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Iconix Plunges 32% Year to Date: What's Hurting the Stock?

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Iconix Brand Group, Inc.’s performance has been disappointing lately due to its sluggish business segments. Evidently, shares of this Zacks Rank #4 (Sell) stock has been underperforming the Zacks categorized Shoes and Retail Apparel industry year to date. Shares of the company plunged 31.8% compared with the industry’s gain of 3%.

Are sluggish business segments the only reason for this decline? Let’s delve deeper into the factors that have been weighing down the performance of this brand management company.

Weak Segment Performance

Iconix has been delivering weak results, especially in the women's and men's segments for the last nine quarters. Revenues declined 12%, 20% and 8% at the women’s, men’s and international segments respectively in its first quarter of 2017 results. In the Men’s segment, Starter brand has been downsized at Walmart stores which are majorly hurting Iconix’s business. In the women's segment, major disappointments include Danskin, Mossimo and Ocean Pacific brands. Given the headwinds related to these brands, the women’s segment is expected to be down year-over-year in 2017 as well.

Softer International Business

Iconix’s international business has been reporting softer than expected results since past few months reflecting economic uncertainty across some of its regions. Though the company continues to make progress in expanding its International footprint and has been gaining momentum in Latin America with Direct-To-Retail agreements, they have been negated by foreign exchange movement, particularly in Mexico.

In the first quarter 2017, international revenues were down 8% despite double-digit revenue growth in the key regions of China, Brazil, Europe and India. The weakness arose due to the joint venture businesses in Canada and Southeast Asia. In fact, the company expects international revenues to be flat for the year.

Huge Debt Burden

Iconix has a huge debt burden and is thus looking to sell its brands to reduce the same. The divestment of non-core brands like Sharper Image, Badgley Mischka, Peanuts and Strawberry Shortcake are in-line with the company’s focus to reduce its debt and reshuffle its portfolio.

To add to the weaknesses, Iconix’s business is highly dependent on the health of the retail industry, as it doesn’t manufacture anything and only licenses brands to other retailers.

Weak Sales Outlook; Estimates Moving South

Iconix reported weaker-than-expected first-quarter 2017 results, wherein earnings and revenues lagged the Zacks Consensus Estimate and declined year-over-year. In fact, the negative earnings surprise came in after outpacing the Zacks Consensus Estimate in all the four quarters of 2016. Consequent to such a performance, the company slashed its sales guidance expectation for 2017.

Estimates Moving South

Over the past sixty days, the Zacks Consensus Estimate for Iconix has gone down 3 cents to 19 cents. The same for the fiscal 2017 went down 9 cents to reach 78 cents. 

Bottom Line

Though the company is working on new strategies, the turnaround might take more time. Hence, it may not be a wise decision to keep Iconix in your portfolio for the time being.

Other Key Picks

Investors can opt for better-ranked stocks such as Deckers Outdoor Corporation (DECK - Free Report) , Hilton Worldwide Holdings Inc. (HLT - Free Report) and Netflix, Inc. (NFLX - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Deckers has an average positive earnings surprise of 74.1% over the trailing four quarters and a long-term earnings growth rate of 9.8%.

Hilton Worldwide has an average positive earnings surprise of 9.9% over the trailing four quarters and a long-term earnings growth rate of 5.8%.

Netflix has an average positive earnings surprise of 117.7% over the trailing four quarters and a long-term earnings growth rate of 23.8%.

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