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Licensing by the Numbers

Iconix: Owning (and Licensing) is Believing

Iconix has $750 million in go-forward guaranteed minimum royalties for 2015, excluding renewals, the company reported in the course of its analysts’ call following release of its third-quarter 2014 results.

The company has renewed four major DTR agreements under the same terms as the prior deals: Danskin Now (Walmart), Mudd (Kohl’s), Material Girl (Macy’s), and Fieldcrest (Target), and has added a new DTR, Waverly Inspiration, for fabric and crafts at Walmart.

The latter deal brings the number of Iconix DTRs at Walmart to four (add OP and Starter). Also at Iconix:

  • International sales now account for 40% of Iconix’s business, led by Umbro, Lee Cooper, and Peanuts.
  • Across the Iconix portfolio, there are 30 international DTR agreements, 900 international licensees, and 1300 dedicated stores and shop-in-shops.
  • In anticipation of the Peanuts movie, to be released next year, Iconix signed 59 new licensing agreements in the third quarter and 180 in the first nine months of 2014. There are retail agreements for Peanuts merchandise at Macy’s, Target, The Bay, Suburbia, Liverpool, Forever 21, Uniqlo, and H&M.
  • Rocawear, Ecko Unlimited, and Ed Hardy—all of which had difficulty a year ago—are experiencing a new level of success via new licensees and diversified distribution.
  • Iconix paid $6 million for its 51% interest in the Nick Graham brand. (Graham founded Joe Boxer, which Iconix also owns). The company is looking for larger acquisitions in entertainment and sports.

Year-over-year third-quarter revenue was up 6% to $113.8 million, with net income up 16% to $38.3 million.

DreamWorks Forecasts 40%+ CP Gross Margins

In terms of consumer products opportunities, DreamWorks Animation deems its upcoming Trolls movie, currently scheduled for release in November 2016, as “without a question, the biggest title we’ve had ever at DreamWorks.” That’s the word from the studio’s Jeffrey Katzenberg, speaking as part of its analysts’ call following release of its third-quarter financials.

Katzenberg likens Trolls to where LEGO was a year ago. “There is a lot of brand value [in Trolls]. It’s a generational IP that is known and recognized and has a lot of good attributes associated with it around the world.”

Consumer products contributed revenue of $12.1 million and segment gross profit of $4.2 million for the third quarter, for a gross margin of about 35%, and a 40% contribution for the nine months ending September 30.

The company is optimistic about that margin moving up as infrastructure costs that were front-loaded taper off and as new properties come to market.

Hasbro on Differences between Dolls & Action Figures; Oh, Yes, Earnings Too

Product development costs for Hasbro’s new Princess and Frozen lines, set to roll out in 2016, will initially be slightly above the targeted 4.5%–5.0% revenue range the company normally targets for product development, says Hasbro CFO Deb Thomas. That should normalize in future years, she adds, speaking as part of Hasbro’s third-quarter analysts’ call.

Asked to elaborate on the product development costs, CEO Brian Goldner said: “While we don’t disclose royalty rates for any of our agreements, I will tell you that the development of dolls is very different from action figures and the markets for dolls and action figures are very different…and therefore the royalty rates for dolls are not as high as action figures….”

While third-quarter 2014 revenues increased 7% to $1.47 billion, led by emerging markets revenues that were up 29%, and strength in most of Hasbro’s core franchise brands, there were some “headwinds,” as Goldner put it. “If you look at the impact a brand like Furby had in the third quarter, it was a big drag or headwind relative to growth in our franchise brands. Down around 50% compared to a year ago… If you took Beyblade and Furby together, the impact is about $150 million relative to last year’s revenues.”

Turtles and Toothless Fuel Solid Build-a-Bear Quarter

Nickelodeon’s Teenage Mutant Ninja Turtles propelled Build-A-Bear’s third quarter with sales of “two, three, and four at a time” across boys, girls, and adult affinity customers, according to CEO Sharon Price Jones, speaking on an analysts’ call.

The company sold out of initial orders before the movie opened this summer and re-directed replenishment shipments to its web store to create a go-to, in-stock distribution channel.

At physical stores, Build-a-Bear changed signage and customer service to direct people to the web store and offered free shipping to those shopping in the store. Additionally, it took the names and phone numbers of those who didn’t want to shop online and promised to notify them when the stores were re-stocked.

The retailer has increased its orders for two licensed fourth-quarter entries: Disney’s Frozen and Classic Media’s 50th anniversary Rudolf the Red Nose Reindeer.

Martha’s Shifting Priorities

Martha Stewart Living Omnimedia attributes a half million dollar decline in third-quarter merchandising revenue to the expiration of its licensing agreement with Avery, its renegotiated deal with JC Penney, and lower sales at Home Depot (particularly in paint, bath/vanities, and outdoor patio furniture). Other MSLO merchandising developments revealed during the company’s analysts’ call:

  • The company is taking an $11.4 million writedown for the value of the Emeril Lagasse brand. When signed, the property was valued at $46.1 million. MSLO will be paying more attention to the Emeril brand over the next year, as new TV episodes and series start to air.
  • PetSmart continues to work through inventory from last year before changing from wholesale distribution to a direct-to-retail deal with MSLO.
  • Sales of Martha merchandise at Macy’s has evidenced a “remarkable turnaround” since resolution of the companies’ lawsuits. Their agreement has been expanded to enable Macy’s to bring the Martha brand into Canada. A new MSLO line—Whim, as in whimsical and youthful—will also be introduced next year.
  • Third-quarter merchandising revenue dropped to $13.7 million in 2014, compared to $14.2 million a year earlier. The segment had an operating loss of $1.5 million in 2014, compared to a gain of $9.5 million in 2013.

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