New York-based Iconix Brand Group, Inc. ICON is upbeat on its performance this year backed by fourth-quarter and full-year 2014 earnings outperformance and an acquisition strategy.

On Feb 26, Iconix reported solid fourth-quarter and full-year 2014 results, wherein both earnings and sales exceeded the respective Zacks Consensus Estimate on the back of increasing market share of its core brands and international expansion through joint ventures. Moreover, the company recently announced acquisitions which it seeks to monetize through international joint ventures that have contributed meaningfully to its past revenues.

Iconix Brand Group Inc. - Quarterly EPS | FindTheCompany

Quarter in Detail

This clothing brand licensing company reported fourth-quarter adjusted earnings of 56 cents per share. Adjusted earnings were ahead of the Zacks Consensus Estimate of 54 cents by 3.7% and increased 4% from the year-ago level. The upside can be attributed to increased revenues and lower outstanding share count owing to share buybacks.

Total revenue of $112.4 million beat the Zacks Consensus Estimate of $110.0 million by 2.2% and also increased 7% year over year. Top-line growth can be attributed to growth in licensing revenues, which increased 16%, offsetting the decline in other revenues. 

Positive results across the Women's, Home and Entertainment businesses as well as international expansion aided the results. Strong performance by the acquired Peanuts brand, increasing market share of its core brands and international expansion through joint ventures contributed to sales growth.

On a year-over-year basis, earnings before interest, taxes, depreciation and amortization (EBITDA) declined 16% to $60.1 million, while EBITDA margin declined to 45% from 57% in the prior-year quarter, due to growth in the Peanuts brand which operates at a lower average margin.

Full-Year 2014 Results

In 2014, Iconix reported adjusted earnings of $2.78 per share, which were ahead of the Zacks Consensus Estimate of $2.75 by 1.1% and increased 16% from the year-ago level. Earnings were within the company’s guided range of $2.72–$2.77 per share. Total revenue of $461.2 million also beat the Zacks Consensus Estimate of $459.0 million by 0.5% and increased 7% year over year. Revenues were within the company’s guided range of $455–$465 million.

Financial Update

Iconix exited the quarter with free cash flow of $46.3 million compared with $61.8 million at the end of the third quarter of 2014. The decline might be due to huge investments in its international business and increased marketing investments in certain brands, including Royal Velvet, Buffalo and Umbro.

During 2014, Iconix repurchased 5 million shares for $193 million. Since initiating the share repurchase program in Oct 2011, the company has repurchased approximately 29.1 million shares, which represent approximately 40% of its shares outstanding.

Acquisition Update

In Feb 2015, Iconix announced that it will buy the rights to the pink-haired cartoon character Strawberry Shortcake from greeting card company American Greetings for $105 million. Like Peanuts, the Strawberry Shortcake brand will help in expanding the Iconix entertainment platform with possible clothing, toy and TV shows or movie deals.

Other than this, Iconix Brand also announced last month that it will acquire the North American rights to the athletic brand PONY from Symphony Holdings, Limited for $37 million, in order to boost its existing sports platform which includes Danskin, Starter and Umbro brands.

Guidance for 2015 Raised

Following better-than-expected fourth-quarter and full-year 2014, and the recent PONY and Strawberry Shortcake purchase deals, Iconix raised its earnings and revenue guidance for 2015.

The company now expects adjusted earnings in the range of $3.00–$3.15 per share, up from the earlier expectation of $2.90–$3.10. The Zacks Consensus Estimate is pegged at $3.05 per share, within the company’s new guidance range.

The company expects revenues in the range of $490 million to $510 million, up from the prior guidance of $485 million to $500 million. The company also provided free cash flow guidance in the range of $208 million to $218 million.

Iconix anticipates improved top and bottom lines this year on the back of steady expansion in the domestic licensing business, rapid growth in the international business, upcoming Peanuts movies and the benefits of the recently announced Strawberry Shortcake and PONY acquisitions.

Bottom Line

Overall we are impressed with the company’s growth story. Iconix has been aggressively acquiring brands and entering into joint ventures to expand its portfolio. We believe that these international joint ventures will continue to contribute meaningfully to the company’s revenues.

Iconix holds a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer discretionary sector  include Skechers USA Inc. SKX and Rocky Brands, Inc. RCKY with a Zacks Rank #1 (Strong Buy), and Sequential Brands Group, Inc. SQBG with a Zacks Rank #2 (Buy).

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