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 With a big-budget Peanuts film set to appear in theaters next year,
an unusually high number of U.S. mutual funds have been buying
shares of Iconix Brand Group Inc, the little-known company that owns
80 percent of the rights to the characters. The number of new funds
owning shares swelled 36 percent last quarter, according to data
from fund tracker Morningstar. That is a high number for a company
with a market value of $1.9 billion and a slowing core business,
fund experts say.
Few consumers have ever heard of the New York-based company, though
they are likely familiar with its roster of 35 brands, ranging from
mass-market staples like Joe Boxer and Ed Hardy to Cannon linens and
Material Girl, the line of apparel and accessories from Madonna and
her daughter. But with many of its U.S. retail partners, such as
Target, Macy's and Sears Holdings Corp, struggling with falling
traffic and weak consumer demand, Iconix is looking elsewhere to
expand.
"With what is happening in America we don't see large growth there
over the next couple of years but we do see stability," Chief
Executive Neil Cole, the brother of fashion designer Kenneth Cole,
told analysts after the company reported its quarterly results in
April.
PEANUTS BRAND
Should the Peanuts movie prove to be a hit, it could help Iconix
double its revenues, which hit $433 million in 2013, Cole told
analysts. The company declined to comment for this story.
Already, the brand has paid some dividends: Walt Disney Co's ABC
network renewed its long-standing contract to air the popular
Peanuts holiday specials 18 months before it came due. Iconix
recognized $17 million of the $21 million contract in the first
quarter, which helped push revenue up 11 percent to $116.1 million
and non-diluted adjusted earnings per share to 72 cents, a 33
percent increase from the same time last year.
There is no telling how well the movie will be received, of course.
For every hit like "The Lego Movie," which has brought in $256.7
million at the U.S. box office, according to Box Office Mojo, there
has been a film like 2013's "The Lone Ranger," whose $89 million in
U.S. box-office take paled against an estimated cost of $215
million.
Though the percentage that Iconix could reap from next year's film
was not disclosed, the Peanuts brand should command a premium, said
Charles W. Grimes, a Norwalk, Connecticut, attorney who specializes
in character licensing and has worked with properties including
Archie comics and Disney characters. It would "not be inconceivable"
for the company to get an upfront fee of $10 million or more for the
theatrical release of the film, plus additional fees once the box
office draw topped certain milestones, Grimes said.
Iconix would also likely get between 7 and 14 percent of film
merchandise tie-ins, such as T-shirts or toys, he said.
Sesame Street Workshop, the non-profit company that owns the license
to Elmo and the other Sesame Street characters, made $46.5 million
from licensing in the year that ended June 30, 2013, according to
its most recent financial statement.
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"Peanuts has a huge growth ahead of it," said Cliff Greenberg, who
manages $5.5 billion in the Baron Small Cap fund and has been buying
shares of Iconix on dips in expectations that it will continue to
expand its entertainment division.
Chris Terry, an analyst at Dallas-based Hodges Capital, said his
firm began buying shares approximately six months ago on
expectations that the Peanuts license will pay off.
RISKS AHEAD
There is caution, however, in some quarters.
The lack of clear numbers regarding Peanut's contribution gives
Steve Marotta, an analyst at C.L. King & Associates who covers the
stock, pause.
"The company is a bit of black box," he said. He estimates that
Peanuts is the most important individual brand to the company,
followed by Mossimo and Candie's.
Nevertheless, he has a "buy" rating on the stock, and a target price
of $47, slightly above the median target price of $46.50 among
analysts tracked by Thomson Reuters.
Shares closed at $42.71 Wednesday, and trade at a forward price to
earnings multiple of 15.3, a full point lower than the 16.7 average
among apparel companies.
The company now largely depends on overseas licenses for growth and
has several joint ventures to sell its brands throughout Asia,
Marotta said.
Eric Beder, an analyst at Brean Capital, said he has a "hold" rating
because Iconix has not bought any new brands this year after
typically adding two or three annually.
"The company doesn’t usually beat by much and usually never misses,"
he said. "But right now it's a question of finding the right deals
and that isn't happening."
(Reporting by David Randall; Editing by Linda Stern and Leslie
Adler)
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