Will Wearable Technology Give New Direction to Fossil?
On Oct 9, 2014, we issued an updated research report on Fossil Group, Inc. (FOSL).
This global consumer fashion accessories maker and distributor reported better-than-expected second-quarter 2014 results on Aug 12.
Fossil’s second-quarter 2014 earnings and revenues exceeded both the Zacks Consensus Estimate as well as the company’s expectations. Though earnings of 98 cents declined from the prior-year period, Fossil’s net sales during the quarter increased 10% from the prior-year period, reflecting sales growth across all geographies, notably in Europe and Asia. This sales increase was backed by 12% growth in the multi-brand global watch portfolio, in particular the Fossil and Skagen brands.
With a solid watch portfolio, the company has witnessed consistently strong sales growth in its watch category, driven by the Fossil, Skagen and Michael Kors brands. The Fossil brand is the key growth driver owing to its strong global distribution platform and successful innovations.
Despite sluggish comparable store sales (comps) in the U.S. since the past few quarters, the company has been delivering positive comps internationally for the past five years, driven by continued strengthening of the Fossil and Michael Kors brands. The company’s watch sales also received a boost from the Skagen acquisition in Apr 2012.
Fossil is recently betting high on the wearable technology market, following technology giants like Google Inc. (GOOG) and Apple Inc. (AAPL). Fossil has teamed up with chipmaker Intel Corp. (INTC) in September to develop next-generation fashionable products for the wearables market. Earlier in March, Fossil had extended its support to Google, which had announced the extension of Android operating system into wearable technology with a new operating system called Android Wear.
Fossil, through this partnership, will be able to leverage Android’s popularity and Google’s technology in its watches. Fossil also makes apparel and other wearables that might get smart technology later, including jewelry and handbags. This partnership will also allow Fossil to bring smartwatches to its customers, shaping the fusion of fashion and technology.
Android-based value watches in the emerging markets will also be a boon for the company as about half of Fossil’s revenues come from overseas. However, the market share of Google’s Android Wear might get hurt with Apple’s i-Watch, which is expected to launch in early 2015.
Fossil holds a Zacks Rank #3 (Hold).
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