Fossil Stock Tanks After Weak Earnings, Lowered Guidance

When year-over-year profits fall by 84% and guidance for the rest of the year is cut by nearly half, it doesn’t take even a rookie investor long to figure out something is not working. That’s the story for Fossil Group Inc. (NASDAQ: FOSL) on Wednesday after reporting first-quarter results after markets closed Tuesday.

The watchmaker’s sales fell 9% year over year in the first quarter and the company has now said that full-year sales will be down between 1.5% and 5.0% below 2015 sales. Previous guidance wasn’t much better, with a forecast calling for a drop in sales of between 1.0% and 3.5%. Still, worse is worse.

The profit forecast really took a beating, dropping from a previously announced range of $2.80 to $3.60 per share to a new range of $1.80 to $2.80. The previous low end of the range is now the new high end. Last year Fossil posted full-year earnings per share of $4.51.

Fossil’s story can pretty much be summed up in a simple phrase: lack of mall traffic. If there are no customers with cash burning a hole in their pockets, then no sales are going to get rung up. Just ask Macy’s, which also reported poor results and lowered guidance Wednesday morning. Fossil’s problem was that its wholesale channel sales faltered because retailers weren’t buying because their customers were sitting on their wallets.
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In early March, Fossil announced that the company plans to introduce more than 100 new wearable products under eight different brands in time for the 2016 holiday season. Products include display- and non-display watches and fitness trackers stamped with Chaps, Diesel, Emporio Armani, Fossil, kate spade new york, Michael Kors, Misfit and Skagen brands. As we noted at the time, that could be too much, too late to do the company much good. And Fossil’s own guidance now seems to back up that view.

Shares traded down nearly 28% at $28.91, after posting a new 52-week low of $26.51 earlier Wednesday morning. The stock’s 52-week high is $79.37, and the consensus price target before the first-quarter report was $38.42.