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Here's Why You Should Add Fossil (FOSL) to Your Portfolio

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Fossil Group, Inc. (FOSL - Free Report) is gaining momentum on the back of its robust efforts to expand in the fast-growing wearables category. Also, the company is on track to benefit from innovations in the connected watches portfolio. Apart from this, the company’s New World Fossil Plan, e-commerce capabilities, diversification and restructuring actions have pushed the stock higher. In a year’s time, shares of this Zacks Rank #1 (Strong Buy) stock have rallied approximately 83% against the industry’s and S&P 500 index’s decline of 18.6% and 7.6%, respectively.

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

So, let’s check out the four major factors driving Fossil’s performance.

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 of 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.

By 2020, the company expects the wearables business to grow by $32 million. Additionally, partnerships with Qualcomm (QCOM - Free Report) and Google, and the 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 (CPRI - Free Report) and Misfit.

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 for driving 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.

Focus on E-commerce Capabilities

The company 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%, 18% and 6% growth in Asia, the United States and Europe, respectively.

Furthermore, management is optimistic about the company’s expansion plans in the smartwatch and other digital offerings category, and expects such moves to further bolster online sales.

Diversification & Licensing Agreements

Fossil originated as a watch brand and later included other accessory categories, including handbags, belts, small leather goods, jewelry, soft accessories, sunglasses and clothing. Within the existing brands, the company has diversified into new accessory product categories to further leverage its branded portfolio. In this regard, it is imperative to mention that the company introduced jewelry collections under the brands Diesel, DKNY, Emporio Armani, Fossil and Michael Kors brands after first establishing a market for the brands in watches.

Also, the Skagen brand acquisition in August 2012 strengthened Fossil’s watch assortment. Moreover, in 2017, Fossil added several fitness applications to its digital products that have been receiving positive response from consumers.

Apart from these, the company has signed 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. Moreover, with the renewal of the global licensing agreement with Michael Kors and Emporio Armani through 2024, Fossil has been able to expand the extensive line of watches and jewelry, and explore other opportunities in the accessories category.

Fossil signed the global licensing agreement with Kate Spade & Company, Diesel, Ralph Lauren (RL - Free Report) and many others as well, which should further enhance its watch portfolio.

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