I’d put Michael Kors into the expensive junk category as well. I understand expensive stuff if it is of higher quality. But buying expensive junk because of a brand name? Yuck. Burberry is borderline there too.
MK used to be a brand that had some value, but they cut costs and quality to the point it is complete garbage now. It is absolutely a case study on how NOT to treat your brand. Kate Spade seems to be going down that path as well
Chad, you end up picking up some FOSL? I see its having quite a nice pop today if you got in on that trade yesterday.
I’ve looked at some of those brand name watches and don’t see much that is special about them.
There’s a flea market on Sundays that sells $10 watches that look very nice. After about a year, they need to be replaced or the finish gets ugly, but it will take 30 years of doing that before I end up spending more than a $300 watch (or maybe somewhat less, assuming inflation).
I wear a Michael Kors watch. It may be expensive garbage, but I wouldn’t know. Received it as a gift a few years ago. Works well for me.
FOSL was my largest short going into Friday and I still haven’t covered. I’ve been short the stock all year.
Whether you think the Apple Watch is the end all or not (I do), there are a few serious problems with FOSL.
To start with, there is no chance they sustain their 55% gross margins. None. Zero. The company’s inventory is the highest it’s ever been, and this is shaping up to be a horrible retail sales year. M and JWN are significant selling channels for FOSL and both got hammered last week. There is too much inventory in the channel, and it will be marked down, probably a lot.
KORS has also been a significant headwind. I was short KORS too before it blew up. That alone will create tough comps for FOSL for at least a year, maybe two years.
The juice here is in the gross margin. If they have a 1% gross margin decline, I estimate it will wipe out up to 10% of their free cash flow. Ouch since probably 5% or more of the gross margin will be shaved off.
The company pulled a Circuit City and bought back a huge amount of stock at the top, taking debt to do it. Now FCF is declining and they levered up even more to buy Misfit. Not only is Misfit destined to fail and they vastly overpaid ($260 million for $30 million of rev, yikes), destroying huge capital in the process, but it is also guaranteed to reduce the company’s gross margins, which they said on the call.
Worse, the gross margins on all wearables is going to come down in the near future. The Google watch will now be bundled with an andriod phone purchase for $99, possibly a loss leader but certainly low margin. Apple will follow suit at some point, probably not at $99, but at some rock bottom price. FOSL will have to give away its lousy wearables to even attempt to compete, which they won’t, because they lack the app store presence of Apple.
So you have an increasingly decaying core business with a lot of debt, declining FCF and fixed operating leases that are high cost and difficult to exit. There is a realistic chance that FOSL ends up at zero. At a minimum, it’s un-ownable at this price. If you think the bottom is in, think again, because the sell side is still hopelessly bullish and will need to cut estimates again since their models don’t reflect the gross margin pressure that is coming.
No, I’m staying away from this one. It came up on my screen since it has generated a lot of cash in the past but I think their ability to sustain that going forward is at risk (as bromion documented very well).
I am a big fan of mechanical watches and have no real interest in the iWatch or any other smartwatch. I wear an Omega PO daily but got my start with Seiko mechanical divers. I’d tinker with them all the time, changing the dial, face, hands, etc.
Out of habit, certainly, and for utility.
I also don’t expect to run out and buy a smart watch but I would if it I had kids. Wait a few years until the price comes down and you can get these as a family plan. If I had a 5 year old, I would absolutely force him to wear it. If he gets lost in the mall, there is two way talk and GPS that even a 5 year old can use. Every parent in America would want that. So the next generation will grow up not ever wearing traditional watches.
The elderly will be a big market too. I would definitely buy this for my parents as apps emerge that will automatically call medical care if they need it based on sensors. No brainer if the price is
You’re starting to see corporate programs as well where Fortune 500 will incentivize their work forces to use wearables that collect data to help bring down health insurance costs. Not everyone will opt in for that but a lot of people will if they get a discount. Apple will get the lion’s share.
