Why Fossil Group Inc Stock Tumbled Today

Is Fossil Group's drop meaningful? Or just another movement?

Steve Symington
Steve Symington
May 6, 2015 at 12:54PM
Consumer Goods

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fossil Group (NASDAQ:FOSL) were down 10% as of 11:15 a.m. Wednesday after the watch and accessories specialist reported mixed first-quarter results and reduced its full-year guidance.

So what: Quarterly revenue fell 6.6% year over year to $725.1 million, due to one additional week in the same year-ago quarter, as well as a $45.2 million negative impact from foreign currency translation. That resulted in earnings of $0.75 per diluted share, which was hurt by a negative $0.13-per-share impact from currencies, and helped by Fossil's decision to spend $115 million during the quarter to repurchase 1.3 million shares of common stock.

Analysts, on average, were expecting lower earnings of $0.63 per share, but on higher sales of $732 million. 

Now what: Due to continued currency headwinds and restructuring charges, Fossil expects second-quarter net sales to decrease in the range of 3% to 0.5%, with diluted earnings per share of $0.80 to $0.91. Analysts' models called for current-quarter sales to fall 1.8% with lower earnings of $0.69 per share.

For the full year, however, Fossil expects net sales to be in the range of a 4% decrease to a 1% increase, with diluted earnings per share of $5.25 to $6.05. While both ranges were in line with analysts' expectations, it's worth noting Fossil's new guidance represents a decrease at the bottom end of its previous guidance range provided in February. At the time, Fossil called for 2015 revenue to be in the range of a 3% decrease to a 1% increase, with earnings earnings per share of $5.45 to $6.05.

In short, the market is punishing Fossil given the combination of its first-quarter revenue miss and the reduced guidance. To be fair, however, Fossil stock does look agonizingly cheap trading around 10 times last year's earnings and 12 times next year's estimates. Keep in mind restructuring expenses will eventually fade. And should currency headwinds abate, I won't be the least bit surprised if opportunistic investors who take advantage of today's drop are rewarded going forward.