Iconix Brand Group Inc. reported net earnings again eroded in the first quarter on a 17 percent revenue decline. But results were in line with expectations and Iconix’s management said they’re making progress realigning brand relationships, including Umbro’s with Target and Starter’s with Amazon.
Among segments, revenue for Men’s eased 2 percent to $9.9 million.
Among the successes in the segment is Umbro, which launched in February as an exclusive kids line at Target. The launch aligned with the discounter’s support of the sport of soccer.
“With our multiyear agreement with Target for the Umbro brand, we’re demonstrating our ability to place our brand with the right long-term partners to maximize our market presence,” said John Haugh, Iconix’s president and CEO, on a conference call with analysts.
Haugh added, “We believe we will over-deliver our plan on Umbro in 2018.”
In the Q&A session, Haugh added that previously, Umbro did “very little business” with Dick’s Sporting Goods, so any growth in Umbro will be coming off a “very, very, very modest” base. He said the company was “happy with the initial reaction” with the product showing up in the third week of February and believes Target will put a big push behind the label with its stated support of soccer and focus on millennial moms.
He said, “We believe we’ve found the right home. We believe the business will grow and we are there to support Target in their strategy and we’re happy that what their strategy is, is to be the place for soccer, particularly youth soccer in the U.S.”
Starter is ramping up with Amazon, and will soon offer over 400 SKUs on the site. Haugh said, “We are receiving excellent customer reviews and are working closely with Amazon to drive sales and capitalize on the wide recognition of Starter among fans of all ages.”
He noted that Starter’s average unit retail (AUR) price had been about $6.00 at Wal-Mart due to commoditization, but the appeal of its upstairs Starter Black satin jacket has helped to “reposition that immediately into Amazon at a significantly-different AUR.”
Pony, the sneaker brand, is expected to sign new licensees to drive apparel and footwear. Pony.com has been in a pilot stage for several months and new categories and exclusive styles are being added to the site. Said Haugh, “Connecting with the consumer directly through online commerce also allows us to gain insights needed to guide meaningful marketing to drive wholesale sales.”
Among other Men’s brands, Buffalo outperformed for the quarter, although the jeans brand will see “tough comps” in the back half of the year. Other labels in the Men’s segment include Rocawear/Roc Nation, Zoo York, Ecko Unltd, Artful Dodger, Ed Hardy, Nick Graham and Hydraulic.
In the Women’s segment, sales tumbled 41 percent to $16.6 million, in line with expectations as Danskin, Mossimo and Ocean Pacific transition from their historical DTR relationships.
Danskin is transitioning out of Walmart, but the core Danskin business is growing and a “new important category” is expected to be announced shortly. Said Haugh, “We are also working on the redesign of the danskin.com site to offer the consumer a more compelling online brand and shopping experience.”
Ocean Pacific is gaining traction at certain sport specialty stores and that growth is expected to be augmented with the addition of swimsuits, beach accessories and other categories authentic to the brand’s coastal lifestyle heritage. Haugh said some OP product is still being cleared from Wal-Mart and he expected the brand will need some “breathing room” to rebuild in 2018, with 2019 being positioned as the year to regain volume.
Among other brands in Women’s, Candie’s and Mudd continue to have a solid performance at Kohl’s. London Fog renewed the company’s luggage licensing and renewed relationship with Hudson’s Bay. Mossimo is finalizing terms with new licensing partners with a heavy online focus after ending the company’s long run at Target. Other women’s brands include Bongo and Rampage.
In the company’s remaining segments, revenue for the home segment was down 11 percent to $6.5 million for the quarter over last year. A portion of this decrease was due to a shift in Charisma product delivery.
Revenue for the international segment was up 29 percent to $15.5 million over last year, adjusting for the Southeast Asia joint venture de-consolidation implemented in 2017. Haugh said approximately half of the gains oversees are being driven by the surge of product orders, following the qualification for the 2018 World Cup by the Umbro-sponsored Peru national football team. The remainder of the growth was diversified across broad, both geographic and brand, with particular strength in Europe, Brazil, China and across Starter, Danskin and Umbro. Haugh said Iconix’s international segment is on track for growth in 2018.
Companywide, sales for the quarter were $48.5 million, a 17 percent decline.
Operating income for the first quarter was down 39.0 percent to $20.5 million. Operating margin was 42 percent as compared to 58 percent in the first quarter 2017. Excluding special charges, restructuring costs, non-cash purchase accounting adjustments and gain on sale of trademarks from 2018 results and special charges from 2017 results, operating income were reduced 27.9 percent to $25.8 million, or 53 percent of sales, from $35.8 million, or 61 percent, a year ago.
GAAP net income from continuing came to $32.7 million, or 51 cents a share, against $4.4 million, or 6 cents, a year ago. Non-GAAP net income from continuing operations was $5.7 million, or 10 cents, as compared to $12.3 million, 21 cents, in the first quarter of 2017.
Iconix reiterated the company’s previously announced full year revenue guidance of $190 million to $220 million as well as guidance for non-GAAP net income guidance of $20 million to $30 million. Previous GAAP net income guidance of approximately $7 million to $17 million was increased to $17 million to $27 million, principally due to the Q1 gain on extinguishment of debt and the elimination of non-cash interest expense related to its 5.75 percent convertible notes.
The company also claims to be on track to deliver approximately $12 million of full year cost-savings, aligning expenses with revenue base.
Photo courtesy Starter