QUOTE AND NEWS
Motley Fool  Jul 7  Comment 
Zoe's Kitchen, Ascena Retail Group, and Fossil Group have lost more than half of their value this year.
Clusterstock  Jun 26  Comment 
Smartwatches are taking over our wrists, and it's likely to get worse for traditional Swiss watchmakers, according to UBS.  The Apple Watch is bigger than every Swiss watch brand except Rolex, analysts at the bank said in a note on Monday....
Motley Fool  Jun 15  Comment 
Is the struggling watchmaker a contrarian play or a falling knife?
Motley Fool  Jun 15  Comment 
Why Fossil stock fell last month and what to expect from the troubled watch specialist going forward.
Motley Fool  May 25  Comment 
The smartwatch is gaining in popularity and leaving Fossil behind, but the company is making some changes that could reverse the trend.
Clusterstock  May 10  Comment 
Fossil's stock is getting hammered on Wednesday, down more than 22% after reporting another disappointing quarter.  The watchmaker reported a loss of $0.65 per share on sales of $581.8 million. According to Reuters, analysts were expecting a...
Motley Fool  May 10  Comment 
Fossil isn't adapting fast enough to a rapidly changing watch market.
CNNMoney.com  May 9  Comment 
Read full story for latest details.




 

Fossil, Inc. (NASDAQ: FOSL) sells watches and other accessories such as handbags and sunglasses. The company sells goods through its own retail and online stores, as well as in many department stores such as Macy's Inc. (M), J.C. Penney (JCP), and Nordstrom (JWN). The company also operates 127 retail stores and 74 outlet stores in the US.

Fossil earned 33.7% of its sales from licensing the rights to make watches and accessories with brand names such as DKNY, Emporio Armani, and Burberry. Nearly two thirds of net sales came from watches. Due to increased licensing and growing product lines. Licensing has also given Fossil the power to compete at different price points, although its focus is on watches that sell from $55-$195. All of Fossil's licensing agreements will expire in the next five years and the company has started negotiations to renew them.

Although the retail industry is susceptible to economic fluctuations, slightly more than 50% of the company's net sales came from outside the U.S., which helped offset lower US sales. Competitors such as Kenneth Cole Productions (KCP) that have mostly domestic sales have seen their bottom line shrink as a result of economic downturns. For Fossil, international sales contribute to a favorable exchange rate and protection against lower consumer confidence in the United States.

Company Overview

Although primarily a watch company based in the US, Fossil has expanded into international markets and other areas of the fashion and accessories industry. Fossil's products are offered through several different lines including Adidas, Allude, Burberry, Christian Benet, Diesel, DKNY, Emporio Armani, Fossil, Marc by Marc Jacobs, Michael Kors, Michelle, Relic, Trophy, and Zodiac; of these, only Fossil, Michele, Relic, and Zodiac are Fossil's own brands, while the rest are licensed.

Products[1]

  • Watch Products: Fossil divides its watches into four categories:
    • Fine watches can be described as luxury watches as represented by Omega and Rolex. The company competes in this market with its Michele brand. These watches are exclusively made in Switzerland and have retail prices in the range of $1,500 to $20,000.
    • Premium branded and designer watches consist of the company's brands like Burberry, Emporio, and Armani. Retail prices for these watches generally range from $300 to $3,000.
    • Digital and analog watches are sold under their brands Allude, Callaway, and Trophy. Retail prices range from $7 to $74.
    • Contemporary fashion and fashion brand names consist of the company's Fossil and Relic brands. These watches are produced in Japan, China, or Hong Kong and are sold in the price range of $45 to $495.
  • Fashion Accessories: this category of products includes items like handbags, belts, eyewear, neckwear, jewelry, gloves, hats, and hosiery. Fossil offers items under the Fossil, Relic, Diesel, and Armani brands.
  • Apparel: includes jeans, tee shirts, and vintage-inspired fashion apparel. The line is focused on the casual lifestyle and targets youthful consumers. The company's prices are comparable to those at stores like American Eagle Outfitters (AEO) and J. Crew Group (JCG).
  • Footwear: is the most recent addition to the company's product line. Types of shoes include sport sneakers, authentic casuals, and dress classics for men and women.

Business Segments

Fossil breaks its company down into four geographical sales segments:

  • European Wholesale (32% of sales)
  • Other International Wholesale (32% of sales)
  • United States Wholesale (23% of sales)
  • Direct to Consumer (59% of sales): Fossil also sells their products through their own retail stores and website.

Business Growth

FY 2009 (ended January 2, 2010)[2]

  • Net sales fell 2.2% to $1.55 billion. Europe and international sales were hit the hardest with negative growth of 13.2% and 11.3% respectively. The company attributes the lower sales volume to weakened demand from the sluggish global economy.
  • Net income increased 0.8% to $139 million. The slight increase was pushed by slightly lower operating expenses.
  • The company plans to open approximately 50 additional FOSSIL branded stores in 2010.

Trends and Forces

Slumping World Economy Hurts Fossil

Watches are non-essential items that can also be seen as luxuries. The sluggish global economy has made consumers more price conscious and more conservative in terms of spending money. In this kind of environment, non-essential items like watches are often one of the things consumers cut from their shopping list. As a result, this weakens the demand for watches. Although half of Fossil's revenues come from overseas, the economic downturn has affected many countries outside the US. A weak global economy means negative effects for Fossil's bottom line. In 2009, Fossil's net sales fell 2.2% due to lower sales volume.

Longevity of Licensing Agreements

Licensing products to companies such as Adidas, Emporio Armani, Burberry, Diesel, DKNY, and Marc by Marc Jacobs contributed to 33.7% of Fossil's sales for the 2007 fiscal year. All of Fossil's licensing agreements are set to expire between prior to 2013.

Fossil plans to negotiate new terms for their licenses as they expire and they have already started talks with some companies such as Emporio Armani. However, royalties are often factors of licensing agreements which take away the profitability of such licenses and threaten their renewal.

Weak Dollar Helps International Sales

Fossil generally pays for products in US dollars and depends on labor and manufacturing in China. The fluctuation of the dollar versus other currencies has an impact on manufacturing costs and sales costs and Fossil uses forward contracts to control exchange risks.

Competitors

Fossil considers the watch market to be divided into four segments based on price points. Due to their many brands and products, Fossil competes in all of these segments to varying degrees, but their primary market is in the $55-$195 watch range. Since Fossil operates in such a broad product category, they compete with many companies whose specialties do not include watches, but are in the fashion apparel/accessories industry as a whole.

Fossil's watch competitors include:

  • Anne Klein II is a woman's fashion brand that is part of the Jones Apparel Group (JNY). Although they do sell watches, they are more recognized as an apparel and footwear brand.
  • Guess? (GES) is most famous for its jeans and apparel but they also make fashion accessories. Their watch collection has been around for over 23 years. The company's GC watch collection has watches in the $200-$1500 price range.
  • Kenneth Cole Productions (KCP) is considered an "affordable luxury" line of apparel, footwear, and accessories. It is essentially a domestic company with 97% of sales income generated in the United States.
  • Swatch (The Swatch Group) is a Swiss company that specializes in watches but also sells electronics and other products.

Fossil's DKNY, Diesel, Fossil, Marc by Marc Jacobs, Michael Michael Kors, and Relic lines compete in this segment of the watch market.

References

  1. FOSL 2009 10-K "Industry Overview" pg. 8-9
  2. FOSL 2009 10-K "Selected Financial Data" pg. 42
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