Fossil Group, Inc. (FOSL - Free Report) is gaining momentum on the back of robust growth in its wearables category. Also, the company is on track to gain from innovations in the connected watches portfolio. Its continuous focus on increasing digital capabilities to drive e-commerce is impressive as well.
Furthermore, Fossil’s New World Fossil proved conducive to the company. This initiative contributed to the company’s profitability and facilitated better management of expenses. Apart from helping Fossil to outpace the industry in a year’s time, these efforts should aid the company to sustain its momentum in the quarters ahead.
Notably, this Zacks Rank #1 (Strong Buy) stock has more than doubled in the past year, outperforming its industry’s 4.6% growth. Additionally, the company continued with its positive earnings surprise streak for the sixth straight time in the third quarter of 2018 backed by the aforementioned growth drivers. The bottom line also grew year over year in the quarter. However, the top line declined due to persistently soft traditional watch sales. (Read: Fossil Stock Gains 10% as Q3 Earnings Beat Estimates)
Wearables Growth: A Key Catalyst
The introduction of wearable technology in watches has offered Fossil ample opportunities to extend its reach of brands and offer customers new functionality via accessories, including activity trackers, hybrid watches and smart watches.
Android’s popularity and Google’s technology in its watches also provided a boost to the company’s performance. Recently, Fossil launched approximately 14 new hybrid and smartwatches across several brands. In the third quarter 2018, connected watch jumped almost 30% year over year. Also, wearables represented roughly 18% of the company’s total watch sales in the quarter, marking a steady improvement from 13% in the year-ago period.
Wearable business is expected to grow $32 billion by 2020. Moreover, partnerships with Qualcomm and Google, and addition of new brands to its smartwatch line-up in 2018 are likely to strengthen Fossil’s wearables portfolio.
These apart, Fossil joined hands with Citizen Watch Company to boost growth in its hybrid smartwatch category. Markedly, the wearables market provides Fossil an opportunity to combine fashion and technology, and come up with exciting products to cater to consumers evolving needs for tech-enabled advanced connected gears. Currently, the company’s wearables segment comprises renowned brands such as Diesel, Emporio Armani, Fossil, Michael Kors (KORS - Free Report) and Misfit.
Focus on E-commerce Capabilities and Licensing Agreements
Fossil has been making several investments to improve digital marketing and drive online sales, both for the company’s website and other online wholesale partners. In fact, during the third quarter of 2018, e-commerce sales rallied 15% buoyed by 22% growth in Asia, 18% in the United States and 6% in Europe. Further, management is optimistic regarding the company’s expansion plans in the smartwatch and other digital offerings category, and expects such moves to further bolster online sales.
Apart from e-commerce capabilities, the company has signed various licensing agreements with several brands. Recently, Fossil announced Puma and BMW as its new licensed watch brands and plans to start their distribution in 2019. With the renewal of Fossil’s global licensing agreement with Michael Kors and Emporio Armani through 2024, the companies are able to expand the extensive line of watches and jewelry, and explore other opportunities in the accessories category. The company signed the global licensing agreement with Kate Spade & Company, Diesel, Ralph Lauren Corporation (RL - Free Report) and many others as well, which should further enhance its watch portfolio.
New World Fossil Plan Bodes Well
Fossil initiated a restructuring program called New World Fossil in 2016, which aims to transform the company, fuel efficiencies, improve margins and enhance the overall operating structure of the business to drive profitability. Moreover, the company is well on track with its New World Fossil plan and has initiated the second phase of this transformation plan. Accordingly, it now focuses on prioritizing consumer market and channel opportunities, revenue optimization, delivering gross margin and productivity savings. Driven by this initiative and other strategic plans, Fossil expects to achieve gross profit improvement of $200 million by 2019 end.
Although Fossil has been struggling with softness in traditional watches, and leathers and jewelry business, strength in wearables along with focus on the New World Fossil Plan is likely to help the company remain on growth trajectory.
Moreover, impressive estimate revisions for the current and next year are noteworthy. The Zacks Consensus Estimate for 2018 and 2019 moved north by 25 cents and 57 cents to $1.03 and $1.54, respectively, over the past 30 days.
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