Pitch9 fosl
Transcript of Pitch9 fosl
Fossil Group Inc(NASDAQ:FOSL 22.7% Discount)
Austin Partridge | Charlene Shu | Michael Tian | Himanshu Gaur | Megan Tran-Olmsted
Background & Thesis
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Investment Thesis
Kors watch brand stronger than perceivedLimited impact from smart watchesStrong growth in foreign markets
①②③
Company Overview
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Upwards Mobility
Multi-faceted Growth International Growth
Europe growth higher relatively
Acquisitions create foreign presence
Wholesale retail cuts physical location
expenses Partnerships with well known
brandsAffordable relative to timepiece industry
International brand rapid growth
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
SWOT AnalysisStrengths: • Low expenses due to large
online and wholesale retailer presence
• Price range hits sweet spot for consumer needs
• International market presence
Weaknesses: • Main source of revenue is in
one product• Competitive market • Strengthening of dollar
Opportunities: • Founder Q – line of connected
accessories• Emergence in international
markets via mergers and acquisitions
• US brands to EMEA and EMEA brands to US
Threats: • Apple presence in
smartwatch industry• High reliance on single brand
– Michael Kors• Younger generation has less
interest
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
The Billion Dollar Share Buyback
2010 •$750 million share repurchase enacted •Goal: Double company size in 5 years
2014 •Upgraded to $1 billion share buyback program•2014 Q3 Report EPS $.14 higher than expected
?? •Incentivizes and rewards shareholders•Trust in company future
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
North America: 10.68% ↑Europe: 25.15% ↑Asia: 17.97% ↑
Revenue Breakdown - Region
North America Europe Asia 0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1083.5
697
361.5
1216.6
828.1
396.7
1213.1
931.2
440.7
Wholesale Revenue By Global Region
201220132014
Rev
enue
(M
illio
ns)
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Revenue Breakdown - Product
2011 2012 2013 20141500
1750
2000
2250
2500
2750
1843.9
2141.5
2513.1
2736.5Watch Revenue
Reve
nue
(Mill
ions
)
78%
12%
8%2%
Revenue by Product
Watches Leather Jewelry Other
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Management
2000 – Kosta Kartsotis, CEO
2012 – Dennis Secor, CFO
$0 SalaryEffective Leadershi
p
Former Guess CFO
Global Focus
Industry Overview
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
LOW
Porter’s Five Forces
Barriers to Entry
Industry Dynamic
Porter’s Assessment
Rationale
Bargaining Power of Buyers
MEDIUM
Intensity of Rivalry MEDIU
M• Traditional watches
threatened• Tech giants like Apple hold
majority in smartwatch industryThreat of
Substitutes LOW • Low quality counterfeits• Luxury goods are not replaced
by technological advancementsBargaining
Power of Suppliers
LOW • Exclusive manufacturing contracts
• Suppliers hard to replace, but cannot survive without Fossil
• Decreasing brand loyalty• Offset by high switching costs
between smartwatches
• Easier branding techniques such as social media marketing and leveraging influencers
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
2013 2014 2015P 2016P 2017P 2018P 2019P0
102030405060708090
100
Global Watch Market Size
Global Watch Market
24%
11%9%
9%
47%
US Fashion Watch MarketFossilCasioTimexMKOther
16.4%
8.5%6.3% 6.0%
4.7% 4.0% 3.7%2.6% 2.5%
Global Market Share
6% CAG
R
Worldwide watch market is increasing despite growing smartwatch popularity.
Fossil leads US in watch market, third worldwide.
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Foreign GrowthForeign demand is increasing
Demand for timepieces has not declined in recent years due to increased foreign demand, particularly in China.
