Nike (NYSE:NKE) continues to narrow its focus, announcing on October 24 that it was selling Umbro, the soccer brand it acquired just four years earlier, to Iconix Brand Group (Nasdaq:ICON) for $225 million. A rare defeat for the footwear and apparel powerhouse, it's an opportunity for Iconix to work its magic on another brand that's lost its way.

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Rare Misstep
In its press release on October 23, 2007, Nike CEO Mark Parker said this about its $565 million acquisition: "Umbro is a brand with a powerful heritage and deep experience in the world's most popular sport and the world's biggest football market .... With its close links to the Football Association and the England team, Umbro's future is even stronger than its past .... We are fully committed to helping Umbro reach its full potential, and we are delighted that Umbro's board is unanimous in its support of our offer." Oh how times have changed. In May Nike announced it was selling its non-core brands. Umbro and Cole Haan to focus on Nike, Jordan, Converse and Hurley. Adding insult to injury, the Football Association announced in early September that Nike was taking over from Umbro to supply uniforms to England's soccer team, something Umbro's done for almost 60 years. All told, Nike lost at least $340 million on its investment in Umbro over 55 months. Unless it's Under Armour (NYSE:UA), I'm pretty sure Nike's out of the acquisition game for a very long time.

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Greater Focus
Nike's announcement that it was selling Umbro and Cole Haan shouldn't have come as a surprise to anyone who follows the Beaverton company. Although Cole Haan was profitable, it never fit into the "sports" mold, which is what Nike's all about. Furthermore, direct-to-consumer is a bigger part of footwear and apparel these days and the idea of it spending cash on store openings for a brand that few people know is owned by Nike made little sense. Cole Haan's fiscal 2012 revenues were $565 million. Nike originally paid $95 million for Cole Haan in 1988; it could fetch as much as $1 billion depending on the buyer. Nike's parting company with the dress shoe brand at just the right time. Its footwear business is going great guns, growing 16%, excluding currency, in the first quarter; North American revenues for the Nike brand grew by 23% in the first quarter, exceeding its growth in emerging markets. Wasting time on non-core brands when you've got this kind of growth is senseless. In business you have to strike while the iron's hot and right now it's blistering.

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Umbro Turnaround
If anyone can resuscitate a broken brand, Neil Cole can. Starting with Candie's in 1991, the younger brother to Kenneth Cole has busied himself fixing brands that are down on their luck. Business really got going in 2005 when Cole created Iconix, which handles marketing, licensing and trend direction, leaving all the other responsibilities of an apparel brand to licensees. It's a business that requires minimal working capital and provides strong free cash flow. Since Cole focused on this business model, he's acquired something like 30 brands representing well over $12 billion in retail revenue. Iconix has grown revenues and net income by 52% and 41% compounded annually over the past six years. It makes an acquisition, figures out where in the retail food chain a brand's products should be sold, and then markets the heck out of it. It then repeats the process over and over. With just 22% revenue internationally, its growth will come from taking its brands overseas. Cole and the rest of his team will figure out where Umbro fits in and then will go to work getting the story out.

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The Bottom Line
This is the second time Nike has sold a brand to Iconix. The first was Starter, which it sold for $60 million in December 2007. I love the Iconix business model. While very profitable, it's not as easy as you might think to do what it does. For whatever reason, Neil Cole has found his calling. Despite this, its stock doesn't get near the recognition it should. For conservative investors, this is a dream stock. Since October 2005, its stock has traded below $10 just once and below $15 twice. Buy a little now and wait patiently for it to drop below $15 and buy some more. Over the long term you will make out like a bandit.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.