It’s no surprise that Iconix has performance issues.

With a broad portfolio of mostly second tier fashion brands, the question has always been just how poorly were some of the brands doing, and whether the successes simply weren’t big enough to carry the losers. On its roster, Peanuts was the odd-brand-out, adding entertainment to the mix; that acquisition, in which Charles Shultz’s family has a 20% stake, was reportedly a rocky road until Leigh Anne Brodsky (ex- of Nickelodeon) came on board to manage the entertainment side of Iconix. And that’s now the cornerstone of Iconix’s good news.

For Wall Street, Iconix has pitched itself as a business model boasting a built-in, long-term, guaranteed revenue stream (the minimum guarantees manufacturers pay for rights to make and market goods under Iconix’s owned or partially owned brands) — with no manufacturing costs, no inventory, no responsibility for returns, and some hot brands.

Iconix wasn’t the first to own a brand and just license it out, but it may have been the first to institutionalize the practice across a roster of brands. And Iconix did so with a twist: Direct-to-retail (DTR) deals such as Joe Boxer at Sears/Kmart — one of its earliest successes.

The Iconix model, with its emphasis on ownership of most of its brands (and a major stake in those it doesn’t own outright) and DTR exclusives, has become the template for Authentic Brands Group, Sequential Brands Group (whose CEO, Yehuda Shmidman, rose quickly through the Iconix ranks before leaving to launch his own brand acquisition efforts at Sequential), Hilco, and a few others.

Iconix has also accelerated interest among some traditional licensing agencies to look at the possibility of taking an ownership stake in some of the brands they represent, as Iconix itself has done with Peanuts, Madonna’s Material Girl brand, and others.

So what’s going wrong at Iconix?

  • Too many mediocre labels that never gained traction, especially among men’s urban brands, with which they’ve struggled all along.
  • Founder/CEO Neil Cole has been a great proponent of DTR, which worked for some brands. The problem is the company can’t force DTR for all of its brands, which was reportedly Cole’s goal.
  • DTR was especially difficult to realize in foreign territories — certainly at the speed Cole had expected. There was little recognition in the home office, according to sources I’ve spoken with over the years, that European, Latin American and Asian markets don’t behave just like the U.S., or that individual countries in those regions behaved differently from each other, even after local agency partners in some territories tried to convince them of that.

Some of the other companies in this space — notably Hilco — are very disciplined about buying brand names cheap (often in bankruptcy court) and flipping the brand in 18-36 months. That’s admittedly a different business model (Iconix is in it for the long haul with its brands, sometimes to its detriment), but Hilco has the added plus of running a closeout business that offsets some of the lesser investments. But perhaps most important, that closeout business gives the company direct insight into the  opportunity for some of the brands it manages through that process. Sort of like an audition.

With a Peanuts movie due in November, that property is in high growth mode; what happens once the movie has peaked is another question. The company also acquired Strawberry Shortcake from American Greetings earlier this year as part of its entertainment/character efforts; that story remains to unfold.

In some respects, Iconix and the other companies in its space are no different than music or film or publishing companies, where one hit carries the load for all, so long as “all” isn’t too over-leveraged.

There’s been a great deal of management turmoil at Iconix, what with the CFO and COO leaving earlier this year and now Cole’s resignation and the ascendency of Peter Cuneo to Chairman and interim CEO (for which Cuneo received 60,000 shares of Iconix stock). There also remain accounting issues to be resolved with the SEC. But a bad quarter isn’t the end of the road for Iconix.

The link at the top of this post is a Zack’s analysis of the most recent Iconix quarterly report; here’s the formal spin-positive release from Iconix itself.)

Just don’t count Neil Cole out of the licensing business. He’ll be back. What he accomplished has been significant for the licensing world. And I wouldn’t bet against him when he returns.