Author Topic: FOSL - Fossil Group Inc  (Read 38099 times)

orthopa

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FOSL - Fossil Group Inc
« on: April 09, 2015, 11:27:06 AM »
Did a search and didn't find any on this company yet.

This popped on a screen I was doing yesterday. Stock price seems to be beaten down due to greater likely
hood that the smart watch become the time piece of choice over traditional watches, specifically the i-watch. Just started to look into this over the past two days. Everyone is probably familiar with the Fossil watch brand. They do have some handbag merchandise an extensive licence brand portfolio of popular fashion watches.

PROs

1. Hated right now, looks like market thinks regular wrist watches will be extinct going forward

2. Cheap compared to historical multiples, 14.89 PE times this years projected earnings, 13 times next. Not super cheap but market is near all time highs.

3. 30%+ ROE, ROIC

4. 18% of shares held by insiders

5. Historically stingy management, CEO takes no cash compensation.

6. Agreement with Google for Android based smart watch technology.

7. Wholesale business expanding internationally.

8. ~15% of shares bought back last 3 years.

CONs

1. No real moat or competitive advantage but does have longish term agreements with Michael Kors, Kate Spade, Armani, Marc Jacobs, DKNY, Burberry.

2. Large portion of  business is fashion watches and fashion can be very fickle.

3. Very at risk if smart watch technology becomes norm going forward.

As I mentioned need to do more work on this and think about this more. At its simplest level looks like a reasonable play if you think the smart watch fear is overblown. This would be my thinking. Although traditional watch usage is less apparent with millennials I have a hard time believing that a large enough percentage of the population would want to carry both a phone/and or a watch at all times, or be inconvenienced with having to charge a smart phone constantly.  Not to mention from a fashion standpoint the i watch to many is undesirable. With FOSL expanding business overseas I think the penetration of a sub $200 fashion watch would be much higher then a $350-$11k smart watch.

I have started a small tracking position and will do more work on this one. Please feel free to add/correct anything.


KCLarkin

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Re: FOSL - Fossil Group Inc
« Reply #1 on: April 09, 2015, 11:51:28 AM »
Based on their historical performance, it is hard to believe they have no moat. There must be a hidden moat somewhere.

I tend to avoid retailers so I haven't looked at this in detail. It looks like analysts are expecting a 17% drop in earnings?

berkshire101

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Re: FOSL - Fossil Group Inc
« Reply #2 on: April 09, 2015, 12:47:18 PM »
Isn't FOSL like the Luxottica but for watches?  They make watches for several well known brands out there.  I would imagine their expertise, design and vertical integration in watches would lead to some competitive advantage.
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constructive

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Re: FOSL - Fossil Group Inc
« Reply #3 on: April 09, 2015, 01:11:28 PM »
Isn't FOSL like the Luxottica but for watches?  They make watches for several well known brands out there.  I would imagine their expertise, design and vertical integration in watches would lead to some competitive advantage.

The eyeglass market is very concentrated and Luxottica has a dominant market share. Watches are much more fragmented and Fossil is the #4 player, after Swatch, Rolex and Richemont. Probably soon to be #5 with Apple entering the market.

http://www.statisticbrain.com/wrist-watch-industry-statistics/

fisch777

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Re: FOSL - Fossil Group Inc
« Reply #4 on: April 09, 2015, 01:26:08 PM »
They are good operators, but I think the sub-premium watch space is pretty fashion-sensitive.  For a few years earlier this decade, FOSL was killing it with these white acrylic Michael Kors models for women, which they also "copied" into other brands they have licensed.  No idea if these are still selling.  I would argue there is little moat here - FOSL is really a fashion retailer more than a watch manufacturer. 

They do have a (limited) Swiss-made line since 2013. It looks like they get movements from STP, one of 3 mfgs of Swiss movements.  While the Swiss watch business has real barriers to entry, I question how much more consumers would be willing to pay for a Fossil brand watch with a Swiss movement.  It looks like they originally released some models priced $1000-1500, but now most models in the Swiss line are $500-700.  I probably just answered my own question.


KCLarkin

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Re: FOSL - Fossil Group Inc
« Reply #5 on: April 09, 2015, 01:43:02 PM »
I would argue there is little moat here - FOSL is really a fashion retailer more than a watch manufacturer.

Possibly but they have grown EPS at 20% CAGR over 20 years and they have 34% ROE. It's hard to believe they have just been riding a fashion wave for 20 years.

ItsAValueTrap

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Re: FOSL - Fossil Group Inc
« Reply #6 on: April 09, 2015, 02:07:19 PM »
I don't think luxury retailers have moats.  Look at how badly COH is doing under the new CEO.

I really, really like Fossil's CEO.  Very good at his job (high returns on equity, lots of growth) and he's honest- doesn't take any salary.

(*I am long.)
« Last Edit: April 09, 2015, 02:09:33 PM by ItsAValueTrap »
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constructive

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Re: FOSL - Fossil Group Inc
« Reply #7 on: April 09, 2015, 02:11:49 PM »
I would argue there is little moat here - FOSL is really a fashion retailer more than a watch manufacturer. 

You say that like fashion / retailing is bad and manufacturing is good in terms of moat. I think it is the opposite. Commodity manufacturers earn a return on their capital assets, which deteriorate over time. Branded manufacturers also earn a return on their intangible brand which grows stronger over time if they are executing effectively.

constructive

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Re: FOSL - Fossil Group Inc
« Reply #8 on: April 09, 2015, 02:14:56 PM »
I don't think luxury retailers have moats.  Look at how badly COH is doing under the new CEO.

Look at dozens of other luxury retailers. In general the luxury retail sector earns above average ROEs. Coach over its lifetime has been an awesome business. Now they have reached the part of their lifecycle where they are huge and maybe going into decline.

coc

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Re: FOSL - Fossil Group Inc
« Reply #9 on: April 09, 2015, 02:28:35 PM »
One note of context for some of you commenting on insider ownership. The company is run by Kotsa Karstosis, and used to be run by he and his brother Tom. Not long ago they together owned ~40% of the stock. Tom left and now runs (privately) Shinola watches. (Yes, that Shinola.) Tom no longer owns much stock and I believe Kotsa has sold some too, which brings it down under 20% now. So there is indeed a lot of management ownership, but it has also lessened over time and the story has changed a bit.