GM8-11.6.2012
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Transcript of GM8-11.6.2012
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General Meeting 8
November 6, 2012
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Meeting Agenda
Market Update
Elections and the Markets
Fossil Pitch
Announcements
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Market Overview
Carl Icahn Takes a 10% stake in
netflix
Netflix board creates a Poison
Pill Strategy
Netflix
Ipad Mini Goes on Sale
Management changes
Scott Forstall Senior VP of IOS
Development leaving
No Replacement
Apple
Markets Closed Monday and
Tuesday
Resumed on Halloween
Gas Demand expected to go
down because of Sandy
Hurricane Sandy
Manufacture indexes tick up to
51.7
Consumer confidence rise to a 4
year high at 72.2
Private Sectore jobs for October
at 158K and Unemployment at
7.8%
Jobs Report
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Elections and the Market
1. Declines in dividend payers:
Utilities
REITs
Telecom
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Elections and the Market
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Elections and the Market
2. Bond indexes are up in US and Germany
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Elections and the Market
3. Banks are underperforming
4. Fiscal Cliff Uncertainty
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Fossil (FOSL)
Pearl Agarwal . Sudhish Srikanth . Angela Morisette . Andrew Huang
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Macro Economic Outlook
Increase in domestic consumptionand consumer spending
China GDP slowdown has almostbottomed out
Increase in overall sales during theupcoming holiday season
Rise of middle class in EmergingMarkets such as Turkey, India,South-East Asia
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Industry Primer
Retail Industry expected to maintain constant growthuntil 2014
Sales growth will increase by 12.1% this holiday seasonfrom 2011
Consumer spending more on high-end/luxury brands anddiscount retailers
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Fossil (FOSL)
Company
InternationalRecent News
Multiples
April 2: Acquired Skagen
October 15:Applies to enterinto India
November 6: Q3 earningsmissed guidance, shares plunged11%
Global designer, marketer anddistributer that specializes inconsumer fashion accessories
Distributes throughwholesalers, retail stores andcommercial websites
127 retail stores and 74 outletstores
Presence in all departmentstores
Present in over 90 countries;
Asia Pacific region, Europe,South and Central America,the Caribbean, Canada,Mexico and the Middle East.
In 2001, Fossil completed theacquisition of three separatecompanies located in Bienne,Switzerland enabled it toleverage Swiss manufacturing.
Market Cap: 5.06BCurrent Price: $83.3652 week : 62.77 - 139.20P/E :17.29EPS :4.81
Beta :1.85Operating margin:13.85%Return on Equity: 20.4%
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Price Chart
Acquired Skagen
Q1 Earnings Call(40% decline)
Q2EarningsCall
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Strong Top-Line Growth
Strong Product Line
Global Exposure
Tie-ups with High-End Brands
Investment Thesis
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Strong Top-Line Growth
$1,548
$2,031
$2,567
138.1139.2
255.2
0
50
100
150
200
250
300
0
500
1,000
1,500
2,000
2,500
3,000
2009 2010 2011
Historical Revenue & Net Income(in millions)
Increasing Sales
Strong upside potential
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Strong Product Line
71.8%
26.0%
0.6% 0.3%
Product Diversification
Watches Fashion Accessories Clothing Shoes
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Tie-ups with High-End Brands
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Global Exposure
Increasing Exposureto Emerging Markets
like China and India
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Company Comparables
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Discounted Cash Flow2012 2013 2014 2015 2016 2017
Revenue $2,699.3 $2,834.3 $3,117.7 $3,335.9 $3,502.7 $3,642.8
Cost of Sales $1,188.6 $1,307.5 $1,503.6 $1,729.1 $1,867.4 $1,998.2
Gross Profit $1,510.7 $1,526.8 $1,614.1 $1,606.8 $1,635.3 $1,644.7
Gross Margin 56.0% 53.9% 51.8% 48.2% 46.7% 45.1%
SG&A Expenses $1,045.4 $1,149.94 $1,241.94 $1,341.29 $1,435.18 $1,535.64
Other Income $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
EBIT $465.3 $376.9 $372.2 $265.5 $200.1 $109.0
EBIT Margin 17.2% 13.3% 11.9% 8.0% 5.7% 3.0%
NOPAT $316.9 $256.6 $253.5 $180.8 $136.3 $74.2
D&A $236.2 $236.2 $236.2 $236.2 $236.2 $236.2CapEx $109.6 $111.8 $118.5 $122.1 $124.5 $127.0
Change in NWC $66.4 ($568.2) $0.0 $0.0 $0.0 $0.0
FCF $377.1 $949.3 $371.2 $295.0 $248.0 $183.5
Present Value of Cash Flows $863.0 $306.7 $221.6 $169.4 $113.9
Terminal Value 9,173.07$
Enterprise Value 7,370.35$
WACC 10%Tax Rate 31.9%
Exit Multiple 50.00x
Share Price 83.36$
Enterprise Value 7,370.3$
Less Net Debt -$
Equity Value 7,370.3$
Shares Outstanding 60.8
Value Per Share 121.22$
Implied Discount 45.42%
Assumptions
Calculations
Implied Share Price: $121.22
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Risks & Mitigants
Counterfeit Products
Mitigated by price positioning and loyal consumer base
Volatile Revenue
Mitigated by buy-in strategy and regular cycles in fashion
Discretionary Spending Lowered with Bad Economy Fossils practical designs
The global economy is currently in a recession, therefore, it is theperfect time to purchase consumer discretionary investments
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Competitors
Fossil style more classic, whichconsumers will tend to lean
towards Fossil has multiple partnershipswith DKNY, Armani, Diesel, andBurberry, whereas Swatch doesnthave these partnerships
Weak licensing agreementswith companies Domestic company with97% sales coming in U.S. Fossil has betterinternational growth
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Recommendation
Entry: Buy 10 shares at $ 83.36
Stop Loss: $80
Exit Strategy: $ 100.00
Holding Period: 4 months; RevaluateExpected Return: 20%
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Pitch Schedule
Date Name
11-Sep SCG Directors
18-Sep John C
25-Sep Olympics
2-Oct John T
9-Oct John C16-Oct Billy
23-Oct Stephen
30-Oct Ryan
6-Nov Angela
13-Nov Finance Panel
20-Nov Thanksgiving27-Nov Ali
4-Dec John T
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Announcements
Finance Internship Panel next week!
Good luck to case teams!
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