Licensing company Iconix Brand Group Inc. (ICON) plans to open 50 freestanding Candie’s stores in Greater China in 2010. The stores will be run through a new partnership between Iconix China Limited (Iconix’s 50-50 joint venture with Novel Fashion Brands Limited), Shanghai La Chapelle Garment and Accessories Co. Ltd. and private equity group Trust Bridge Partners.
The first Candie’s store will open in August 2010 in Shanghai and by the end of 2010 a total of 50 Candie’s stores are slated to open in Shanghai, Beijing, Chongjing, and other first-tier cities. Iconix aims to open over 500 Candie’s stores across China over the next five years.
This development comes on the back of Iconix’s purchase of the Peanuts brand, which augmented the company’s presence in China. On June 3, 2010, Iconix purchased the licensing rights for the Peanuts brand from E.W. Scripps Co. for $175 million. The Peanuts business already has a strong foothold in China, with approximately 700 Snoopy Stores, Charlie Brown Cafes, Snoopy Bakeries and 3,300 other points of sale.
Including the newly-acquired Peanuts brand, Iconix envisions that its brands will encompass approximately 1,700 stores and over 3,300 other points-of-sale in China in the next three years.
The expansion plan is in line with Iconix’s strategy to boost its international business from 6% of total sales in 2009 to 30% in three years, with half of the international sales stemming from China. Iconix sees China as a key market in its long-term growth plans.
Iconix reported earnings per share (EPS) of 36 cents for the first quarter of fiscal 2010, an increase of 24% from 29 cents in the year-ago quarter. Reported EPS surpassed the Zacks Consensus Estimate of 31 cents, driven by stronger-than-expected organic sales growth.
Iconix upped its full-year 2010 revenue guidance to a range of $305 million–$315 million from its previous $260 million–$270 million. The revision in guidance was fueled by recent acquisitions and 7% organic growth (up from 5% organic sales growth).
Iconix also raised its 2010 EPS guidance range to $1.35–$1.40 from $1.25–$1.30, roping in the contributions related to the Peanuts brand acquisition. The Zacks Consensus Estimate for Iconix currently stands at $1.39 for fiscal 2010 and $1.55 for fiscal 2011.
With its cash balance and strong cash flow, we believe the company is well positioned to fund the Peanuts acquisition and continue to take over other companies. It could also pay down debt, reduce interest expense and increase profitability.
The specialty retail apparel sector has grappled with the recession as macroeconomic headwinds affected consumer spending. Retail store chains have managed improving sales trends by cutting down inventories and offering attractive discounts to customers. The sustainability of the momentum, however, will rest squarely on continued economic recovery and improvement in the job market. This will ultimately boost consumer confidence.
Demand in Asia’s clothing market is expected to advance in the next few years with China being a major growth area. We thus appreciate Iconix’s intentions to strengthen its presence in China. We believe the Peanuts acquisition helps Iconix to continue to diversify its revenues into new territories that could further leverage the company’s existing brand portfolio. We thus maintain our short-term Buy rating on Iconix.
Hong Kong-based Iconix China was formed in September 2008 to develop and expand the Iconix portfolio of brands in Greater China. The Iconix China portfolio consists of the Rampage, London Fog, Rocawear, Badgley Mischka and Candie’s brands.
Shanghai La Chapelle Garment and Accessories Co. Ltd. is a leading manufacturer and distributor of women’s apparel, specializing in branding, proprietary design, production and distribution.
New York-based Iconix Brand Group Inc. licenses its brands to a global network of leading retailers and manufacturers that cater to every major segment of retail distribution, from luxury to mass market. Its brands include Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd , London Fog, Mossimo, Ocean Pacific, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter and Waverly. The company Iconix’s competitors are Gap Inc. (GPS), Cherokee Inc. (CHKE) and Jones Apparel Group Inc. (JNY).
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