On Mar 24, 2014, we issued an updated research report on
Fossil Group Inc
). This global consumer fashion accessories maker and distributor
recently reported mixed fourth-quarter 2013 results on Feb
Fossil reported fourth quarter 2013 earnings of $2.68 per
share, which beat the Zacks Consensus Estimate by 8.9%. In fact,
Fossil has been delivering positive earnings surprises over the
last two years.
Earnings also increased 7% year over year from $2.51 per share
and surpassed management's guidance range of $2.26-$2.46 per
share. Higher revenues and operating income and lower share count
boosted earnings in the quarter, partially offset by increased
interest expense and a higher tax rate. On a constant currency
basis, Fossil's net sales during the quarter increased 11.4% year
over year to $1.062 billion. Sales exceeded the Zacks Consensus
Estimate and management's expectation of a 6%-8% increase on the
back of continued growth in the watch portfolio, driven by the
Fossil and Skagen brands.
Strong top-line growth driven by double-digit increase in
global watch sales has been the company's strength over the
years. Product innovation and continued momentum of the Fossil
brand also added to growth. The company is also keen on improving
its jewelry and leather businesses in order to further boost
Fossil has a solid watch portfolio and has witnessed strong
sales growth owing to its strong global distribution platform and
successful innovations. The company has also regularly acquired
and developed new brands and inked licensing agreements to suit
customer preference and lifestyle.
Most recently, Fossil teamed up with
) to support 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. 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
Following the acquisition of privately-held Nevada-based
Skagen Designs, Ltd. and its certain subsidiaries in Aug 2012,
the company's watch sales received a boost. In 2013, Fossil
launched the long-awaited and exclusive collection of watches for
men and women by designer Karl Lagerfeld and introduced Fossil
Swiss watches in Asia. The company expects to add new brands like
Tory Burch in the second half of 2014.
The company targets further expansion of the Fossil brand in
2014 and intends to develop exciting new watch and jewelry
designs, improve leather assortment and focus on increasing brand
Fossil has a significant presence in international markets and
has department stores in over 120 countries worldwide. Fossil is
progressing steadily in newer markets as well as in existing
markets like Japan, Australia and Korea.
While Fossil has been delivering positive comparable store
sales for the past 5 years driven by continued strengthening of
the Fossil brand outside the U.S., the company is witnessing
sluggish comparable store sales in the U.S. since the past few
quarters due to weak traffic owing to the tough retail
environment. The company is therefore resorting to promotional
techniques to drive traffic. Though the company is trying to
limit promotional activity, increased competition and a difficult
consumer spending environment force it to resort to aggressive
Fossil holds a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks in the retail sector include
Foot Locker, Inc.
The Kroger Co.
), both of them carrying a Zacks Rank #2 (Buy).
FOOT LOCKER INC (FL): Free Stock Analysis
FOSSIL GRP INC (FOSL): Free Stock Analysis
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KROGER CO (KR): Free Stock Analysis Report
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