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Once upon a time, the NY Giants went to the Super Bowl with a coach named Jim Fassel.
Well the Giants lost the Super Bowl and not long after that Fassel became a fossil.
Not that fossils are so bad…if it weren’t for fossils, we wouldn’t have any oil.
That’s right…drill baby drill. Now then, fossils don’t have to be so controversial. In fact if you ask the typical American teenage girl what a fossil is, she’ll tell you it’s a watch.
Yep. No lie.
For this reason on Friday I bought shares in Fossil, Inc. (FOSL) at 93.59. I will sell it in 4 to 6 weeks at 107.82. Here’s why I like FOSL:
Yea…look at that chart.. you gotta like that chart. People are buying up those watches. Here are some real online reviews on FOSSIL watches:
“I couldn't love it more. I saw a similar watch when I was traveling to Seattle a while back. I had to have a white watch. I purchased this one about three months ago and I wear it daily. I love it and I get tons of compliments on it. It's so easy to put on and take off. You will love it too.”
“I bought this to match my all white nursing uniforms for school...I wear it all the time though. I have had sooo many compliments on it since I bought it. The watch is very sturdy too, I've worn it everyday for the past year now and it still looks like it did the day I bought it.”
“Read the reviews and decided to try it. It's so pretty so many compliments. Nice and big but not too big... the diamond accents make it sparkle. I wanted the Marc Jacobs but this was much more affordable & just as nice
Try it you’ll love it!”
They don’t just make watches. They make a lot of junk.
Fossil, Inc. designs, develops, markets, and distributes fashion accessories worldwide. It offers a line of fashion watches under its proprietary brands, such as FOSSIL, MICHELE, RELIC, and ZODIAC; and through licensed brands, including ADIDAS, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, MARC BY MARC JACOBS, and MICHAEL KORS. The company designs, markets, and arranges for the manufacture of watches and accessories on behalf of certain mass market retailers, companies, and organizations as private label products or as premium and incentive items for use in various corporate events. It also provides various fashion accessories for men and women, including handbags, belts, small leather goods, jewelry, and sunglasses through company owned retail stores, department stores, and specialty retail stores, as well as over the Internet and through catalogs. In addition, the company sells a line of soft accessories, such as hats, gloves, and scarves, as well as a handbag collection. Further, it offers apparel comprising jeans, outerwear, fashion tops and bottoms, and tee shirts for men and women through company-owned stores, as well as over the Internet and through catalogs. Additionally, the company provides footwear products, including sport court sneakers, authentic casuals, dress classics, and boots for men, as well as fashionable flats, heels, wedges, and boots for women. Fossil, Inc., through a license agreement with the Safilo Group, manufactures, markets, and sells optical frames under the FOSSIL and RELIC brand names in the United States and Canada. FOSL ended 2010 with 364 stores, including 230 full-price accessory stores, 138 of which were in international markets, 93 outlet locations, including 23 outside the U.S., 31 apparel stores, and 10 multi-brand stores.
Remember the SWATCH watches? Swatches enjoyed their peak popularity during the mid-1980s. Such '80s fads included wearing two Swatches and using a Swatch as a ponytail band. Some models, like Pop Swatch, allowed wearers to attach Swatches directly to clothing. Many fashion gurus think that watch popularity works in 5 year cycles and that we are just now in the beginning of this 5 year cycle. Back then, SWATCH rode that wave. This time it has to be FOSL.
FOSL seems to have hit the sweet spot with consumers, and they are coming out with Heinz 57 different varieties of these things and some people are buying a different FOSSIL watch every week. Insane! People don’t buy these things to tell time. They are a fashion statement. Consumers own multiple watches that differ in terms of style, features, and cost. FOSL attempts to differentiate its products from those of its competitors mainly by incorporating design innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for watches, and details and treatments in other accessories. Not that I could ever tell the difference in any of this crap. I have had the same Timex $29 stopwatch for 10 years.
Fossil's sales have climbed by double digits in four of the past five quarters and a lot of the newest buyers are coming from, where else, China. Well, if they are buying up all of our T-Bills, they might as well buy our watches too. Seriously, China’s middle class is going to grow by about 100 million people per year, and they all will want to look good. The proof is in the pudding, sales growth ranged from 31% to 37% during the past three quarters.
