FOSL Stock Forecast: Fossil Group Crushes 2018 Expectations As They Progressed Into The Digital Age

 

This article was written by Grant Goldstein, a Financial Analyst at I Know First

 

 

“Wearables will become the world’s best-selling consumer electronics product after smartphones”

– CNBC

(Source: Flickr)

Highlights:

  • Q1 Earnings Beat Expectations for the Fourth Straight Quarter
  • New World Fossil Initiative Widens Profits and Strengthens Companies Future
  • Wearable Technology has Unlimited Potential

Fossil Group, Inc. is a design, manufacturing, and distribution company headquartered in Richardson, Texas. With over 10,000 employees, Fossil’s main focus is embedded in affluent lifestyle accessories such as watches, jewelry, and handbags for all genders. Their most popular brands include Fossil, Adidas, Kate Spade, Michael Kors, Burberry, and Armani.

Fossil Group Q1 2018 Result Analysis

Since releasing their Q1 2018 report on March 31, FOSL has seen an increase in stock price of 123.62%. During this period, the S&P 500 Apparel Index only rose by 12.52%. The WEAR ETF, which monitors companies in the wearable tech business, has increased by 18.12% since March 31st. The overall increase in stocks with wearable technology project that the industry is currently doing well and has a strong future ahead. FOSL closed at $12.7 on March 31st as investors were wary if FOSL would perform at the same fierce level as the past three quarters. By June 8th, FOSL rose to $28.4 a share as the stock outperformed expectations once again.

Furthermore, the stocks volume jumped from 1.16 million the day before earnings to 3.15 million on April 1. On May 8th, volume hit 7.45 million. Fossil’s increasingly higher volume indicates stability in the stock’s value, showing promise in the company. Investors are confident in the future of the fashion giant as they look to become more technologically based.

(Source: Yahoo Finance)

In mid-February, the price crossover of the stock price and the 200 day moving average (MA) showed a bullish breakout for FOSL. Since then, FOSL stock price has been higher than both the 50 day short term MA and 200 day long term MA, making it an excellent buy. The last indication that the stock is bullish comes from the short term MA being above the long term since February 22nd, showing a continuous expected uptrend.

(Source: Yahoo Finance)

Although there was a decrease of net sales from  last Q4’s sales of $920 million to $569 million in Q1 of 2018, Fossil beat expectations by Zacks Consensus Estimate by $30 million. Fossil also positively beat Zacks expectations for loss per share by $.06. This is the fourth quarter in a row in which Fossil has outperformed expectations set by Zacks Consensus. Since Q1 reportings, Fossil has had a return of 123.62% as expectations have been high. On a constant currency basis, Fossil smartwatches have grown by 97% in 2018 thus far with an increase of nearly 50% in ecommerce sales. By 2019, Yahoo Financial Analysts expect Fossil’s EPS to hit $.37, an increase of $1.01. Revenue is also expecting to hit $2.57 billion, a decrease of more than 200 million. This is due to the fact that Fossil is decreasing their size, which generates less revenue, but increases their profit margins. The decrease in revenue will create an even bigger decrease in expenses, helping the company’s growth. This is shown in FOSL quarterly year over year growth, which is steadily increasing.

(Source: YCharts)

Transformation Through New World Fossil

Fossil plans to restructure its company completely to survive in the digital age. Through the so called New World Fossil initiative, Fossil is actively trying to narrow its market and cut off dead weight by focusing heavily on the wearable sector. Although it isdiminishing its size, the company is willing to cut cost to become more profitable. They are now more focused on online sales instead of the traditional face-to-face sales. According to CPC Strategy, 67% of millennials, Fossil Group’s target audience, shop online. This demonstrates that moving to e-commerce is the right business move if the company wishes to survive in this digital era. E-commerce allows for better profit margins and greater efficiency as the high expense of operating brick and mortar stores decreases. Fossil wearables are expected to grow this year as their e-commerce strengthens, marking New World Fossil successful. In fact, once the initiative is fully complete, the profit margin will increase significantly and the company will be operating more efficiently, appeasing stockholders.

(Fossil Group Historical Profit Margin. Source: YCharts)

Wearable Technology Offers Huge Promise

Investors are ecstatic about the wearable sector of Fossil and are satisfied with the company’s strong focus on it. According to CCS Insight, wearable tech will increase by $34 billion by 2020. This price expectation is backed by the many uses of wearable tech, including health monetization, police use, and tracking devices. Thus, Fossil has released 14 new hybrid and smartwatches to get a hold on the market. Fossil’s hybrid watches provide an interesting take on what a watch truly is. Although they look professional and like a traditional watch, hybrid watches provide connectivity to smartphones and enables notifications through the watch hands via Bluetooth. Fossil’s EVP stated that “Our products are meant to be useful and well-designed, serving a purpose in people’s lives.” This is the vision that sets Fossil apart from its competitors; Fossil is making watches that are not only smart, but are stylish and not flashy. Fossil Group’s hybrid watches also offer huge advantages by being more than 50% cheaper than their biggest competitors.

(Fossil Hybrid Watch. Source: Flickr)

Since 2015, Fossil Group has partnered with Google to continue to help make smart watches both stylish and productive. In addition to the five brands that already run this Google powered watch, Fossil will be coming out with new brands all backed by this software. Powered by Android 2.0, these watches are compatible with not only Android Devices, but also iOS devices. Such accommodation offers a wide market to almost all smartphone users who have various styles and Fossil Group brands to choose from.

(Source: Flickr)

Furthermore, Fossil has made various licensing deals which investors believe will be profitable for the company. Recently, they signed a global licensing deal with Michael Kors and Emporio Armani, allowing for the expanse of their watches and jewelries. These two brands are in the market of high income men and women, so it is a different market than what current Fossil watches operate in and provide the opportunity to expand into the luxury watch market.

Currently I Know First Algorithm Has Bullish Long Forecast for FOSL

The current I Know First algorithm shows a bullish 1-month, 3-month, and 1-year forecast for Fossil Group. The model demonstrates that the short term predictability is stronger than the long term, but the stock’s signal is much stronger in the long term.

Conclusion

I believe that FOSL is a worthy investment. Fossil Group has excellent business strategies which will exponentially strengthen the company’s operations. For starters, their New World Fossil initiative will make them more profitable, satisfying investors. Also, being in the growing wearable technology business, Fossil will be one of the leaders of this industry, neck and neck with Apple. Fortunately for Fossil Group, Apple Watches are only compatible with Apple devices and their prices start at $150 more than Fossil smartwatches. The partnership with Google gives Fossil a competitive advantage due to the global trust in the company and it’s vast compatibility in the smartphone market. Finally, Fossil catches a niche market with their hybrid watches, something many of their competitors do not do. All in all, with a cheap price for smartwatches and it’s thriving market, I believe that Fossil will increase its profit margin in the foreseeable future, especially as they ramp up their e-commerce, which will drive stock price. I Know First algorithmic FOSL forecast as well as my technical analysis fall in line with my conclusions.

 

Past I Know First Success For FOSL

On May 9th, 2018, I Know First gave a bullish 1 month forecast for FOSL with a signal of 53.13 and predictability of 0.1. In accordance with the prediction, the stock increased by 72.75% over this time period.  

This bullish prediction was sent to I Know First Subscribers on May 9th, 2018

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