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Fossil Group Down 30% in 3 Months: Can Efforts Aid Recovery?
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Fossil Group Inc (FOSL - Free Report) has been in the red zone for a while now, due to dismal traditional watch sales. Shares of the company plunged 26.9% in the past six months against the industry’s rally of 12.8%. These headwinds, along with margin pressure, have compelled management to lower 2017 forecasts.
Considering these aspects, let’s take a look into some of the factors that having been denting the performance of the company and efforts undertaken to aid recovery.
What’s Weighing on the Stock?
Fossil Group has been witnessing soft sales in traditional watches due to increased competition and rising demand for tech-enabled watches. Evidently, sales at the watch segment declined 2.7% in third-quarter 2017 results.
To add to the companies’ woes, the leathers and jewelry businesses have been persistently weak on account of soft consumer demand. Sales in these segments fell 20.8% and 18.9% during the third quarter, wherein overall sales tumbled 6.7% year over year.
Fossil has been witnessing lower gross margin for a year, primarily due to soft retail margins stemming from increased promotions to drive sales (in stores and e-commerce) and higher mix of connected products. In the third quarter, gross margin contracted 580 basis points to 46.4% due to lower margins from connected products and increased product valuation reserves. Lower retail margins from greater promotional activity, unfavorable currency impacts and increased off-price sales also dragged the gross margin.
Unfortunately, management expects obstacles related to increased promotions and unfavorable mix to dent gross margin in the fourth quarter. Further, Fossil Group continues to expect a challenging retail environment for its traditional watch category. This along with margin pressure compelled management to lower its 2017 forecasts. The company now expects net sales to decline 8.5-10.5% and envisions the bottom line at a loss of 45 cents to earnings of 10 cents.
Efforts to Revive Performance
Rapid technological changes urge retailers to constantly upgrade offerings and keep up with changing consumer preferences. To this end, Fossil Group has been trying to attract tech-savvy consumers by introducing several connected wearables. Notably, Wearables represented more than 10% of the company’s sales in the third quarter, which nearly doubled from the year-ago quarter and also marked a sequential improvement.
Driven by positive consumer response in this segment, management has plans to enrich wearables by adding new brands to its smartwatch line-up in 2018. Powered by Android Wear, these brands will strengthen Fossil Group’s current portfolio with premium brands like Diesel, Emporio Armani, Michael Kors and Misfit.
Additionally, this Zacks Rank #3 (Hold) company has been trying to induce greater efficiency into its business through the New World Fossil restructuring initiative. The company’s licensing agreements with Michael Kors, Emporio Armani and other renowned brands are also expected to boost business.
We are encouraged with Fossil Group’s efforts to strengthen its performance, especially its watch segment. We expect such initiatives to aid the company offset ongoing challenges and uplift performance in the upcoming periods.
Burlington Stores delivered an average positive earnings surprise of 15.2% in the last four quarters. It has a long-term earnings growth rate of 17.5%.
Ross Stores delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10%.
Dollar Tree delivered an average positive earnings surprise of 7.4% in the trailing four quarters. It has a long-term earnings growth rate of 13.1%.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Fossil Group Down 30% in 3 Months: Can Efforts Aid Recovery?
Fossil Group Inc (FOSL - Free Report) has been in the red zone for a while now, due to dismal traditional watch sales. Shares of the company plunged 26.9% in the past six months against the industry’s rally of 12.8%. These headwinds, along with margin pressure, have compelled management to lower 2017 forecasts.
Considering these aspects, let’s take a look into some of the factors that having been denting the performance of the company and efforts undertaken to aid recovery.
What’s Weighing on the Stock?
Fossil Group has been witnessing soft sales in traditional watches due to increased competition and rising demand for tech-enabled watches. Evidently, sales at the watch segment declined 2.7% in third-quarter 2017 results.
To add to the companies’ woes, the leathers and jewelry businesses have been persistently weak on account of soft consumer demand. Sales in these segments fell 20.8% and 18.9% during the third quarter, wherein overall sales tumbled 6.7% year over year.
Fossil has been witnessing lower gross margin for a year, primarily due to soft retail margins stemming from increased promotions to drive sales (in stores and e-commerce) and higher mix of connected products. In the third quarter, gross margin contracted 580 basis points to 46.4% due to lower margins from connected products and increased product valuation reserves. Lower retail margins from greater promotional activity, unfavorable currency impacts and increased off-price sales also dragged the gross margin.
Unfortunately, management expects obstacles related to increased promotions and unfavorable mix to dent gross margin in the fourth quarter. Further, Fossil Group continues to expect a challenging retail environment for its traditional watch category. This along with margin pressure compelled management to lower its 2017 forecasts. The company now expects net sales to decline 8.5-10.5% and envisions the bottom line at a loss of 45 cents to earnings of 10 cents.
Efforts to Revive Performance
Rapid technological changes urge retailers to constantly upgrade offerings and keep up with changing consumer preferences. To this end, Fossil Group has been trying to attract tech-savvy consumers by introducing several connected wearables. Notably, Wearables represented more than 10% of the company’s sales in the third quarter, which nearly doubled from the year-ago quarter and also marked a sequential improvement.
Driven by positive consumer response in this segment, management has plans to enrich wearables by adding new brands to its smartwatch line-up in 2018. Powered by Android Wear, these brands will strengthen Fossil Group’s current portfolio with premium brands like Diesel, Emporio Armani, Michael Kors and Misfit.
Additionally, this Zacks Rank #3 (Hold) company has been trying to induce greater efficiency into its business through the New World Fossil restructuring initiative. The company’s licensing agreements with Michael Kors, Emporio Armani and other renowned brands are also expected to boost business.
We are encouraged with Fossil Group’s efforts to strengthen its performance, especially its watch segment. We expect such initiatives to aid the company offset ongoing challenges and uplift performance in the upcoming periods.
Do Retail Stocks Interest You? Check These
Investors may consider other stocks from the same sector such as Burlington Stores Inc. (BURL - Free Report) , Ross Stores Inc (ROST - Free Report) and Dollar Tree Inc. (DLTR - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Burlington Stores delivered an average positive earnings surprise of 15.2% in the last four quarters. It has a long-term earnings growth rate of 17.5%.
Ross Stores delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10%.
Dollar Tree delivered an average positive earnings surprise of 7.4% in the trailing four quarters. It has a long-term earnings growth rate of 13.1%.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>