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We expect Fossil, Inc. (FOSL - Analyst Report), a leading fashion accessories distributor, to beat expectations when it reports fourth quarter 2012 results on Feb 12.

Why a Likely Positive Surprise?

Our proven model shows that Fossil is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Fossil’s Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) stands at +0.44%. This represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Fossil currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement. 

The combination of the stock’s Zacks Rank #3 (Hold) and ESP of +0.44% makes us confident of an earnings beat on Feb 12.

What is Driving the Better Than Expected Earnings?

Fossil’s acquisition strategy, its strong liquidity position, prudent expense management and its ability to generate positive comparable store sales are the growth drivers of the stock.

The acquisition of the Skagen brand in last April has been adding strength across the North American watch business and also resulted in significant improvement in the Asia-Pacific wholesale business in the third quarter. Also, Fossil has been delivering back-to-back increases in comparable store sales, which has fueled growth. Further, its Jan 2013 acquisition of the Latin American distribution rights from Florida-based Bentrani Watches, LLC will further expand its exposure in Latin America, which is now the fastest growing region in the world.

The company’s healthy third quarter results and its growth strategies thus raised its earnings per share projection for full-year 2012 to $5.42–$5.45 from $5.29–$5.34.

Fossil has beaten estimates in all the past four quarters, posting a healthy average earnings surprise of 11.4%. Estimates are mostly seeing an upward trend ahead of the fourth quarter 2012 results.

Other Stocks to Consider

Fossil is not the only firm looking up this earnings season. You can also consider these stocks that offer exposure to the attractive consumer discretionary sector:

Michael Kors (KORS - Analyst Report), Earnings ESP of +5.00% and Zacks Rank #2 (Buy)

True Religion , Earnings ESP of +2.94% and Zacks Rank #2 (Buy)

Pvh Corp. (PVH - Analyst Report), Earnings ESP of +0.67% and Zacks Rank #3 (Hold)

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