Iconix Brand Group Posts Q2 Loss, Builds Licensing Business

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Iconix Brand Group’s posted a $79 million net loss in Q2 ended June 30, reversing a year-earlier $43 million profit as it moves to build back business lost as DTRs with Walmart and Target expire. The company’s Q2 revenue dropped 17% to $50.2 million, due largely to the pending loss Danskin Now and Massimo DTRs at Walmart and Target, respectively.

The wider loss came as Iconix took $111.1 million in write-downs ($73.3 million) and charges ($38.3 million) related to its women’s business and the Massimo brand. It also comes as Iconix forecast over three years recovering 50% of the revenue lost through ending of DTRs involving the Danskin, Mossimo and Ocean Pacific brands (OP, Walmart), CFO David Jones told analysts. The Mossimo agreement with Target ends in October, while the former Danskin pact ends in January. Iconix’s Q2 revenue from DTRs shrank 41% to $20 million.

Iconix has signed a new agreement with Walmart for Danskin girls dance apparel, while United has signed on as a licensee for socks, leggings and headwear in a range of retailers including off-price, Jones said. Ocean Pacific has signed licensing pacts for footwear and accessories and also is seeking them for home and beach products. Mossimo recently renewed an agreement for the Philippines and Pony, which has generated “negligible” revenue in recent years, has new U.S. pacts for footwear and women’s and children’s apparel, Jones said.

These brands “did a very big business with very big retailers, but with a small royalty rate,” Jones said. “We don’t need to get back to those billions of dollars of retail sales, but if we get to the hundreds of millions, we can earn similar royalties.”

Iconix’s bid to revive the brands comes as structure of DTRs is changing, interim CEO Peter Cuneo said. For example, the exclusive collection at Target featuring the Iconix’s Umbro brand – its adding men’s and women’s fashion apparel this month as an extension of children’s soccer apparel and equipment – features an agreement that has “more flexibility,” Cuneo said.  That flexibility can include more leeway for a licensor to opt out of a deal or switch to a non-exclusive arrangement if a retailer isn’t meeting the sales requirements, says Cuneo. Despite the growing emphasis by retailers on private label, “brands are still very important and in the right structure, retailers will continue to make a commitment to them,” Cuneo said.

Indeed, Iconix restructured its pact with Walmart for the Waverly brand (bedding, towels). The new pact dropped the requirement for a minimum guarantee and Iconix is expanding the brand’s distribution to Christmas Tree Shops this fall. It also recently signed a new deal with a home textiles supplier for bath towels, Cuneo said. It also signed a new four-year licensing agreement for the Ed Hardy brand for footwear, accessories and apparel in the UK.

Meanwhile, Iconix remains open to selling additional brands (it sold Peanuts Worldwide/Strawberry Shortcake and Sharper Image last year), to further pare down debut that was $789 million as of June 30, but has no immediate plans to do so, Cuneo said. Part of the reason behind the decision not to pursue additional sales is that potential buyers are most interested in Iconix’s better-performing brands, Cuneo said.

“For us to offer Umbro, we would not be recognizing the value we see in the brand and there is nothing that is available at fire sale prices,” Cuneo said. While Iconix will “looks at sales opportunities, we are focused on growth right now,” Jones said.

Overall,  Iconix’s women’s business swung to a $95.5 million operating loss from a $23.3 million operating profit as revenue plunged 38.9% to $16.8 million. The downturn in women’s was offset by the men’s business reversing a year-earlier $15.2 million operating loss to post a $664,000 profit as revenue increased 5% to $10.6 million. Iconix’s royalty revenue from its joint venture with Global Brands Group Asia rose 38.6% to $6.1 million.

Contact:

Iconix Brand Group, David Jones, CFO, 212-730-0030, djones@iconixbrand.com