Wednesday August 29, 2012
by Charles Mizrahi, editor Hidden Values Alert
Iconix Brand Group (ICON) is the #2 retail licensing company with 26 brands ranging from apparel (Candie’s, Bongo, Joe Boxer, Rocawear, Peanuts, etc.) to home textiles and consumer electronics (Sharper Image) with a growth-by-acquisition model.
The company owns no inventory and has no actual retail stores. Management generates revenue by licensing out owned name brands to retail stores and other companies. Here's why we continue to like the stock.
ICON has been able to increase revenue from $33 million in 2006 to $370 million in 2011, all while having virtually no debt and increasing their free cash flow from $44.7 million in to $179 million during the same time period.
Their strong track record has enabled them to maintain partnerships with companies such as Walmart, Target and Macy’s.
ICON’s business model has given them an advantage over their competitors. They license their brands to best-in- class retail and wholesale partners as they focus on brand management, marketing and global partnership opportunities.
As a result, ICON does not have any inventory and very little employee overheard, which leads to extreme profitability.
The brands that the company owns are well established and have an average age of 50 years. Some examples of this are London Fog, which has been around for over 80 years and Cannon that has been around for 113 years.
Many of the brands owned by Iconix can also be extended to multiple categories such as the Peanuts brand, which currently has over 1,100 licensees that range from the Metlife blimp to amusement park rides to clothing.
Global sales currently make up 22% of ICON’s total sales. They plan on targeting new territories such as the Middle East and Russia, while also expanding in their current markets.
They have managed to increase the number of stores in China from 200 stores in 2010 to 550 stores by the end of 2012. ICON projects that over the next 3 years global sales will account for over 33% of their total revenue.
ICON recently completed its fourth international joint venture with Reliance Brands Limited in India. The joint venture should allow the company to focus more on brand building in foreign markets and further reinforces their plan to globally branch out the company even further.
As a result of this, revenue in the previous quarter grew to $93.6 million, $5.6 million from the joint venture alone. ICON also has entered into two direct to retail partnerships in Europe and plan on adding a third in the coming months, which should help boost revenue.
The company expects its free cash flow to be about $175 million by 2013 and are dedicated to use a good portion of the excess cash to buy back shares under their $200 million share repurchase program that was authorized in October 2011.
As of April 25, 2012, ICON has repurchased $54 million worth of stock, which reinforces their confidence in the company and their belief that they are currently trading at a bargain price.
Learn more about this financial newsletter at Charles Mizrahi's Hidden Values Alert.