FOSL is going to continue to grow its watch and accessories businesses in the wholesale channel through door expansion and new product offerings globally and incremental growth in the company's direct-to-consumer business with its planned opening of about 80 new retail units in 2011. The multi-brand strategy and all of their different products will be sold throughout the world. It’s hard to imagine any of this slowing down soon. For example, FOSL recently had 44% rise in North American wholesale shipments in the December quarter.
FOSL competes in four segments of the U.S. watch market: fine watches priced from $1,500 to over $20,000, with a portion of its proprietary Michele line; premium branded and designer watches priced from $150 to $1,500, with its proprietary Michele and Zodiac brands and licensed Burberry, Emporio Armani, Michael Kors and Marc Jacobs lines; contemporary fashion watches priced from $40 to $150, with its proprietary Fossil and Relic brands and licensed adidas, DKNY, Diesel and Michael Kors lines; and mass market watches priced from $5 to $60, with its private label lines forWal-Mart and Target. Think they got the watch market covered???
How does this translate to earnings? In their most recent quarterly results:
Fiscal Year Results (2010 vs 2009):
First of all, when you have a company that’s growing earnings almost 40% that has a PE of only 24, you know there is room for PE expansion. It’s just a magnet for institutional money. That’s what they do…see a low PEG and money gets sucked to it like a black hole. Combine that with the margin expansion touted by management and that adds a multiplier to the PE expansion.
•For the full year, ANAL-ysts see earnings rising 23% in 2011 and 17% in 2012%. In the five years through 2010, FOSL's net sales increased at a compound annual growth rate (CAGR) of 14.3%, while operating margins expanded to 18.5% from 10.4%. In 2010, FOSL generated a 22.9% ROIC and a 28.2% ROE. So why do ANAL-ysts see earnings momentum slowing down to only $4.37/share in 2011? They are on crack. That’s why.
As I indicated earlier, international sales will become a bigger part of the overall revenue mix going forward and FOSL will easily grow its net income by 50%. $$$MR. MARKET$$$ sees 2011 revenues of $2.5 billion which will generate earnings of $5.07 per share. If you take the existing PE of 24 (this is conservative because PE is expected to expand) and multiply it by $5.07, you get a share price of 24 x $5.07 = $121.68.
That’s well past my sell target which means FOSL will be another $$$MR. MARKET$$$ winner. But don’t trust me, here’s what the Watchman has to say:
"The Fourth Quarter represented a strong finish to an outstanding year," commented Mike Kovar, Executive Vice President and Chief Financial Officer of Fossil, Inc. "Record sales and earnings and broad based growth across all geographies underscores the significant strength of our business model and our ongoing ability to lead the market with innovative materials and designs. As equally exciting is the continued growth of our core brand evidenced by sales increases across all FOSSIL branded products of 24.4%, inclusive of a 20.3% increase in worldwide comparable store sales and a 56.5% increase in our global e-commerce sales."
"All in, it was an incredible year that included several milestone achievements," Mr. Kovar continued. "We surpassed the $2 billion mark in net sales for the year and achieved an operating margin of 18.5%, surpassing our stated long-term target of 17%. For most of fiscal 2010 we remained conservative in the area of expense growth and combined with the significant increase in sales, we were able generate a 480 basis point improvement in operating margin. As we begin fiscal 2011, our primary initiatives are to accelerate our direct-to-consumer channel expansion and grow our international watch businesses, with a major focus on Asia. Our plans include opening 80 to 85 stores worldwide, expanding our e-commerce initiative, increasing our global concession footprint and rolling out our Customer Relationship Management program. These strategic investments will not only benefit sales growth during 2011 but also provide us an opportunity to increase our targeted operated margins over the long-term."
Let history be your guide. SWATCH is now a fossil but we learn from digging up fossils and $$$MR. MARKET$$$ is digging FOSL.
I am HUGE!!
Bring me your finest meats and cheeses!!
www.mrmarketishuge.com
Well the Giants lost the Super Bowl and not long after that Fassel became a fossil.
Not that fossils are so bad…if it weren’t for fossils, we wouldn’t have any oil.
That’s right…drill baby drill. Now then, fossils don’t have to be so controversial. In fact if you ask the typical American teenage girl what a fossil is, she’ll tell you it’s a watch.
Yep. No lie.
