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What's in the Cards for Fossil Group (FOSL) in Q2 Earnings?

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The Fossil Group, Inc. (FOSL - Free Report) is expected to report second-quarter 2018 results on Aug 7. In the last reported quarter, this designer and manufacturer of accessories delivered a positive earnings surprise of 5.7%. Further, the bottom line has outperformed the Zacks Consensus Estimate in the trailing four quarters by an average of 54.1%. Let’s see what awaits this quarterly release.

Fossil Group, Inc. Price, Consensus and EPS Surprise
 

Fossil Group, Inc. Price, Consensus and EPS Surprise | Fossil Group, Inc. Quote

How are Estimates Faring?

The Zacks Consensus Estimate for the second quarter is pegged at a loss of 41 cents, wider than a loss of 23 cents reported in the year-ago period. Nonetheless, the Zacks Consensus Estimate has improved in the past seven days, from a loss of 53 cents.

The Zacks Consensus Estimate for sales is pegged at $574 million, down 3.8% from the year-ago reported figure.

Factors Influencing Quarterly Results

Fossil is likely to gain from its New World Fossil restructuring plan that was introduced in 2016. The plan aims to transform the company, fuel efficiencies, improve margins and enhance the overall operating structure of the business to drive profitability. Fossil is on track with this plan, which helped it cut operating costs and drive gross margin in the first quarter. We expect the trend to continue.

Also, the company has been enhancing its product portfolio to keep pace with emerging lifestyle and fashion trends. To this end, Fossil has been expanding its wearables portfolio, which has been gaining traction in the market. Notably, wearables represented roughly 20% of the company’s total watch sales in the first quarter, marking a steady improvement from 8% in the year-ago period.

As the wearable business is expected to grow by $32 billion by 2020, Fossil Group is geared up to enrich its wearables portfolio by adding new brands to its smartwatch line-up in 2018. Apart from this, the company is keen on expanding its digital platform and meet consumers’ growing demand for online purchase. Incidentally, the company has been making several investments to improve digital marketing and drive online sales.

Despite these efforts, Fossil Group’s sales have been declining year over year for more than two years now, owing to continued softness in the company’s traditional watch category and soft store traffic. Traditional watch sales have been bearing the brunt of increased competition and rising demand for tech-savvy watches. Sales of leathers and jewelry have also been persistently weak. In the first quarter of 2018, Fossil’s sales dropped 2% to $569 million year over year.

Unfortunately, these trends are likely to persist in 2018, which raises concerns for the quarter under review as well. The company expects net sales to decrease in the range of 11-4% in the second quarter of 2018.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Fossil Group is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Fossil carries a Zacks Rank #3 (Hold), its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Boot Barn Holdings, Inc. (BOOT - Free Report) has an Earnings ESP of +2.85% and a Zacks Rank #2.

American Eagle Outfitters, Inc. (AEO - Free Report) has an Earning ESP +4.88% and a Zack Rank #2.

Canada Goose Holdings Inc. (GOOS - Free Report) has an Earning ESP +5.56% and a Zack Rank #2.

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