Iconix: Time To Sell Your Crown Jewels

11/1/17

On Monday, Iconix Brand Group (NASDAQ: ICON) announced that Wal-Mart (NYSE: WMT) decided not to renew the contract for Danskin Now, which means it will “unlikely” be in compliance with certain debt covenants in 2018. Based on that news, the stock sank over 62% in a single day. That is on top of the 52.5% YTD decline it has already experienced prior to Monday. The market is clearly assuming a major restructuring or bankruptcy given the pace of the sell-off, but it is wrong.

Brands, not Products

Iconix has often been compared to other retailers, but it is in fact very different. Unlike most retailers, this is a brand manager that owns and licenses its brands to trusted wholesalers and major retail chains. Iconix handles the brand advertising, while the others handle the designs and inventory - with design approval of Iconix. In exchange, the company receives a royalty and advertising fee from the retailers. Typical licensing fees have been 5-6% of sales.

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