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Iconix Reports $438M Impairment Charge in Q4, Posts Loss

Iconix Brand Group’s stock (ICON) slipped as much as 10 percent when the market opened Tuesday, after posting a fourth-quarter net loss of $263 million, or $5.44 per diluted share.

The New York-based company cited a non-cash impairment charge of $438 million—primarily related to its men’s brands, including Rocawear, Ecko and Ed Hardy—as the reason its net income for the three months ended Dec. 31 declined from last year’s $17.53 million, or $0.32 per diluted share.

Iconix found itself in hot water with the Securities and Exchange Commission (SEC) last year due to accounting practices connected to those brands and the company recently announced it would restate specific financial statements from fiscals 2013, 2014 and 2015.

Despite this, Iconix insisted the actions would have no impact on free cash flow and that its core operating business was on track to achieve its projections for last year and 2016.

With that being said, the company reported free cash flow of $188.9 million for 2015, a 14 percent increase from $165.4 million in the year-ago period. However, licensing revenue decreased 1 percent from $96.01 million to $94.65 million in the fourth quarter, and fell 3 percent for the full year, down from $391.49 million to $379.2 million. These drops were the result of a falloff in all licensing categories, except entertainment.

Men’s licensing revenue, in particular, plunged a whopping 30 percent in the most recent quarter, from $27.1 million to $18.85 million.

Peter Cuneo, chairman and interim chief executive, summed it up in a statement when he called 2015 “a challenging year.”

He continued, “When I took over as Interim CEO about eight months ago, there were three key areas of concern. These were the need to refinance the $300 million convertible notes due in June, the continuing dialog with the staff of the SEC regarding certain historical accounting and, finally, to bring a new CEO into the company with the right experience and leadership qualities to take us into the future.”

Former eyewear executive John Haugh is due to step into the role of CEO on Friday, and Cuneo announced that the company had signed a new $300 million term loan in order to address the upcoming maturity of its convertible notes.

“Looking forward, 2016 will be a year of restaging the business, but I believe with the right investments in our brands and our organization, as well as increased support to our licensing partners, we can strengthen our revenue and continue to generate strong free cash flow in the future, driving long term value for our company and our shareholders,” Cuneo added.

To that end, Iconix updated its 2016 guidance to reflect higher expenses associated with the new term loan and the impact of the recent sale of the Badgley Mischka brand to its namesake founders and Titan Industries, among others. The company now expects GAAP diluted earnings per share to be in the range of $0.75 to $0.90, compared to its previous guidance of $1.08 to $1.23, but it’s holding firm on licensing revenue projections of $370 million to $390 million.

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