Fossil Inc (FOSL), PVH Corp (PVH), Ralph Lauren Corp (RL): Watch Out for This Growth Story

Concerns

Fossil Inc (NASDAQ:FOSL) is poised for growth but I would like to point to two main concerns – Europe and its margins.

The biggest concern is its low sales in Europe. As mentioned above Skagen has helped its European business to grow in the latest quarter, but it is also important to note that Skagen generated $19.2 million of the total sales. That means, without Skagen, Fossil is still experiencing a tough time in Europe.

The company posted a startling 21.6% operating margin in 4Q12, which the company itself does not expect to continue. The company has guided for the operating margin to fall to 16.5% to 17% for FY13. Given that Fossil derives the majority of its revenue from watches, it should be able to post much higher margins versus its peers Ralph Lauren and PVH Corp (NYSE:PVH) (15% and 10%, respectively).

However, I do not consider the above to be of a serious nature, because the company is taking necessary steps to mitigate them.

Competitors

As mentioned above, Fossil Inc (NASDAQ:FOSL)’s key competitors include PVH Corp (NYSE:PVH) and Ralph Lauren Corp (NYSE:RL). The difference between these companies is their pricing. While Fossil sells watches as low as $95, PVH Corp (NYSE:PVH) and Ralph Lauren Corp (NYSE:RL) sell at $200.

Ralph Lauren faced a tough patch in 2012 due to weak sales in Europe and its decision to phase out stores and boutiques operated by local partners in China, replacing them with company-run shops. It has forecasted for strong growth in the coming year based on strong demand in America and Europe as well as its e-commerce business.

PVH more than doubled its net profit in 4Q12 due to strong growth in its brands Calvin Klein and Tommy Hilfiger. It expects continued momentum in these brands with guidance in line with analyst expectations. However, it also mentioned that its recent purchase of Warnaco, which makes Calvin Klein jeans and underwear, would hurt EPS by $0.25 cents, rather than $0.35 boost it had previously expected.

Conclusion

In comparison with its peers, Fossil Inc (NASDAQ:FOSL) is a less expensive stock with a PE of 16 and has been able to post strong results in the past. It is a good industry player and its future expansion plans coupled with its strong past performance and cost management, definitely makes it a lucrative investment.

The article Watch Out for This Growth Story originally appeared on Fool.com and is written by Sujata Dutta.

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