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Home textiles prove lackluster for Iconix in otherwise strong 2Q

New York - Iconix Brand Group pulled strong double-digit revenue and net income increases in its second quarter, despite soft sales results from its most of its home textiles brands.

Neil Cole, chairman, president and ceo, said this morning during the company's earnings presentation that Iconix's home business in the quarter was "solid but not robust."

"Cannon and Charisma at Sears and Costco were solid but not strong. [They were] Okay," he noted. "Royal Velvet was not up to our hopes, our expectations. But we're working on new initiatives there."

The only exception in the home brand portfolio was Fieldcrest, he said, helped along by Target, which "made it better and really increased our market share."

Added Yehuda Shmidman, coo: "We continue to see strength in more established brands, like Fieldcrest, which posted positive retail sales gains."

Total revenue for Iconix's second quarter, which ended June 30, leapt by 17% to $89.3 million compared to the year ago period's $76.0 million.

More impressive was net income, which jumped 21% to $32.3 million on a non-GAAP basis, which excludes non-cash interest related to the company's two convertible notes and two non-recurring items described below. Non-GAAP diluted EPS for the quarter was $0.43 compared to $0.36 in the prior year quarter.

GAAP net income for the second quarter was approximately $41.5 million, up 69% from the prior year quarter and GAAP diluted EPS was $0.55 compared to $0.33 in the prior year quarter. GAAP net income and GAAP diluted EPS for the second quarter and six month period ending June 30 include the following two non-recurring items: 1) a non-cash gain of approximately $21.5 million related to the company's acquisition of the global master license of the Ed Hardy brand in which the company transitioned from a non-controlling interest to a controlling interest; and 2) a $2.7 million write-off related to the unamortized financing fees and original issue discount associated with the company's early repayment of the entire principal balance outstanding on its term loan facility of approximately $112.4 million.

Year to date, net revenue was up 23% to $181.6 million versus $147.7 million for the prior year period. And net income similarly increased by 23% to $66.1 million on a non-GAAP basis compared with last year, and diluted earnings per share increased to 88 cents versus 72 cents. On a GAAP basis, net income grew 48% to $73.0 million and earnings per share were 97 cents versus 66 cents for the prior year.

Iconix reaffirmed its full year 2011 revenue guidance of $355 million to $365 million and full year 2011 non-GAAP diluted EPS guidance of $1.63 to $1.68. The company is raising its GAAP diluted EPS guidance by $0.11 to a range of $1.61 to $1.66 to reflect the Ed Hardy non-cash gain, write-off of unamortized financing fees and non-cash interest associated with Iconix's recently issued convertible note.

In other company news, Iconix announced that it has entered into an agreement to increase its ownership interest in the Zoo York brand to 100%, up from its prior 51% in controlling interest in the brand. Iconix will acquire the remaining 49% for $18 million. Since taking control of the brand in late 2009, Iconix partnered with Li & Fung for the core sportswear business and substantially expanded Zoo York's distribution into large scale department stores including JCPenney and Kohl's.


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