Iconix Brand (ICON) Falls On Investigation By A Law Firm

New York-based Iconix Brand Group, Inc. (NASDAQ:ICON) fell 2.23% yesterday when the company announced that the Shuman Law Firm is investigating potential claims against certain officers and directors of the company, as to whether these officers or directors have breached their fiduciary duties to the company.

We note that the company’s 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 related to 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 has 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 holds a Zacks Rank #4 (Sell).

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