We reaffirm our Neutral recommendation on
) following an appraisal of its first quarter 2013
Why the Reiteration?
On May 7, Fossil reported its first quarter 2013 results. The
company posted earnings growth of 16.1% driven by net sales
growth of 15.5% in the quarter. Its earnings and sales also
exceeded the Zacks Consensus Estimate. Fossil witnessed
double-digit growth in global watch sales, mainly owing to the
acquisition of the Skagen brand (acquired in April, 2012).
Fossil's jewelry business improved due to the addition of Skagen
jewelry in the quarter. The strong results reflect increased
sales across all geographic regions in the quarter.
However, a strong dollar reduced the company's export sales in
the reported quarter. Fossil's sales in other categories
including eyewear and leather businesses were also sluggish. The
company's gross margin and operating margin also contracted due
to higher operating expenses and a negative impact from sales
During the first quarter of 2013, the company introduced
Fossil Swiss watches in Asia. In Feb 2013, Fossil launched the
long-awaited and exclusive collection of watches for men and
women by designer Karl Lagerfeld and received a good response.
Its Emporio Armani Swiss line of watches is slated for a spring
2014 launch. Fossil is expected to present the Tory Burch watches
ahead of their scheduled launch.
The continued momentum of the Fossil brand and new product
launches in 2013 also led the company to raise its earnings
guidance for full year 2013. The company now expects earnings in
the range of $6.00 - $6.26 per share, higher than the previous
expectation of $5.85 to $6.15 per share. Fossil reiterated its
outlook for sales and operating margin.
Following the impressive first-quarter results, estimates
largely moved upwards for 2013 and 2014. The Zacks Consensus
Estimate increased 2.1% for 2013 and 1.4% for 2014 over the last
We are encouraged by the company's acquisition strategy, its
strong liquidity position, prudent expense management and its
ability to generate positive comparable store sales. The Skagen
brand has boosted the company's watch sales since its acquisition
last year. Further, Fossil has established its presence in the
international markets by forming alliances, acquiring
internationally-based subsidiaries and licensing and developing
international brands. Fossil's acquisition of the Latin American
distribution business of Florida-based Bentrani Watches, LLC in
Jan, 2013 now allows Fossil to directly ship its products to 16
Latin American countries.
Other Stock to Consider
Fossil currently carries a Zacks Rank #3 (Hold). However,
there are other stocks worth considering in the consumer
discretionary sector including
The Gap Inc
Wet Seal Inc.
), all of which hold a Zacks Rank #2 (Buy).
FOSSIL GRP INC (FOSL): Free Stock Analysis
GAP INC (GPS): Free Stock Analysis Report
CHILDRENS PLACE (PLCE): Free Stock Analysis
WET SEAL INC -A (WTSL): Free Stock Analysis
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