Sears Bankruptcy 'Another Blow' To Apparel Supplier Iconix

Retailer Sears Holdings Corp SHLD, the parent of Sears and Kmart, filed for bankruptcy protection Monday.

While the latest development shouldn't come as a shock, it nevertheless has a negative impact on Iconix Brand Group Inc ICON, according to Small Cap Consumer Research, which said the timing is a surprise.

The Analyst

Small Cap Consumer Research's Eric Beder maintained a Buy rating on Iconix Brand and lowered the price target from $1 to 80 cents. 

The Thesis

Sears was expected to remain solvent through at least the 2018 holiday season, but with a smaller national footprint, Beder said in a research report.

Monday's bankruptcy announcement is now seen as "another blow" to Iconix Brand, an exclusive supplier of brands to Sears stores including Bongo, Cannon and Joe Boxer, the analyst said. Sears and Kmart account for 8.8 percent of Iconix's total sales, and while the brand can ultimately survive without Sears, the retailer's bankruptcy is nevertheless a near-term negative, he said. 

Iconix Brand named Robert Galvin as CEO Monday; Galvin is an ideal executive given his prior experience in refinancing and licensing, Beder said. The executive will likely oversee a "material effort" to close new licensing agreements for key brands, the analyst said. 

Sears' bankruptcy announcement should be seen as the "last material negative shoe to drop" for Iconix from an operating standpoint, and it comes at a time of international momentum for the company, with four consecutive quarters of year-over-year growth, he said. 

David Ragland: 'Close' To Toys R Us Outcome

The Sears bankruptcy announcement is likely to evolve into an outcome similar to Toys 'R' Us: a major liquidation, IRC Wealth CEO David Ragland told Fox Business News Monday. Similar to Toys 'R' Us in its final days and weeks, major manufacturers aren't selling to Sears anymore, he said. Sears has enough capital to "possibly carry through the holiday season," the CEO said. 

"I think it is going to be very difficult for Sears especially now with the consumer understanding that Sears is in bankruptcy," he said. "[This] always creates a negative light on the retailers."

Price Action

Iconix Brands shares were down 6.6 percent at 22 cents at the close Monday, while Sears was down 23.83 percent at 31 cents.  

Related Links:

Morgan Stanley: A Sears Bankruptcy Could Benefit J.C. Penney

A Former Sears Exec Just Trashed The Company's Current Management

A closed Sears Hardware in Windham, Connecticut. Photo by JJBers Public/Wikimedia.