Iconix Brand Group Inc. reported a strong improvement in earnings on an adjusted basis in the fourth quarter due to lower expenses and a small gain in revenue. The gains were helped by a sharp improvement in the Women’s segment led by the Danskin and Rampage brands.

Highlights in the quarter include:

  • Total revenue of $43.2 million compared to $42.7 million in the prior-year quarter.
  • GAAP Operating Loss- $59.6 million as compared to $52.1 million in the prior-year quarter.
  • Adjusted EBITDA increases 71 percent from the prior-year quarter, while Adjusted EBITDA margin improves to 51 percent from 30 percent in the prior-year quarter.
  • Signed 191 license deals during 2019, representing $135 million of aggregate guaranteed minimum royalties over the life of these contracts.
  • Improved cost structure of business during the year, decreasing SG&A cost 20 percent from the prior-year quarter and 31 percent year-over-year.

Bob Galvin, CEO, commented, “Results for the fourth quarter of 2019 were consistent with management’s expectations, as we continue to stabilize the business and our operational cost structure.  Our focus on the business and decreasing costs continue to help improve our Adjusted EBITDA margin.  We continue to develop our pipeline of future business, as we signed 191 deals during 2019 for aggregate guaranteed minimum royalties of approximately $135 million.”

For the fourth quarter of 2019, total revenue, which largely consists of royalties from brands, was $43.2 million, a 1 percent increase, compared to $42.7 million in the fourth quarter of 2018.

By segment, Women’s rose 21.8 percent to $10.6 million. The increase in revenue in the Women’s segment was principally a result of a strong performance in its Danskin and Rampage brands and the impact of its recent Joe Boxer agreement with the new Sears. The Women’s segment also includes the North America operations of Mossimo, Ocean Pacific/OP, London Fog, Mudd, and Candie’s.

Home segment sales came to $3.5 million, down 12.1 percent. The decline was due to the termination of its direct-to-retail license for the Royal Velvet brand, partly offset by increases in revenue from the Charisma brand. Home brands also include
Canon, Fieldcrest and Sharper Image.

Men’s sales were flat at $11.3 million. Men’s brands include Buffalo, Starter, Rocawear, Zoo York, Ecko Unltd, Artful Dodger, Umbro, Lee Cooper, Ed Hardy and Pony.

International sales were down 5.0 percent to $17.7 million. The decline was primarily the result of its termination of the licensee for Umbro in China.

For the twelve months ended December 31, 2019, total revenue was $149.0 million, a 21 percent decline, compared to $187.7 million in the twelve months ended December 31, 2018. The decrease was primarily driven by decreases in its Women’s and Home segments as a result of the transition of several brands from their historical direct to retail relationships to non-exclusive arrangements.

SG&A Expenses
Total SG&A expenses in the fourth quarter of 2019 were $23.2 million, a 20 percent decline compared to $29.0 million in the fourth quarter of 2018. The decline for the quarter was primarily driven by a decrease in advertising and bad debt expense somewhat offset by the costs related to previously disclosed ongoing government and SEC investigations.

Total SG&A expenses in the twelve months ended December 31, 2019 were $84.0 million, a 31 percent decline compared to $121.4 million in the twelve months ended December 31, 2018. Excluding the impact of an $8.2 million bad debt expense as a result of the Sears bankruptcy filing in 2018, SG&A expenses decreased 26 percent year over year.

Trademark, Investment and Asset Impairment
In the fourth quarter of 2019, the company recorded a non-cash trademark impairment charge of $65.6 million, primarily related to the write-down in the Joe Boxer and Mudd trademarks in the Women’s segment and Fieldcrest in the Home segment. The company also recorded a non-cash investment impairment charge of $9.6 million in the fourth quarter of 2019 due to impairment of the company’s investment in MG Icon, which owns the Material Girl trademark, and an asset impairment charge of $1.8 million related to the consolidation and partial sublease of its New York office space. In the fourth quarter of 2018, the company recorded a non-cash trademark impairment charge of $58.7 million, primarily in the Women’s segment related to the write-down in the Mossimo, Joe Boxer and Mudd trademarks. The company also recorded a non-cash investment impairment charge of $2.5 million in the fourth quarter of 2018 due to impairment of the company’s investment in iBrands.

