Iconix Brands Group said John Haugh has resigned as CEO, president and a board member. The exit comes 17 days after Sports Direct built up a stake in the brand-management firm and said the company planned to nominate four members to Iconix’ board.
Haugh joined the company in April 2017, effectively replacing founder Neil Cole who left in August 2015 amid a regulatory probe that led the company to restate results going back several years while facing a formal SEC investigation.
The company owns a number of brands in the footwear, apparel and home furnishings space and generally licenses them out as to retailers or wholesale vendors.
Last year, total licensing revenue fell 11 percent to $225.8 million, in part due to the sale of Sharper Image and Badgley Mischka. Decreases over the last year were also seen in the company’s Starter, Mossimo, Danskin, Ocean Pacific and Waverly.
The company over the past three years has incurred losses of $489.3 million, $252.1 million and $186.5 million, respectively. Each year was brought down by massive trademark impairment charges tied to the underperformance of a number of brands.
Iconix wrote in the company’s 2017 10K, “The decrease in financial projections is primarily due to continued declines and strategic repositioning of proprietary brands in the retail industry, accompanied by the closing of traditional brick and mortar stores and continued online disruption and competition in the target market. Several of our key DTR partners (e.g. Walmart, Target, Macy’s, Kmart/Sears) have been affected by this decline, which has resulted in the non-renewal of license agreements or increased pressures to reduce the economics (e.g. royalty rates, guaranteed minimum royalties) of new and existing license agreements.”
Among the brands being repositioned, Starter’s license agreement with Wal-Mart expired in December 2017 and Ocean Pacific’s license agreement with Wal-Mart expired in June 2017. Last fall, Wal-Mart told Iconix the company did not intend to renew the company’s license for the Danskin Now brand beyond January 2019. The Mossimo brand is exiting Target this year.
Among other active brands, Pony faced a delay in the relaunch of the brand. Sales of Rocawear, Ed Hardy, Zoo York and Ecko have all been impacted by the decline in demand for streetwear and urban clothing. For Umbro, write-downs were taken because monetization levels in Europe were below initial expectations, since Iconix acquired the brand in in 2012 and a new joint venture in China missed targets.
On May 7, Iconix reported earnings in the first quarter again eroded on a 17 percent revenue decline. But results were in line with expectations, the company’s full-year guidance was reaffirmed and Haugh said the company is making progress repositioning the brand.
These include launching an exclusive Umbro kids line at Target, introducing Starter on amazon.com and making it an exclusive to Amazon Prime members. New licensees were being discussed for Pony. Ocean Pacific was seen 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 also said Iconix was making progress improving the company’s balance sheet and was on track to deliver approximately $12 million in full year cost-savings, aligning expenses with revenue base.
Said Haugh, “Our cash and covenant positions are solid. We are making progress on our growth initiatives and we are working to position our brands, including our legacy DTR brands, to continue to support and grow our revenue base.”
On June 7, however, Sports Direct, which had built up a 9 percent stake in Iconix, nominated four candidates for the licensing company’s board of directors while asserting that Iconix’s current leadership is mismanaging the company.
The U.K. sporting goods chain acquired EMS and Bob’s Stores to mark the company’s entry into U.S. retailing but has been an active investor in other companies, largely U.K.-based, without making an acquisition. Sports Direct had built up a stake with The Finish Line before the company’s U.K. rival reached an agreement to acquire the U.S. sneaker chain.
In a statement, Sports Direct stated they were vexed about Iconix’s devalued stock price, “substantial debt load” and loss of direct-to-retail licenses with major retail partners. Sports Direct added that attempts to engage Iconix “unfortunately led nowhere” and drove the push to reorganize the board. Sports Direct concluded, “Iconix’s history of underperformance and its lack of a coherent strategy to reverse this recent unacceptable loss of stockholder value illustrates the need for significant change at the board level.”
In response to Sports Direct’s move to nominate four board members, Iconix charged that Sports Direct is “effectively seeking control of the company without paying a control premium” and asserted that Iconix’ board has “eight highly-qualified directors,” six of whom are independent and three of whom were appointed in the past three years.
Nonetheless, Iconix announced Monday that Peter Cuneo, executive chairman of the board, would serve as interim CEO, effective immediately. Cuneo also served as interim CEO from August 2015 to April 2016, following the exit of Cole.
Drew Cohen, lead independent director of the Iconix’s board, said, “The Iconix board regularly evaluates leadership to ensure that we have the right mix of skills and experience in place to drive growth and value creation for all of our stockholders. Iconix has made steady progress on a range of financial initiatives, including strengthening our balance sheet and addressing near-term debt obligations. As we continue to work diligently to build a platform for sustainable growth that fully capitalizes on the strength of our global brand portfolio, the board is committed to putting in place a strong leadership team that is able to successfully execute on these goals.
Cuneo, who helped lead the turnarounds of Marvel Entertainment and Remington Products, said, “We are addressing the challenges facing the company head-on and are moving forward with focus and a sense of urgency. I look forward to working closely with the board and management team as we search for a permanent CEO and best position Iconix to deliver growth and stockholder value creation.”
According to the New York Post, Iconix has been shopping itself for about eight months, hiring Guggenheim Securities to “find a potential buyer for the entire business or to sell parts of it,” according to a source with knowledge of the situation. “They are looking for a solution to their quagmire,” the source claimed.
Shares of Iconix on Monday closed at 75 cents, down 8 cents, in over-the-counter trading.
Photo courtesy Iconix
