Mizhuo downgraded watch maker Fossil Group (FOSL) to Underperform, its equivalent of a sell rating, from Neutral, as the firm believes that weak demand for traditional watches and "pressured" gross margins will hurt the stock going forward.

WEAK OLD-FASHIONED WATCH DEMAND: Retail stores are facing "traffic headwinds," while department stores have become choosier about their purchase of old fashioned watches, warned Mizuho analyst Betty Chen. Both factors are weighing on sales of Fossil's traditional watches, the analyst stated. Meanwhile, inventories of the company's products at off-price retailers may be high, and Michael Kors (KORS) said that its traditional watch business had slowed, Chen reported.

GROSS MARGINS: Heavy discounts in the retail channel and higher sales to the discount channel could cause Fossil's gross margin to continue to decline, Chen believes. Additionally, Fossil is selling more smartwatches and wearables, which carry lower margins than traditional watches, noted Chen.

OTHERS TO WATCH: Other makers of traditional watches include Movado (MOV) and Casio (CSIOY), while Apple (AAPL) and Fitbit (FIT) market smartwatches.

PRICE ACTION: After opening in negative territory, Fossil shares have recovered and are about flat in early trading at $23.30 per share.