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Iconix Key Growth Catalysts: Offshore Unit & Cost Savings

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Iconix Brand Group, Inc.’s strong footing in the international arena has been quite a boon to the company’s performance for a while. Well, the company boasts solid retail partnerships and licensees worldwide. On the flip side, Iconix persistently struggles with weak Men's and Home segments. That said, let’s do a close introspection of the performance of this renowned marketer of consumer brands.

Strong International Business

Iconix has more than 50 direct-to-retail partnerships as well as 400 licensees worldwide with several retail giants like Walmart (WMT - Free Report) and Target (TGT - Free Report) . In fact, the launch of the Starter brand, in collaboration with Amazon (AMZN - Free Report) during 2017 and the multiyear agreements with Target, indicate the company’s ability to develop long-term partnerships and ensure growth. In fact, during the first quarter of 2018, the company successfully launched the Umbro brand at Target.   

With a wide array of retail partnerships, Iconix is also well placed for expanding its international footprint. Evidently, it purchased the remaining 50% interest in Iconix Canada from its joint-venture partner in July 2017. Other strides in this respect include the acquisition of the remaining 50% stake in Iconix China and Latin America as well as 51% stake in Iconix Europe. Besides these, the company has international joint ventures in Middle East, Australia, Israel and India. Going ahead, the company is expected to continue augment international footprint.

Buoyed by such dedicated endeavors Iconix’s international business surged 29% during first-quarter 2018, following by an increase of 10%, 4% and 3% in the fourth, third and second quarters of fiscal 2017, respectively. Notably, the segment’s performance during first-quarter 2018 was driven by higher product orders, stemming from the qualification of Peru national football team sponsored by Umbro.

Savings Efforts Bode Well

Iconix is also on track with rightsizing expense structures and plans to deliver savings close to $12 million in 2018. Further, this Zacks Rank #2 (Buy) company has been undertaking measures to improve financial flexibility and strengthen balance sheet. Management believes that such efforts will provide the necessary means to continue making growth-oriented investments.

Weak Segments a Worry

Iconix’s Men's and Home segments, have been reporting disappointing results for a while, thanks to stiff competition. In first-quarter 2018, sales at the Men’s category declined 41%, while revenues from the Home segment dipped 11%. In fact, Women’s segment was also soft this time, with sales declining 2%. As a result of these, Iconix’s top line plunged 17% during first-quarter 2018, preceded by declines of 11%, 7%, 10% and 13% year on year, during the fourth, third, second and first quarters of 2017, respectively. Moreover, persistent declines in top-line performance compelled management to provide dismal top-line view for 2018.

Nevertheless, we remain hopeful that the company’s efforts to expand and fortify its global position will offset the aforementioned hurdles and raise shareholders’ confidence in the stock, which has lost 8.4% in a month wider than the industry’s decline of 5.5%.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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