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Fossil Looks Appealing on Strong Wearables Unit & E-commerce

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Growth in the wearables arena along with increasing e-commerce sales are adding gleam to Fossil Group, Inc. FOSL. Well, such factors have made this well-known watch manufacturer a worthwhile addition to investors’ portfolio. The Zacks Rank #2 (Buy) company has gained 4.9% in the past three months against the industry’s decline of 10.5%.

Wearables Offer Significant Growth Opportunities

The wearables market provides Fossil the opportunity to combine fashion and technology as well as roll out exciting products to cater to consumers’ evolving needs of advanced connected gadgets. Notably, the company is getting the advantage of Android’s popularity and Google’s technology in its watches.

We note that connected watch sales contributed 21% to Fossil’s total watch sales in the second quarter of 2019. As the wearables business is expected to grow $32 billion by 2020, Fossil’s efforts to expand in the space bode well. To this end, partnerships with Qualcomm and Citizen Watch Company as well as the addition of new brands to its smartwatch line-up are likely to enrich Fossil’s wearables portfolio.


E-commerce Channel Fuels Growth

Fossil is keen on expanding its digital platform and meet consumers’ growing demand for online purchase. To this end, the company is making several investments to improve digital marketing and drive online sales in its website as well as other online wholesale partners. The e-commerce platform has also served as an important sales channel for wearables. Further, management is optimistic regarding expansion plans in the smartwatch and other digital offerings category as well as expects such moves to bolster online sales.

New World Fossil Plan & Licensing Agreements

Fossil is on track with its New World Fossil (NWF) plan that aims to improve margins and revenues as well as enhance and transform the overall operating structure of the business to drive profitability. Notably, the NWF plan enabled the company to reduce expenses and boost gross margin in the second quarter of 2019. NWF 1.0 is expected to conclude in 2019, by the end of which the company expects to achieve run-rate savings of $200 million. Also, the company is on track with the NWF 2.0 - Transform to Grow initiative that will enhance efficiency across the company.

This apart, Fossil has signed various licensing agreements with several brands to expand its offerings. To this end, licensing deals with Tory Burch and DKNY are noteworthy. Fossil also signed design, development and distribution agreements with Puma and BMW in 2018. Further, with the renewal of its global licensing agreements with Michael Kors and Emporio Armani through 2024, the companies can expand their extensive line of watches and jewelry as well as explore other opportunities in the accessory’s category.

Wrapping up, we expect that such upsides are likely to help Fossil sustain its footing in the watches and accessories space.

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