Fossil Group Inc. FOSL is gaining from strong growth in its wearables business, digital expansion and restructuring actions. Shares of this Zacks Rank #2 (Buy) company have surged 307.9% in the past six months, significantly outperforming the industry 's growth of 4.6%.
Let's delve deeper into the factors that make Fossil an attractive buy.
Wearables - The Growth Catalyst
With the introduction of wearable technology in watches, Fossil has been able to expand its base and offer additional features with accessories to meet customers' preferences and needs. Notably, the company is getting the advantage of Android's popularity and Google's technology in its watches. Fossil recently launched approximately 14 new hybrid and smartwatches across several brands. This led to the wearables business accounting for 20% of its total sales in the first quarter of 2018 and reflecting a substantial increase from 8% growth reported in the year-ago period. Also, the company is taking unique marketing strategies that helped Fossil brand's sales rise 4% in the quarter.
The company expects the wearables business to grow by $32 million by 2020. In response to this, it intends to add three new formats to its smartwatch lineup in 2018, with a view to enhance the company's portfolio. Moreover, the company remains confident about the continued growth in the wearables category, given the recent initiatives that will further drive sales.
Digital Expansion to Drive Sales
Fossil remains poised on expanding its digital platform through several investments and meeting consumers' growing demand for online shopping. After recording success in this realm in 2017, the company is on track to strengthen its digital platform further in 2018. As a result of such efforts, the first quarter registered e-commerce sales growth of close to 50%, driven by growth of 47%, 19% and 147% in Europe, the United States and Asia, respectively. Part of this surge is also attributable to the fact that 50% of the wearables sales are generated online.
Innovative Product Offering
Apart from Fossil's existing watch brand, it also offers various accessories, including handbags, belts, small leather goods, jewelry, soft accessories, sunglasses and clothing, given the significant consumer interest in accessories.
Additionally, to further expand the company's size and offerings, Fossil has signed various licensing agreements with several brands. Recently, the company announced Puma as its new licensed watch brand. The company plans to start distributing Puma watches in 2019. Further, with the renewal of Fossil's global licensing agreement with Michael Kors KORS and Emporio Armani through 2024, the companies are able to expand the extensive line of watches and jewelry, and also explore other opportunities in the accessories category. The company also signed a global licensing agreement with Kate Spade & Company through 2025 and extended its global watch licensing agreement with Diesel through 2025. Further, it partnered with Ralph Lauren Corporation RL in 2015 to develop watches under the Chaps label, which will further enhance its watch portfolio.
New World Fossil Plans to Transform Business
The company remains on track with its New World Fossil program, which was initiated in 2016 to restructure its business. The program aims to transform the company, fuel efficiencies, improve margins and enhance the overall operating structure to drive profitability. This program has enabled the company to cut operating costs and drive gross margin in the first quarter.
With this program, the company expects to achieve gross profit improvement of $200 million by the end of 2019, out of which it has already witnessed approximately $20-million gains in the first quarter. For 2018, the company expects gross margin in the range of 51-53%, which reflects 200-400 bps expansion from the year-ago period. This depicts management's confidence in New World Fossil plan, greater connected margins and favorable currency.
All said, the company believes that the aforementioned efforts bode well.
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