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Troubled Waters for Fossil Group Inc.

By Motley Fool Staff - May 24, 2016 at 2:40PM

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Why Fossil Group fell this quarter and why its future isn’t looking great.

Does anyone still wear a watch? While some people certainly do, it's becoming more clear that increasing numbers of people forgo the accessory or choose a multifunction device, whether it's for fitness or even a smartwatch. 

For a company like Fossil Group (FOSL -1.35%), which first and foremost is a watch seller, that trend is problematic and seemingly spells long-term woes.

In this segment from the Motley Fool Money radio show, Chris Hill and Jason Moser talk about Fossil Group's disastrous first-quarter earning results and the equally dreadful full-year guidance. Find out why the company is having so much trouble succeeding in the retail world and why their prospects are less than stellar going forward.

A full transcript follows the video.

This podcast was recorded on May 13, 2016. 

Chris Hill: Fossil Group sells fashion accessories, mostly wrist watches, and they don't appear to be selling enough of them, Jason. Shares falling 30% this week after an absolutely brutal first-quarter report.

Jason Moser: Yep. Guidance often trumps results, especially when the results suck. And the results were really, really bad. And their guidance, honestly, was really worse. I think the biggest problem for Fossil is 75% of their sales come from watches, which, as you've noted before, that's just not seemingly the strongest sort of recurring purchase. You have, on one hand, watch enthusiasts. You have, on the other hand, these people who are making the switch to some sort of fitness device. And then there's folks in the middle there who just don't want to wear a watch.

So, you have this retailer with no real pricing power, no real sort of identity otherwise. They're stuck with inventory getting out of control, margins starting to get a little compressed, and we've already established we're in the face of a pretty weak consumer at this point in time. So, in the first quarter, when you offer up guidance for the full year like these guys did, it's no wonder the stock got shelled. And honestly, I don't know that there's a catalyst that turns this thing around anytime soon. If you're looking for a retail idea, I think I'd steer clear of this one.

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