Market Overview

Looking at Fossil

Fossil (Nasdaq: FOSL), one of the leading watchmakers, added another important event to its timeline. On January 9, 2012, it reported a purchase agreement with one of its competitors called Skagen Designs. Following this news, Fossil's share price jumped about 10% on Thursday.

Founded in 1984 by Tom Kartsotis, Fossil is a consumer goods company that started with manufacturing and designing watches and jewelry and gradually moved to other areas of the fashion industry. The company has its headquarters in Richardson, Texas and currently has 10,500 full time employees all around the globe.

Kosta Kartsotis is currently acting as the CEO and Chairman of the company. He happens to be the elder sibling of founder Tom and was a merchandising executive at Sanger-Harris before he joined Tom in his new venture. Kosta has been on the board since 1991 and has made valuable contributions to the company since then.

The company went public in 1993 under the leadership of the Kartsotis brothers. Ever since raising capital, the company has only expanded its capacity and operations. It entered the Swiss watch market with its acquisition of Zodiac in 2001. This was its biggest acquisition until that point in time and was considered a bold step since it was entering the most competitive watch market. After that, the company never looked back. It currently has full-fledged operations in Switzerland, China, Germany and India other than USA and distributions centers in more than 30 countries around the world.

It is currently a manufacturer of wallets, bags, sunglasses, belts, shoes and clothing along with watches and jewelry. Moreover, it is the licensed designer and manufacturer of watches for Burberry, DKNY, Emporio Armani, Armani Exchange, Diesel and many other highly respected brands. With so many brands associated with Fossil, in the last quarter of 2010, Fossil posted sales of $113 million dollars surprising the market positively. This trend was expected to continue but the global economic slowdown affected Fossil too. Revenues for the quarter ending in March 2011 had dropped to $536 million against the 700 million dollars of revenue posted in the last quarter of 2010. The market expected to get back on track by the second quarter of 2011 but this did not happen and the market's reaction to the poor results of the company was clearly predictable. Its stock price had a sharp fall from a level near 120 dollars to 90 dollars per share.

The company posted revenues of 556 million dollars for the quarter ending in June 2011 but the operating margins and the profit margins of the company had gone down. This in turn caused the operating income to go down.

In September 2011, Fossil entered the smart watch market with its Meta Watch that would link to android phones via Bluetooth. Though this is considered the new trend in watch industry, this news was not greatly appreciated by the investors.

The company has a very simple business model; it manufactures these recreational goods in the emerging nations like China and Indonesia and sells them to consumers in developed nations like USA and Canada. But this trend is now changing and the company is tapping the emerging markets because of their high consumption capability.

The company posted revenues of $642 million and gross profit of $359 million for the quarter ending in September 2011 with the help of its operations in Asia. The company seems to be getting back on track now. Also, the company is expected to post better sales figure and strong profits in the quarter that ended in December 2011 because of Thanksgiving and Christmas.

Along with this, it is also expected the company would increase its customer base by reaching out to more consumers in the BRIC nations. These countries are expected to grow faster than the developed nations, and the purchasing power of the consumers in these countries is also expected to grow rapidly. Fossil brought about a revolution in the watch industry by making designer watches available to the masses. It is expected to do this in the growing nations as well.

However, inflation in a couple of Asian countries where it has large manufacturing bases has been in double digits lately. This has led to increase in raw material prices and the cost of manufacturing. The company's operating margins and profit margins are falling. And to add to all the volatile movements of the US dollar. The high-end consumer goods market is growing very rapidly and Fossil will have to adapt itself accordingly to keep up its share in the market.

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