Sears bankruptcy hits Iconix brands hard
Iconix Brand Group, (which runs Candie's, Bongo, Joe Boxer, Mudd, Mossimo, London Fog, Ocean Pacific, Danskin, Cannon, Royal Velvet, Fieldcrest, Starter, Waverly, Zoo York and Umbro, among others), on Friday said that third quarter total revenue fell 13% to $46.2 million from $53.2 million in the prior year quarter.
By segment in the quarter: men’s sales fell 36%, women's fell 28% and home fell 6%, while international sales rose 26% thanks to strength in Umbro and Lee Cooper brands in Europe, India and China, the company said.
Operating income in the quarter was $12.1 million, up from its $595.9 million operating loss a year ago, and includes an $8.2 million bad debt expense as a result of the Sears bankruptcy, according to a company press release.
Wholesale conglomerates like Iconix operate at the mercy of their retail partners, and the troubles at Sears led the group to temper its guidance.
Sears' October bankruptcy filing led the company to lower full-year revenue guidance to $185 million to $195 million, from $190 million to $220 million; its GAAP net income guidance to a loss of about $105 million to $115 million, from $94.4 million to $104.4 million; its full-year non-GAAP net income guidance to $5 million to $15 million, from $20 million to $30 million; and full-year free cash flow guidance to $40 million to $50 million, from $50 million to $70 million, the company said in a press release.
But the company is also facing pressure as retailers have dropped some of its brands to develop private labels in apparel and home goods. Target, for example, recently ditched the Mossimo label in a renewed private label push, forcing Iconix to previously record an impairment charge of $73 million on that trademark and an almost $38 million goodwill charge in its women's segment. And last year, Walmart said it wouldn't renew its Danskin brand license beyond January 2019, which Iconix previously said will ding the Danskin royalty revenue by $15.5 million this year. Walmart also previously ended sales of its Ocean Pacific and Starter brands. On Friday Iconix said that its home decline was due in part to the terms of a renewal of its Waverly Inspirations contract with Walmart.
Already grappling with losses and a share price dive to below $1, the group has been working to trim expenses and pay down debt.
Going forward, the company may seek to drum up more business abroad. "Our results for the quarter were negatively impacted by the Sears bankruptcy filing which resulted in P&L charges, however, we continue to forecast debt covenant compliance," CEO Bob Galvin said in a statement. "While the domestic business did not see the progress we had hoped for, our international business continued its profitable growth. We are critically evaluating our operational cost structure to ensure it is aligned with our current level of business and near term plans."
Galvin was just tapped in October, arriving from his role as chairman of apparel brand Cherokee Inc. to replace Peter Cuneo, who is staying on as executive chairman.
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