Fossil Group (FOSL) Down 24.9% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Fossil Group, Inc. FOSL. Shares have lost about 24.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fossil Q1 Loss Wider than Expected, Revenues Miss

Fossil Group began 2017 on a dismal note, wherein it posted wider-than-expected losses, along with revenues which were way behind estimates.

Adjusted loss (excluding favorable currency impact) of $0.35 per share was wider than the Zacks Consensus Estimate of a loss of $0.21 per share. Also, the bottom line declined from earnings of $0.11 delivered in the year-ago quarter. In fact, the loss was also wider than the company’s guided range of a loss of $0.10–$0.25 per share.

Quarter in Detail

Net sales of $581.8 million in the first quarter fiscal 2017 lagged the Zacks Consensus Estimate of $596.5 million and also declined 12% from the prior-year quarter, primarily due to currency headwinds, a decline in the company's in traditional watches and tough retail landscape. On a constant-currency basis, the same fell 11%.

Notably, the sales decline on a constant-currency basis was in line with the company’s expectation of down 8–11.5%. Additionally, adverse currency movements had a negative impact of $8.5 million on sales.

Further, sales declined 17%, 7% and 5% in Americas, Europe and Asia, respectively. Category wise, sales fell 9%, 12% and 21% in the Watches, Leathers and Jewelry, respectively.

Global retail comps (includes eCommerce sales) dropped 11% year over year in the reported quarter with slump in all product categories and regions.

Gross margin declined 300 basis points (bps) to 49.8% in the quarter, mainly by reduced retail margins due to higher promotional activity and increased mix. In addition, adverse foreign currency impact and higher relative mix of off-price sales led to the decrease. These were somewhat compensated with margin improvement programs coupled with increased mix of international revenues.

Moreover, adjusted operating loss as a percentage of sales came in at 2.6% in the quarter, versus operating profit margin of 2.2% delivered in the prior-year quarter. This was primarily due to lower sales and gross margin, despite flat operating expenses on a year-over-year basis.

Other Financial Update

As of Apr 1, 2017, the company had cash and cash equivalents of roughly $320.7 million compared to $306.8 million in the year-ago period. Further, long-term debt was $589.7 million and total stockholders’ equity was $982.3 million at the end of the quarter.

Outlook

Moving ahead, Fossil continues to focus on the New World Fossil restructuring program along with growth in the company’s core watch business and product expansion. This restructuring initiative is likely to create a better operating platform that will cater to its customers efficiently in a tough retail landscape. Furthermore, it is on track to introduce more than 300 skus in 2017 with improved engineering as well as easier charging for display watches.

For 2017, Fossil expects net sales to be down in 1.5–6.0% range and anticipates operating margin in the band of 0.5–2.2% on a GAAP basis. Moreover, its adjusted operating margin is projected to be in the range of 3–4.5% and adjusted earnings in the band of $0.80–$1.50 for fiscal 2017. In fact, the company posted adjusted earnings of $1.80 in fiscal 2016.

For the second quarter, management projects net sales to fall in the band of 8–11.5% and expects operating loss margin in the 3.5%–5.5% range. The company projects its adjusted operating loss margin in the range of 1–3% and adjusted loss in the band of $0.23–$0.40 per share in the second quarter. Notably, the company delivered adjusted earnings of $0.09 per share in second-quarter 2016.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Fossil Group, Inc. Price and Consensus

Fossil Group, Inc. Price and Consensus | Fossil Group, Inc. Quote

VGM Scores

At this time, the stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

The stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Click for Free Fossil Group, Inc. (FOSL) Stock Analysis Report >>
 
To read this article on Zacks.com click here.
 
Zacks Investment Research