Iconix Brand Group Inc. cut its earnings outlook for the year, surprising Wall Street and prompting a sell-off that drove the stock down 21.1 percent to $12.47.
The company, which licenses and markets a stable of brands, including Candies and Badgley Mischka, said its 2009 earnings would range from $1.06 to $1.11 a diluted share instead of the $1.16 to $1.21 previously projected.
The estimate reflects a dilution of 12 cents a share related to a June offering of 10.7 million shares and a negative impact of 4 cents from the transition of the Rocawear women’s business to a new licensee. Revenues are slated to range from $215 million to $220 million, instead of the $223 million to $230 million previously projected.
“While we are disappointed that the strong performance of our brands has not been enough to completely offset the dilution from the equity offering and Rocawear women’s transition, we believe our company is well positioned for future growth,” said Neil Cole, chairman and chief executive officer.
Eric Beder, analyst at Brean Murray, Carret & Co., downgraded the stock to “hold” from “buy” and said he was surprised the company cited the share offering in its profit warning.
“While this logic is technically correct, blaming the miss on the share count increase does not burnish management credibility: in the August [second-quarter] conference call, management reiterated its EPS guidance two months after the offering,” Beder said. “At best, investors will put [Iconix] in the ‘penalty box’ until a material acquisition or until it resumes its streak of beating Street estimates.”
Todd Slater, an analyst at Lazard Capital Markets, said the stock was “very oversold” and suggested investors buy the stock and set his target price for the $20, down from $21.
“We would be aggressive buyers of the stock on weakness, as the model remains robust; revenues are growing faster than its peers, yet it trades at a significant discount; it is highly leveraged to a recovering consumer space, and it has a strong balance sheet poised to close acquisitions,” he said.
Along with CIT Group Inc.’s 45 percent plunge on renewed bankruptcy concerns, Iconix’s stock drop stood out on a day when the S&P Retail Index dipped 0.2 percent, or 0.62 points, to 377.50.
Investors were heartened by a Commerce Department report that second quarter GDP fell at an annual rate of 0.7 percent instead of the 1 percent drop seen in earlier estimates. GDP fell by 6.4 percent in the first quarter and economists expect that it turned positive in the third quarter.
But as the economy improves, analysts are beginning to reexamine companies and their long-term positioning.
Neil Currie, analyst at UBS Securities, downgraded Target Corp. to “neutral” from “buy” and questioned if the cheap-chic discounter’s relevance was waning.
“Our analysis suggests that [Target] has lost 14 percent of shoppers in the past couple of years and that 31 percent of those remaining are spending less,” Currie said, referring to a recent consumer survey. “This isn’t what one might expect from a discount business in a recession.”
He noted that Target’s apparel sales might be migrating to competitors such as Kohl’s Corp. Shares of Target slid 1.3 percent to $46.68.
The S&P Retail Index’s small decline on the final day of September still left it with a 3.6 percent advance for the month, a 17 percent gain for the second quarter of the calendar year and growth of 35.2 percent in 2009.
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