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Why Fossil Group Stock Soared 14% This Morning

By Reuben Gregg Brewer - Updated Jun 4, 2020 at 10:19AM

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The accessory maker started the day off on the right foot, thanks to its earnings release the day before.

What happened

Shares of lifestyle accessory maker Fossil Group (FOSL -2.11%) jumped right out of the gate on Thursday, rising roughly 14% by 10 a.m. EDT. That's extra notable, being that the broader market was just break-even by 10 a.m. So this heady advance was company specific, and you can thank Fossil's earnings release after the close on Wednesday for the enthusiasm. 

So what

On the surface, Fossil's first quarter was pretty grim because of the impact of the global effort to slow the spread of COVID-19. Sales were lower by 16% year over year in the quarter. On the bottom line, the company lost $1.69 per share, much worse than the $0.25 loss in the first quarter of 2019. Meanwhile, Fossil highlighted that it was cutting costs, pulling back on spending, and drawing down on its revolving credit facility to shore up its balance sheet. Those are the right moves, of course, but they aren't exactly positive news.   

A man looking at his wrist watch

Image source: Getty Images.

That said, after falling short of analyst estimates for two quarters, Fossil's earnings actually hit the target this quarter. That's a net positive, being that Wall Street was probably worried that things were going to be worse than expected again. Meanwhile, Fossil stated that it hopes to have all of its stores back up and running, where allowed, by the end of June.

Although the second quarter is likely to be another brutal read, the company appears to be through the worst of the direct coronavirus impact at this point. Investors reacted positively to the news, helped along by recent updates from retail landlords that people are once again hitting the malls now that they are reopening.   

Now what

Long-term investors shouldn't get too excited here. Fossil sells largely discretionary items, and the effort to contain COVID-19 is likely to push the world into a broad recession. That would be a new headwind for this retail stock, to add to the existing one. There are silver linings on the clouds here, so investors are right to be upbeat, but the clouds are definitely not gone yet. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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