Fossil Inc. (FOSL) Shares off Sharply on Earnings, Downgrade

Shares of Fossil Inc. (FOSL) were trading down -9.96 or -19.53 percent to $41.05 per share in Friday’s premarket after the company announced earnings, which beat expectations however sales and revenue fell short of the consensus. The company also cut its guidance significantly for the fourth quarter and full year. Also pressuring the stock in this morning’s premarket, a major analyst slashed their price target on Fossil shares.

Fossil Inc. stock closed at $51.01 in Thursday’s regular trading session.
Founded in 1984 by Tom Kartsotis, Richardson, Texas based Fossil Inc. began by importing moderately priced fashion watches from the Far East. The company is presently a leading manufacturer, designer and distributor of high end consumer fashion accessories. The company manufactures and markets an extensive line of designer watches for brands such as Burberry DKNY and Michael Kors (KORS), Armani and Diesel. The company also produces and markets handbags, belts, small leather goods, sunglasses and other apparel. Fossil has its initial public offering in 1993 and has manufacturing facilities in China and Switzerland with distribution centers in Dallas, Asia and Europe.

For the company’s fiscal third quarter ended on October 3rd, 2015, Fossil reported net income of $57.5 million versus $103.7 million in the same period one year ago. Diluted earnings per share came to $1.19 compared to $1.96 in 2014’s third quarter. In constant currency, diluted earnings were $1.59 per share, which included a $0.05 per share restructuring charge.

Net sales in the third quarter were $771.3 million versus $894.5 million in the same quarter last year, a decline of -13.8 percent. Analysts expected the company to report earnings of $1.13 on $795.0 million in revenue.

Fossil’s Chief Executive Officer, Kosta Kartsotis said in the company’s press release that, “While our results for the third quarter were within our expectations, we are not satisfied with our overall performance. Currency aside, our Skagen and Fossil brands performed well in a challenging environment as our initiatives in branding and innovation resonated with consumers around the world. Our branded jewelry and leathers business increased but were more than offset by a decline in our watch business, reflecting general weakness in the category.”

In addition to the earnings release, Fossil announced its acquisition of Misfit Inc., a developer and maker of wearable technology and connected devices, including a scalable cloud and app platform. Misfit owns a technology platform that will greatly complement Fossil’s products. The acquisition will cost Fossil $260 million, including transaction costs and will be funded with a combination of bank debt and cash on hand. The transaction is expected to close before the end of Fossil’s 2015 fiscal year.

Mr. Kartsotis concluded his press release statement saying, “We remain confident in our long-term strategies. We believe the substantial capabilities we acquire with Misfit and the many opportunities it creates, combined with our diversified business model, solid financial position and cash flow generation, set us up to win over the long-term and drive value for our shareholders. We are very excited about our future.”

For the fourth quarter, the company expects to make $1.05 - $1.65 with revenue declining by -7 to -16 percent. Analysts were expecting guidance of $2.14 for fourth quarter earnings. Fossil’s full year guidance was cut from earnings per share of $4.80 - $5.60 to $4.15 - $4.75, with an -8 to -10 percent decline in net sales.

Earlier this morning, Piper Jaffrey lowered its price target for Fossil shares by more than 50 percent, to $25 per share from $46 per share.

Other News About FOSL

Fossil Group, Inc. to Acquire Wearable Technology Innovator Misfit

Acquisition will accelerate Fossil’s connected accessory roadmap.

How Fossil Group Performed Compared to Peers

Article comparing Fossil with its largest competitors.
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Published on Nov 13, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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