Shares of Fossil Group (NASDAQ:FOSL) were heading lower today after rival Capri Holdings (NYSE:CPRI), the parent of fashion brands Michael Kors, Jimmy Choo, and Versace, noted weakness in the watch market. That pressured shares of Fossil as watches make up the fashion brand's core business. The stock was down 10% as of 3 p.m. EST on Wednesday.
Though Capri Holdings shares jumped on a strong earnings report, its CEO John Idol highlighted challenges in the watch market on the earnings call, saying, "The overall watch category was more challenged than we anticipated in the quarter." Idol added, "The fashion-watch category continues to see declines globally, and we are being impacted by this secular trend."
Management also discussed the challenges around watches several other times on the call. This commentary had a direct effect on Fossil because watches generate about 80% of its sales, and it competes in many of the same channels, like department stores, as Capri.
Fossil shares have collapsed over the last several years due to concerns about declining sales and the future of the watch market, but the stock spiked a year ago when the company showed signs of life. Fossil sits at the intersection of two struggling industries -- watches and brick-and-mortar retail -- and is clearly vulnerable. But stocks are priced according to expectations, which leaves room for upside potential, especially since the company is in the midst of a turnaround plan.
Fossil will present its full fourth-quarter earnings report next week on Feb. 13. Analysts are expecting revenue to slide 12.1% to $809.8 million, and see earnings per share rising from $0.64 to $1.11 due to cost cuts. Expect the stock to be volatile in the wake of the report because the holiday quarter is Fossil's most important, and the company has trounced earnings expectations in each of the last four quarters.