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Fossil (FOSL) Down 15% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Fossil Group, Inc. (FOSL - Free Report) . Shares have lost about 15% 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 the most recent earnings report in order to get a better handle on the important drivers.
Fossil Tops Fourth Quarter Earnings, Weak Sales
Fossil delivered better-than-expected earnings in the fourth quarter of fiscal 2016, but sales lagged the Zacks Consensus Estimates.
In the fourth quarter of fiscal 2016, Fossil reported adjusted earnings of $1.36 per share, which exclude restructuring charges of $0.21 and purchase accounting costs associated with Misfit, Inc. of $0.08 per share. Adjusted earnings declined 23.2% compared to last year’s adjusted earnings of $1.77, largely due to lower sales, gross margin and currency headwinds. The bottom line however surpassed the Zacks Consensus Estimate of $1.21 per share by 12.4%.
Quarter in Detail
This global consumer fashion accessories maker’s net sales of $959.2 million in the fourth quarter lagged the Zacks Consensus Estimate of $972 million by 1.3%. Net sales decreased 3% from the prior-year quarter, primarily due to currency headwinds, a decline in the company's multi-brand licensed watch portfolio and challenging environment for the traditional watch category.
The sales decline was in line with the company’s expectation of down 2% to up 4%. Adverse currency movements had a negative impact of $18.3 million on fourth-quarter sales. Category wise, the company witnessed declines in leather and jewelry business.
Despite a challenging and a disruptive environment, Fossil and Skagen brands both grew during the quarter. The wearables product category also had a steady stream of customers which drove growth.
On a constant currency basis, net sales declined 2%. While sales declined in Americas and Europe, it gained in Asia. Total watch business declined 2%, while it remained flat in constant dollars compared to last year.
Of late, Fossil has been witnessing general weakness in the watches category. The company noticed that tech-enabled watches have been significantly affecting traditional watch sales. The company benefited from newer brands such as Kate Spade, New York and Tory Burch during the quarter. While overall launches declined in the quarter, the sequential trend improved significantly with the expanding wearables offering. The company continues to expect weakness in this category.
Sales of Jewelry and leathers both declined 5%, on a constant currency basis. Notably the sales of leathers have persistently been weak as customer response to the assortment continues to put pressure on results.
Global retail comps dropped 7% year over year during the quarter with declines in all product categories. Positive comps in Asia were more than offset by declines in Europe and the Americas.
Gross margin declined 200 basis points (bps) to 51.0% due to unfavorable currency impact and higher promotional activity, primarily in the outlet stores and higher mix of lower-margin product.
Moreover, operating margin declined to 6.9% in the quarter, down 210 bps from 9.0% in the year-ago period, primarily due to lower sales and gross margin, currency headwinds, despite lower operating expenses.
Other Financial Update
At the end of the fourth quarter, the company had roughly $297.3 million in cash compared to $236 million in the preceding quarter, and debt of $610 million compared to $723 million in the preceding quarter.
Fiscal 2016 Results
Fossil reported adjusted earnings of $2.27 per share, which exclude 16 cents per share benefit from real estate transactions, offset by $0.43 per share restructuring charge and purchase accounting costs associated with Misfit, Inc. of $0.37 per share. The bottom line plunged 49.7% from the prior-year figure of $4.51 per share.
Net sales of $3.042 billion in the fiscal 2016 lagged the Zacks Consensus Estimate of $3.064 billion by 0.7%. Net sales decreased 5.8% from the prior-year quarter. Adverse currency movements had a negative impact of $45.4 million on full-year sales.
Fiscal First-Quarter Guidance
For the first-quarter of fiscal 2017, Fossil expects loss in the range of $0.10 to $0.25 per share, compared with adjusted diluted earnings per share of $0.11 for fiscal 2016.
The company expects net sales, on a constant currency, to decline in the range of 8.0% to 11.5%. Adjusted operating margin in a range of (2.0%) to 0.0%, compared with adjusted operating margin of 2.2% for the first quarter of fiscal 2016.
Fiscal 2017 Guidance Updated
Fossil continues to expect a challenging retail environment and pressure on the traditional watch category to persist. Currency will continue to remain a headwind in 2017.
The company now expects adjusted earnings in a range of $1.00–$1.70 per share for fiscal 2017, compared with adjusted diluted earnings per share of $1.80 for fiscal 2016. Sales, on a constant currency basis, are expected in the range of a decline of 4.5% to up 2%. Adjusted operating margin is now estimated in the range of 3.5% to 5.0%.
How Have Estimates Been Moving since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter. In the past month, the consensus estimate has shifted downward by -560.9% due to these changes.
At this time, Fossil's stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'C'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile 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.
Based on our scores, the stock is equally suitable for value and growth investors.
Outlook
Etimates have been broadly trending downward for the stock. The magnitude of these revisions indicates a downward shift. It's no surprise the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.
