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Fossil Group (FOSL) Up on Q2 Earnings Beat; Revises View
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Shares of Fossil Group Inc. (FOSL - Free Report) were up 5.40% in after-market trading on Aug 9, after the company surpassed earnings and revenue estimates in the second quarter of fiscal 2016. However, the company tightened its fiscal 2016 outlook due to economic, competitive and consumer headwinds.
In the second quarter of fiscal 2016, Fossil reported earnings of 12 cents per share, within the company’s guided range of a breakeven to earnings of 15 cents per share. The bottom line surpassed the Zacks Consensus Estimate of 9 cents by 33.3% but plunged 89.3% from the prior-year figure of $1.12 per share due to a decline in sales and operating income and higher tax rate. Adverse currency movements lowered second-quarter earnings by 4 cents.
Quarter in Detail
This global consumer fashion accessories maker’s net sales of $685.0 million in the second quarter exceeded the Zacks Consensus Estimate of $674 million by 1.6%. Net sales also declined 7% from the prior-year quarter, primarily due to currency headwinds, a decline in the company's multi-brand licensed watch portfolio and challenging environment for traditional watch category. The sales decline was narrower than the company’s expectation of 8%-10% decline. Adverse currency movements had a negative impact of $6.8 million on second quarter sales.
Despite a challenging and a disruptive environment, Fossil and Skagen both grew during the quarter, along with strong performance from the leather business. The wearables product category also had a steady stream of customers which backed growth.
On a constant currency basis, net sales declined 6%. Sales declined, on a constant currency basis, in the two regions of Americas and Europe. Sales remained flat in Asia. Category wise, the company witnessed gains in the leather and jewelry business, which grew 6% and 2% in the quarter, respectively. The Watches business witnessed a decline in the quarter.
The Watches business declined 9% on a constant currency basis, reflecting general weakness in the category. The company noticed that tech-enabled watches have been significantly affecting traditional watch sales. The company benefited from newer brands such as kate spade new york and Tory Burch during the quarter. The company continues to expect weakness in this category.
Global retail comps declined 3% year over year during the quarter as positive comps in the company's full-price stores were more than offset by comp declines in the company's outlet stores and an increase in Asia was offset by a decline in the Americas and Europe. A comparable sales increase in leathers was offset by a decline in watches and jewelry.
Margins
Gross margin declined 340 basis points (bps) to 51.9% due to unfavorable currency impact and higher promotional activity, primarily in the outlet stores, and a higher level of off-price sales.
Moreover, operating margin declined to 2.2% in the quarter, down 720 bps from 9.5%, primarily due to lower sales and gross margin, currency headwinds and higher operating expenses.
During the second quarter, the company’s share repurchase activity was minimal. As of Jul 2, 2016, the company had $824.2 million remaining on its existing share repurchase authorization.
Third-Quarter 2016 Guidance
For the third-quarter of fiscal 2016, Fossil expects the bottom line to be in the range of 15 cents to 40 cents per share. This will include 20 cents of currency impact and 9 cents of charges related to the Misfit acquisition.
The company expects net sales to decline in a range of 2% to 6% due to currency headwinds of 110 bps. The company expects operating margin in a range of 2.5% to 4.5% for the third quarter, which includes 100 bps negative impact from currency and 80 bps from Misfit acquisition expenses.
2016 Guidance Updated
Fossil continues to expect a challenging retail environment and pressure on the traditional watch category to persist.
The company now expects earnings in a range of $1.80–$2.65 per share for 2016 compared with the previous range of $1.80–$2.80 per share. The guidance includes negative currency impact of 88 cents per share, amortization charges of 36 cents and 24 cents of foreign tax credit benefit in 2015.
Fossil continues to expect sales to decline in a range of 1.5% to 5%. The new guidance includes currency headwinds of 100 bps. Operating margin is now expected in the range of 5% - 6.5%, narrower than the previous guidance of 5%-7%. The new guidance includes 100 bps negative impact from currency and 80 bps related to Misfit acquisition expenses.
The guidance assumes higher interest expenses given debt levels, significantly fewer currency contract gains compared to last year and virtually no further share repurchases.
The company expects full year gross margin to decline given weaker currencies, greater reliance on off-price channels and promotions and the impact from wearables, which carry slightly lower margins. Nevertheless, the company continues to focus on reducing overhead and infrastructure expenses to improve the profitability of its core business.
Fossil carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the retail sector are American Eagle Outfitters, Inc. (AEO - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and The Children's Place, Inc. (PLCE - Free Report) . All of these hold a Zacks Rank #2 (Buy).
