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Shopping for Growth
05/19/2006 12:00 am EST
With a strong focus on fundamentals, Nancy Zambell often finds stocks that she likes based on her own experience as a consumer. Indeed, her latest idea is a retailing play with a brand she admires and a stock that keeps showing up on her value and growth screens.
"The outlook for the markets is excellent. Merger activity is picking. Oil has crept down a bit, and if interest rates remain steady, the opportunity to find good stocks--in many sectors--and to earn excellent returns on your portfolio is tremendous. This month, one sector in particular caught my eye--retailers. Retail sales have been edging up, giving retailers their best showing in two years.
"One retail company that stands out is Iconix Brand Group (ICON NASDAQ), the rapidly-expanding licensor of a variety of well-known, profitable clothing and accessories lines. Iconix is a brand management company, founded in 1992 that licenses and markets several lines of consumer brands--apparel, footwear, accessories, home, beauty, and fragrances--worldwide. Its brands are household names and are licensed directly to retailers, wholesalers, and suppliers across the globe.
"Joe Boxer, purchased by Iconix in 2005, accounts for 15% of sales. The line is very appealing to teens, tweens, and men, this brand includes apparel, accessories, and home goods for men, women, and children. The venerable brand, Candie's, has been around since 1981, accounts for 10% of the company's revenues. With its celebrity spokespersons, including Jenny McCarthy, Kelly Clarkson, and Hilary Duff, its footwear, apparel, and accessories are particularly attractive to young women.
"Rampage, with women's wear, is licensed for sale in better department stores, such as Macy's, and Bongo is a California brand for juniors. And for evening couture wear, it offers Badgley Mischka, acquired by Iconix in 2004. This line is sold in luxury department and specialty stores, including Bergdorf Goodman, Saks Fifth Avenue, Neiman Marcus, and Bloomingdales. Spokespersons Halle Berry, Madonna, and Catherine Zeta-Jones add some red carpet glamour to the brand.
"All in all, Iconix has two important advantages over its competition: a widely-diversified portfolio of brand names and a multi-channeled distribution strategy, both of which are rapidly expanding. Iconix just announced two acquisitions that will significantly add to the company's bottom line. Iconix is purchasing the Mossimo brand, which is licensed exclusively to Target in the US, and the Mudd brand, a leading junior apparel brand.
"Iconix has been particularly successful with integrating its acquisitions, generally due to its disciplined purchase approach. And the proof is in the pudding--the company's 1st quarter earnings rose from $0.03 to $0.18, higher than the $0.13 Wall Street analysts expected. Iconix's licensing revenue increased to $13.3 million from $4.3 million in the same period last year, while the company's net income grew to $7.4 million, up from $800,000 in the prior year's quarter.
"And for full year 2006, sales are expected to increase 166%, to $80.1 million, while earnings are projected to grow 43%, to $0.77 per share. Its margins are significantly higher than its peers. With its strategy, the future is bright for Iconix and for its investors. Meanwhile, the company is undiscovered, as just four analysts currently cover the stock of Iconix, and institutions own only 41.4% of its shares (although lately, a rash of buying has occurred). Buy up to $17.50, with a stop-loss in mind of 20% less than your purchase price."
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