Everything seems to be running like clockwork over at Fossil (Nasdaq: FOSL ) these days.
The SEC investigation of the company finally appears to be over. Its new designs are proving popular and flying out of the display cases at retailers from Target (NYSE: TGT ) to Macy's (NYSE: M ) and Nordstrom (NYSE: JWN ) . And its earnings growth has been, and looks to remain, impressive. But let's dig a little further into this Fossil to see whether it's a truly Foolish investment.
In the second quarter, earnings increased 30.6% to $14.7 million, or $0.21 per share. Sales growth was also strong, up 18.2% to $306.1 million. The company believes that an improved European economy led to growth in that region, while new product offerings benefited sales both internationally and domestically.
Meanwhile, margin growth was less impressive, up just 10 basis points to 49.1% of sales. Those popular designs that led to more sales also provided lower profit margins for the company. However, it is already taking steps to update its product mix, an action that the company believes will improve margins in the second half of the year.
Looking at the remainder of the year, Fossil expects to report earnings per share of $0.33 in the third quarter and $1.58 for the full year, or $0.37 and $1.72 excluding grant review expenses. Although it looks as though Fossil will fall short of analysts' estimates in the third quarter, it should more than make up for it by easily topping full-year estimates of $1.48 per share, excluding charges.
There is no question that Fossil has performed well recently and expects to finish the year with more gains. However, the minimal year-over-year improvement in its third-quarter earnings is cause for some concern, because it demonstrates the volatility of the company's performance. When you combine the expected fluctuation in performance with the fact that Fossil currently seems to be fully priced after 56% gains over a year, I see limited upside potential. I may be overlooking a great find, but I would recommend waiting for the Street to begin losing interest in this one before digging in.
For more on the good times at Fossil, read:
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Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of any of the companies in this article.
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