For this reason on Friday I bought shares in Fossil, Inc. (FOSL) at 93.59. I will sell it in 4 to 6 weeks at 107.82. Here’s why I like FOSL:
Yea…look at that chart.. you gotta like that chart. People are buying up those watches. Here are some real online reviews on FOSSIL watches:
“I couldn't love it more. I saw a similar watch when I was traveling to Seattle a while back. I had to have a white watch. I purchased this one about three months ago and I wear it daily. I love it and I get tons of compliments on it. It's so easy to put on and take off. You will love it too.”
“I bought this to match my all white nursing uniforms for school...I wear it all the time though. I have had sooo many compliments on it since I bought it. The watch is very sturdy too, I've worn it everyday for the past year now and it still looks like it did the day I bought it.”
“Read the reviews and decided to try it. It's so pretty so many compliments. Nice and big but not too big... the diamond accents make it sparkle. I wanted the Marc Jacobs but this was much more affordable & just as nice
Try it you’ll love it!”They don’t just make watches. They make a lot of junk.
Fossil, Inc. designs, develops, markets, and distributes fashion accessories worldwide. It offers a line of fashion watches under its proprietary brands, such as FOSSIL, MICHELE, RELIC, and ZODIAC; and through licensed brands, including ADIDAS, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, MARC BY MARC JACOBS, and MICHAEL KORS. The company designs, markets, and arranges for the manufacture of watches and accessories on behalf of certain mass market retailers, companies, and organizations as private label products or as premium and incentive items for use in various corporate events. It also provides various fashion accessories for men and women, including handbags, belts, small leather goods, jewelry, and sunglasses through company owned retail stores, department stores, and specialty retail stores, as well as over the Internet and through catalogs. In addition, the company sells a line of soft accessories, such as hats, gloves, and scarves, as well as a handbag collection. Further, it offers apparel comprising jeans, outerwear, fashion tops and bottoms, and tee shirts for men and women through company-owned stores, as well as over the Internet and through catalogs. Additionally, the company provides footwear products, including sport court sneakers, authentic casuals, dress classics, and boots for men, as well as fashionable flats, heels, wedges, and boots for women. Fossil, Inc., through a license agreement with the Safilo Group, manufactures, markets, and sells optical frames under the FOSSIL and RELIC brand names in the United States and Canada. FOSL ended 2010 with 364 stores, including 230 full-price accessory stores, 138 of which were in international markets, 93 outlet locations, including 23 outside the U.S., 31 apparel stores, and 10 multi-brand stores.
Remember the SWATCH watches? Swatches enjoyed their peak popularity during the mid-1980s. Such '80s fads included wearing two Swatches and using a Swatch as a ponytail band. Some models, like Pop Swatch, allowed wearers to attach Swatches directly to clothing. Many fashion gurus think that watch popularity works in 5 year cycles and that we are just now in the beginning of this 5 year cycle. Back then, SWATCH rode that wave. This time it has to be FOSL.
FOSL seems to have hit the sweet spot with consumers, and they are coming out with Heinz 57 different varieties of these things and some people are buying a different FOSSIL watch every week. Insane! People don’t buy these things to tell time. They are a fashion statement. Consumers own multiple watches that differ in terms of style, features, and cost. FOSL attempts to differentiate its products from those of its competitors mainly by incorporating design innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for watches, and details and treatments in other accessories. Not that I could ever tell the difference in any of this crap. I have had the same Timex $29 stopwatch for 10 years.
Fossil's sales have climbed by double digits in four of the past five quarters and a lot of the newest buyers are coming from, where else, China. Well, if they are buying up all of our T-Bills, they might as well buy our watches too. Seriously, China’s middle class is going to grow by about 100 million people per year, and they all will want to look good. The proof is in the pudding, sales growth ranged from 31% to 37% during the past three quarters.
FOSL is going to continue to grow its watch and accessories businesses in the wholesale channel through door expansion and new product offerings globally and incremental growth in the company's direct-to-consumer business with its planned opening of about 80 new retail units in 2011. The multi-brand strategy and all of their different products will be sold throughout the world. It’s hard to imagine any of this slowing down soon. For example, FOSL recently had 44% rise in North American wholesale shipments in the December quarter.
FOSL competes in four segments of the U.S. watch market: fine watches priced from $1,500 to over $20,000, with a portion of its proprietary Michele line; premium branded and designer watches priced from $150 to $1,500, with its proprietary Michele and Zodiac brands and licensed Burberry, Emporio Armani, Michael Kors and Marc Jacobs lines; contemporary fashion watches priced from $40 to $150, with its proprietary Fossil and Relic brands and licensed adidas, DKNY, Diesel and Michael Kors lines; and mass market watches priced from $5 to $60, with its private label lines forWal-Mart and Target. Think they got the watch market covered???
