Fossil Third-Quarter Guidance Disappoints

Shares of the accessories maker Fossil Inc. slid nearly 10 percent in trading Tuesday.

Shares of Fossil Inc. slid nearly 10 percent in trading Tuesday after the accessories maker beat second-quarter earnings expectations but missed on sales and issued a weak third-quarter outlook.

This story first appeared in the August 12, 2009 issue of WWD.  Subscribe Today.

For the three months ended July 4, the Richardson, Tex.-based firm’s net income fell 33.9 percent to $16.6 million, or 25 cents a diluted share, from $25.1 million, or 36 cents a share, a year ago.

Sales in the quarter fell 10.6 percent to $315.9 million from $353.2 million.

Analysts polled by Yahoo Finance had expected earnings of 20 cents a share on revenues of $321 million, on average. Shares of Fossil fell $2.65, or 9.6 percent, to close at $25.07.

On a call with investors, chief executive officer Kosta Kartsotis attributed the better-than-expected profits to gains in Fossil’s direct-to-consumer channel, expense management and favorable foreign currency rates.

Michael Barnes, president and chief operating officer, said second-quarter sales were affected by U.S. retailers’ conservative inventory management practices and Fossil’s reluctance to ship to credit-challenged customers in Europe.

The company said it expects net sales in the current quarter to decrease between 6 and 9 percent without adjusting for currency effects. It estimates earnings per share in the period will be between 38 cents and 42 cents. Analysts had been expecting third-quarter EPS of 46 cents on average.

Fossil is anticipating a possible return to positive sales figures in the fourth quarter when it expects EPS of 74 cents to 80 cents on net sales that will be flat to 3 percent better than a year earlier.

In the first half of the year, the watch and leather goods maker’s net income fell 38.7 percent to $33.9 million, or 51 cents a share, from $55.4 million, or 80 cents a share, in 2008. Sales in the six months slid 9.9 percent to $638.9 million from $709.4 million in the comparable 2008 period.