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Can Fossil Group's Wearables Pare Traditional Watch Woes?

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The increasing popularity of AI-supported devices has gladdened companies offering advanced gadgets like Fossil Group Inc. (FOSL - Free Report) . This renowned watch-maker’s shares surged 45.2% in the past six months compared with the industry’s 10% rise. Let’s take a closer look at this Zacks Rank #3 (Hold) company’s progress in the tech arena and whether its efforts will mitigate soft traditional watch sales.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wearables Front Looks Sturdy

The rising popularity of smartwatches is a blessing for Fossil Group. Moreover, through the introduction of technology in watches, the company has been able to widen portfolio and add unique features to wearables. Markedly, the company is benefitting from Android’s popularity and Google’s technology in its watches. Strength in wearables has also been driving the company’s online sales. This along with solid marketing efforts and initiatives to enhance store experience has helped the company’s wearables sales to grow.  

Fueled by such factors, the Fossil Group’s connected watch sales surged 91% year over year in the second quarter of 2018. Also, wearables contributed roughly 20% to the company’s total watch sales in the quarter, up from 10% in the year-ago quarter.

Well, the wearables market provides Fossil Group the opportunity to combine fashion and technology and introduce exciting products to cater to consumers’ evolving needs of advanced connected gears. As the wearable business is expected to grow $32 billion by 2020, Fossil Group is on track to enrich the wearables portfolio by adding brands. Recently, the company launched approximately 14 new hybrid and smartwatches across several brands. Progressing along these lines, the company plans to launch three new smartwatch formats in 2018. Also, launches this year will include additional features and upgrades to best suit customers’ changing needs. Currently, the company’s wearables segment is adorned by renowned brands such as Diesel, Emporio Armani, Fossil, Michael Kors and Misfit.

Apart from Fossil Group, companies like Apple Inc. (AAPL - Free Report) , Fitbit, Inc. (FIT - Free Report) and Garmin Ltd. (GRMN - Free Report) have also been bolstering their presence in the wearables’ arena.



Progress in E-commerce and Other Initiatives

Fossil is keen on expanding digital platform and meet consumers’ growing demand for online purchasing. To this end, the company has been making several investments to improve digital marketing and drive online sales for the company’s website as well as other online wholesale partners. In fact, such dedicated endeavors in the e-commerce space bore favorable results during the second quarter of 2018. E-commerce sales during the period improved about 17%, backed by 82% growth in Asia, 18% in the United States and 13% in Europe. Moreover, expansion plans in the smartwatch and other digital offerings category are expected to bolster online sales.

Apart from these, the company is on track with transformation initiatives for driving efficiency, through the New World Fossil Plan. The program focuses on improving margins and overall operating structures. The company is well on track with New World Fossil plan and has initiated the second phase of the transformation initiative. It focuses on prioritizing consumer market and channel opportunities, revenue optimization, delivering gross margin and productivity savings.

Wrapping Up

Although consumer’s inclination toward smartwatches has worked in favor of Fossil Group, such a trend has eclipsed traditional watch sales. In fact, the company’s sales have been declining year over year for more than two years, due to persistent softness in the traditional watch category and lower store traffic. Further, sales of leathers and jewelry have constantly been weak since the past few quarters on account of low demand.

Nevertheless, Fossil Group’s prospects in the connected products category along with efforts to boost e-commerce and improve margins are expected to aid the company in overcoming the aforementioned obstacles in the long run. On that note, we continue to hope that Fossil maintains its position in investors’ good books.

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