Despite economic, competitive and consumer headwinds, Fossil Group, Inc. (FOSL - Free Report) has been delivering positive results owing to continued momentum at the Fossil brand, product innovation in the watch portfolio, and expansion in wearable technology. Also, the company’s share price has increased 4.9% year to date.
Let’s delve deeper to find out what’s happening at this Richardson, TX-based designer and manufacturer of clothing and accessories.
Factors at Play
Fossil has surpassed earnings estimates in all of the trailing four quarters. Solid watch portfolio and expansion in wearables have remained its strengths.
The company has a solid watch portfolio, with the Fossil brand being the key growth driver owing to its strong global distribution platform and successful innovations. In fact, the Fossil brand has witnessed strong growth outside the U.S.
The company has diversified into new accessory product categories within the existing brands to further leverage its branded portfolio, given the significant consumer interest in the category.
The introduction of wearable technology will also offer ample opportunity to extend the reach of brands and offer customers new functionality with accessories, including activity trackers, hybrid watches and smart watches. The company is working on a project named New World Fossil, which aims at improving the financial performance of the Fossil brand and building a better operating platform to drive long-term shareholder value.
However, softness in watch sales, weak comps in the U.S. due to low traffic, sluggish performance in key international markets, including China, Europe, Russia and Greece, and unfavorable currency have been weighing on this Zacks Rank #3 (Hold) stock.
The company has been witnessing soft sales in licensed watches over the past few quarters, due to increased competition from new entrants in the market. Decline in its multi-brand licensed watch portfolio and a challenging environment for the traditional watch category are major reasons for the slump.
The company noted two factors that have been impacting watch sales. First, tech-enabled watches are significantly affecting the sales of traditional watches. Second, the success of the Michael Kors brand is overshadowing other brands’ performance. Moreover, in Jan 2016, Burberry announced that it is exiting the watch business and does not intend to renew its license agreement upon its expiration at 2017 end. The company continues to expect weakness in this category.
Fossil also anticipates intense competition from new players, while evolving consumer preference across the world will lead to a volatile sales pattern. Though this should not be a problem over the long term, as the company plans to upgrade its products technologically, the near-term implications remain severe.
Stocks to Consider
Some well-positioned retailers include The Children's Place, Inc. (PLCE - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and Chico's FAS Inc. (CHS - Free Report) .
The Children’s Place has an average positive earnings surprise of 36.28% in the trailing four quarters. It also has a long-term earnings growth rate of 10.33%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
While Boot Barn has a long-term earnings growth rate of 14.50%, Chico's FAS has a growth rate of 12.38%. Both stocks hold a Zacks Rank #2 (Buy).
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