So I think there will be broad based pressure to move away from traditional watches on all fronts. Fossil reminds me of Rio, which was a leading mp3 player company before the iPod came out. I had a Rio and thought it was awesome. The iPod was almost universally panned when it came out. Rio was bankrupt 3 years later.
I remember when the first iPod came out and I thought “So the big news is another mp3 player” big deal.
But then it sank in – this one can store *all* my music. No more deciding which songs are most important to listen to out of your collection. Plus it could be a portable hard drive.
I bought one 3 weeks later.
Agreed, I purchased a watch a while ago and mechanical is the only way to go. You really can only look like a try hard with an Apple watch, you will never look cool or classy
Based on what I’ve read (I don’t own one), I don’t think any smart watch is capable of these functions today on a stand-alone basis. They all need to be connected to a smartphone to communicate so (except for the elderly scenario where the watch could monitor vitals) there is no added value over just getting your kid (or parent) a smartphone. On top of that I think the battery life with smart watches is going to limit their utility. I don’t want to plug my watch in every night. Maybe Apple will introduce wireless charging like Samsung. That would be a lot more managable for users.
My sister is a big Apple fan and she wanted an iWatch so that she could stay connected while running. I told her she still needed to have her iPhone on her and that was a deal killer for her. That is why I view these as really expensive 2nd screens at this point.
“At this point”. What about the second gen, or third gen, or seventh gen? Even the iPhone had to go through a few updates to become what it is. It needed at least 3G before it became a real smartphone.
Count me in when/if we get to the point where I could leave the house with only my smart watch but have all of the basic functionality of my smartphone - calling, texting, e-mail, weather updates, navigation.
Compared to the alternatives out there, I remember the original iPhone being an amazing device for its time.
It’s true that 3G made it much better, and there were things that people wished it could do better, but the iPhone was a kind of magical device even in version 1.
Most people who have Apple Watches say that they are amazing. One could say that they are just trying to justify the money they spent, but the tone of their voice seems to suggest that they are genuinely dazzled.
^^^ thats really what it is. Director at my firm bought one as she buys all the new apple stuff. At first she loved it, when the novelty wore off she said she just wears it now otherwise it would have been a waste of money.
An Apple Fanboy I am friends with pre orders everything they release, got it, used it for 2 days and then resold it posting how it was at this time completely useless. This was when there were stock outs so he even made a profit reselling it!
This isnt to poo on Apple, I just think that even though analysts have been pushing smart watches as the next big thing, I really havent and dont continue to see that happening. If they can make a wrist band that can completely replace the phone, yes it could change everything. Original smartphones served a need. To provide people with better connection to each other and provide users information at their fingertips at any time. Smart watches provide some novelty but they dont fill a large need.
The next watch, which comes out in mid-2016, will be unthethered. I don’t think it will completely replace the phone for most people due to the screen size limitations, but it will expand the market. Probably a lot of people will end up with both. I think the watch has strong potential in pay applications and the connected home, as well as healthcare uses. I think the watch will be more of a compiment instead of a replacement but that is equally bad for FOSL since wrist real estate is limited.
If the phone would be the satelite system of the watch, rather than vice versa, I could see that working. You would have functionality in the watch untethered, but if you wanted a larger screen, you would pull out an iphone-like device (or ipad) and use it to give you more real estate.
The other issue with the watches is that as a fashion accessory, people like to change it or are used to changing it to combine with other stuff they wear. Changing bands is not really significant enough I suspect.
Now, if they called it a smart bracelet (or smart wristband, for the more macho types), rather than a smart watch, I think it might be easier to market, because it wouldn’t require you abandoning your existing watch collection, assuming you have one.
Im talking get rid of phone, give me a full wrist jawn like this!
When this comes out, light and able to fully replace a phone and I feel like I am in Startrek, im down for smart watches
instead of all of us owning phones and watches and tablets, we could just buy one Pip-Boy to fill all these needs, as well as keep inventory of our quest items and S.P.E.C.I.A.L. stats.