Growth in spite of smartphones
Risks & Mitigants
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Risks & Mitigants
Decline in Kors brand popularity could carry over to diminish popularity of Kors watches
Michael Kors Smart Watches
Long-term impact of smart watches unknown
Daniel Wellington
Increasingly lower barriers to entry could cut into Fossil’s market share
Financial Valuation
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Fossil Urban Outfitters
Coach Columbia Guess Kate Spade0
5
10
15
20
25
30
35
Price/Earnings
Fossil Guess Urban Outfitters
Coach Columbia Kate Spade0
5
10
15
20
25
EV/EBITDA
Comparable Companies
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Comparables AnalysisCompany Ticker Forward P/EUrban Outfitters URBN 14.43xCoach COH 16.48xColumbia COLM 21.39xGuess GES 22.4xKate Spade KATE 31.42x Fossil FOSL 10.12x
MultiplePrice Estimate (@EPS of $5.09)
High 31.42x $159.92 Mean 22.9x $116.56 Low 14.43x $73.44
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Revenue Projections2010 2011 2012 2013 2014 E2015 E2016 E2017 E2018 E2019 E2020
Net SalesNorth America 779.2 967.5 1083.5 1217 1213 1,189.03 1,236.59 1,273.69 1,299.16 1,312.16 1,325.28 % Growth 24.2% 12.0% 12.3% -0.3% -2.0% 4.0% 3.0% 2.0% 1.0% 1.0%EMEA 768.2 992.4 1058.5 1225 1354 1434.51 1506.24 1532.43 1578.40 1589.63 1621.42% Growth 29.2% 6.7% 15.7% 10.5% 5.9% 5.0% 1.7% 3.0% 0.7% 2.0%
StoresNorth America 191 212 247 273 296 305 317 327 333 336 340% Growth 11.0% 16.5% 10.5% 8.4% 3% 4% 3% 2% 1% 1%EMEA 166 186 226 270 297 312 327 341 351 361 369% Growth 12.0% 21.5% 19.5% 10.0% 5% 5% 4% 3% 3% 2%
Revenue Per StoreNorth America 4.08 4.56 4.39 4.46 4.10 3.90 3.90 3.90 3.90 3.90 3.90 % Growth 12% -4% 2% -8%EMEA 4.63 5.34 4.68 4.54 4.56 4.60 4.60 4.50 4.50 4.40 4.40% Growth 15% -12% -3% 0%
Total Wholesale 1547.4 1959.9 2142 2442 2567 2623.54 2742.83 2806.12 2877.57 2901.78 2946.70% Growth 26.7% 9.3% 14.0% 5.1% 2.2% 4.5% 2.3% 2.5% 0.8% 1.5%
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
DCF2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue203069
0256730
2285750
8325997
1350969
1 3586997 3750090 3836627 3934311 3967420 4028828% Growth 26% 11% 14% 8% 2.2% 4.5% 2.3% 2.5% 0.8% 1.5%
COGS 875526112811
6125096
5139828
5150851
9 1554605 1625289 1662794 1705131 1719480 1746094% Revenue 43.1% 43.9% 43.8% 42.9% 43.0% 43% 43% 43% 43% 43% 43%Gross Profit
1155164
1439186
1606543
1861686
2001172 2032393 2124801 2173833 2229181 2247940 2282734
SG&A 738190 915270105216
7121815
4133870
5 1485017 1552537 1588364 1628805 1642512 1667935% Revenue 36.4% 35.7% 36.8% 37.4% 38.1% 41% 41% 41% 41% 41% 41%EBITDA 416974 523916 554376 643532 662467 547376 572264 585469 600376 605428 614799
DA 40560 51925 65536 81936 95931 71740 75002 76733 78686 79348 80577% Revenue 2.0% 2.0% 2.3% 2.5% 2.7% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%EBIT 376414 471991 488840 561596 566536 475636 497262 508737 521690 526080 534223
Taxes 119320 144157 137963 173419 171467 148398 155146 158726 162767 164137 166677% EBIT 31.7% 30.5% 28.2% 30.9% 30.3% 31% 31% 31% 31% 31% 31%NOPAT 257094 327834 350877 388177 395069 327237 342116 350011 358922 361943 367545
Add:DA 40560 51925 65536 81936 95931 71740 75002 76733 78686 79348 80577Less:CAPEX 46500 109900 112400 95200 94800 96348 106816 106168 104860 106888 109427Less:DNWC -85900 -44100 -42800 -77500 -8500 -49172 -42194 -41831 -41647 -34835 -39839UFCF 337054 313959 346813 452413 404700 351801 352496 362406 374396 369238 378534PV 325784 302286 287801 275335 251460 238726
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
DCFWACC 7.99%Cost of Equity 9.38%rfr 2.25%mrr 10%β 0.92
%Equity 83.30%Cost of Debt 3.40%%Debt 16.70%Tax Rate 30.31%
Implied ValuationEV/EBITDA Multiple 4.87Terminal Value 2994072Discounted Terminal Value 2039031Enterprise Value 3720423Net Debt 510000Shares Outstanding 48150Implied Share Price 66.68$ Current Share Price 54.32Implied Discount 22.70%
3x 4x 5x 6x 7x6% 1.6% 19.2% 36.7% 54.3% 71.9%7% -2.9% 13.8% 30.6% 47.3% 64.1%8% -7.2% 8.7% 24.7% 40.7% 56.7%9% -11.3% 3.9% 19.2% 34.5% 49.8%10% -15.2% -0.6% 14.0% 28.6% 43.2%
Background &
Thesis
Company Overview
Industry Overview
Risks & Mitigants
Financial Valuation
Conclusion
Kors watch brand stronger than perceivedLimited impact from smart watchesStrong growth in foreign markets
①②③
Background & ThesisQuestions?