Fossil Group, Inc. FOSL has showcased a marvelous bull-run, with its shares having more than doubled in a year, against the industry’s slump of 16.5%. The company has been gaining from its robust endeavors to keep pace with consumers’ changing preferences and other initiatives to fuel growth. So, let’s delve deeper into the factors that are likely to continue driving this Zacks Rank #2 (Buy) stock.
Wearables — a Major Driver
Fossil is on track to expand its footing in the growing wearables business. Markedly, the introduction of wearable technology in watches has offered ample opportunities to Fossil to extend its reach of brands and offer customers new functionality with accessories, including activity trackers, hybrid watches and smartwatches. Notably, the company is incorporating Android and Google’s technology in its watches. Fossil recently launched approximately 14 new hybrid and smartwatches across several brands. Also, the company joined hands with Citizen Watch Company to boost growth in its hybrid smartwatch category. Driven by such efforts, the company’s connected watch jumped almost 30% year over year in the third quarter of 2018. Also, wearables represented roughly 18% of the company’s total watch sales in the quarter, marking a steady improvement from 13% in the year-ago period.
Effective Licensing Deals
Fossil has diversified into new accessory product categories within the existing brands to further leverage its branded portfolio. In this regard, Fossil has signed various licensing agreements with several brands. Recently, the company announced Puma and BMW as its new licensed watch brands. Further, with the renewal of Fossil’s global licensing agreement with Michael Kors and Emporio Armani through 2024, the companies are able to expand the extensive line of watches and jewelry, and explore other opportunities in the accessories category. The company also signed the global licensing agreement with Kate Spade & Company through 2025, and extended its global watch licensing agreement with Diesel. Further, it partnered with Ralph Lauren RL in 2015 to develop watches under the Chaps label, which will further enhance Fossil’s watch portfolio.
Solid E-Commerce Business
Fossil has been making several investments to improve digital marketing and drive online sales, both for the company’s website and other online wholesale partners. In fact, such dedicated endeavors in the e-commerce space drove results during the second quarter of 2018. E-commerce sales during the period rallied 15%, buoyed by 22% growth in Asia, 18% in the United States and 6% in Europe. 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 categories, and expects such moves to further bolster online sales.
Prospects From New World Fossil Plan
Fossil is on track with its New World Fossil Plan that aims to transform the company, fuel efficiencies, improve margins and enhance the overall operating structure of the business to drive profitability. Fossil intends to achieve these targets while simultaneously enriching customers’ experience amid a difficult retail landscape. The company has already initiated the second phase of the transformation plan. Fossil now focusses on prioritizing consumer market and channelizing opportunities, revenue optimization, delivering gross margin, and productivity savings. On the back of this initiative and other strategic plans, the company expects to achieve gross profit improvement of $200 million by the end of 2019. Also, Fossil targets witnessing double-digit rise in operating margin over the long term.
With such well-chalked strategic arrows in its quiver, Fossil is set to keep its stellar momentum going.
Looking for More? Check These Solid Picks
DSW Inc. DSW, with a Zacks Rank #1 (Strong Buy), has long-term earnings per share growth rate of 9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Abercrombie & Fitch ANF, with a Zacks Rank #2, has long-term earnings per share growth rate of 15.3%.
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