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Why Fossil Group, Inc. Stock Dropped Today

By Steve Symington - Jan 31, 2018 at 6:18PM

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Higher borrowing costs threaten to amplify the watchmaker's losses this year. Here's what investors need to know.

What happened

Shares of Fossil Group Inc. (FOSL 3.19%) fell 13.3% on Wednesday, after the the fashion and lifestyle accessories specialist received less favorable terms in refinancing its term loan.

More specifically, according to an SEC filing late yesterday, Fossil Group's $425 million term loan facility will bear annual interest at a rate of LIBOR plus 7% for the first year, increasing to LIBOR plus 8% and LIBOR plus 9% after the first and second years, respectively. Previously, the same facility incurred interest at a rate of LIBOR plus 3.75%. 

Fossil Group headquarters sign on a tall glass building from below


So what

For perspective, shares of Fossil plunged 70% last year as the company struggled to stem falling sales, incurring big losses with each passing quarter in the process. But given its massive decline, the stock had also rebounded in recent weeks amid speculation that Fossil could be a takeover target.

Still, the news was enough to spur at least one negative analyst note. Wells Fargo's Ike Boruchow this morning reiterated his "underperform" rating on Fossil stock and, after accounting for higher borrowing costs, reduced his estimate for the company to incur a per-share loss in 2018 of $0.48. That's more pessimistic than Wall Street's current consensus estimates, which call for Fossil to lose just $0.14 per share in the coming year.

Now what

Investors shouldn't need to wait long for more color on which is the more accurate prediction. Fossil is slated to release its fourth-quarter 2017 results and provide 2018 guidance in mid-February. In the meantime, with so much pessimism already surrounding the business, it's no surprise to see the stock pulling back today.

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