Is the End Near for Fossil?

Photo Credit: Adriaan Goossens

Fossil, Inc. (FOSL) Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports August 9, After Market Closes

Key Takeaways

• The Estimize consensus is looking for earnings per share of 9 cents on $674.95 million in revenue, right in line with Wall Street on the top and bottom line
• Fossil is seeing weak comps and sales growth from sluggish demand, currency headwinds and macroeconomic challenges
• The acquisition of Misfit last year positions Fossil to deliver smartwatches to its customers.
• What are you expecting for FOSL? Get your estimate in here!

Watchmaker, Fossil, is scheduled to report second quarter earnings tomorrow, after the market closes. The company not only manufactures watches unders its own brand but also high fashion brands like Michael Kors and Kate Spade. Watch sales have been muted for some time now as demand across its multi brand portfolio continue to wane. Earnings have naturally following this downward trend, delivering negative earnings and revenue growth for 3 consecutive quarters. Given the ongoing changes in consumer behavior, don’t expect Fossil to right the ship this quarter.

The Estimize consensus is calling for earnings per share of 9 cents, 90% lower than the same period last year. That estimate has increased 155% since Fossil’s last report in May. Revenue is anticipated nearly 10% lower at $674.95 million, marking 7 straight quarters of negative sales growth. Shares of Fossil have unsurprisingly suffered through these tumultuous times. The stock is down 52% in the past 12 months and typically don’t perform well during earnings season. On average, shares decline by as much as 3% shortly after results are announced. 

Lately, Fossil is seeing discouraging trends throughout its core business. Soft watch sales have driven weak comps in North America and sluggish performance in international markets. Currency headwinds and economic challenges haven’t helped in key Asian and European markets. The performance in those regions are greatly decelerating and aren’t expected to deliver much growth. This is largely the result of waning demand and unfavorable foreign exchange rates.

With its legacy business showing no signs of picking up, Fossil is looking to wearable technology to pick up the slack. The acquisition of Misfit provides Fossil with a platform to bring smartwatches and innovative technology to its customers. Wearable technology is one of the fastest growing markets and should help offset the trouble in its core business. However, it also adds a new layer of competition against the likes of Apple and Samsung, who both offer smartwatches.