How Fossil Is Knocking It Out of the Park

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Fossil Group Inc. (NASDAQ: FOSL) saw its shares absolutely explode on Wednesday after the firm reported stronger than expected fourth-quarter results. At the same time, the company is planning to transform itself and its business model to address changes in consumer behaviors and their purchases of traditional watches and connected devices, among other things.

The company said that it had $0.64 in earnings per share (EPS) and $920.8 million in revenue, which compares with consensus estimates of $0.39 in EPS and revenue of $890.5 million.

During the quarter, income tax expenses were $120.6 million and included impacts from the recent tax legislation, as well as charges related to valuation allowances established on the company’s deferred tax assets. The impacts from tax reform and the valuation allowances resulted in combined charges of $106.7 million, or $2.20 per share.

Global retail comps for the fourth quarter of fiscal 2017 increased 2% compared to last year, with positive comps in the watch category partially offset by negative comps in the leathers and jewelry categories. Positive comps in the Americas and Europe were partially offset by a decline in Asia.

Looking ahead to the first quarter, the company expects to see net sales decreasing between 12% and 6% with a gross margin in the range of 50% to 52%. The consensus estimates call for a net loss of $0.58 per share on $568.52 million in revenue for the quarter.

Kosta Kartsotis, Fossil Group board chair and chief executive, commented on the transformation:

In the year ahead, we expect to be a smaller yet more profitable company that is on a solid path for the future. Our priorities are focused on delivering innovative wearable and traditional watch styles while improving performance in the handbag and jewelry categories and driving increases in digital sales.  While we continue to expect North America to be challenging given the dynamics of the retail and consumer environment in the region, with our commitment to drive out costs through our New World Fossil initiative and with improved sourcing costs, we expect to deliver more profit to the bottom line.  The credit agreement completed last month increases the financial flexibility we have to continue to invest in support of our growth and achieve our ultimate goal of creating greater value for all Fossil stakeholders.

Shares of Fossil were last seen up about 65% at $14.88 on Wednesday, with a consensus analyst price target of $6.63 and a 52-week range of $5.50 to $21.03.