Will Fossil Follow Michael Kors' Lead With a Quarterly Beat of Its Own?

Fossil (FOSL 9.03%), the world-renowned watchmaker, is set to release its next earnings report on Feb. 11. It has fallen alongside the market to start 2014, but a strong report could be the catalyst it needs to get the stock back in the black. Let's take a look at its recent financial performance and the expectations for the upcoming quarter to determine if we should be buying right now. 

Watchmaker extraordinaire
The Fossil Group designs, develops, markets, and distributes consumer fashion products and accessories worldwide; these products include watches, handbags, jewelry, and clothing. On top of its own product mix, Fossil also manufactures for many other brands, including Michael Kors, Burberry, Emporio Armani, DKNY, and Marc by Marc Jacobs.

The last time out
On Nov. 5, Fossil released its third-quarter report for fiscal 2013. The results beat analyst estimates on both the top and bottom lines and looked like this:

Earnings per share increased 25.4% and revenue grew 18.5% year-over-year, blowing past expectations. Gross profit rose 21.9% to $465 million as the company was able to expand its gross margin 160 basis points to 57.4%. These strong financials allowed Fossil to reiterate its full-year earnings outlook and increase its sales guidance to reflect the momentum of its many brands. Overall, there was little more the company could have done to impress investors, however, its stock has fallen more than 16% since.

Expectations & what to watch for
Fourth-quarter results are due out after the market closes on Feb. 11 and the expectations call for another quarter of growth. Here's a breakdown of the current consensus analyst estimates:

These expectations call for earnings per share to increase 7.9% and revenue to increase 8.7% year-over-year. I think these are very conservative estimates, especially after the strong results we saw last quarter and the holiday season this quarter contained. With this being said, it will also be crucial for Fossil to provide guidance for fiscal 2014 that is within analyst expectations; the current estimates call for earnings per share in the range of $6.80-$7.85 on revenue of $3.4 billion-$3.6 billion. If the company can deliver on earnings, provide solid outlook, and add in a few other positives like margin expansion, I believe shares could head back toward their 52-week high.

The MK indicator
Michael Kors (CPRI 1.85%), one of the primary brands Fossil manufactures watches and accessories for, has been on an absolute tear over the last several quarters. This growth has directly benefited Fossil, so Kors' earnings reports are a great starting point when predicting what Fossil's quarter will hold; take a look at what it accomplished in its third-quarter report released on Feb. 4:

Earnings per share increased 73.4% and revenue increased 59% year-over-year, driven by incredible comparable-store sales growth of 27.8%. This is the first time Michael Kors achieved $1 billion in sales in a single quarter and its outlook points toward several more quarters like this. These results proved that the "promotional" holiday retail environment was no match for the brand and is an indicator of what we can expect from Fossil; I believe investors should use this information to their full advantage. With this said, Michael Kors represents an incredible investment opportunity in itself, if you are not sold on Fossil.

A struggling competitor
As Fossil and Michael Kors have shown strength in recent reports, one of their largest competitors, Coach (TPR 0.30%), has struggled mightily. It recently reports quarterly results as well and it made for another disappointing quarter. Take a look at these numbers:

Earnings per share decreased 13.8% and revenue fell 5.3% year-over-year, as a result of weaker-than-expected sales and slowed customer traffic. Gross profit declined as its gross margin plummeted 300 basis points, equating to an all-around horrible quarter. I believe the strength in Michael Kors has been the main reason for Coach's troubles and it has a tough road ahead of it. I would steer clear of Coach for now and go with companies on the path of growth, like Fossil or Michael Kors.

The Foolish bottom line
Fossil is a great American company with a presence in 130 countries, giving it one of the largest footprints of any company. The stock has taken a beating over the last few months and currently sits more than 14% below its 52-week high, representing significant upside potential. It is about to release fourth-quarter results and Foolish investors can be fully confident that it will exceed expectations, given the current estimates and the recent results put out by Michael Kors. As always Foolish investors should do their own research before making any investment decisions.