Fossil to Acquire Skagen - Analyst Blog
January 11 2012 - 8:00AM
Zacks
To expand its portfolio,
Fossil, Inc. (FOSL) has agreed to purchase the
privately held Nevada-based Skagen Designs, Ltd. and some of its
partners for approximately $225 million in cash and 150,000 Fossil
shares. The total value paid by Fossil would be approximately
$236.8 million.
Skagen Designs is an international
company engaged in the manufacture and marketing of contemporary
Danish design accessories including watches, jewelry, sunglasses
and clocks.
As per the deal, Skagen may get an
additional 100,000 Fossil shares, if Skagen products surpass
certain revenue targets. Further, the acquisition is expected to
close by February, 2012, subject to regulatory consent.
The acquisition is thus expected to
enhance Fossil’s portfolio with Skagen’s unique designs and ample
potential as a lifestyle brand. On the other hand, Skagen will also
be benefited by Fossil’s ever increasing opportunities to grow and
expand.
Skagen has company-owned retail
stores in Denmark, Germany, U.K. and Hong Kong and sells products
in 75 markets globally, whereas the watchmaker Fossil has licensing
agreements with designer brands such as Michael Kors, Marc by Marc
Jacobs, Burberry, Emporio Armani, and Karl Lagerfeld. Further,
Fossil supplies its products to wholesale customers like
Nordstrom Inc. (JWN), Target
Corp. (TGT) and Wal-Mart Stores Inc.
(WMT).
Although Fossil is associated with
a host of designer brands and also generates double-digit sales,
the company’s high production costs weigh on its margins and in
turn its earnings growth.
Earlier in November, 2011, Fossil
reported flat third-quarter 2011 adjusted earnings of $1.00 per
share compared with the prior-year, but lagged the Zacks Consensus
Estimate by 3 cents.
Fossil’s earnings were driven by
double-digit sales growth across its major brands, product
categories, and geographies, and a double-digit comparable store
sales increase. Furthermore, continuous innovation in the
assortments, implementation of growth strategies and efficient
utilization of the global distribution infrastructure led to its
solid performance in the quarter.
The strong sales growth thus led to
the increase in the company’s full-year 2011 guidance in a range of
$4.50 to $4.53 from $4.44 to $4.50 expected previously. However,
for the fourth quarter of 2011, Fossil reduced its earnings
guidance to a range of $1.75 to $1.78 per share, owing to
strengthening of dollar over the last quarter.
We are encouraged by Fossil’s
in-house team of dedicated designers and product specialists who
help steer the company ahead by following emerging lifestyles and
fashion trends to bring innovative and unique products to its
customers.
However, stiff competition from
Guess? Inc. (GES) and difficult macroeconomic
conditions are matters of concern. Thus, we currently retain a
Zacks #4 Rank on the stock, which translates into a short-term Sell
rating. On a long-term basis, we provide a Neutral recommendation
on the stock.
FOSSIL INC (FOSL): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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