Yesterday Nasdaq listed Iconix Brand Group (NASDAQ:ICON ) announced it has acquired the remaining 50% of Iconix Latin America from its South American joint venture partner, New Brands Group, for US$42 million.
Neil Cole, Chairman and CEO of Iconix Brand Group commented, “We are excited about our international growth and the acquisition of the remaining interest of Iconix Latin America. Through organic growth and the recent acquisition of Umbro, we believe our business has reached critical mass in the Latin American marketplace.” He then added, “Going forward we will be able to focus on the unique business environment of each country in the region as we continue to grow the local presence of our portfolio of brands. International expansion is a key part of our overall organic growth strategy and we look forward to continuing to build our global footprint.”
Since the formation of Iconix Latin America in December 2008, royalty revenue from the Iconix’s portfolio of brands has more than quadrupled in that region.
Between Iconix Latin America, plus its recent acquisitions of Umbro, Buffalo and Lee Cooper, and its global Peanuts platform, Iconix’s portfolio of brands generates approximately US$22 million of royalty revenue every year in Latin America.
Iconix is an American brand management company that licenses brands to retailers and manufacturers primarily in the apparel, footwear, and apparel accessory industries.
Currently Iconix has 30 brands and markets the rights to these internationally, with enough scale to increasingly operate using a multi-market model in order to better capitalize on the opportunities in each of its local markets in the global market place.
Iconix began as Candie’s Inc., whose brand was acquired in 1992 when the company was started in its current form by Neil Cole. He has been the Chairman, Chief Executive Officer and President of Iconix since then.
Iconix subsequently grew rapidly, both organically and by acquisition. Just two weeks ago it reported revenues for its 2013 fiscal year of US$436 million, an increase of 22% over 2012. Just over two thirds of its brand licensing revenues came from within the United States.
Net income for 2013 was US$143 million, compared to US$125 million in 2012, up 17%. Fully diluted earnings per share in 2013 were US$2.11 per share compared to just US$1.52 a year earlier, an increase of almost 39%, reflecting a substantial share buy-back programme during the year that reduced the number of shares outstanding by over 20%.
These are impressive numbers; the operating side of its business is unusual in that there are no manufacturing costs, or inventories to hold, so the company’s net income is for example almost 33% of revenues, which is extraordinarily high compared to most business metrics.
With a book equity base of US$1.1 billion at December 31st, however 2013 the company’s book return on equity, before adjusting to back out the year-end cash of US$338 million, is 13%, reflecting the substantial amounts of goodwill in the balance sheet that came when all these brands were bought in the first place. Altogether there are in total almost US$2 billion of trademarks and other intangibles in the balance sheet.
Nevertheless Iconix regularly churns out fairly large amounts of cash – cash flowz from operations in 2013 were US$233 million. The big share buy back in 2013, costing US$436 million, was financed mostly with additional debt. Long term debt, including its current portions, totaled US$1.4 billion at December 31st, 2013 – up by more than half on the sear.
Shareholders clearly appreciate the quality of the company’s earnings, and the shares have risen by more than five times in four years. They have jumped from a little over US$8 per share in late 2009 to US$42 per share as of the time of writing – of course with the impact of recession on consumer spending to be sure hurting the shares in the early part of that time line.
At today’s price the market capitalization of Iconix is about US$2.2 billion, or about double its current book equity. For a founder the price of rapid growth, of course, is usually stock dilution and today Neil Cole himself owns just 4% of the shares, worth some US$85 million.
Iconix licenses its brands to a network of leading retailers and manufacturers that touch every major segment of retail distribution from the luxury market to the mass market in both the United States and worldwide. A selection of of it brands includes: Candie’s, Mudd, Bongo, Mossimo, Danskin, London Fog, Op, Badgley Mischka, Material Girl, Joe Boxer, Rampage, Buffalo David Bitton, Starter, Rocawear, Ecko Unltd., Zoo York, Icecream, Marc Ecko Cut & Sew, Umbro, Ed Hardy, Artful Dodger, Billionaire Boys Club, Lee Cooper, Modern Amusement, Waverly, Cannon, Royal Velvet, Charisma, Fieldcrest, Sandra by Sandra Lee, Sharper Image & Peanuts.
The secret in buying up all these brands, sometimes for quite substantial sums must be in knowing with great assurance what to do with them afterwards, in order to develop their potential and clearly CEO Neil Cole has been a master at this.
About Neil Cole
For over 30 years Cole has acquired, managed, grown, and marketed a portfolio of brands. He started out at El Greco Inc., his father Charles Cole’s Long Island footwear manufacturing company that launched the globally recognized junior shoe brand, Candie’s.
In 1986, Cole founded New Retail Concepts his first licensing company. In 1987 Neil’s father had sold El Greco; then in 1991 Neil Cole bought it back again and, in 1992, merged the two entities and re-launched the company as Candie’s, Inc.
In 2005, he re-launched it again, for the second time, as Iconix Brand Group, this time divesting all of its physical operating activities and turned it exclusively into a brand management and licensing company.
In the eight years since, Iconix has acquired over 30 brands and created a diversified and powerful portfolio of women’s, men’s, home and entertainment brands. In 2010 Iconix also acquired an 80% interest in Charles Schultz’s the Peanuts comic strip brand, in conjunction with Charles Schultz Associates who hold 20%.
Forbes Magazine has credited Iconix Brand Group as one of “The Best Small Companies In America” and License Magazine has ranked Iconix the second largest licensing Company in the world, following only Disney itself. The Iconix brands continue to grow with US$13 billion in global annual sales of its licensed products at the retail level.
Neil Cole’s brother is the fashion designer Kenneth Cole, who heads the clothing, accessories and shoe design house Kenneth Cole Productions. It is probably fair to say that Neil and Kenneth both got started in the shoe business because their father owned a shoe company.
In 2001, Cole founded The Candie’s Foundation, a non-profit organization that works to educate America’s youth about the devastating consequences of teenage pregnancy and creates a national dialogue on the issue.
Cole is on the Board of the following organizations: Governor Cuomo’s Sage Commission, Complex Media, The Mount Sinai Children’s Center Foundation, Crutches 4 Kids and Columbia Grammar & Preparatory School, Iconix Brand Group and The Candie’s Foundation. His brother Kenneth is married to Governor Cuomo’s daughter Maria.
Cole received a Bachelor of Science degree in political science from the University of Florida in 1978 and his Juris Doctor from Hofstra law school in 1982.