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Bear of the Day: Fossil (FOSL)

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Fossil Group, Inc. FOSL continues to struggle with its turnaround strategy. This Zacks Rank #5 (Strong Sell) is expected to see its earnings decline 84.6% year-over-year.

Fossil makes specialized lifestyle accessories including fashion watches, jewelry, handbags, small leather goods and wearables.

It owns several well known brands including Fossil, Michele, Misfit, Relic, Skagen and Zodiac. It's licensed brands include Armani Exchange, BMW, Chaps, Diesel, DKNY, Emporio Armani, kate spade new york, Michael Kors, PUMA and Tory Burch.

A Big Miss in the Third Quarter

On Nov 6, Fossil reported its third quarter earnings and missed the Zacks Consensus by 137%, or $0.55. Earnings were a loss of $0.15 versus the consensus of $0.40.

Net sales fell 11% to $539.5 million, or a 10% decline on a constant currency.

The contraction sales was primarily due to negative currency effects, store closures and business exits, lower
inventory liquidation levels, and a reduction of sales in the lower margin off-price channel. Both the Americas and Europe saw declines.

The Americas fell 18% while Europe fell 16%. Those declines were partially offset by Asia, where sales rose 9% thanks to a strong watch category and e-commerce channel performance in mainland China, India and Korea.

Watches declined in the Americas and Europe and increase in Asia.

Global retail comps fell 2% year-over-year. The Americas outlet stores and e-commerce in Asia and Europe saw positive comps but there were declines in Americas e-commerce and declines in the full-price stores.

Watch comps were positive but were offset by negative leather and jewelry comps.

Estimates Slashed

As the company puts its New World Fossil 2.0 Transform to Grow initiative in place, it expects continue declines in margins and higher costs.

As a result, the analysts have slashed both 2019 and 2020 earnings estimates.

The 2019 Zacks Consensus Estimate has fallen to $0.12 versus $1.49 just 30 days ago. That's a decline of 84.6% as the company made $0.78 a year ago.

The 2020 Zacks Consensus Estimate has plunged to $0.15 from $1.68 over the last month.

Shares Near 5-Year Lows

It's been a rough 5 years for Fossil as smart watches have eaten into demand for standard watches. Shares are down 93% over the last 5 years.

Are they cheap?

Now that earnings have been slashed, it's now trading with a forward P/E of 60. It's not cheap by a P/E method.

Watches are a difficult retail market. Even with a turnaround program, sales continue to struggle.

If you really want to own a watch company right now Movado (MOV - Free Report) is a Zacks Rank #3 (Hold) and has a forward P/E of 10.6.

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