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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.