Iconix (ICON) has had a stellar run this year with its stock up almost 73%. The company operates on a lucrative business model of brand management and licensing of well-known brands, similar to the model of G-III Apparel (GIII 1.07%) and their relationship with Phillips-Van Heusen (PVH 0.41%).
As an intellectual property marketer, Iconix has a few things going for it. Its acquisitions are almost immediately accretive and it has low overhead costs because it does not have to bother with warehouses, retail outlets, logistics, etc. Its operating margin is pretty wide and it has maintained this margin fairly consistently.
ICON Operating Margin (TTM) data by YCharts
Iconix's brand portfolio is ranked second only to Walt Disney, and the company continuously seeks to widen its portfolio through acquisitions and partnerships. The licensing giant is on a tear and its shares hit a new 52-week high after it posted third-quarter results recently.
Iconix's performance
On the back of a strong brand portfolio, the strong performance of recent brand acquisitions like Umbro, Buffalo, and Lee Cooper, and a focus on international expansion, Iconix posted total sales of $107.2 million . This represented revenue growth of 24% year over year. Iconix posted earnings of $0.59 per share, beating the consensus estimate of $0.51 per share. Earnings were 44% higher than they were in the year-ago period as a result of robust revenue growth, strategic acquisitions, and a lower share count due to buybacks.
In order to improve the bottom line, Iconix has been buying back shares quite regularly. It recently announced a $300 million stock repurchase program to be completed in the next three years. However, Iconix is aware of the fact that growing earnings through share buybacks isn't a long-term solution. Hence, it has been focusing on aggressive acquisitions and international expansion.
Iconix's moves
Iconix has been acquiring brands and entering into joint ventures in order to expand its portfolio and its footprint across the world, having added the rest of Ecko and the Marc Ecko Cut & Sew brand under its banner in May 2013. Its joint venture in Australia and Canada contributed $14.8 million to revenue. The international business, which is currently around 30% of total revenue, is set to rise to 40% in 2014 and is one of the key areas for growth.
Iconix's international sales are likely to get a boost from China. By the end of the year, there will be 700 stores open using an Iconix brand in China. In addition, India signed a long-term license for Umbro. Iconix is also gaining traction in Europe with the recent launch of London Fog and Belle at Badgley Mischka in Karstadt, Germany.
Going forward, Iconix expects international expansion to boost organic growth for its brands, because the global branded apparel market is estimated to reach $600 billion by 2015 . The company expects revenue in the range of $440 million-$455 million and adjusted earnings in the range of $2.50-2.60 per share for fiscal 2014.
G-III's remarkable growth
Iconix's competitor G-III Apparel has a rather diverse portfolio which includes both of its own brands as well as licensed brands, and additionally it has a suite of retail outlets. For example, G-III still has, on average, five years remaining in its licensing period for the Calvin Klein brands and it maintains good relations with the brand owner, PVH(PVH 0.41%).
This is important as G-III Apparel continues to see strong demand for Calvin Klein dresses, women's suits and separates, and handbags with remarkable growth of 70% in the previous quarter.
GIII is also looking at acquisitions for growth. It acquired Vilebrequin in August of last year. This propelled non-licensed revenue growth from $48 million to $70 million. Going forward, the company is adding footwear to its shops by the end of November this year.
In addition, last month it acquired the assets of G.H. Bass & Co., a division of PVH. This is a strategic decision and in line with its long-term plans to become a men's and women's head-to-toe apparel maker, thereby adding diversity to its product line.
PVH is also concentrating more on higher-margin businesses, led by the Calvin Klein and Tommy Hilfiger brands, rather than lower-margin products to drive long-term growth. Also, PVH recently formed a joint venture with Gazal Corporation Limited – a leading apparel supplier and retailer in Australasia – to expand PVH Corp.'s Calvin Klein brand across Australia, New Zealand and the South Pacific nations and islands.
Such expansion on the part of PVH should help expand G-III's reach going forward.
Bottom line
Hence, both Iconix and G-III have been doing well. However, investors looking for rapid growth at a reasonable valuation should look at Iconix. Iconix's earnings are expected to grow at a compound annual growth rate of 23% over the next five years, way above G-III's 14.3% estimate . Also, both companies are valued equally on a trailing P/E basis at around 19 times earnings.
Iconix is looking at the international market for growth and its prospects look bright. So, investors should definitely take a look.
