AMC Urged Toward Bankruptcy as Stock Markets Reverse; Fossil Group Plunges

The stock market got off to a strong start on Monday, but by the end of the day, major market benchmarks were mixed. As we've seen a lot recently, the Nasdaq Composite (^IXIC -0.01%) managed to hold onto some of its gains, with its concentration of technology and biotech stocks playing to its strengths. Meanwhile, the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 (^GSPC 0.05%) saw bigger late-day drops that pushed them into the red.

Data source: Yahoo! Finance.

While the market's losses were relatively small, some stocks took much bigger hits. AMC Entertainment Holdings (AMC -5.80%) has struggled for much of the year, and it got news Monday that suggested it might not be able to survive. Meanwhile, Fossil Group (FOSL -1.05%) plunged as shareholders apparently reacted to what could be a major loss of future business for the watchmaker.

Lenders to AMC: Please give up

AMC Entertainment Holdings' shares fell 19% on Monday. The movie theater operator has had to deal with huge challenges during the COVID-19 pandemic, and it got news today that a few of its big creditors are ready for AMC to file for bankruptcy protection.

Image source: Getty Images.

AMC has been working hard to stay afloat even as many of its movie theaters have been shut for much of 2020. Even when the pandemic let up in intensity, theaters were among the last businesses to reopen, and many states required reduced capacities. Late last week, AMC said it needed to find $750 million in financing in order to keep operating.

A set of senior creditors, however, has had enough. The group, which reportedly includes Apollo Global Management (APO) and other hedge fund investors, offered AMC debtor-in-possession financing as an incentive to file for bankruptcy now.

Interestingly, not all creditors are in the same boat. Junior creditors might not get paid back in full in a bankruptcy reorganization, so they have an incentive to let AMC find more financing in the hopes of finding long-term success. With bankruptcy law permitting involuntary filings in some instances, it'll be interesting to see if Apollo and others end up making an offer AMC can't refuse.

Is Armani leaving Fossil?

Elsewhere, shares of Fossil Group were down even more sharply, falling 27%. For the luxury watch retailer, today's drop was a bit more of a puzzle, but Fool contributor Jon Quast managed to piece together the likely explanation for the move.

Among the watch lines that Fossil sells are those of fellow luxury brand designer Giorgio Armani. An industry publication reported that Armani will be working with another watchmaking company, Parmigiani Fleurier, on a line of watches coming out late next year. Armani himself apparently likes his new watchmaker/partner, and that could jeopardize renewal of Fossil's agreement with Armani when it expires in 2023.

Luxury retailers have had an up-and-down year in 2020. Fossil saw its shares plunge at the beginning of the pandemic, but in the past month, the stock doubled on hopes that the holiday season would go better for the watchmaker. Unfortunately, Fossil shareholders now seem to be worried about the longer-term future of the company irrespective of what happens with COVID-19, and that could prove more problematic.

Investors need to balance short-term and long-term factors in evaluating stocks. Both Fossil and AMC have opportunities to try to work through their problems, but they need to act decisively to protect their businesses from threats.