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Analyst Blog

Fossil Inc. (FOSL - Analyst Report) is set to report first-quarter 2014 results after the market closes on May 13. Last quarter, this global consumer fashion accessories maker and distributor posted a positive surprise of 9.84%. Let’s see how things are shaping up prior to the announcement.

Factors to Consider This Quarter

Strong top-line growth driven by a double-digit increase in global watch sales has been the company’s strength over the years. Product innovation and continued momentum of the Fossil brand also added to growth. The company is also keen on improving its jewelry and leather businesses. We expect the company’s efforts to boost sales in the first quarter.

We are encouraged by the fact that Fossil has a solid watch portfolio and has witnessed strong sales growth owing to its strong global distribution platform and successful innovations. The acquisition of Skagen Designs, Ltd. and its certain subsidiaries in Aug 2012 also contributed to the increase in watch sales.

The company’s intention to develop exciting new watch and jewelry designs, improve leather assortment and focus on increasing brand awareness are expected to deliver strong comparable sales in the first quarter.

While Fossil has been delivering positive comparable-store sales for the past five years driven by continued strengthening of the Fossil brand outside the U.S., the company is witnessing sluggish comparable-store sales in the U.S. for the past few quarters due to weak traffic amid a tough retail environment.

Though the company is resorting to promotional techniques to drive traffic, we are not sure whether these would prove beneficial, given the increased competition and a difficult consumer spending environment.

Earnings Whispers?

Our proven model does not conclusively show that Fossil is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Expected Surprise Prediction or ESP for Fossil is 0.00% as both the Zacks Consensus Estimate and Most Accurate Estimate stand at $1.18 per share.

Zacks Rank #3 (Hold): Fossil’s Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:

The Kroger Co. (KR - Analyst Report), with an Earnings ESP of +0.95% and a Zacks Rank #2 (Buy).

General Mills, Inc. (GIS - Analyst Report), with an Earnings ESP of +2.86% and a Zacks Rank #3.

Estee Lauder Companies Inc. (EL - Analyst Report), with an Earnings ESP of +1.82% and a Zacks Rank #3.

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