Iconix Brand Group Inc. reported a steep drop in revenues in the first quarter but operating profits improved due to cost-control efforts.
Bob Galvin, CEO, commented, “Results for the first quarter of 2019 were as expected, as we continue to stabilize the business and our operational cost structure. We also continue to build the pipeline of our future business, as we have signed 65 deals year to date for aggregate guaranteed minimum royalties of approximately $40 million.”
For the first quarter of 2019, total revenue was $35.9 million, a 26 percent decline as compared to $48.5 million in the prior year quarter. Such decline was expected, principally as a result of the transition of its Danskin and Mossimo direct to retail licenses in its Womens segment, as previously announced. Revenue for the first quarter of 2019 was also impacted by the effect of the Sears bankruptcy on its Joe Boxer and Bongo brands in Womens and the Cannon brand in Home. Sales were down 50 percent in the Womens’ segment and off 46 percent in Home.
The Mens segment revenue increased 10 percent in the first quarter of 2019, compared to the prior year quarter primarily from the Starter and Buffalo brands. The International segment declined 15 percent in the first quarter of 2019 primarily as a result of performance of our Diamond Icon joint venture, which was higher in the prior year due to sales leading up to the World Cup.
Total SG&A expenses in the first quarter of 2019 were $18.1 million, a 46 percent decrease compared to $33.6 million in the first quarter of 2018. Most of the decline for the quarter was a decrease in compensation, advertising and professional expenses. The decrease in compensation was part of the company’s continued efforts to reduce costs. Additionally, expenses for the first quarter of 2018 included $5.4 million in costs associated with a debt refinancing.
Operating Income and Adjusted EBITDA:
Operating income for the first quarter of 2019 was $18.4 million, as compared to operating income of $15.5 million in the first quarter of 2018. Adjusted EBITDA in the first quarter of 2019 was $18.4 million which represents operating income of $18.4 million excluding net charges of less than $0.1 million. Adjusted EBITDA in the first quarter of 2018 was $22.5 million which represents operating income of $15.5 million excluding net charges of $6.9 million. The change period over period in Adjusted EBITDA is primarily as a result of the change in revenue as outlined above.
Interest Expense and Other Income:
Interest expense in both the first quarter of 2019 and the first quarter of 2018 was $14.5 million. In the first quarter of 2019, the company recognized a $20.0 million gain as compared to a $24.3 million gain in the first quarter of 2018. These gains result from the company’s accounting for the 5.75 percent Convertible Notes, which requires recording the fair value of this debt at the end of each period with any change from the prior period accounted for as other income or loss in the respective period’s income statement.
Provision for Income Taxes:
The effective income tax rate for the first quarter of 2019 is approximately 8.5 percent, which resulted in a $2.0 million income tax provision, as compared to an effective income tax rate of 5.1 percent in the prior year quarter, which resulted in a $1.7 million income tax provision. The increase in the effective income tax rate resulted from a decrease in pretax income resulting from mark to market adjustments for the Current Quarter, for which there is no tax expense. The company’s tax expense and effective tax rate is also impacted by taxes based on sources other than pretax income which remained consistent with the prior year.
GAAP Net Income and GAAP Diluted EPS:
GAAP net income attributable to Iconix for the first quarter of 2019 reflects income of $17.9 million, compared to income of $27.8 million for the first quarter of 2018. GAAP diluted EPS for the first quarter of 2019 reflects a loss of $0.01, compared to income of $1.09 for the first quarter of 2018.
Iconix Brand Group’s brands include: Candie’s, Bongo, Joe Boxer, Rampage, Mudd, Mossimo, London Fog, Ocean Pacific, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter, Waverly, Zoo York, Umbro, Lee Cooper, Ecko Unltd., Marc Ecko, And Artful Dodger. In Addition, Iconix owns interests in The Material Girl, Ed Hardy, Truth Or Dare, Modern Amusement, Buffalo and Pony brands.