Fossil Group Inc (FOSL), Abercrombie & Fitch Co. (ANF): Should You Invest in This Consumer Fashion Accessories Business?

Page 1 of 2

Fossil Group Inc (NASDAQ:FOSL)Recently, Fossil Group Inc (NASDAQ:FOSL) shares dropped over 5% to around $108.40 per share after Barclay’s downgraded it from Equal Weight to Underweight with a target price of $100 per share. Analyst Matthew McClintock downgraded Fossil Group Inc (NASDAQ:FOSL) because of lower sales. Should investors avoid Fossil for now? Or does the recent drop represent a good buying opportunity for investors?

A cash cow with a strong balance sheet and growth potential

Fossil Group Inc (NASDAQ:FOSL) is considered the global designer and distributor of consumer fashion accessories via its diversified distribution network in 130 countries including department stores, specialty retail locations, specialty watch and jewelry stores, mass market stores and through the company’s catalogs and website. Most of its revenue, more than $1 billion in sales, or 35% of its total revenue, were generated from the North America wholesale segment while the direct-to-consumer segment contributed more than $715.5 million in sales. Fossil derived most of its revenue from watches, accounting for nearly 75% of the total 2012 revenue, while leather product ranked second, representing 15.4% of the total sales.

What I like about Fossil Group Inc (NASDAQ:FOSL) is its growing top line and bottom line in the past ten years. Its revenue increased from $781 million in 2003 to nearly $2.86 billion in 2012, while its net income rose from $68 million to $343 million during the same period. Fossil Group Inc (NASDAQ:FOSL) has good cash flow generating ability with consistently positive operating cash flow. In 2012, its operating cash flow was $452 million, whereas the free cash flow came in at $329 million.

Investors might be extremely excited with its consistent double-digit return on invested capital in the past ten years. The 2012 ROIC was more than 27.9%. Furthermore, Fossil generates a high return without much help of leverage. Its capital structure is quite conservative. As of March, it had nearly $1.24 billion in equity, $241 million in cash and only $153 million in both long and short-term debt.

For the full year, Fossil expects to grow its net sales by 10%-11%, with its EPS guidance staying in the range of $6.00 to $6.26. Fossil is trading at $108 per share, with the total market cap of $6.34 billion. The market does not value Fossil Group Inc (NASDAQ:FOSL) cheaply, at 11.4 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Compared to its peers, including Guess?, Inc. (NYSE:GES) and Abercrombie & Fitch Co. (NYSE:ANF), Fossil has a much higher valuation.

The most expensive but the most profitable business

Guess?, Inc. (NYSE:GES) is trading at $34 per share, with the total market cap of $2.90 billion. The market values Guess? at only 7.40 times its trailing EBITDA. Over the years, Guess? has managed to diversify its business model, operating around 1,690 stores in 88 countries.

For the full year 2013, Guess?, Inc. (NYSE:GES) derived most of its revenue, around 43% of the total revenue, from the North America retail segment. The Europe segment ranked second, accounting for 35% of the total revenue, while the revenue percentage share of Asia was 11%.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!