Iconix Brand Group reported a double-digit decline in licensing revenues, pulled down by steep drops at Starter, Danskin and Ocean Pacific.
Licensing revenue slumped 13.2 percent to $58.7 million. Excluding the impact of Sharper Image and Badgley Mischka, which were both sold last year, revenue declined approximately 11 percent in the latest quarter.
In the Men’s segment, sales were down 20 percent to $10.2 million. The men’s segment includes the majority of Iconix’s active and urban brands. Among the brands are Rocawear, Starter, Zoo York, Ecko, Artful Dodger, Ed Hardy, Pony Modern Amusement, Buffalo, Nick Graham and Hydraulic.
John Haugh, CEO of Iconix, said Starter accounted for approximately half of the decline in the Men’s segment.
As previously mentioned, Starter has been downsized at Walmart and the company is working on new strategies outside of Walmart to offset declines. Said Haugh, “The Starter brand continues to show up on athletes and celebrities and we expect the Starter Black business to double in sales this year.”
The Men’s Fashion business also continues to struggle. However, Iconix still expects to deliver a flat annual performance in the Men’s segment, supported by the Pony shoe relaunch, the launch of new Ecko active collection and the opening of approximately 30 Ecko stores inside J. C. Penney.
Among its other segments, sales in Women’s slid 12 percent to $28.1 million. The largest drivers of a decline in women’s was Danskin, Mossimo and Ocean Pacific brands.
Haugh said the decline at Danskin was related to a recent contract renewal change in which Danskin Now was switched to a flat rate versus a tiered structure at Walmart. It also reflected Walmart’s overall strategy to keep opening price point items in their house brands.
Stated Haugh, “With this 100 plus year of heritage, we continue to believe Danskin is one of the strongest brands in our portfolio and we are moving forward with our heritage upstairs business with key partners including Lord & Taylor, Costco and T.J. Maxx and we have launched the new lingerie license. We expect this to help counterbalance that declines in the Danskin Now business.”
Ocean Pacific, known for its California lifestyle origins, has been positioned as a swim brand at Walmart and the company is working to transform OP back to the lifestyle brand. Said Haugh, ”We are having success with a capsule at Urban Outfitters, featuring graphic tees, board shorts, women’s tops and dresses and more. J Lo and Janet Tatum have been spotted recently in this collection.”
Mossimo is being planned down for the year as Target shifted some of its young contemporary collections.
Among its other segments, Home was up 1 percent to $7.3 million and International declined 8 percent to $13.1 million. Umbro, which is in the International segment, faced tough year-ago comparisons
Iconix’s other brands include Cannon, Royal Velvet, Fieldcrest, Charisma, Waverly, Lee Cooper, Material Girl and Truth Or Dare.
The company also announced the sale of the entertainment segment, which includes the Peanuts and Strawberry Shortcake brands, for $345 million in cash.
Overall, Iconix reported a loss of $4.3 million, or 9 cents a share, in the first quarter against earnings of $18.6 million, or 37 cents, a year ago. Excluding its entertainment segment, earnings from continuing operations plunged 69.9 percent to $4.4 million, or 6 cents a share. Excluding gains on sales of trademarks in the year-ago period, non-GAAP net income from continuing operations for the first quarter slumped 47.7 percent to $12.3 million.
Operating income in the first quarter was $33.6 million, a 27.4 percent decline versus the same period a year ago, from $46.3 million in the first quarter of 2016. Excluding the impact of Sharper Image and Badgley Mischka, which were both sold last year, operating income was down approximately 2 percent.
Haugh said the sale of its entertainment segment will significantly reduce the company’s debt and pay down a term loan “that is expensive and highly restrictive.” The move is will also help the company build on its leadership position in fashion, active and home categories.
Haugh noted that the company faced challenges reviving organic growth. He added, “We are working on initiatives that should drive improved revenue performance in the back half of the year. In addition, we have the right expense controls in place to be able to mitigate revenue risk, giving us further confidence in our full year outlook.”
Adjusting for the sale of its entertainment segment, full-year 2017 revenue is now expected to be in a range of approximately $235 million to $245 million. This compares to revenue of approximately $245 million in 2016, when excluding $113 million of revenue from the entertainment segment, and $9.9 million of revenue from other divested brands including Sharper Image.
Photo courtesy Danskin