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Suravi Thacker
Suravi Thacker
Articles (157) 

Fossil Looks Good To Go

June 25, 2014 | About:

Fossil (NASDAQ:FOSL), one of the leading watch and accessory provider, posted its quarterly results recently which beat the Street’s expectations. However, its share price was punished since the company’s next quarter outlook failed to please investors.

The numbers

Driven by higher demand for watches, revenue surged 14% over last year, clocking in at $776.5 million. The top line was driven by growing sales across the categories with the watch category growing 17%, over the prior year. Growth in watch sales is a key driver for Fossil’s growth since it makes almost 77% of the watch maker’s total revenue. However, leather business was a laggard with a slight decrease in sales.

Going by the segments, both wholesale and direct-to-consumer segment performed well. On a constant currency basis, revenue for the wholesale segment grew 12.8% and from that of direct-to-consumer segment rose 18% as the company continued to expand its wings globally.

A concern for the watch retailer was declining mall traffic in the U.S. which hampered the overall sales. As a result, same store sales dropped by 2.4% during the period. Nonetheless, the company managed to register a jump in its earnings to $1.22 per share as compared to $1.10 per share last year. Also, gross margin stood at 57.1%, an expansion of 150 basis points, as sales of higher margin products increased.

What next?

In order to attract more customers, Fossil plans to ramp up its marketing efforts. It will be expanding its presence on social media along with its print campaigns.

Also, the company plans to expand its footprint in the emerging markets such as Europe and Asia Pacific. Since sales in the U.S. have been declining, it is important for the retailer to branch out on a global basis, where demand has been on the rise.

Moreover, the watch maker recently announced that it will introduce a new line of Android wear. This new range of clothing will be launched in collaboration with Google. It will be interesting to see how this new product resonates with customers.

However, the company’s weak outlook was something which disheartened the investors. For the second quarter, revenue is expected to grow between the range of 8% and 9.5% along with earnings of $0.90 per share to $0.97 per share. On the other hand, analysts were expecting earnings of $1.16 per share and top line of $773.4 million, an increase of 9.5%.

Foolish thoughts

Fossil has a wide variety of items in its product portfolio, including apparel, jewelry, wallets and belts apart from watches, which lures customers. Moreover, watches have been one of the key strengths of the retailer, which ranges from as low as $7 and goes up to as much as $2,000 per watch. It caters to customers of all categories. Therefore, its growing top line is obvious. Additionally, it has been able to keep up with the competitive pressures and continues to expand its footprint. Its strategic initiatives look interesting and should be fruitful in the long run. Hence, prudent investors should take note of this watch maker.

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GuruFocus has detected 8 Warning Signs with Fossil Group Inc $FOSL.
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