Weak Units Dim Prospects For Fossil's (FOSL) Q2 Earnings
Zacks Investment Research | Aug 05, 2019 09:34PM ET
Fossil Group, Inc. (NASDAQ:FOSL) is slated to release second-quarter 2019 results on Aug 7, after market close. This renowned manufacturer of watches and other accessories has witnessed its bottom line outperform the Zacks Consensus Estimate in three of the trailing four quarters. However, the company reported a loss in the first quarter. Let’s see how things are placed, ahead of the upcoming quarterly release.
Soft Business Categories are Concerns
Fossil has been witnessing soft sales in traditional watches for a while, thanks to increased competition and rising demand for connected wearables. Further, sales of leathers and jewelry have been persistently weak since past few quarters on account of soft demand. Weakness across these categories are likely to persist and be a drag on performance in the second quarter.
The company also grapples with adverse impacts from business exits and store closures. Such factors have affected the top line, which has been persistently declining for nearly two years now. This raises concerns for the quarter to be reported.
Moreover, management expects unfavorable currency movements, business exits, store closures and supply-chain hurdles to persist in 2019. In fact, for the second quarter, the company expects net sales to decline 10-16%, as it expects negative impacts of approximately 3% from business exits and around 2% from unfavorable currency movements.
Nevertheless, we note that the company has been witnessing growth in its connected wearables category that includes smartwatches, hybrid watches and activity trackers. The segment is likely to sustain the momentum in the second quarter. Since the connected wearables portfolio form a smaller portion of the company’s overall business, growth in this channel might not be adequate to offset softness in the larger traditional watch unit as well as other categories. As a result, the company’s top and the bottom line are likely to remain dismal in the to-be-reported quarter.
Fossil Group, Inc. Price, Consensus and EPS Surprise
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