What happened
Shares of Fossil Group (FOSL 5.22%) rose 13% Thursday after the watchmaker showed off progress toward its turnaround in its first-quarter earnings report.
So what
Revenue in the period fell 18% (15% in constant currency) to $465.3 million, as timepieces have become less necessary in the smartphone era. Nonetheless, that result topped estimates of $456.1 million. The company said comparable retail sales fell 9% in the quarter, but e-commerce sales continued to grow.
Image source: Fossil.
The company experienced significant revenue declines in its three product categories -- watches, leather, and jewelry -- and in both the Americas and Europe. However, in Asia, constant-currency revenue rose 4%, with solid growth in China and India.
Gross margin increased by 280 basis points, a promising sign, to 53.3%; this was due to a cutback on sales in the off-price channel, and a favorable mix shift to higher-margin sales in Asia.
Adjusted loss per share improved from a loss of $0.64 to one of $0.42, beating expectations for a loss of $0.60 per share.
CEO Kosta Kartsotis said: "We began fiscal 2019 reporting sales and earnings that exceeded our expectations. Given the ongoing disruptions in our category, we continue to plan our business conservatively but are operating with a sense of urgency to transform our sales channels and to increase product innovation across our categories."
Now what
Looking ahead, the company sees revenue declining between 7% and 12% for the full year. It also expects pre-tax income of $30 million to $75 million.
While the continuing declines in revenue are troubling, investors are learning to accept them as the company copes with a struggling brick-and-mortar channel and a watch market in transition. However, Fossil seems to be making progress in its turnaround efforts as it moves toward wearables and e-commerce. Growth in China and India also shows that the brand isn't struggling everywhere, and the improvement in gross margin is a positive sign for the bottom line.
The stock is unlikely to return to its previous heights, but Fossil seems to be moving in the right direction for now.
