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3 Reasons Why Fossil (FOSL) Looks Appealing at This Time

Zacks Equity Research

It’s time to take a look at Fossil Group, Inc. FOSL, which is well placed on the back of robust initiatives such as focus on wearables, e-commerce expansion and the New World Fossil (“NWF”) plan, among others. These factors have spurred investors’ confidence in this Zacks Rank #2 (Buy) stock that has gained 21.5% in the past three months against the industry’s decline of 20.4%.

Let’s delve deeper into the factors that are likely to continue driving Fossil’s impressive show.


NWF Plan on Track

Fossil is on track with its NWF plan that aims to fuel efficiency, improve margins, better manage revenues, and enhance and transform the overall operating structure of the business to drive profitability. The company intends to achieve these targets while simultaneously enriching customers’ experience amid a difficult retail landscape.

As part of the NWF 1.0 transformation plan, Fossil is prioritizing consumer market and channel opportunities, revenue optimization, expanding gross margin and productivity savings. Notably, the NWF plan helped the company 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 help enhance efficiency across the company.

Strength in Wearables

As the wearables business is expected to grow $32 billion by 2020, Fossil’s efforts to expand in this space bode well. Notably, the company is getting the advantage of Android’s popularity and Google’s technology in its watches. Fossil recently launched hybrid and smartwatches across several brands. Additionally, partnerships with Qualcomm and Google, and the addition of new brands to its smartwatch line-up are likely to enrich Fossil’s wearables portfolio. Well, the wearables market provides the company with 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. Notably, connected watch sales constituted 21% of Fossil’s total watch sales in the second quarter of 2019.

E-commerce Development & Licensing Agreements

Fossil is keen on expanding its digital platform and meeting consumers’ growing demand for online purchasing. To this end, the company has been making several investments to improve digital marketing and drive online sales both for the company’s website and other online wholesale partners. 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 bolster online sales.

This apart, Fossil has signed various licensing agreements with several brands to further 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, and explore other opportunities in the accessories category.

Clearly, such upsides are likely to help Fossil sustain its solid momentum.

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