Can Fossil Jumpstart Strong Earnings With Smart Accessories?

Photo Credit: Desmond Bowles

Fossil, Inc. (FOSL) Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports February 16, After Market Closes

Key Takeaways

• The Estimize consensus is calling for EPS of $1.36, 7 cents higher than Wall Street, and revenue of $924.80 million, roughly $5 million above the Street
• Fossil is coming off a year which saw share prices fall 67% due to a decline in its portfolio of licensed brands, weaker watch sales, and sluggish international performance from currency headwinds.
• The recent acquisition of wearables company, Misfit, is aimed at propelling Fossil into the wearables industry
• What are you expecting for FOSL? Get your estimate in here!

Fossil, is scheduled to report fourth quarter earnings February 16, after the market closes. The company is coming off a year which saw share prices fall 67% due to a decline in its portfolio of licensed brands, weaker watch sales, and sluggish international performance from currency headwinds. The nose dive in share prices reflects investors negative sentiment around Fossil’s core business.

Consequently, expectations are low for this Tuesday’s report. The Estimize consensus is calling for EPS of $1.36, 7 cents higher than Wall Street, and revenue of $924.80 million, roughly $5 million above the Street. Compared to the same period last year, EPS and revenue are expected to decline 54% and 12%, respectively. Despite waning sales, Fossil has beat on the bottom line each quarter of 2015 and historically has beat the Estimize EPS estimate 63% of the time. 

Growth of Fossil’s flagship product, watches, turned negative in 2015 for the first time in 5 years. Fossil’s position in the category has slowly diminished due to a weakened portfolio of licensed brands and market saturation. Slower demand for Michael Kors products has played a large role in Fossil’s sales decline. The Kors brand represents roughly 25% of Fossil’s revenue and has contributed to almost 50% of the company’s sales growth in the past 5 years. Moreover, Fossil recently announced it will be parting ways with Burberry in December 2017.

The company’s biggest threat comes from the increased prevalence of tech accessories including smartwatches and activity trackers. Consumers have been flocking to wearables, leaving fashion watches on the sidelines. As a result the company is adjusting its strategy by leaning on investments in smart accessories to revive growth and capture a share of the robust wearables market. Last quarter, Fossil rolled out a line of Fossil branded watches in partnership with Google and Intel. The company has also recently acquired Misfit, a producer and manufacturer of wearables, in an effort to further propel itself in the industry. As massive changes in consumer shopping behavior continue, Fossil must take a cautious approach before diving head first into smart accessories.