Fossil Moving to Expand Smartwatch Business with BMW, Puma Licenses

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Fossil expects to expand its smartwatch business with Puma and BMW models at a quicker pace than its other licensed products as it harnesses the brands’ extensive fan bases, Fossil CEO Kosta Kartsotis told analysts.

Smartwatches accounted for about 20-25% of Fossil’s $577 million in revenue in Q2 ended June 30. The company is shifting focus to BMW and Puma smartwatches to help expand the category as it seeks to offset declining sales of fashion models with a goal of stabilizing the overall watch business in 2019 and “returning to growth” the following year, Kartsotis said. The Puma and BMW brand watches that arrive in 2019 will replace Burberry and Adidas products, the licenses for which ended. The Adidas and Burberry licenses dated to 2004 and 2001, respectively, the latter having generated about $100-$200 million in annual sales, analysts have said.

“We are incurring all the pain with that departure (of Adidas and Burberry) this year and we’ll get the growth in BWM and Puma next year as we get those products in the market,” Fossil CFO Jeffrey Boyer said.

Fossil’s total revenue fell 3% as sales of smartwatches declined 1% to $463 million. Fossil’s jewelry business, which also includes licensed brands, declined 25% to $33 million. Fossil also reported a “double-digit” increase in sales of Giorgio Armani smartwatches in Q2.

Fossil expects sales of its smartwatches will increase 30-40% in the second half and that the company’s connected business will produce more than $400 million in revenue this year, Boyer said. The new smartwatches feature GPS, near-field communication (NFC) for payments, heart rate monitoring and GPS.

The gain in smartwatch sales will come as Fossil’s seeks to right its Michael Koss-licensed business, which is shifting focus to smartwatches from fashion models. Fossil’s Michael Kors-related sales fell 10% in Q2, a decline driven by the close out of fashion that is being replace by fine jewelry this fall, Boyer said. Sales of Kors-related watches declined 4% in Q2, a downturn that was partly offset by a 13% in revenue from smartwatch versions.

Indeed, the shift of the Kors line to smartwatches will position Michael Kors’ business for sales growth in the fiscal year starting in April, Kors CEO John Idol separately told analysts. Kors’ licensing revenue fell 5% to $27.5 million in Q2 ended June 30 amid a continued decline in sales of fashion watches. Licensing revenue in North America increased 3% to $15.3 million, while EMEA-related revenue fell 12.7% to $12.2 million. With the new smartwatches and fine jewelry, “we have strong chance of getting this category turned around for the company” in 2019, Idol said.

Contact:

Fossil, Jeffrey Boyer, CFO, 972-234-2525

Michael Kors, Thomas Edwards, CFO, 212-201-8100