Fossil Group Posts A Fabulous Quarter Adding Cheer To Investors

Author's Avatar
Nov 12, 2014

03May20171302361493834556.jpg The well-known consumer fashion accessories company, Fossil Group Inc. (FOSL, Financial), posted its third-quarter results on November 11 and the fantastic set of numbers sent the stock on an upward trajectory gaining 9% on Tuesday after the report card was made public. In fact, it was like the revival of the financial playbook of Fossil after the weak second quarter result in which North American sales were sluggish and profit margins showed substantial declines when compared to the year-ago period. Let’s check out how Fossil is planning to get over such issues and whether that’s well depicted in the present third-quarter results.

The quarter’s number game

The company reported earnings of $1.96 a share which beat the consensus estimate of $1.82 a share for the quarter. Revenue stood at $895.50 million, which was over and above the consensus estimate of $877.39 million. Revenue jumped 10.4% on a year-over-year basis during the quarter. On an average, analysts are expecting that the Fossil Group will post $7.16 per share as earnings for the current fiscal year. While posting the results, the company updated its guidance for the current fiscal year to $7 a share to $7.30 a share.

03May20171302361493834556.jpg

On the conference call, the management noted that growth for the company is tough in the U.S. because of Fossil’s established presence and since the retail foot traffic has become sluggish. To fight this challenge, Fossil’s investing in omnichannel efforts and has placed special emphasis on the same for the coming years.

Otherwise, sales have shown a recovery in almost every region –Â in Europe net sales jumped 15%, in Asia-Pacific it grew 11%, and direct-to-consumer net sales improved 11% during the quarter. CEO Kosta Kartsotis commented on the results: "The quarter was highlighted by growth across our major geographies and driven by strength in our multi-brand watch portfolio, jewelry and our Fossil and Skagen lifestyle brands. We launched our Tory Burch watch collection – adding another powerful brand to our portfolio and furthering our Swiss watch initiative. … Our overarching goal is to consistently deliver profitable top-line growth while investing in high return initiatives that can fuel our momentum over the long term, and we believe fiscal 2014 is shaping up to represent a year of progress toward this objective.”

The outlook remains sound

03May20171302371493834557.jpg

In the fourth quarter, the management expects sales to grow by 3% to 6%, which includes the negative impact of 2.5% due to effects of currency translation. The company has projected that the EPS for the fourth quarter would come in between $2.91 a share and $3.21 a share, Thomson Reuters’ analysts are expecting an EPS of $3.17 a share. Revenue is expected to come to around $1.09 billion to $1.13 billion, compared to the consensus estimate of $1.14 billion.

Looking at prospective signals

The management elaborated on a couple of recent announcements made during the quarter that would boost the company’s presence in wearable computing and high end fashion. The company disclosed that its working closely with Intel (INTC, Financial) for developing what is generally called “smart” watches and accessories. The company’s working together with Intel on the wearable technology, and it expects products to flow into the market by the coming year.

During the earnings conference, Fossil announced that it had renewed the license with Michael Kors (KORS, Financial) for watches and jewelry for another 10 years. The latter continues to boost Fossil’s sales internationally, particularly in the jewellery segment.

Concluding note

With everything stated, one thing is not very sure whether Fossil can sustain this level of profits and sales in the coming quarters. Possibly the fourth quarter will give better insight on Fossil’s future, but right now, the company seems well poisoned in the challenging retail market. As the outlook is not totally dull, within a few months it will be decided whether the watchmaker is able to set its mark in the jewelry and accessories sector. So, let’s find out what this company is made of.