NEW DIRECTIONAL PUT PLAYS
Fossil Group, Inc. - FOSL - close: 100.20 change: +0.68
Stop Loss: 100.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings on Aug 12th
New Positions: Yes, see below
Why We Like It:
Fossil Group Inc. (FOSL) is a giant in the multi-billion global watch industry. They started in 1984 and have grown to over 400 retail locations, 4,000 wholesale locations, and annual revenues of more than $3 billion. They own the Watch Station line of stores.
A couple of years ago FOSL purchased the Denmark brand Skagen. They also own or market
Michele, Zodiac, Relic, Burberry, Emporio Armani, Michael Kors, DKNY, Karl Lagerfeld, Tory Burch, Diesel, Armani Exchange, and adidas Originals brands. Altogether FOSL has about 45% market shares of the U.S. fashion market.
FOSL also sells jewelry, handbags, wallets, belts, sun glasses and clothing.
While FOSL has done a pretty good job of growing sales, they are seeing rising expenses. Lately it has become a very competitive market for the higher-end luxury goods industry. Just look at stocks like Coach (COH) and Michael Kors (KORS). Granted COH and KORS are more leather goods and hand bags but they cater to the same customer.
FOSL is also facing the smart watch revolution. Smart phones have become ubiquitous and replaced their older rivals. Could investors be worried that smart watches will do the same to traditional watches? Currently Samsung has 78% of the smart watch market. A smaller, newer company named Pebble has 18%. At the moment the smart watch market is small and still dwarfed by the traditional watch market. Current estimates put the smart watch/wearable devices market at $2.5 billion in 2013. That's expected to surge to $13 billion by 2017. It will obviously be a growth area for the accessories industry.
Back in March Google announced it was partnering with HTC, LG, Motorola, Samsung and Fossil to promote its Android wearable products. It seemed like a natural fit to include Fossil given the company's dominant market share in the watch industry. Yet when Google held its I/O conference a few weeks ago there wasn't any news on FOSL and any upcoming smart watch launch. That might be troubling news. Apple is rumored to have their own smart watch (dubbed iWatch) to be coming out later this year.
Looking at the earnings picture FOSL last reported in May and issued an earnings warning for the second quarter that send shares lower. Consumer spending has not been as robust as many had hoped. Investors could be worried that FOSL will disappoint again when they report earnings in mid August.
In summary, FOSL is strong in the traditional watch market but the overall retail environment remains challenging. Plus, FOSL could be facing really tough competition in the growing wearable devices/smart watch industry.
Technically shares are in a bearish trend of lower highs and lower lows. FOSL is about to breakdown under its May low of $98.53. The Point & Figure chart is bearish and suggesting at $90.00 target.
We are suggesting a trigger to open bearish positions at $98.40. Plan on exiting prior to earnings in mid August.
Trigger @ $98.40
- Suggested Positions -
Buy the Aug $95 PUT (FOSL140816P95) current ask $2.45
Option Format: symbol-year-month-day-call-strike
Entry on July -- at $---.--
Average Daily Volume = 548 thousand
Listed on July 19, 2014