Fossil Shares Plunge on Lower Outlook (FOSL, GES, MOV)

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Fashion accessories maker Fossil Inc. (NASDAQ: FOSL) reported first quarter earnings this morning, and delivered more bad news than good. Investors are responding by fleeing the stock.

The company, which competes with other accessories makers like Guess? Inc. (NYSE: GES) and Movado Group Inc. (NYSE: MOV), posted adjusted EPS of $0.93 compared with a consensus estimate of $0.92. And that’s the end of the good news. Revenue of $589.5 million badly missed the consensus estimate of $617.6 million. Currency translation effects accounted for just $7.3 million of the difference.

But the worst news came in a revised outlook for the second quarter and for the full 2012 fiscal year. Fossil cut its second quarter EPS outlook to $0.77-$0.79, well below the consensus estimate of $0.94. Even adjusting for one-time costs only kicks the range up by $0.07 on either end. Revenue was forecast at +16% (+19% in constant dollars), but also falls short of consensus estimates.

For the full-year, diluted EPS is now forecast at $5.30-$5.40, where the consensus estimate called for $5.56. Again a net adjustment for one-time items only raises the forecast by $0.07. Full-year revenue is also forecast to come in slightly below the consensus estimate of $3 billion.

Analysts had forecast first quarter revenue growth of 15% year-over-year, second-quarter growth of 17%, and full year growth of 16.9%. But from the lower base set by first quarter sales, the projections are tossed out. Which makes the EPS estimates even less likely.

Fossil’s margins fell from 56.2% last year to 55.8% this year due to higher labor and component costs and more sales to third-party distributors. Investors very likely fear that this is just the beginning of sharp slide.

Shares are trading down about -25% in the pre-market, at $94.10 in a 52-week range of $69.57-$139.20. Ugly.

Paul Ausick

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