NEW YORK — Iconix Brand Group Inc. is in full damage control mode.
The beleaguered company — whose woes extend from an ongoing U.S. Securities and Exchange Commission probe to the need to restate its profits for the last two-and-a-half years — on Monday tried to calm investor fears as it officially reported third-quarter results. Those showed a net loss of $6.3 million, or 13 cents a diluted share, for the quarter ended Sept. 30, on a 19.4 percent drop in total revenues of $88.9 million. That compares with net income of $33.7 million, or 58 cents, on net revenues of $110.3 million in the year-ago quarter. Wall Street was expecting earnings per share of 52 cents on net revenues of $105.7 million.
But even as some analysts last week questioned the long-term viability of Iconix, management’s statements on Monday about the future of the company seemed to give investors a small nudge — at least for the moment. Shares of Iconix rose 2.2 percent to close at $7.05 in Nasdaq trading. Over the last 52 weeks, the shares have traded as low as $6.60 and as high as $41.03.
“There are significant opportunities to grow organically in the future in the U.S.,” interim chief executive officer Peter Cuneo told analysts on a conference call, adding, “I would like to emphasize that the underlying fundamentals of our business are strong….Iconix continues to benefit from a diversified portfolio of consumer brands, a profitable business model and strong, free cash-flow generation.”
Cuneo said the key for growth in the U.S. is in making “the right investments in our brands and proper support to our licensees and partners.” Part of that investing and support pertains to marketing and advertising that reaches younger audiences, such as more digital content, he explained.
Iconix had already provided preliminary results last Thursday when it disclosed that it would have to restate historical financial statements from the fourth quarter of 2013 through the second quarter of 2015. It also detailed some charges, including $7.1 million in expenses attributed to correspondence with the SEC’s ongoing review of how the company accounted for certain transactions and related severance costs connected with the transition to a new management team that included the resignation of former ceo Neil Cole. The SEC review is still ongoing as a civil matter.
But while Cuneo played up the group’s potential, he also reiterated the warning last Thursday that certain intangible assets related to the men’s fashion brands may be impaired. He said revenue for the men’s fashion and men’s sport brands was down 17 percent in the quarter. “Our Ecko and Rocawear brands were two of the largest causes of the decline. However, Rocawear, Ecko and Ed Hardy only represent 4 percent of our total licensing revenue, so any further decline should not have a large impact on our overall business,” Cuneo said.
Eric Beder at Wunderlich Securities, who said the men’s brands now represent about $15 million in revenue, noted that the cost of purchasing all three men’s brands was about $465 million, “representing one of the worst returns possible in the industry.” Following a 57 percent dive in Iconix’s share price on Friday, Beder had issued a report critical of the group, saying “visibility in 2016 is virtually nonexistent.”
Iconix executives on the call said, even though there was a $4 million revenue reduction in the men’s fashion brands, they were optimistic about the opportunities to turn things around. A new manager was brought in for the men’s fashion division, and Rocawear now has a new core licensee.
The women’s business saw revenues rise 5 percent owing to its direct-to-retail programs that include Mossimo at Target, Mudd and Candie’s at Kohl’s and Danskin Now at Wal-Mart. The company also renewed its Joe Boxer and Bongo licenses with Kmart and Sears, Cuneo said.
International revenue was helped by the Lee Cooper, Umbro, Peanuts and Strawberry Shortcake platforms, Cuneo said.
Iconix hired Guggenheim Securities to help with its financing options, in particular the convertible notes due in June 2016. During the call, company executives said that while they are reviewing all the brands right now, there wasn’t any asset that they would need to sell just to get the refinancing done.
Steven L. Marotta at C.L. King said he believed the $300 million convertible note will be successfully refinanced, with enough liquidity to satisfy the coming-due obligation.
Cuneo added that the search for a permanent ceo is continuing, and once the new ceo is in place, the roles of chairman and ceo will be separated.
Beder said, “We continue to view the new ceo as a 2016 catalyst and believe it is not necessary for the candidate to be a licensing guru; frankly, the company needs a strategy and financial leader who can navigate the rebuilding of Street reputation and material refinancing over the next few years.”