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

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
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 Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!