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Iconix Brand Group Inc. (ICON - Analyst Report) posted first quarter 2012 results with adjusted earnings of 43 cents a share, down 4.4% from 45 cents per share in the year-ago period. Earnings also missed the Zacks Consensus Estimate of 46 cents. The weak results were driven by revenue declines, primarily in men’s brands of Rocawear, Ecko and Ed Hardy. In addition, the transition of Royal Velvet brand to J.C. Penney Company, Inc. (JCP - Analyst Report) acted as a significant driver of the decline in the quarter.

Quarter in Detail

Total revenue in the quarter also declined 4.0% to $88.5 million from $92.4 million in the year-ago period. Revenue also missed the Zacks Consensus Revenue Estimate of $95 million.

On a year-ago basis, EBITDA decreased 3.4% to $56.8 million in the first quarter. EBITDA margin, however, expanded 50 basis points to 64.2% from 63.7% in the prior-year period.

Iconix exited the quarter with free cash flow of $47.4 million, as compared to $44.9 million at the end of the fourth quarter of 2011. Under the $200 million share repurchase program which was authorized in October 2011, Iconix repurchased $54 million of Iconix stock at a weighted average price of $17.12 in the reported quarter.

Guidance

Iconix revised its guidance for fiscal 2012 at the first quarter conference call. The company now expects its adjusted earnings (excluding non-cash interest related to ASC 470 and non-cash non-recurring gains and charges) in the range of $1.65 - $1.74 per share from the prior guidance of $1.77 - $1.84 per share. Iconix also lowered its revenue target to $340 - $350 million from $370 - $385 million in 2012. For fiscal 2012, the company expects its free cash flow in the range of $174 - $181 million, which was earlier projected in the range of $187 - $194 million.

The guidance cut was in response to weak demand for some of the men's brands such as Rocawear, Ecko and Ed Hardy. The company projects lower revenue from these brands by almost $20 million in 2012 as compared to 2011. The transition of Royal Velvet brand to JCPenney is also expected to negatively impact the fiscal 2012 results by $14 million.

In addition, the company’s international initiatives did not consummate as was expected. Moreover, Iconix’s 50-50 joint venture in India is still pending, and now the company expects to close the deal in the second quarter of 2012; later than prior expectations of the first quarter. Iconix expected the joint venture to add $5 - $6 million to revenue or 4 - 5 cents to earnings per share, had the deal been closed as expected in the first quarter.

We believe that Iconix is going through a difficult phase in the near term, but the company is well positioned to maintain its growth trends with the expansion of brands both in the U.S. and internationally over the long term.

Iconix, which competes with Gap Inc. (GPS - Analyst Report), Cherokee Inc. (CHKE) and The Jones Group Inc. , currently holds a Zacks #3 Rank (a short-term ‘Hold’ rating). On a long-term basis, the stock holds a Neutral rating.

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