How does this translate to earnings? In their most recent quarterly results:
- Net sales increased 32.8% (34.8% in constant dollars) to $701.1 million compared to $527.8 million;
- Gross profit increased 34.5% to $400.1 million, or 57.1% of net sales, compared to $297.6 million, or 56.4% of net sales;
- Operating income increased 38.5% to $149.5 million, or 21.3% of net sales, compared to $108.0 million, or 20.5% of net sales;
- Net income increased 38.1% to $96.7 million compared to $70.0 million; and
- Diluted earnings per share increased 41.7% to $1.46 on 66.3 million shares compared to $1.03 per diluted share on 67.7 million shares.
Fiscal Year Results (2010 vs 2009):
- Net sales increased 31.2% (31.9% in constant dollars) to $2.03 billion compared to $1.55 billion;
- Gross profit increased 36.7% to $1.16 billion, or 56.9% of net sales, compared to $0.84 billion, or 54.6% of net sales;
- Operating income increased 77.9% to $376.4 million, or 18.5% of net sales, compared to $211.6 million, or 13.7% of net sales;
- Net income increased 83.4% to $255.2 million compared to $139.2 million; and
- Diluted earnings per share increased 82.1% to $3.77 on 67.7 million shares compared to $2.07 per diluted share on 67.2 million shares.
First of all, when you have a company that’s growing earnings almost 40% that has a PE of only 24, you know there is room for PE expansion. It’s just a magnet for institutional money. That’s what they do…see a low PEG and money gets sucked to it like a black hole. Combine that with the margin expansion touted by management and that adds a multiplier to the PE expansion.
•For the full year, ANAL-ysts see earnings rising 23% in 2011 and 17% in 2012%. In the five years through 2010, FOSL's net sales increased at a compound annual growth rate (CAGR) of 14.3%, while operating margins expanded to 18.5% from 10.4%. In 2010, FOSL generated a 22.9% ROIC and a 28.2% ROE. So why do ANAL-ysts see earnings momentum slowing down to only $4.37/share in 2011? They are on crack. That’s why.
As I indicated earlier, international sales will become a bigger part of the overall revenue mix going forward and FOSL will easily grow its net income by 50%. $$$MR. MARKET$$$ sees 2011 revenues of $2.5 billion which will generate earnings of $5.07 per share. If you take the existing PE of 24 (this is conservative because PE is expected to expand) and multiply it by $5.07, you get a share price of 24 x $5.07 = $121.68.
That’s well past my sell target which means FOSL will be another $$$MR. MARKET$$$ winner. But don’t trust me, here’s what the Watchman has to say:
"The Fourth Quarter represented a strong finish to an outstanding year," commented Mike Kovar, Executive Vice President and Chief Financial Officer of Fossil, Inc. "Record sales and earnings and broad based growth across all geographies underscores the significant strength of our business model and our ongoing ability to lead the market with innovative materials and designs. As equally exciting is the continued growth of our core brand evidenced by sales increases across all FOSSIL branded products of 24.4%, inclusive of a 20.3% increase in worldwide comparable store sales and a 56.5% increase in our global e-commerce sales."
"All in, it was an incredible year that included several milestone achievements," Mr. Kovar continued. "We surpassed the $2 billion mark in net sales for the year and achieved an operating margin of 18.5%, surpassing our stated long-term target of 17%. For most of fiscal 2010 we remained conservative in the area of expense growth and combined with the significant increase in sales, we were able generate a 480 basis point improvement in operating margin. As we begin fiscal 2011, our primary initiatives are to accelerate our direct-to-consumer channel expansion and grow our international watch businesses, with a major focus on Asia. Our plans include opening 80 to 85 stores worldwide, expanding our e-commerce initiative, increasing our global concession footprint and rolling out our Customer Relationship Management program. These strategic investments will not only benefit sales growth during 2011 but also provide us an opportunity to increase our targeted operated margins over the long-term."
Let history be your guide. SWATCH is now a fossil but we learn from digging up fossils and $$$MR. MARKET$$$ is digging FOSL.
I am HUGE!!
Bring me your finest meats and cheeses!!
www.mrmarketishuge.com
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