Tuesday, June 23, 2015

Analysis of Fossil

Fossil, an American retailer with main focus on watches

Company: Fossil

ISIN US34988V1061 | WKN A1W0DE

Business: An American retailer. They have three legs to stand on: Watches (around 75% of their revenue), Leathers (around 13%) and finally Jewellery (around 9% of their revenue). The are selling besides from the Fossil brand also Skagen, Diesel, Karl Lagerfeld, Michael Kors, Burberry etc.

Active: World wide with current main focus in North America, Europe and Asia.

P/E: 10.1

This company was analysed due to a request from Falk as posted on the Analysis Requests page. 

contrarian values of P/E, P/B, ROE as well as dividend for Fossil

The P/E is excellent with 10.1 but the P/B is a bit too high which then gives a no go from Graham. The earnings to sales looks very good with 11% and the ROE is excellent with 38%! The book to debt ratio is at 0.8 which is ok.
In the last five years they have had an insane yearly growth rate of almost 12% which gives us a motivated P/E of 26 to 31 which means that Fossil is today highly undervalued by the market.
They pay no dividends but they run large share buy back programs.

Conclusion: Graham says no to Fossil and I say yes. I once bought a Fossil watch that I was visually happy with but in the end I became very upset and decided never to buy the brand Fossil again. Their Q1 2015 was not so good though which I guess is part of the reason for the share price drop (they only have half earnings compared to Q1 2014). They claimed that the low earnings is due to the strong dollar. Anyway... the P/E is great, the ROE is great and they buy back shares. I could invest in Fossil at the moment but would then also have to expect a couple of more difficult quarters.

If this analysis is outdated then you can request a new one.


Anonymous said...

Watches in the future? When everyone is looking at their smartphone every other minute...


Fredrik von Oberhausen said...

Hi H!

On twitter I received comments saying that Fossil would be eaten up by the Apple watch which would, if everyone bought that, probably stop people from looking on the smartphone so often.

Tomorrow I think I will take a serious look on peoples wrists and make statistics of it. Are they wearing a watch or not?

Since Falk asked for the analysis based on that he already owns the company it would be great to hear what he has to say?

Falk said...

The market believes that Apple will steal a lot of revenue from Fossil and other watch makers. But nobody knows exactly what will happen. Everybody is fearful, so perhaps the perfect time to buy.

From my point of view there are two kinds of watch demand, natural demand and stimulated demand. The tech aficionado without a watch will of course buy an apple watch because apple makes cool products (stimulated demand). Somebody who already owns some nice self winding watches won't (natural demand). And somebody who is a fashion addict will buy only the new Diesel or Michael Kors watch (also natural demand).

Of course there will be some shifts, and Apple will get a lot share of the relative small smart watch market. But Fossil will still sell their watches in the future. I also like the the current share buybacks and that the CEO works for free (no salary) and is a main shareholder. If you are interested in the potential upside at the current price level, you will find a interesting article at Seeking Alpha: http://seekingalpha.com/article/2988346-even-with-apple-watch-release-forthcoming-we-see-bright-future-for-fossil


Fredrik von Oberhausen said...

Thank you for the reply Falk! I fully agree with you that no ones knows what will happen and I have been "fighting" on twitter with people imagining that the iWatch will be the only wallet people will wear which is bullshit since when it comes down to it that will be run over the iPhone/Smartphone that have connection to internet and not only a little bluetooth to enhance battery time.

Apple will push the health thing and that people that want to monitor their health continuously will then also be forced to wear it all the time... ideally also when sleeping which would mean that there should/would never be any time to re-charge it. I could bet my two cents that health monitoring is equally important during sleeping as when people are awake. This would then also mean that the health supervision will then only be superficial since the darn things needs to be charged.

For me, health would therefore not be large enough to convince me to wear the thing every day and when it comes down to every other day wearing then other watches will also be used that will fit to the outfit.

I must admit that I failed to do what I said and I have not looked at the amount of people wearing watches. I will directly take a little walk to analyse this.

Fredrik von Oberhausen said...

I found that 60% were wearing watches. I asked each and everyone if they had watches and everyone did. The major reason for not wearing a watch, here, was work related.

The age of the people asked were 24-29 years and all having an income.

Several admitted to matching the watch with their outfit.

Falk said...

Thanks for the quick market survey, Fredrik :)

Anonymous said...

This was great feedback. Thanks guys!