Iconix Brand Group, the parent of Starter, Danskin and a number of other fashion and active brands, reported a loss after impairment charges in the first quarter on a 22 percent sales decline due in part to pressures from COVID-19. Iconix said it signed 41 license deals during 2020 and is making progress in improving its cost structure.

Bob Galvin, CEO, commented, “While we began 2020 focused on the continued stabilization of our business and our operational cost structure, the COVID-19 pandemic has had a meaningful near-term impact on our business and that of our licensees. We quickly responded to remove costs and preserve liquidity. As of now, we have achieved over $10.0 million of annualized cost removal actions, including reductions in headcount and the elimination of all non-essential operating expenses. However, we will remain vigilant and will attempt to identify additional cost removal actions if we experience a slower recovery or in the event of further disruption later in the year.”

Galvin continued, “Our first priority is always the health and safety of our team, our communities and our business partners, and we moved quickly to implement changes to ensure safety, such as the working from home initiative. Even with this disruption, we continued to develop our pipeline of future business, as we signed 41 deals during 2020 for aggregate guaranteed minimum royalties of approximately $24 million. We will continue to focus on the business and decreasing costs to help improve our Adjusted EBITDA margin.”

First Quarter 2020 Financial Results
For the first quarter of 2020, total revenue was $28.0 million, a 22 percent decline, compared to $35.9 million in the first quarter of 2019. Revenue across all segments was negatively impacted by the effects of the COVID-19 pandemic on the global economy.

The 23 percent decrease in revenue in its Women’s segment to $6.5 million from $8.4 million was principally as a result of a decrease in licensing revenue from its Mudd brand. The Women’s segment includes the North America operations of Mossimo, Ocean Pacific/OP, Danskin, Rampage, Joe Boxer, London Fog, Mudd, and Candie’s.

Revenue from the Men’s segment decreased 38 percent from $10.9 million in the prior-year quarter to $6.8 million in the current quarter mainly due to a decrease in licensing revenue from its Buffalo and Umbro brands. Men’s brands include the North American operations of Buffalo, Starter, Rocawear, Zoo York, Ecko Unltd, Artful Dodger, Umbro, Lee Cooper, Ed Hardy and Pony.

Sales in its Home segment declined 9 percent to $3.16 million from $3.5 million principally due to a decrease in licensing revenue from its Royal Velvet brand as it transitions from its historical DTR relationship. The Home segment includes the North American operations of Royal Velvet, Canon, Fieldcrest and Sharper Image.

Its International segment revenue declined 12 percent to $11.6 million from $13.2 million in the current quarter mainly due to decreases in Latin America and Europe.

SG&A Expenses
Total SG&A expenses in the first quarter of 2020 were $17.2 million, a 5 percent decline compared to $18.1 million in the first quarter of 2019. The decline for the quarter was primarily driven by a decrease in advertising and compensation expense somewhat offset by an increase in bad debt expense.

Trademark, Investment and Asset Impairment
In the first quarter of 2020, the company recorded a non-cash trademark impairment charge of $13.7 million. The charge for the current quarter was based on the impact of COVID-19 pandemic on current and estimated future cash flows primarily on the fair value of the Rampage, Joe Boxer, Waverly, Fieldcrest and Umbro indefinite-lived trademarks.

Operating Income and Adjusted EBITDA (1)
Operating loss for the first quarter of 2020 was $4.9 million, as compared to an operating income of $18.4 million for the first quarter of 2019. The first quarter 2020 results include $13.7 million of charges related to trademark impairments. Adjusted EBITDA in the first quarter of 2020 was $11.6 million, which represents an operating loss of $4.9 million excluding net charges of $16.5 million. Adjusted EBITDA in the first quarter of 2019 was $18.4 million, which represents an operating income of $18.4 million. The change period over the period in Adjusted EBITDA is primarily as a result of reduced revenue, somewhat offset by reduced expenses driven by the company’s cost reduction initiative.

Adjusted EBITDA Margin
Adjusted EBITDA margin in the first quarter of 2020 was 42 percent as compared to Adjusted EBITDA margin in the first quarter of 2019 of 51 percent. The change period over period in Adjusted EBITDA margin is primarily as a result of the company’s decrease in revenue.

Interest Expense and Other (Income) Loss, Net
Interest expense in the first quarter of 2020 was $16.7 million as compared to $14.5 million in the first quarter of 2019. The legal final maturity date of the Securitization Notes is in January of 2043. The company did not repay or refinance the Securitization Notes prior to the anticipated repayment date. Beginning January 2020, the company accrues additional interest on the Securitization notes that is not payable until 2043. The increase in interest expense is primarily the result of the step-up in interest for the securitization. In the first quarter of 2020, Other (income) loss was a gain of $0.8 million as compared to a $20.0 million gain in the first quarter of 2019. This gain results primarily 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 consolidated income statement.

Provision for Income Taxes
The effective income tax rate for the first quarter of 2020 is approximately 0.0 percent, which resulted in a $0.0 million income tax benefit, as compared to an effective income tax rate of 8.5 percent in the first quarter of 2019, which resulted in a $2.0 million income tax expense. The change in the effective tax rate is due to refunds related to prior periods resulting from the enactment of the CARES act in March 2020, partly offset by to expenses recorded in the first quarter of 2020 for which no tax benefit was able to be recognized.

GAAP Net Income and GAAP Diluted EPS
GAAP net income attributable to Iconix for the first quarter of 2020 reflected a loss of $21.5 million, compared to income of $17.9 million for the first quarter of 2019. GAAP diluted EPS for the first quarter of 2020 reflected loss of $1.86, compared to a loss of $0.01 for the first quarter of 2019.

Adjusted EBITDA
Adjusted EBITDA for the first quarter of 2020 was $11.6 million, compared to $18.4 million for the first quarter of 2019.

Fiscal 2020 Outlook
Due to the impact that COVID-19 is having across the globe, and the rapid and continuous economic developments, Iconix said it is not providing guidance for fiscal 2020 at this time. The impact of COVID-19 on its business could be material to its operating results, cash flows and financial condition. Due to the evolving and uncertain nature of this situation, the company said it is not able to estimate the full extent of the impact on Iconix’s operating results, cash flows and financial condition. Iconix said it will provide additional updates as the situation warrants.

Photo courtesy Iconix