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Iconix Brand Group, Inc. (ICON - Analyst Report) started the year on a strong note and reported impressive first quarter 2014 results, wherein both earnings and sales exceeded expectations. This clothing brand licensing company also raised its guidance for fiscal 2014.

Adjusted earnings of 72 cents per share were ahead of the Zacks Consensus Estimate of 63 cents by 14.3% and up 33% from the year-ago levels. The upswing can be attributed to solid revenues, strategic acquisitions and lower share count owing to share buyback.

Quarter in Detail

Total revenue of $116.1 million beat the Zacks Consensus Estimate of $110.0 million and also surged 11.0% year over year. The significant growth in revenues can be attributed to the company’s recent acquisitions, strong performance of its core brands; international expansion through joint ventures and Peanuts initiatives taken up by the company.

During the first quarter, Iconix acquired the remaining 50% of the Latin America joint venture. International expansion has always remained the focus for the company. With the complete ownership and control of Iconix Latin America, Iconix’ royalty revenue increased fourfold in the Latin American region, particularly in Brazil, Mexico, Chile and across Central America. Besides Latin America, the company has formed seven international joint ventures since 2008.

On a year-over-year basis, earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 8% to $69.8 million in the first quarter.

Divisional Performance

The company has two divisions that are key growth vehicles for Iconix: Entertainment and Sports.

Entertainment: The company is signing new licensing partnerships with top retailers in the U.S., in order to increase its brand presence. The company is geared to launch its first full-length motion picture with Peanuts brand in Nov 2015 in 75 countries. The feature trailer for the movie was released in conjunction with Rio 2 during the quarter. In the first quarter, the ABC Network proactively renewed its contract for the popular PEANUTS Special 18 months early.

Sports: The division performed well in the first quarter driven by Umbro and Lee Cooper brands. The company’s Umbro brand will be unveiling limited edition collections with Urban Outfitters and Gap in May 2014 in connection with the 2014 World Cup and the brand's 90-year anniversary. Danskin Now, the core women's athletic brand at Wal-Mart Stores Inc. (WMT - Analyst Report), was one of the strongest performers in the quarter, reflecting increased floor space and an expanded assortment. In addition, the Starter brand re-launched Major League Baseball co-branded jackets in the United States this spring.

Financial Update

Iconix exited the quarter with free cash flow of $58.0 million compared with $62.9 million at the end of the fourth quarter of 2013.

During the first quarter, Iconix repurchased 2.9 million shares for $109 million. Since initiating the share repurchase program in Oct 2011, the company has repurchased shares worth $690 million, which represents approximately 37% of the shares outstanding.

Guidance for 2014

Following better-than-expected first quarter 2014 results, Iconix has raised its earnings and revenue guidance for 2014. The company now expects revenues in the range of $450 million-$460 million, up from the prior expectation of $440 million-$455 million. Adjusted earnings are expected in the range of $2.55-2.65 per share, up from the earlier expectation of $2.50-2.60 per share for 2014. The Zacks Consensus Estimate is pegged at $2.58 per share for 2014, which lies within the company’s guidance range.

Free cash flow is expected in the range of $213-$220 million, up from $210-$217 million, expected earlier.

We are impressed with the company’s overall growth story. Iconix has been aggressively acquiring brands and entering into joint ventures to expand its portfolio. Iconix seeks to monetize its brands through these international joint ventures and expects to contribute meaningfully to the company’s revenues in the upcoming quarter.

Iconix holds a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer discretionary sector include Skechers USA Inc. (SKX - Analyst Report) and Brown Shoe Co. Inc. (BWS - Snapshot Report). While Skechers sports a Zacks Rank #1 (Strong Buy), Brown Shoe holds a Zacks Rank #2 (Buy).

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