Fossil Group Inc. FOSL has lately been working to ramp up its wearable technology portfolio. In line with this strategy, it recently completed the acquisition of Misfit, Inc. for $236.0 million. Misfit is a leader and innovator in technology and is known for manufacturing fashionable connected accessories.
The acquisition will provide Fossil Group the opportunity to integrate Misfit's software and hardware platforms in the next generation of connected accessories, thereby advancing Fossil Group's connected accessories initiative further. Misfit will bring an app platform, a world-class software and hardware engineering team, a native wearable technology brand and a pipeline of innovative products to the Fossil Group. As a result, consumers will get both traditional timepieces and fashionable connected accessories.
Fossil offers its customers innovative and unique products to keep pace with emerging lifestyle and fashion trends. The brand is recognized on a global basis as a vintage-inspired aspirational lifestyle brand with a focus on fashion accessories. It originated as a watch brand and later encompassed other accessory categories, including handbags, belts, small leather goods, jewelry, soft accessories, sunglasses and clothing.
Of late, Fossil has teamed up with technology giants like Alphabet Inc. GOOGL and Intel Corp. INTC that are betting high on the potential of wearable technology. In Mar 2014, Fossil partnered with Google and announced the extension of the Android operating system into wearable technology with a new operating system called Android Wear. With chipmaker Intel., Fossil will develop next-generation fashionable products for the wearables market.
Fossil will benefit from Android’s popularity and Google’s technology in its watches. Fossil makes many watches for designer brands in addition to its own. Therefore, there’s a good chance that many designer watch brands will ask Fossil to make wearable tech under their names as well. Fossil also makes apparel and other wearables that might get smart technology later, including jewelry and handbags. This partnership will also allow Fossil to bring smartwatches to its customers, shaping the fusion of fashion and technology. Android-based value watches in the emerging markets will also be a boon for the company as about half of Fossil’s revenues come from overseas.
However, the company has been witnessing soft sales over the past few quarters due to a decline in its multi-brand licensed watch portfolio. The company also expects several challenges in the near term, which would hamper the company’s operations. Fossil expects increased competition with new entrants in the market. Also, volatility in sales pattern is expected as consumer preferences evolve around the globe.
Moreover, traditional watchmakers like Swatch and LVMH's Tag Heuer have also started to develop their own smartwatches with rising demand for smartwatches. In such a scenario, Fossil’s connected wearables and smartwatches could face tough competition ahead to attract consumer interest. Consequently, Fossil has lowered its guidance for sales and earnings in fiscal 2015.
Fossil carries a Zacks Rank #5 (Strong Sell).
A better-ranked diversified retail wholesaler is American Eagle Outfitters, Inc. AEO with a Zacks Rank #1 (Strong Buy).
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