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4 Reasons Why You Should Buy Fossil (FOSL) Post Q1 Results

Zacks

Fossil Group, Inc. FOSL has seen its shares surge as much as 13.4% since it reported better-than-expected first-quarter 2018 results. Well, this has helped this Zacks Rank #2 (Buy) stock more than double in a span of six months, crushing the industry’s 13% growth. On that note, let’s take a sneak peek into Fossil’s results, along with the other factors that have been driving this renowned watch brand.




Better-Than-Expected Q1 Results

In first-quarter 2018, Fossil’s top and bottom line came ahead of the Zacks Consensus Estimate for the third straight time, and comparable store sales (comps) also increased year over year. Results gained from strength in the company’s connected watch sales and solid performance in Asia. Further, focus on the company’s New World Fossil initiative was a key driver. Backed by these factors, net sales of $569 million surpassed the Zacks Consensus Estimate of $539 million. Though Fossil reported a loss of 99 cents per share, it was narrower than the Zacks Consensus Estimate of a loss of $1.05 as well as the year-ago period loss of $1.00 per share.

Fossil Group, Inc. Price and Consensus


Fossil Group, Inc. Price and Consensus | Fossil Group, Inc. Quote

Strength in Wearables: A Major Driver

Fossil’s connected watch almost doubled year over year in the first quarter of 2018. Also, wearables represented roughly 20% of the company’s total watch sales in the quarter, marking a steady improvement from 8% in the year-ago period. This, along with solid marketing efforts and initiatives to enhance store experience helped Fossil brand sales grow 4% in the quarter. Strength in wearables also drove online sales, ultimately leading to a 5% rise in the company’s global retail comps.

As the wearable business is expected to grow by $32 billion by 2020, Fossil Group remains geared up to enrich its wearables portfolio by adding new brands to its smartwatch line-up in 2018. To this end, the company plans to launch three new smartwatch formats in 2018 (across both owned and licensed brands). Well, the wearables market provides Fossil the opportunity to combine fashion and technology and come up with exciting products to cater to consumers evolving needs of tech-enabled advanced connected gears.

New World Fossil Plan Reaps Results

The company is on track with its New World Fossil plan which helped it cut operating costs and drive gross margin in the first quarter. Well, Fossil initiated a restructuring program called New World Fossil in 2016. The program aims to transform the company, fuel efficiencies, improve margins and enhance the overall operating structure of the business to drive profitability. Fossil Group intends to achieve these targets while simultaneously enriching customers’ experience amid a difficult retail landscape. On the back of this initiative, along with other strategic plans, the company expects to achieve gross profit improvement of $200 million by the end of 2019. Also, it targets witnessing double-digit operating margin over the long term.

Digital Endeavors Bode Well

Fossil remains keen on expanding its digital platform and meet consumers growing demand for online purchasing. In this regard, the company has been making several investments to improve digital marketing and drive online sales, both for the company’s website as well as other online wholesale partners. In fact, such dedicated endeavors in the e-commerce space bore favorable results during the first quarter of 2018. E-commerce sales during the period soared close to 50%, buoyed by growth in Europe, the United States and Asia. The e-commerce platform has also served as an important sales channel for wearables. Further, management is optimistic regarding the company’s expansion plans in the smartwatch and other digital offerings category and expects such moves to further bolster online sales.

Management believes that such efforts, along with constant focus on innovations in the traditional watch space places the company well for growth and stability in future.

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