Whether it was Colonel Mustard in the library with the candlestick holder or Mr. Green with the rope in the kitchen is meaningless; there was a massacre at 901 South Central Expressway in Richardson, Texas, yesterday and Fossil
I can't recall the last time I saw a company's shares so completely taken to the woodshed for such a small reduction in its full-year forecast. For the quarter, Fossil reported an 11.1% increase in sales based on constant dollars, and a profit of $0.93, which was up 8% over the year-ago period. These results came in marginally ahead of Wall Street's expectations. But as soon as Fossil mentioned that it was beginning to see a slowdown in European sales, investors began diving out of their first-story windows en masse.
In management's own words: "[In] Europe, a softening macro environment toward the end of the First Quarter and changes in our merchandising and assortment strategies across certain categories negatively affected both our wholesale and retail sales in that region."
This statement effectively wiped out $2.9 billion in market value and caused Fossil's stock to free-fall 37.6% after it lowered its full-year forecast to a range of $5.30-$5.40 from Wall Street's consensus estimate of $5.56. Even giving short-sellers, doomsayers, and naysayers the benefit of the doubt, it means Fossil dropped the ball on Wall Street's expectations by 4.7% if it logs $5.30 in EPS for the year. Since when does a 4.7% earnings warning, when compounded by double-digit revenue growth, merit a 37.6% haircut?
Furthermore, why high-end luxury retailers hit the deck today in response to Fossil's marginal miss is beyond me. The shelling Michael Kors
The idea that there's any correlation between Fossil's earnings and any of these stocks seems absolutely preposterous at the moment. In addition, the massacre that Fossil shareholders endured despite the marginal haircut in EPS seemed equally as ridiculous.
One way or another, cooler heads will prevail in this scenario and I would highly encourage you to take a closer look at Fossil. Following the drop, it's now valued at just 14.7 times fiscal 2012's earnings and less than 12 times forward earnings with a sales growth rate still healthfully in the double digits. The company's purchase of Skagen should help boost sub-$100, high-margin watch sales, and I feel you'd be foolish to ignore Fossil's historical outperformance.
Disagree with me? Tell me about it in the comments section.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. The last time he owned a Fossil watch, he was 10. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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