Thu Dec 04 2014
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Here’s Why Fossil Has A Bright Future

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The retail industry is doing pretty well, with each company posting growth just before the upcoming peak season. Despite a fall in consumer spending, there is an increase in retail activities for most of the premium retailers. This shows that the affluent part of the society continues to shop, no matter what the economic conditions are.

The watch and accessory maker Fossil (FOSL) is an apt example here. The company has been experiencing growth in the last few quarters. It also registered a great quarter recently when it reported its third-quarter numbers. This forced its shares to jump higher.

Snapshot of the numbers

Total revenue surged 10.4% to $ 895.5 million, over last year. This was higher than the estimate of $ 877.4 million and was driven by growth of 12% in its multi-brand watch portfolio. Also, demand for SKAGEN and Fossil branded watches increased. However, the same store sales were flat during the quarter for the watch category.

Going by the geographic regions, Europe and Asia were the most prominent performers. Sales in Europe grew by a remarkable 15% and that of Asia jumped 11%. Demand in Asia is high and is expected to grow largely in the years to come. The Wholesale and the Direct-to-customer segment increased 10% and 11%, respectively.

Watch sales make 75% of the revenue. However, leather-related products will be a new and emerging category, and the company plans to expand this segment in the future. The jewelry category is the fastest-growing category as of now. Revenue from this segment witnessed growth mainly due to high demand for branded jewelry and innovative jewelry of Michael Kors (KORS).

Earnings rose to $ 1.96 per share as against the estimate of $ 1.82 per share in the prior year’s quarter. However, gross margin dropped 50 basis points to 56.9% due to higher promotions made by the company.

Some efforts

The biggest problem for the company is the emergence of smart watches, which will be a tough competition to the traditional watchmakers. For instance, the launch of the new Apple watch device has resulted in sluggish store traffic at Fossil’s stores.

However, there are a number of factors which should continue to help Fossil grow. It added Tory Burch brand collection, a popular brand to its portfolio, which helped in attracting customers.

Also, it has entered into a partnership with Intel for developing an Intel powered wrist computer that will be launched next year. The device will run on Android software helped byGoogle (GOOG) (GOOGL).

Fossil also has some valuable partnerships with brands such as Burberry, Michael Kors and Tory Burch and plans to expand in Asia, where demand is quite high.

The bottom line

The watch maker has renewed its licensing agreement with KORS for another 10 years. This partnership is important as it makes 25% to 30% of total revenue. It will also help in enhancing international footprint, leading to higher sales. Moreover, it plans to strengthen its omni-channel efforts, which should be helpful. Further, the company updated its outlook for the year. Both revenue and earnings outlook is expected to grow more in the future. Hence, this company is worth investing in.


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Tags Asia, Europe
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