When a fossil is uncovered, it is a wondrous sight to behold. There is one fossil today, however, that is a woeful sight. Enter Fossil Group (FOSL 14.10, -4.05, -22.3%), which is known for its watches but also sells jewelry, handbags, small leather goods and wearables. Its stock price is plummeting after the company released a disheartening first quarter report and outlook.
To its credit, Fossil Group didn't hold anything back in its earnings press release. The poor operating results were laid bare in black-and-white terms, starting with the top line.
Total company sales declined 12% to $581.8 million, driven by sales declines in all geographic regions and all product categories. Sales were down 17% in the Americas, led by a sales decline in the U.S., down 7% in Europe, and down 5% in Asia. Sales of watches, which is the company's core product category, declined 9% while sales of leathers and jewelry declined 21% and 12%, respectively.
Global retail comparable sales, which include e-commerce sales, declined 11%. Fossil's gross margin decreased 300 basis points to 49.8% and its operating margin decreased to (7.8%) from 2.2% in the year-ago period.
Fossil's GAAP loss of $1.00 per diluted share was actually better than analysts' average expectation, yet that has mattered little when pitted against the understanding that Fossil Group reported a GAAP profit of $0.12 per diluted share in the same period a year ago.
That loss, and the loss of sales leverage that precipitated it, underscored for investors just how challenging business conditions are right now for Fossil Group, which is grappling with weak mall traffic, increased online competition, the increased adoption rate of time-telling wearables, and the time-telling display on every smartphone that has reduced the need to have a watch on one's wrist.
Undeterred, Fossil Group's management noted its excitement about the next generation of products it is developing and launching this year, and restructuring initiatives designed to turn around the company's operating and financial performance.
Investors, on the other hand, aren't nearly as enthused as they foresee a high hurdle rate in the company's turnaround effort. That is the clear takeaway from the pounding Fossil Group's stock is taking today... and has been taking for some time.
With today's losses, FOSL is down approximately 90% from the high it hit in November 2013.
Fossil Group's disheartening guidance has only compounded the misery.
For the second quarter, Fossil Group is forecasting net sales to decline in the range of 11.5% to 8.0% and GAAP earnings to be between ($1.00) and ($0.83) per diluted share.
For fiscal 2017, net sales are anticipated to decline in the range of 6.0% to 1.5% and GAAP earnings to range from a loss of ($0.40) to a profit of $0.30 per diluted share.