Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Iconix Brand Group Are Crashing Today

By Timothy Green - Updated Oct 30, 2017 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some royalty revenue will disappear next year, putting the company at risk of violating its debt covenants.

What happened

Shares of brand management company Iconix Brand Group (ICON) tumbled on Monday after it disclosed that Wal-Mart would not be renewing the license for DanskinNow, a line of athletic apparel, beyond January 2019. This development forced the company into discussions with its lenders to avoid being out of compliance with some of its debt covenants. Iconix stock was down about 30% at 11:15 a.m. EDT Monday.

So what

Wal-Mart's decision to no longer carry the DanskinNow brand is expected to reduce royalty revenue for the Danskin brand by $15.5 million in 2018. Iconix was quick to point out that other major retailers, including Lord & Taylor, Costco, and TJMaxx, would continue to carry the Danskin brand. The company plans to relaunch and expand the core Danskin brand in other venues.

A falling graph on top of numbers that could be stock prices.

Image source: Getty Images.

This loss of royalty revenue led Iconix to forecast that it was unlikely to be in compliance with some of its debt covenants next year. Iconix engaged in discussions with its lenders as a result, and has agreed to reduce the size of its credit facility by $75 million to $225 million. Prior to the agreement, $165.7 million of debt was restructured as a delayed draw term loan, which is expected to result in near-term interest savings for the company.

Separately, Iconix announced that its Starter athletic brand was now available on Amazon.com exclusive to Amazon Prime members. This follows the company's previous announcement that the Starter brand was no longer exclusive to Wal-Mart.

Now what

It's never a good thing when a company is forced to make changes to avoid breaking its debt covenants. Losing Wal-Mart as a DanskinNow licensee is a blow to Iconix, which has now seen its stock crash 92% since peaking in 2014.

Iconix is exploring strategic alternatives in addition to actively evaluating capital raising options to repay its debt. Iconix could end up selling off more assets, adding to a list that includes its stake in the Peanuts brand. Investors should learn more about these developments when the company reports its third-quarter results sometime in November.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Iconix Brand Group, Inc. Stock Quote
Iconix Brand Group, Inc.
ICON

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.