Operating Income and Adjusted EBITDA
Operating loss for the fourth quarter of 2019 was $59.6 million, as compared to operating loss of $52.1 million for the fourth quarter of 2018.  The fourth quarter 2019 results include $77.0 million of charges related to trademark impairments, investment impairment and an asset impairment related to the downsizing of its New York office, as compared to $61.2 million of total impairment charges in the prior-year quarter. Adjusted EBITDA in the fourth quarter of 2019 was $21.9 million, which represents an operating loss of $59.6 million excluding net charges of $81.5 million.  Adjusted EBITDA in the fourth quarter of 2018 was $12.8 million, which represents an operating loss of $52.1 million excluding net charges of $64.9 million.  The change period-over-period in Adjusted EBITDA is primarily as a result of reduced SG&A expenses driven by the company’s cost reduction initiative. Refer to footnote 1 below for a full detailed reconciliation of operating income to Adjusted EBITDA.

Operating loss for the twelve months ended December 31, 2019 was $30.8 million, as compared to an operating loss of $119.0 million for the twelve months ended December 31, 2018.  Adjusted EBITDA for the twelve months ended December 31, 2019 was $81.5 million, which represents an operating loss of $30.8 million excluding net charges of $112.3 million.  Adjusted EBITDA for the twelve months ended December 31, 2018 was $76.0 million, which represents an operating loss of $119.0 million excluding net charges of $195.0 million. The change period-over-period in Adjusted EBITDA is primarily as a result of reduced SG&A expenses driven by the company’s cost reduction initiative mostly offset by the reduction in revenue as outlined above. Refer to footnote 1 below for a full detailed reconciliation of operating income to Adjusted EBITDA.

Adjusted EBITDA margin in the fourth quarter of 2019 was 51 percent as compared to Adjusted EBITDA margin in the fourth quarter of 2018 of 30 percent.  The change period-over-period in Adjusted EBITDA margin is primarily a result of the company’s decrease in expenses.

Adjusted EBITDA margin in the twelve months ended December 31, 2019 was 55 percent as compared to Adjusted EBITDA margin in the twelve months ended December 31, 2018 of 40 percent.  The change period-over-period in Adjusted EBITDA margin is primarily a result of reduced SG&A expenses driven by the company’s cost reduction initiative.

Interest Expense and Other (Income) Loss
Interest expense in the fourth quarter of 2019 was $13.9 million as compared to $14.9 million in the fourth quarter of 2018.  In the fourth quarter of 2019, Other (income) loss was a $12.1 million loss as compared to a $7.3 million gain in the fourth quarter of 2018.  This gain or loss 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 income statement.

Interest expense in the twelve months ended December 31, 2019 was $57.3 million as compared to $59.2 million in the twelve months ended December 31, 2018. For Other (Income) Loss, net for the twelve months ended December 31, 2019, the company recognized a $5.3 million loss as compared to a $91.3 million gain in the prior-year period. This gain or loss 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 periods’ income statement.

Provision for Income Taxes
The effective income tax rate for the fourth quarter of 2019 is approximately -8.0 percent, which resulted in a $6.8 million income tax provision, as compared to an effective income tax rate of -11.1 percent in the fourth quarter of 2018, which resulted in a $6.7 million income tax provision.  The effective tax rate for the three months ended December 31, 2019 remains consistent as compared to the three months ended December 31, 2018 primarily due to foreign withholding tax incurred on foreign-sourced revenue, which remains consistent quarter-over-quarter.

The effective income tax rate for the twelve months ended December 31, 2019 is approximately -8.6 percent, which resulted in a $8.1 million income tax provision, as compared to an effective income tax rate of -7.9 percent in the twelve months ended December 31, 2018, which resulted in a $6.5 million income tax provision.  The effective tax rate for the twelve months ended December 31, 2019 remains consistent as compared to the twelve months ended December 31, 2018 primarily due to foreign withholding tax incurred on foreign-sourced revenue, which remains consistent year-over-year.

GAAP Net Income and GAAP Diluted EPS
GAAP net income attributable to Iconix for the fourth quarter of 2019 reflected a loss of $95.0 million, compared to a loss of $69.1 million for the fourth quarter of 2018. GAAP diluted EPS for the fourth quarter of 2019 reflected a loss of $8.11, compared to a loss of $9.04 for the fourth quarter of 2018.

GAAP net income attributable to Iconix for the twelve months ended December 31, 2019 reflected a loss of $111.5 million, compared to a loss of $100.5 million for the twelve months ended December 31, 2018.  GAAP diluted EPS for the twelve months ended December 31, 2019 reflected a loss of $10.56 compared to a loss of $14.93 for the twelve months ended December 31, 2018.

Adjusted EBITDA
Adjusted EBITDA for the fourth quarter of 2019 was $21.9 million, compared to $12.8 million for the fourth quarter of 2018.  Adjusted EBITDA for the twelve months ended December 31, 2019 was $81.5 million, compared to $76.0 million for the twelve months ended December 31, 2018.

Fiscal 2020 Outlook
Due to the impact that COVID-19 is having across the globe, and the rapid and continuous economic developments, the company 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, Iconix 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 Danskin