Iconix Brand Group Inc. confirmed on its second-quarter conference call that Starter and OP (Ocean Pacific) are being phased out at Wal-Mart. Both had been exclusive brands in the entry-level category at the discount chain for years.
Regarding Starter, John Haugh, president and CEO, told analysts that Wal-Mart “has taken some categories away and has made it a little bit more commodity-like.” The brand will be completely out of Wal-Mart by the middle of next year.
Encouragingly, Haugh said Iconix has already found a new partnership for Starter and the brand will be relaunching this fall. While he couldn’t discuss the details, he implied that it would gain a more upscale positioning versus Wal-Mart. Said Haugh, “We think it’s a chance to bring Starter back to the heritage of what it was. Starter really was the first logo strong athletic brand out there. We think there’s a chance to upgrade the product, upgrade the price point and appeal to a consumer that still is very, very aware of Starter.”
He further predicted Starter will have “a pretty good 2018” based on the company’s expectations for the new partnership although sales will likely again decline. He adds, “We’ll still be a little bit short of where we were in 2017 just because of the strength and breadth of Wal-Mart.”
OP will be transitioning out of Wal-Mart this year. As Iconix had mentioned in previous calls, Wal-Mart had over the years “narrowly positioned” OP “as a pure swim brand”
Iconix plans to reposition Ocean Pacific as an authentic, year-round, California lifestyle brand and will be reverting back to “Ocean Pacific” rather than just “OP.”
Haugh stated that Ocean Pacific’s collaboration this summer with Urban Outfitters “sold very well” and underscores Ocean Pacific’s potential in the lifestyle space. He added, “Ocean Pacific is a lifestyle brand with tremendous heritage.”
He added that it will take longer to recapture the royalty income lost by Ocean Pacific in its exit from Wal-Mart versus Starter.
Among its other sports-related brands, Danskin’s sales were also down double-digits although two-thirds of Danskin decline was due to a change in contract for Danskin Now with Wal-Mart from a tiered structure to a flat rate. Haugh noted that Iconix has re-signed its upstairs licensee and have increased distribution with new accounts in new categories for the Danskin brand.
Haugh added that while Danskin’s sales will be down for the year, comparisons get easier in the second half since the change with Wal-Mart occurred in last year’s second quarter. A couple of programs with its upstairs licensee will also start contributing.
The standout among its sports-related brands is Pony, which saw revenue grow “significantly” year-over-year in the quarter. This fall, the sneaker brand is planning on a broader footwear launch designed to drive incremental sales in the back half. Iconix owns a majority stake in Pony.
The company also owns Candie’s, Bongo, Joe Boxer, Rampage, Mudd, Mossimo, London Fog, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, 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 Nick Graham.
Companywide, licensing revenue in the quarter was $61.6 million, a 9.7 percent decline against the year-ago period. Excluding royalties from Sharper Image, which was sold in the fourth quarter, sales were down about 7 percent.
GAAP net income from continuing operations was a loss of $16.3 million, or 30 cents a share, as compared to income of $10.6 million, or 21 cents, in the second quarter of 2016. Non-GAAP net income from continuing operations was $15.2 million, or 26 cents a share, an 18 percent increase as compared to $12.9 million, or 25 cents, in the second quarter of 2016.
Iconix lowered its revenue guidance for the full year to a range of $225 million to $235 million from $235 million to $245 million previously. The revision is related to the timing of certain new initiatives, the transition of certain licensees, and the deconsolidation of the Southeast Asia joint venture.
GAAP EPS is now expected to show a loss of 6 cents to 1 cent as compared to its previous guidance of earnings of 29 cents to 44 cents. This revision is primarily related to the charge from the termination licensees, the expense related to the early extinguishment of debt in the latest quarter and the revenue revision. Non-GAAP EPS is projected to be in a range of 65 cents to 70 cents as compared to its previous guidance of 70 cents to 85 cents to reflect the revenue revision.
Photo courtesy Starter
