FMA SMIF Presentation

1
FMASMIF Presentation

• Analyst Report
• Fossil Inc. (FOSL)
• By
• Adib Motiwala
• adib.motiwala_at_gmail.com
• MBA Student, UTD
• Feb 15, 2008

2
Analyst Profile

• Currently,
• MBA (Finance) student _at_ UTD
• IT Consultant _at_Valtech (7 years experience in IT)
• Background
• MS in Computer Science _at_Texas AM
• BE in Computer Engineering _at_Bombay University

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Company profile

• Fossil is headquartered in Richardson, Texas and
  founded in 1984.
• Small Cap Company in the Consumer Goods Sector.
• Engages in the design, development, marketing,
  and distribution of fashion accessories,
  including apparel, belts, handbags, jewelry,
  small leather goods, sunglasses, and watches
  under proprietary and licensed brand names
  worldwide.
• Well known Brand.
• 200 company owned and operated retail stores.
• Focus on higher-priced watches and handbags.
• Strong international presence (50 international
  sales)
• Current Price 34.775 ( Feb 14, 2008)

4
Competitors

• Guess? Inc. (GES)
• Coach Inc.(COH)
• Movado Group Inc.(MOV)

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Financials

• Key ratios
• Forward P/E 17
• P/E 5 year range (12.5 39.9)
• Price / Sales 1.84
• Price / Book 3.54
• Price / Cash flow 18.3
• ROA 10
• ROE 16
• ROC 15
• Earnings growth rate (2007) 48

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Growth Rates
7
Breakdown of Sales Segments
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Investment Merits

• Strong balance sheet (180M cash)
• Large insider holding 36
• ROE 15, ROA 10, ROC 15
• Positive Free Cash Flow (FCF)
• Internationally Diversified, Sales growing
  overseas may help counter possible slowdown in US
  consumer spending.
• Long duration of Management Founder has been
  with the company since beginning, now Chairman of
  Board. CEO has been with the company since 1988
  and the COO since 1985.

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Investment risks

• Slowdown in US consumer spending could hurt
  Fossil.
• New products may not favor with consumers.
• Consumers for fashion accessories are known to be
  fickle.
• Foreign currency risk ( mainly to Euro and
  British Pound ).
• Competitors may introduce good alternatives to
  get market share.
• Threat from cheap copies, especially in overseas
  markets.

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Valuation

• Future Value / Present Value
• (1) Current EPS 1.5, Expected Growth 15,
  Years 5, P/E Expected 22, FV 66
• (2) Current EPS 1.5, Expected Growth 19,
  Years 5, P/E Expected 25, FV 89
• Now with a discount rate 14, we get Buy 35 -
  46 for the two scenarios above. We will consider
  the lower price range for the Buy price.
• Recommend Buy around 35

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Method of Comparables
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References

• Yahoo Finance - http//finance.yahoo.com/q/pr?sFO
  SL
• MSN Money - http//moneycentral.msn.com/investor/r
  esearch/newsnap.asp?SymbolFOSL
• Google Finance - http//finance.google.com/finance
  ?qfosl
• FV Calculator - http//pencils2.com/fvpvcalculator
  .html
• Fossil.com http//www.fossil.com