On Dec 31, 2015, we issued an updated research report on Fossil Group Inc. FOSL.
The company has been witnessing sluggish results since the beginning of this year. Estimates have also been moving south over the past 60-day and 90-day periods. Softness in watch sales, weak comps in the U.S., sluggish performance in key international markets and unfavorable currency have been weighing on the stock.
The continued momentum of the Fossil brand, product innovation in the watch portfolio and expansion in wearable technology are encouraging. Nevertheless, soft sales over the past few quarters due to decline in its multi-brand licensed watch portfolio is a cause of concern. The company identified two factors that are denting watch sales. While the tech-enabled watches are significantly impacting traditional ones, the success of Michael Kors brand is overshadowing the performance of other brands. Consequently, Fossil has lowered the sales and earnings outlook for fiscal 2015.
Fossil expects several challenges in the near term, which would hamper its operations. The company anticipates intense competition from new players, while evolving consumer preference across the world will lead to volatile sales pattern. Though this should not be a problem over the long term, as the company plans to upgrade its products technologically, but the near-term implications remain severe.
However, the traditional watchmakers like Swatch and LVMH's Tag Heuer are also developing smartwatches to cater to the rising demand. So Fossil’s connected wearables and smartwatches are likely to face tough competition.
Also, we note that this global consumer fashion accessories maker is witnessing sluggish comps in the U.S. over the past few quarters due to weak traffic. The company is witnessing massive change in consumer shopping behavior, and therefore has adopted a cautious stance in the U.S.
This Zacks Rank #5 (Strong Sell) company is also battling economic challenges in many key markets, including China, Europe, Russia and Greece, and thus does not expect much international growth this year. The company’s performance in Europe and Asia are decelerating, which again is a concern.
A soft macroeconomic condition in China is slowing the company’s growth in Asia. China continues to be challenging both politically as well as economically. The company is also witnessing sluggish business in Hong Kong due to political upheaval. The MERS outbreak in South Korea and economic downturns affecting Hong Kong and Macau have added to the woes.
Stocks to Consider
Investors may look into these well-positioned stocks in the same industry such as Abercrombie & Fitch Co. ANF, American Eagle Outfitters, Inc. AEO and Ascena Retail Group Inc. ASNA. All these stocks sport a Zacks Rank #1 (Strong Buy).
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