Why Fossil's fortunes are thriving

The watch and accessories maker appeals to both well-heeled and budget-conscious consumers. Its stock, though, is no bargain at the moment.

By Jonathan Berr Aug 7, 2013 9:40AM
Shares of watch and accessories maker Fossil (FOSL) soared nearly 18% Tuesday after the company posted quarterly earnings that beat its own very optimistic projections.

Net income at the Richardson, Texas, company rose to $67.7 million, or $1.15 per share, compared with $57.3 million, or 92 cents per share, a year earlier. Revenue surged 11% to $706 million, helped by gains in all regions across multiple product lines. The results handily beat Wall Street expectations of 93 cents per share of profit on revenue of $691.2 million.
The secret to Fossil’s success lies in the breadth of its product offerings. The company’s watches, which are sold under brands such as Fossil, Armani, Michael Kors and Marc Jacobs are priced at as little as $7 and as much as $2,000. Watch sales surged 15% in the quarter, and Fossil expects its sales growth in the category to outpace the industry's. Fossil's jewelry sales also leaped, by 24%.

Sales for the Fossil brand were robust, posting a 17% gain overall, lead by strong demand for watches. Small leather goods such as wallets performed well as did women’s handbags. Wholesale sales jumped by double-digits in both the Europe and Asia. They rose 4.2% in North America.

Fossil watch (© Dony Syahrastany/Alamy)The company also continues to benefit from last year’s $236.9 million acquisition of Skagen Designs. During the quarter, it launched a Skagen jewelry line, which will compliment its watch offerings. Fossil expects to further leverage the Skagen brand.

Fossil’s results were so good that Wall Street ignored the fact that Fossil's yearly profit guidance was below analyst forecasts because the company is ramping up advertising and marketing spending ahead of the holiday season. Fossil plans to open as many as 75 stores this year, mostly outside the U.S.

The report surely surprised Barclay’s analyst Matthew McClintock, who on Monday cut his rating on Fossil to "sell," a rarity on Wall Street, citing what he called deteriorating sales trends. That led to a one-day sell-off that reversed sharply on Tuesday.

Though some of its fashions are bargains, Fossil's stock isn't. It trades at a price-to-earnings multiple of 18.2, near a five-year high. And in Tuesday trading, the shares blew by the stock’s average 52-week price target of $114.73, closing at $126.50.

So, investors should wait for the shares to go "on sale" before adding them to their portfolios. Now isn't the right time to buy this watchmaker's stock.

Jonathan Berr is among the least fashionable people he knows. He doesn't own shares of the listed stocks. Follow him on Twitter @jdberr.
21Comments
Aug 7, 2013 10:34AM
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Hard to believe that luxury items are selling so well, but then again Yacht sales rose 5% each year through the worst of the economic crash. Clearly a certain class of citizen is not effected by economic down turns, just the little people as Leona Helmsely would say. 
Aug 7, 2013 10:15AM
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Gee I also thought they were talking oil and gas.  What TIME is it? 
Aug 7, 2013 5:58PM
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heheh, oh I'm sorry, I'm still laughing at 'stocks slide on stimulus worries' thing....how many times has that headline been posted????? 38 times already?? somethin' like that, well you can see why! stimulus ends, stock market ends, CUZ IT'S NOT REAL!!!! IN THE FIRST PLACE!! since the country is coming to and end financially speaking,

PEOPLE STILL OUT OF, AND HAVE STOPPED LOOKING FOR WORK!!!! that statement trumps the stupid 'stimulus worry' thing hands down. bottom line: liberalism is a mental disorder, its believers and whiny sycophants are by definition whackjob, mental cases, deranged lunatics, just look at them walkin' down the street, it's pathetic here in New York for example..

did you know serial killers are democraps? and liberals?, personally that doesn't suprise me at all!! fancy that! figures doesn't it, disgusting dirt bag libs with an agenda nobody wants to hear or know about, so they go nuts, classic study in stupidity and utter and shear insanity of the lefty obamazombie loonies, meanwhile what has their messiah done for THEM?? NOTHING, same as everyone else, and they just can't stand it!!! IT'S KILLIN' EM!! and instead of admitting they're wrong, they'll go down with the ship, hey, as long as they go down! cool!
Aug 7, 2013 12:04PM
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So how exactly does a stock go from the $35-40 range in 2007 when we had a bustling economy to $125 in a crap economy?  Just doesn't add up really.  Fossil is a mid range watch maker, not a high end name.
Aug 7, 2013 11:48AM
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You haven't heard of Fossil ? These have been around since the 80's. They're mostly fashion watches- Had a couple of cool looking ones back in my college day's, but they weren't that expensive. You'd pay around 50 bucks for a decent one- they'd last about 2-3 years then you'd go get another.

 

Now for all my casual wear- it's Swiss Army ! They're very durable and keep excellent time. The one I wear to surf is the military issue. But if I scuba dive or fish offshore, it's Omega all the way.

Aug 7, 2013 10:43AM
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What is a fossil? I guess I don't shop there.
Aug 7, 2013 1:09PM
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NW..S.fisher. It's called hype and the need to have, I guess.

 

I swear to God, A couple days ago an article on Fossil seem to relate to an Energy company, oil/gas driller or something...I guess I just don't keep up??

 

Kind of sounds like Lands End, American Eagle or Urban Outfitters; Places we don't shop much at except maybe for Christmas gifts or Gift Cards...

 

And as far as $127 dollar stock...??? At least I know what Wal-Mart, Target and McDonalds do.

Still not interested in FOSL. 

Aug 7, 2013 9:10PM
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No azz driver, it still looks gay....

 

Hardly a true Liberal...

 

 

And my guess, is you are facetious in many ways...Right? I thought so...

Aug 7, 2013 9:53AM
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Hmmm,  Thought they were an oil driller or fracker..
Aug 7, 2013 1:12PM
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SRT.....How does any of that RANT, have anything to do with Fossil.???

 

And I wish you would get rid of that GAY picture, it's un-nerving; But does excite Fatty Cakes.

Aug 7, 2013 11:26AM
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Fossil isn't a luxury brand or good. It the kind of stuff the hoi polli buys. You'll see it in places like Wal*Mart!

I consider most of their stuff garish.
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