What happened
Shares of Fossil Group Inc. (FOSL -0.19%) declined 26.3% in the month of August, according to data provided by S&P Global Market Intelligence, after the lifestyle accessories specialist announced disappointing quarterly results and the resignation of its chief financial officer.
More specifically, Fossil stock plummeted more than 25% on a Aug. 9, 2017, alone -- the first day after posting its mixed report. Quarterly revenue dropped 12.9% year over year to $596.8 million, which translated to an enormous GAAP net loss of $344.7 million, or $7.11 per share. But that big loss also included a non-cash asset impairment charge of $6.50 per share, restructuring charges of $0.13 per share, a $0.05-per-share foreign currency headwind, and other tax and interest adjustments. After accounting for those unusual items, Fossil's adjusted (non-GAAP) net loss was a more modest $0.23 per share.
By comparison, analysts were expecting a wider adjusted net loss of $0.28 per share, but on significantly higher revenue of $619 million.
It also didn't help that Fossil simultaneously announced the resignation of its CFO, Dennis Secor, who the company says "decided to relocate back to California for personal reasons." Secor will step down from his post on Oct. 16, to be replaced Fossil board member and current chairman of the company's finance committee, Jeffrey Boyer.
IMAGE SOURCE: FOSSIL GROUP
So what
The timing of Secor's impending departure seems like no coincidence. But putting that turnover aside, Fossil blamed its underperformance on the continued decline of traditional watches, leathers and jewelry, the combination of which simply couldn't be offset by the strength of Fossil's connected watch offerings.
Fossil further explained that the large impairment charge was "triggered by the sustained compression of the company's market capitalization that occurred throughout most of the latter part" of the quarter. Recall shares of Fossil plummeted nearly 38% in the month of May after the company's disappointing first-quarter report, then continued to drift lower from there amid the market's pessimism for its prospects going forward.
Now what
Nonetheless, Kartsotis remained optimistic, predicting that the company's momentum in the wearable technology space, supply chain improvements, and lower infrastructure costs should allow it return to sustained growth and profitability over the long term.
In the meantime, though, Fossil now expects full-year revenue to fall in the range of 8.5% to 4.5%, marking a reduction from its previous outlook for a 6% to 1.5% dip.
In the end, there was little to like about Fossil's quarter when you put aside the relative strength of its wearable tech products. And even there, Fossil is facing increasing competition from the likes of well-funded competitors like Apple and Fitbit. Fitbit investors, in particular, saw shares skyrocket last week after the wearable fitness company unveiled a slew of new products including the Fitbit Ionic, which it describes as its first true smartwatch with everything from GPS functionality to a blood oxygen sensor, improved heart rate monitoring, and support for popular apps like Pandora and Starbucks.
So until Fossil can demonstrate tangible proof of a sustained turnaround driven by not only its connected watches in the face of this competition but also by a recovery in its core business, I'm content watching its progress from the sidelines.
