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Iconix (ICON) Up 8.3% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Iconix Brand Group, Inc. (ICON - Free Report) . Shares have added about 8.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ICON due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Iconix Q1 Earnings & Sales Decline Year Over Year

Iconix reported first-quarter 2018 results, wherein the company posted adjusted earnings from continuing operations of 10 cents per share, which met the Zacks Consensus Estimate. However, the bottom line registered a plunge of 55% from 21 cents in the prior-year quarter.

On a GAAP basis, Iconix posted earnings from continuing operations of 51 cents per share versus 6 cents posted in the prior-year quarter.

Total licensing revenues of $48.5 million came below the consensus mark of $50 million and declined approximately 17% year over year. The downside was caused by transition of the company’s Danskin, Ocean Pacific and Mossimo DTR's into its Women’s segment. Excluding Southeast Asia joint venture revenues, the top line fell nearly 16%.

Moreover, the quarter witnessed weak revenues in the Men’s, Women’s and Home segments. Notably, the company’s Men’s and Home segments have been reporting weak performance for a while. During the first quarter, adjusted revenues at the Men’s, Women’s and Home segments declined 41%, 2% and 11%, respectively. These were partially offset by an increase of 29% in the International segment.

In fact, due to weak performance of the segments, Iconix’s top-line plunged 11%, 7%, 10% and 13% year on year, during the fourth, third, second and first quarters of 2017, respectively.

Further, operating income during the first quarter came in at $20.5 million, depicting a decline of 39% from the prior-year quarter’s figure. Further, operating margin was 42%, down from 58% in the prior-year quarter. Adjusted operating income came in at $25.8 million, down 28% from the prior-year quarter’s figure, while operating margin was 53%, down from 61% in the year-ago period.

Financial Update

The company ended the quarter with roughly $95.7 million of total cash and nearly $806 million face value of debt. Further, Iconix generated nearly $15.4 million as free cash flow from continuing operations during the first quarter, compared with $13 million in the year-ago quarter.

Outlook for 2018

Management commented that the company continues to focus on strengthening balance sheet. Additionally, the company is striving to expand revenues by bolstering long-term partnerships with licensees. Further, management stated that during the first quarter, the company launched the brand Umbro with Target. Iconix plans on managing its brands more efficiently in 2018.

That said, management reiterated its full-year licensing revenues in the range of $190-220 million. Further, the company is on track with delivering savings close to $12 million in 2018. Additionally, management projects free cash flow in the range of $50-$70 million for 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter. In the past month, the consensus estimate has shifted downward by 16.7% due to these changes.

Iconix Brand Group, Inc. Price and Consensus

VGM Scores

At this time, ICON has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Interestingly, ICON has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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