Fossil, Inc. (FOSL): Are You Ready To Own This Shining Company?

Expensive watches are a fashion statement and a great accessory for anyone. However, who can actually think of spending too much on such a luxury item when consumers, especially the lower income group, have become calculative about each penny spent. Tough times for luxury retailers were very much evident in the recent results of some of the industry players such as Coach, Inc. (NYSE:COH) and Tiffany & Co. (NYSE:TIF), who are finding it difficult to ward off the pressure of low demand for their high end products.

In spite of various efforts made, such as new product launches and expansion into new markets, Coach’s recent quarter fell flat mainly because of a weak holiday season and customers’ budget consciousness. Economic weakness has led to poor returns to Coach’s investors. Even Tiffany did not experience much growth in the recent holiday season. In spite of more number of stores, revenue growth was below expectations. Due to unwillingness of customers to buy expensive jewelry Tiffany witnessed decline in same store sales growth.

However, Fossil, Inc. (NASDAQ:FOSL) stands out as an amazing exception to this trend. The luxury watch maker posted a rocking quarter which had the Street ticking, providing hope to investors about the long-term.

Performance it is…

Fossil’s revenue surged 14% to $948 million and adjusted earnings jumped a whopping 21% to $2.27 per share. All thanks to the retailer’s broad range of premium quality watches which are loved by the customers. Also, continuous growth and expansion of the company such as addition of new stores each quarter led to increased revenue over last year. All this coupled with mind blowing cost management initiatives helped the bottom line grow.

Key Energy Boosters…

Key driver of the watch maker’s performance was the buyout of Skagen. The acquisition benefitted the company in all the regions, especially in Europe. Europe’s revenue, which constitutes one-third of Fossil’s universe, grew 7.6% which is in sharp contrast to previous quarter’s decline in sales from the region. This highlights the importance of Fossil’s efforts and the Skagen’s contribution to the same.

Michael Kors Holdings Ltd (NYSE:KORS), a branded apparel and accessory retailer, has played a crucial role in Fossil’s success. Michael Kors, since its IPO in December 2011, has been rocking the Street with exemplary performance. Kors’ amazing products are loved by people and watches are no exception. Since Fossil makes watches for Kors, the former has been able to garner huge benefits. This advantage is definitely unique to Fossil since its competitors such as Coach and Tiffany doesn’t have such arrangements with a growing company like Kors.

The star performing segments during the quarter were direct to customer segment and the jewelry segment which performed extremely well. Strategic efforts for both the e-commerce sales and the jewelry sales paid off since it performed extremely well. Moreover, new stores opened and repositioning of the jewelry segment worked well for the watch maker.