Can Iconix Group (ICON) Surprise this Earnings Season? - Analyst Blog

Iconix Brand Group Inc. ICON is set to report its first quarter 2014 results on Apr 30 before the market opens. Last quarter, it posted a positive surprise of 5.90%. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

Iconix has been delivering solid results since the past one year on the back of solid revenues, strategic acquisitions and lower share count owing to share buybacks. Iconix's overall growth story looks compelling as this clothing brand licensing company has been aggressively acquiring brands and entering into joint ventures to expand its portfolio.

With the recent acquisition of the remaining 50% interest in Iconix Latin America in Mar 2014, Iconix's royalty revenue has increased fourfold in the Latin American region, particularly in Brazil, Mexico, Chile and across Central America. Besides Latin America, the company has formed seven international joint ventures since 2008. Iconix seeks to monetize its brands through these international joint ventures and expects to contribute meaningfully to the company's revenues in the upcoming quarter.

New York-based Iconix has also acquired a number of brands and the most significant acquisitions were of that of Lee Cooper (Feb 2013) and Umbro brands (Dec 2012), which are expected to contribute to revenues going forward. In Feb 2013, the company also formed a joint venture with Buffalo International and expanded its footprint into Canada. Going forward, the company expects international expansion to boost organic growth for its brands.

Going ahead, the company also plans to create shareholder value through a combination of acquisitions and continued share repurchases. During fourth quarter 2013, the company's board approved a new program to repurchase an additional $500 million of the common stock over the next 3 years.

However, Iconix is not immune to the volatile retail sales environment. Of late, Iconix's sales have been impacted by weak consumer spending as consumers have become increasingly conscious of their spending habits and are avoiding any unnecessary expenses. We expect the weakness to continue in the near term as well.

Earnings Whispers?

Our proven model does not conclusively show that Iconix is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: Iconix' Earnings ESP is 0.00%.

Zacks Rank #3 (Hold): Iconix's Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the retail/apparel sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Skechers USA Inc. SKX with Earnings ESP of +12.20% and a Zacks Rank #1 (Strong Buy).

Nike, Inc. NKE with Earnings ESP of +1.32% and a Zacks Rank #3.

Citi Trends Inc. CTRN with Earnings ESP of +4.00% and a Zacks Rank #3.