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Bear of the Day: Fossil (FOSL)

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Fossil Group, Inc. is losing momentum as the Street doubts the turnaround plan. Shares of this Zacks Rank #5 (Strong Sell) have fallen 35% in the last 6 months.

Fossil designs and distributes lifestyle accessories including fashion watches, jewelry, handbags, small leather goods and wearables.

It owns several major brands including Fossil, Michele, Misfit, Relic, Skagen and Zodiac and produces goods for licensed brands including Armani Exchange, BMW, Chaps, Diesel, DKNY, Emporio Armani, kate spade new york, Marc Jacobs, Michael Kors, Puma and Tory Burch.

It operates globally.

A Big Earnings Miss in the Fourth Quarter

On Feb 13, 2019, Fossil reported fourth quarter 2018 results and posted a big miss on the Zacks Consensus of 26 cents. Earnings were $1.01 versus the consensus of $1.27.

Worldwide sales fell 15% to $133.9 million from $118.3 million year over year. Watches, its big category, declined in the Americas and Europe and increased modestly in Asia.

In the Americas, a sales decline in the US drove the decrease. In Europe, sales across the Eurozone and in distributor markets in Eastern Europe and the Middle East declined, with the greatest declines in the UK, Germany and  France.

A bright spot was an increase in sales in parts of Asia, including India, China and Hong Kong.

In its retail stores, the story wasn't any better as comparable sales fell 7% year-over-year with declines across all product categories and regions, largely driven by the outlet stores.

Global direct e-commerce sales were one bright spot, as those rose by the double digits in the Americas and Asia but declined moderately in Europe.

The company also saw sales decline in its leathers and jewelry segments in the quarter and for the full fiscal year.

Guidance Disappoints

Fossil urged investors, and the analysts, to look at certain key metrics over the next few years as it tries to transform itself. These metrics include net sales, gross margin, operating expenses, operating margin, other income (expense),  interest expense and income (loss) before income taxes.

Earnings are not in the equation.

That could be because the analysts are really negative on earnings going forward.

2 estimates were sharply cut in the past 30 days for 2019 which pushed the Zacks Consensus down to $0.64 from $1.54. That's an earnings decline of 18% as Fossil made $0.78 in 2018.

2 estimates were also revised lower for 2020 as the Zacks Consensus plunged to $0.35 from $1.79, which is another decline of 46%.

The earnings are moving in the wrong direction.

Shares Have Downward Momentum

After a big rally in 2018 off the 5-year lows, the hope surround the transformation plan is now fading.

Shares are down 35% over the past 6 months.

They aren't much of a deal here either. With the earnings estimates being cut, the forward P/E is still high at 25x.

Investors might want to take a look at some of Fossil's competitors for companies with a better earnings outlook. Fitbit (FIT - Free Report) and Movado (MOV - Free Report) are both Zacks Rank #3 (Hold). Movado is also cheaper, with a forward P/E of just 12.

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