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Iconix Brand Group, Inc. (ICON - Analyst Report) started the year on a strong note. Iconix posted first quarter 2013 adjusted earnings of 54 cents per share, surpassing the Zacks Consensus Estimate of 51 cents by 6% and the year-ago earnings of 43 cents by 26%. The bottom line was boosted by solid revenues and the company’s brand portfolio, strengthened through acquisitions.

Quarter in Detail

Total revenue in the quarter surged 19% year over year to $105.1 million. Revenues surpassed the Zacks Consensus Estimate of $101 million.

On a year-over-year basis, earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 14.0% to $64.6 million in the first quarter.

Iconix exited the quarter with free cash flow of $51.8 million compared with $37.9 million at the end of the fourth quarter of 2012. Since Jan 1, 2013, the company has repurchased $210 million worth of shares at an average share price of $24.07.

Recent Acquisitions

Iconix successfully completed three acquisitions in the past five months.

In early-Dec 2012, Iconix acquired the renowned football brand Umbro from Nike, Inc. (NKE - Analyst Report) in order to further strengthen its brand portfolio with an iconic brand. With this acquisition, the company now comprises 29 consumer brands in the fashion, athletics, electronics, entertainment and home industries. Further, these brands are expected to generate approximately $13 billion in retail sales globally, with over $2.5 billion attributable to the company's portfolio of athletic brands.

Later, in early-Feb 2013, Iconix formed a joint venture with Buffalo International ULC to acquire a 51% interest in the latter’s Buffalo David Bitton brand for $76.5 million in cash. According to the deal, Buffalo International will be the core licensee for the joint venture. Iconix will control the joint venture, manage the brand’s operations and expand its retail footprint in the U.S. and Canada. The brand offers denim, sportswear, activewear, and accessories that are primarily sold through 3000 department stores including Macy's Inc. (M - Analyst Report) and Dillard's Inc (DDS - Analyst Report) and specialty store locations in over 18 countries around the world. It also has 30 standalone retail stores, mainly in Canada.

In late-Feb 2013, Iconix acquired the renowned lifestyle brand Lee Cooper for $72 million in cash through the company's Luxembourg subsidiary, Iconix Luxembourg Holdings Sarl and strengthened its brand portfolio. Lee Cooper includes multiple lifestyle categories including men’s and women’s casual wear, footwear and accessories. Lee Cooper's portfolio of 35 international licensees is expected to generate approximately $14 million in annual royalty revenues and account for 33% of its overall business in 2013.

Guidance

Following the solid first quarter 2013 earnings, Iconix raised its 2013 adjusted earnings guidance to $2.10–$2.20 per share from the previously announced range of $2.05–$2.15 per share. The company had also raised its earnings guidance in the last quarter to account for the effect of the acquisition of Lee Cooper.

Iconix reaffirmed its revenue guidance in the range of $425–$435 million. Free cash flow is expected in the range of $203–$210 million for 2013.

We remain impressed with Iconix’s strategic acquisitions and consistent expansion of licensing agreements. Iconix expects to explore additional opportunities and enhance its portfolio with brands. Iconix expects to deliver over 20% revenue and EPS growth for 2013. Iconix holds a Zacks Rank #1 (Strong Buy).

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