Watch and consumer fashion firm Fossil (NASDAQ:FOSL) provided investors with good news last week, announcing it is now current in its financial filings and the SEC doesn't plan any "enforcement action" as a result of an ongoing stock options investigation. The company is up to report second-quarter results tomorrow as it returns focus to growing its business. Below is what to expect.

What analysts say:

  • Buy, sell, or waffle? Six analysts currently follow FOSL. Three are bullish while the rest have a hold rating on the stock.
  • Revenues. Analysts on average expect $294.4 million in second-quarter sales, or approximately 14% ahead of last year's second-quarter sales amount.
  • Earnings. Analysts project a quarterly earnings of $0.20, or about 25% growth over last year's quarter.

What management says:
Back when Fossil released first-quarter results, it said it expected "net sales growth in the lower double-digit range for the remainder of fiscal year 2007." It is also projecting an improvement in gross margins from last year and plans on providing earnings estimates again once it finalizes the internal stock-options investigation.

What management does:
Fossil has a solid track record of double-digit sales growth, and just recently has been returning to posting higher profit margins. Just a few years ago, it posted close to 9% net margins and returns on invested capital close to 20%. And while competition from higher-end watch makers such as Movado (NYSE:MOV) has steadily eaten into Fossil's profitability, the near-term trends are encouraging.

Margins

12/05

04/06

07/06

10/06

01/07

04/07

Gross

51.3%

50.9%

50.2%

49.6%

50.2%

50.4%

Operating

10.6%

9.6%

9.3%

8.7%

10.2%

11.2%

Net*

7.3%

5.7%

5.9%

5.5%

6.4%

7.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Now that the stock options investigation looks to be winding down and investors have current financial statements to pore over, is Fossil ready for a share price boost? Actually, the pop may have already occurred as the stock is up over 60% in the past year. Based off current forward guidance, the shares now trade at just under 20 times earnings, so the market is likely already discounting any further improvements in margins and sales prospects.

Given the recent share price move and uneven profitability trends over the past few years, I'm inclined to watch future developments from the sidelines. Fossil does sell to some large, growing retailers in Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), as well as higher-end retailers such as Neiman Marcus and Nordstrom (NYSE:JWN), but still has work to do to convince me that stronger trends at company-owned stores are here to stay.

For more related Foolishness:

Wal-Mart is an Inside Value selection.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.