The last time I examinedFossil
The company reported an increase in gross profit of 19% to $121.2 million. However, those gains were more than offset by an increase in operating expenses, which jumped 300 basis points to 41.6% of net sales. The result? Operating profit margin dropped 200 basis points to 10.5% of net sales.
Fossil's net income climbed 46.2% to $23.9 million, but once again there's a caveat. That gain was primarily the result of a reduction in income tax expenses. Fossil also continues to have too much inventory; for the quarter, it soared 37.5% to $195.6 million.
The company's earnings also look healthy on the surface. Earnings per share jumped 45.5% to $0.32, compared with $0.22 per share last year. However, a chunk of that gain resulted from the tax benefit. Without it, diluted earnings per share would have been only $0.19.
Although Fossil tries to pass itself off as a valuable discovery, the company's own revised guidance reveals the truth. It lowered its second-quarter estimate by a third, from $0.21 per share to $0.14 per share. Fossil also lowered its fiscal-year guidance, from a range of $1.53 to $1.57 per share down to $1.48 per share. Without the tax benefit, it drops even further to $1.35 per share.
Although I'm disappointed that Fossil didn't turn out to be a great find, I'm glad I used caution and waited to get more clarity. Even though Fossil once again seemed to have a plethora of positive news to report, it's much easier to realize that it's actually not so solid.
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Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of Fossil.
