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Fossil Inc.

In: Business and Management

Submitted By sharika
Words 5795
Pages 24
A01-06-0007

Graeme Rankine

Fossil, Inc.—Global Watches and Accessories
While we found that Fossil has very strong brand recognition among teens in the watch category, we believe watches are less important to teens than other accessories in the current fashion cycle. According to our proprietary research, interest in the accessories category declined 19% on a yearover-year basis this Fall following the 16% decline seen this past Spring. Given that handbags continue to sell well across the industry, we conclude that the watch category may be giving up share to other “accessories” including handbags and shoes and possibly non-apparel related goods (e.g., iPods). Confirming our conclusion, we asked students to list their favorite accessories purchased in the last six months and belts and handbags tied for first place with each garnering 26% of the votes. Jewelry came in third place and watches, fourth. In consideration of the above, we are trimming estimates slightly this year and next year. In a related fashion, we are lowering our price target from $23 to $20. With the shares trading near our target, we are reiterating our Market Perform rating on FOSL shares. PiperJaffrey, October 5, 2005

Anna Amphlett contemplated PiperJaffrey’s comments about Fossil. Just three months earlier, PiperJaffrey issued a more bullish report on the company by indicating that it “believed that better times could be ahead for Fossil as the company grows its global portfolio of brands” and that it was initiating its rating of Fossil with a $23 target price and a Market Perform rating. Fossil’s stock price had experienced rapid growth in the last five years, reaching a high of over $34 per share in 2004, but had settled back to around $15 per share in August 2005 (see Exhibit 1 for Fossil’s stock price performance). Amphlett was impressed by Fossil’s rapid sales growth over the last…...

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