Iconix Mulls Offering for China Venture

Neil Cole is getting ready to sell off the pieces of the fledgling Iconix empire in China.

Rampage is one brand being considered for an IPO.

Neil Cole is getting ready to sell off the pieces of the fledgling Iconix empire in China, beginning with initial public offerings of Rampage and London Fog’s operations in the country, possibly as early as next summer.

This story first appeared in the July 28, 2010 issue of WWD.  Subscribe Today.

Cole, chairman and chief executive officer of Iconix Brand Group Inc., told WWD that each of the company’s 27 brands — from Badgley Mischka to Ocean Pacific — could ultimately be established in the country under the Iconix China joint venture and then be taken public.

Iconix China was set up in 2008 with Silas Chou, of Tommy Hilfiger fame, and has been busy establishing retail operations for five of the 27 brands: Rampage, London Fog, Rocawear, Badgley Mischka and, most recently, Candie’s. Cole said the brands have well over 100 stores in the country already and commitments to open 1,000 doors.

“We think it’s going to be really important,” Cole said. “It has the opportunity to be worth a lot of money, but we still have to prove ourselves over the next couple of years. Until we do our first [IPO], we’re trying not to raise our expectations too high.”

Under a typical joint-venture deal, Iconix puts up the trademark in return for a 20 to 30 percent equity stake in that brand’s business in China. A private equity firm takes another 10 or 20 percent of the business and an entrepreneur controlling the stores owns the rest. The idea is to take the business public in three to five years.

After an IPO, Iconix could then hold on to or sell its stake but would receive no royalties from the Chinese business.

Eric Beder, an equity analyst at Brean Murray, Carret & Co., said China remains a wild card for the company.

“The Chinese joint ventures are not accounted for on the company’s income statement — due to the lack of control and minority position by Iconix,” Beder said. “They represent true ‘hidden assets’ that will not become apparent until they are monetized; we believe the first IPO for their joint venture partners will set up a valuation for the rest that could be material for Iconix.”

Cole said any money raised through the IPOs would be plugged back into the Iconix machine and used to buy more brands.

In the meantime, Iconix has close to $65 million of cash on hand and, on a conference call with Wall Street covering second-quarter results, Cole said the company is looking into a couple potential deals.

“There is a lot of capital in the markets, and we have a lot of different banks competing to get our deal,” he said. “We’re pretty comfortable that we’ll be able to finance…these new exciting acquisitions that we’re going to be working on.”

Iconix’s second-quarter profits rose 27.2 percent as an increase in revenues filtered down to the bottom line.

Net income attributable to the branding firm rose to $24.5 million, or 33 cents a diluted share, from $19.3 million, or 30 cents, a year earlier. Adjusting results to exclude noncash interest related to convertible debt, profits of 36 cents a share came in 2 cents better than analysts predicted. Revenues for the three months ended June 30 advanced 34.8 percent to $76 million.

Iconix also promoted Yehuda Schmidman to chief operating officer from executive vice president of operations; Lanie List to chief merchandising officer from executive vice president, and Carolyn D’Angelo to senior vice president of brand management in the home division from vice president.

Shares Tuesday closed at $16.55, down 44 cents or 2.6 percent.