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Fossil Group (FOSL) Up on Q2 Earnings Beat; Revises View
Shares of Fossil Group Inc. (FOSL - Free Report) were up 5.40% in after-market trading on Aug 9, after the company surpassed earnings and revenue estimates in the second quarter of fiscal 2016. However, the company tightened its fiscal 2016 outlook due to economic, competitive and consumer headwinds.
In the second quarter of fiscal 2016, Fossil reported earnings of 12 cents per share, within the company’s guided range of a breakeven to earnings of 15 cents per share. The bottom line surpassed the Zacks Consensus Estimate of 9 cents by 33.3% but plunged 89.3% from the prior-year figure of $1.12 per share due to a decline in sales and operating income and higher tax rate. Adverse currency movements lowered second-quarter earnings by 4 cents.
Quarter in Detail
This global consumer fashion accessories maker’s net sales of $685.0 million in the second quarter exceeded the Zacks Consensus Estimate of $674 million by 1.6%. Net sales also declined 7% from the prior-year quarter, primarily due to currency headwinds, a decline in the company's multi-brand licensed watch portfolio and challenging environment for traditional watch category. The sales decline was narrower than the company’s expectation of 8%-10% decline. Adverse currency movements had a negative impact of $6.8 million on second quarter sales.
Despite a challenging and a disruptive environment, Fossil and Skagen both grew during the quarter, along with strong performance from the leather business. The wearables product category also had a steady stream of customers which backed growth.
On a constant currency basis, net sales declined 6%. Sales declined, on a constant currency basis, in the two regions of Americas and Europe. Sales remained flat in Asia. Category wise, the company witnessed gains in the leather and jewelry business, which grew 6% and 2% in the quarter, respectively. The Watches business witnessed a decline in the quarter.
The Watches business declined 9% on a constant currency basis, reflecting general weakness in the category. The company noticed that tech-enabled watches have been significantly affecting traditional watch sales. The company benefited from newer brands such as kate spade new york and Tory Burch during the quarter. The company continues to expect weakness in this category.
Global retail comps declined 3% year over year during the quarter as positive comps in the company's full-price stores were more than offset by comp declines in the company's outlet stores and an increase in Asia was offset by a decline in the Americas and Europe. A comparable sales increase in leathers was offset by a decline in watches and jewelry.
Margins
Gross margin declined 340 basis points (bps) to 51.9% due to unfavorable currency impact and higher promotional activity, primarily in the outlet stores, and a higher level of off-price sales.
Moreover, operating margin declined to 2.2% in the quarter, down 720 bps from 9.5%, primarily due to lower sales and gross margin, currency headwinds and higher operating expenses.
FOSSIL GRP INC Price and Consensus
FOSSIL GRP INC Price and Consensus | FOSSIL GRP INC Quote
Share Repurchase Update
During the second quarter, the company’s share repurchase activity was minimal. As of Jul 2, 2016, the company had $824.2 million remaining on its existing share repurchase authorization.
Third-Quarter 2016 Guidance
For the third-quarter of fiscal 2016, Fossil expects the bottom line to be in the range of 15 cents to 40 cents per share. This will include 20 cents of currency impact and 9 cents of charges related to the Misfit acquisition.
The company expects net sales to decline in a range of 2% to 6% due to currency headwinds of 110 bps. The company expects operating margin in a range of 2.5% to 4.5% for the third quarter, which includes 100 bps negative impact from currency and 80 bps from Misfit acquisition expenses.
2016 Guidance Updated
Fossil continues to expect a challenging retail environment and pressure on the traditional watch category to persist.
The company now expects earnings in a range of $1.80–$2.65 per share for 2016 compared with the previous range of $1.80–$2.80 per share. The guidance includes negative currency impact of 88 cents per share, amortization charges of 36 cents and 24 cents of foreign tax credit benefit in 2015.
Fossil continues to expect sales to decline in a range of 1.5% to 5%. The new guidance includes currency headwinds of 100 bps. Operating margin is now expected in the range of 5% - 6.5%, narrower than the previous guidance of 5%-7%. The new guidance includes 100 bps negative impact from currency and 80 bps related to Misfit acquisition expenses.
The guidance assumes higher interest expenses given debt levels, significantly fewer currency contract gains compared to last year and virtually no further share repurchases.
The company expects full year gross margin to decline given weaker currencies, greater reliance on off-price channels and promotions and the impact from wearables, which carry slightly lower margins. Nevertheless, the company continues to focus on reducing overhead and infrastructure expenses to improve the profitability of its core business.
Fossil carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the retail sector are American Eagle Outfitters, Inc. (AEO - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and The Children's Place, Inc. (PLCE - Free Report) . All of these hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>