NEW YORK — Iconix Brand Group Inc. is still in the mergers and acquisitions game, both as buyer and seller.
Chief executive officer John Haugh provided analysts at Thursday’s Investor Day presentation at the company’s offices near Bryant Park here with more details about its plans to be an active brand manager, a change from the prior model of passive brand management that he noted on Nov. 4 at the firm’s annual shareholders’ meeting. Thursday’s presentation also gave a look at how the updated model — he called it Iconix 2.0 — can help the firm find organic growth for its brands.
Haugh said a look at the 32 brands under its umbrella — collectively they do $13 billion in global retail volume — resulted in a division into three categories. The first group is the “drivers,” such as Umbro, Lee Cooper and Danskin, which have strong growth opportunities and could find themselves in the breakout mode where they become really strong both here and overseas.
The second is the “maintain” group, such as Candie’s, the established brands that are much further on in their life cycle, but still bring in strong revenues. Many of these brands have direct-to-retail arrangements.
The final one is the “incubate” group for brands, such as Nick Graham, that either are too small right now or face certain challenges. The goal is to provide resources to help them grow into the “maintain” category. Should it be determined that growth is limited or that they no longer fit under Iconix’s metrics, these are the brands that are likely to be candidates for divestment.
Haugh singled out Danskin Now as a brand that does $1 billion in volume at Wal-Mart Stores Inc., but has growth potential “upstairs” in the department store channel. Many of the “maintain” brands are also in the mass and midtier channels, what Haugh referred to as Iconix’s “bread and butter.” The women’s business overall is about $6 billion-plus, while men’s is $2.5 billion.
David Jones, the company’s chief financial officer, said the company plans to acquire the 50 percent interest in the Iconix Canada business that it doesn’t yet own, in addition to selling its 51 percent stake in the intellectual property assets of Buffalo back to the brand’s founders. Both transactions are expected to close later this year. He said the transactions will be a “net neutral to earnings and a positive to cash flow.”
In addition to the usual presentation of financial information, Jones said a priority will be to refinance the $295 million in convertible notes that are due in March 2018. The original amount was $400 million; Iconix in June repurchased $105 million at a discount.
Haugh said the company’s job is to stay ahead of the curve in positioning the brands and in anticipating the shift in consumers’ shopping behaviors. He noted that Sears Holdings Corp. is a concern because the Bongo brand is sold there and that even though the brand is good, it is being brought down by Sears’ troubles. He also emphasized that Iconix is “not in the hunt for American Apparel,” even though it has been contacted repeatedly about the opportunity. We are not interested, Haugh said, because American Apparel “is not a brand.”
As for metrics on acquisitions, both executives said targets that are attractive domestically are those that can add $10 million in annual royalty revenues, while globally the target range is lower, at $5 million in annual royalty revenues.