What happened

Shares of Fossil Group (NASDAQ:FOSL), a global designer and distributor of accessory products that include watches and other wearables, plunged more than 25% lower Thursday morning after a surprisingly weak third-quarter report.

So what

Starting from the top, sales declined 11.4% to $539.5 million during the third quarter compared to the prior year, which missed analysts' estimates of $558 million. But it was the bottom line that concerned investors, as Fossil lost $26 million, or $0.51 per share, in the third quarter, compared to earnings of $5 million, or $0.10 per share, during the prior year. The result was wildly short of analysts' earnings estimates of $0.21 per share. Weak sales results were driven by a number of factors including store closures, currency effects, inventory liquidation levels, and reduced sales in the lower-margin off-price channel, among others.

A row of watches in a retail store.

Image source: Getty Images.

After noting sales performance improved sequentially from the second quarter, Kosta Kartsotis, chairman and CEO of Fossil, admitted some disappointment: "Our overall sales performance, however, was not up to our goals, and we are highly focused on bringing about a positive change in our top-line trajectory. In addition, we continue to reduce our overall cost structure in order to improve profitability and expand our capacity to invest in high growth areas."

Now what

It's been an incredibly difficult ride for Fossil and its investors lately; the company has shed roughly 90% of its value over the past five years as it failed to adapt to rapidly changing trends. Management has taken steps to strengthen the balance sheet by removing $500 million in net debt from the end of 2015 to the end of 2018, but it hasn't been able to innovate and develop enough compelling products to energize its business. Management believes in its strategy to bring new products to market and that its New World Fossil 2.0 Transform to Grow initiative will continue to deliver savings, but these moves will take time to bear fruit.