Fossil Stumbles Over Weak Guidance

Fossil Group Inc. (NASDAQ: FOSL) released its third-quarter earnings report after the markets closed on Thursday. The company had $1.19 in earnings per share (EPS) on $771.3 million in revenue. Consensus estimates from Thomson Reuters had called for $1.13 in EPS on revenue of $794.36 million. In the same period of the previous year, the company posted EPS of $1.96 and $894.50 million in revenue.

In conjunction with the third-quarter fiscal 2015 results, the company announced that it has entered into a definitive agreement to acquire Misfit, a company involved in manufacturing fashionable connected accessories.

During the third quarter of fiscal 2015, the company invested $12.4 million to repurchase 0.2 million shares of its common stock at an average price of $69 per share, bringing year-to-date repurchase activity to $229 million to purchase 2.7 million shares. As of October 3, 2015, Fossil had $829 million remaining on its existing share repurchase authorizations.

In terms of the fiscal fourth-quarter guidance, the company expects net sales to decrease in the range of 11% to 12% and EPS to be in the range of $1.40 to $2.00. Consensus estimates call for $2.12 in EPS on $1.02 billion in revenue.

Fossil estimates that there will be unfavorable impacts from foreign currency changes, 2015 restructuring charges and Misfit transaction costs, which ultimately brought down the fourth-quarter and full-year guidance.

Kosta Kartsotis, CEO of Fossil, commented on earnings:

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.

On the books, Fossil has $301.6 million in cash and cash equivalents at the end of the third quarter, compared to $218.1 million in the same period from the previous year.

Shares of Fossil plunged 30% at $35.66 Friday morning, with a consensus analyst price target of $65.93 and a 52-week trading range of $50.34 to $112.74.

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