure on the Rampage brand. There was also continued weakness across the overall men's portfolio.

The company expects higher expenses in 2016 associated with the new term loan, the impact of the sale of the Badgley Mischka brand, adjustments related to the financial restatement, transition costs relating to the hiring of the company's new chief executive officer, and current trends in the portfolio.

Iconix currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the consumer discretionary sector include Carter's, Inc. (NYSE:CRI) , Sequential Brands Group, Inc. (NASDAQ:SQBG) and The Children's Place, Inc. (NASDAQ:PLCE) . All of them hold a Zacks Rank #2 (Buy).