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Fossil (FOSL) Down 15% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Fossil Group, Inc. (FOSL - Free Report) . Shares have lost about 15% 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 the most recent earnings report in order to get a better handle on the important drivers.
Fossil Tops Fourth Quarter Earnings, Weak Sales
Fossil delivered better-than-expected earnings in the fourth quarter of fiscal 2016, but sales lagged the Zacks Consensus Estimates.
In the fourth quarter of fiscal 2016, Fossil reported adjusted earnings of $1.36 per share, which exclude restructuring charges of $0.21 and purchase accounting costs associated with Misfit, Inc. of $0.08 per share. Adjusted earnings declined 23.2% compared to last year’s adjusted earnings of $1.77, largely due to lower sales, gross margin and currency headwinds. The bottom line however surpassed the Zacks Consensus Estimate of $1.21 per share by 12.4%.
Quarter in Detail
This global consumer fashion accessories maker’s net sales of $959.2 million in the fourth quarter lagged the Zacks Consensus Estimate of $972 million by 1.3%. Net sales decreased 3% from the prior-year quarter, primarily due to currency headwinds, a decline in the company's multi-brand licensed watch portfolio and challenging environment for the traditional watch category.
The sales decline was in line with the company’s expectation of down 2% to up 4%. Adverse currency movements had a negative impact of $18.3 million on fourth-quarter sales. Category wise, the company witnessed declines in leather and jewelry business.
Despite a challenging and a disruptive environment, Fossil and Skagen brands both grew during the quarter. The wearables product category also had a steady stream of customers which drove growth.
On a constant currency basis, net sales declined 2%. While sales declined in Americas and Europe, it gained in Asia. Total watch business declined 2%, while it remained flat in constant dollars compared to last year.
Of late, Fossil has been witnessing general weakness in the watches category. The company noticed that tech-enabled watches have been significantly affecting traditional watch sales. The company benefited from newer brands such as Kate Spade, New York and Tory Burch during the quarter. While overall launches declined in the quarter, the sequential trend improved significantly with the expanding wearables offering. The company continues to expect weakness in this category.
Sales of Jewelry and leathers both declined 5%, on a constant currency basis. Notably the sales of leathers have persistently been weak as customer response to the assortment continues to put pressure on results.
Global retail comps dropped 7% year over year during the quarter with declines in all product categories. Positive comps in Asia were more than offset by declines in Europe and the Americas.
Gross margin declined 200 basis points (bps) to 51.0% due to unfavorable currency impact and higher promotional activity, primarily in the outlet stores and higher mix of lower-margin product.
Moreover, operating margin declined to 6.9% in the quarter, down 210 bps from 9.0% in the year-ago period, primarily due to lower sales and gross margin, currency headwinds, despite lower operating expenses.
Other Financial Update
At the end of the fourth quarter, the company had roughly $297.3 million in cash compared to $236 million in the preceding quarter, and debt of $610 million compared to $723 million in the preceding quarter.
Fiscal 2016 Results
Fossil reported adjusted earnings of $2.27 per share, which exclude 16 cents per share benefit from real estate transactions, offset by $0.43 per share restructuring charge and purchase accounting costs associated with Misfit, Inc. of $0.37 per share. The bottom line plunged 49.7% from the prior-year figure of $4.51 per share.
Net sales of $3.042 billion in the fiscal 2016 lagged the Zacks Consensus Estimate of $3.064 billion by 0.7%. Net sales decreased 5.8% from the prior-year quarter. Adverse currency movements had a negative impact of $45.4 million on full-year sales.
Fiscal First-Quarter Guidance
For the first-quarter of fiscal 2017, Fossil expects loss in the range of $0.10 to $0.25 per share, compared with adjusted diluted earnings per share of $0.11 for fiscal 2016.
The company expects net sales, on a constant currency, to decline in the range of 8.0% to 11.5%. Adjusted operating margin in a range of (2.0%) to 0.0%, compared with adjusted operating margin of 2.2% for the first quarter of fiscal 2016.
Fiscal 2017 Guidance Updated
Fossil continues to expect a challenging retail environment and pressure on the traditional watch category to persist. Currency will continue to remain a headwind in 2017.
The company now expects adjusted earnings in a range of $1.00–$1.70 per share for fiscal 2017, compared with adjusted diluted earnings per share of $1.80 for fiscal 2016. Sales, on a constant currency basis, are expected in the range of a decline of 4.5% to up 2%. Adjusted operating margin is now estimated in the range of 3.5% to 5.0%.
How Have Estimates Been Moving since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter. In the past month, the consensus estimate has shifted downward by -560.9% due to these changes.
Fossil Group, Inc. Price and Consensus
Fossil Group, Inc. Price and Consensus | Fossil Group, Inc. Quote
VGM Scores
At this time, Fossil's stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'C'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile 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.
Based on our scores, the stock is equally suitable for value and growth investors.
Outlook
Etimates have been broadly trending downward for the stock. The magnitude of these revisions indicates a downward shift. It's no surprise the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.