Fossil, smartwatch, wearables

Fossil Group Inc. stock is getting slammed after the accessories company reported its first-quarter earnings.

The stock fell 23 percent to $30.72 in after-market trading, as the company missed analyst estimates for both earnings and sales.

Net income for the quarter dropped to $5.8 million, or 12 cents a diluted share, down from $38.1 million, or 75 cents, a year ago. The strong dollar negatively impacted the earnings by 8 cents. The FactSet estimate for earnings per share was 15 cents, so it was only a miss of 3 cents but that wasn’t the only thing that scared investors away.

Sales for the three months ending April 2 decreased to $659.8 million from $725.1 million a year earlier. The FactSet estimate was for $667 million in sales. The strong dollar hurt net sales by $16.4 million. Comparable sales increased in leathers and jewelry, but saw declines in watches.

“While our financial results were in line with our expectations, they were below last year given the persistent headwinds pressuring the traditional watch category and the challenging retail environment, particularly in our wholesale channel,” said chief executive officer Kosta Kartsotis. “Our performance in Fossil and Skagen, particularly in our international markets, continues to give us confidence in our long-term strategy to grow our owned brands and leverage our competitive and strategic advantages to restore growth to our portfolio.”

Sales in Fossil were flat, while the company did see growth in Skagen, the Danish-inspired line. The company is in the process of integrating the acquisition of its wearable tech company Misfit. Fossil said that the operations of Misfit will continue to be dilutive to the 2016 results.

During the first quarter, gross margins decreased 250 basis points to 52.8 percent. The company was able to raise prices, but then that was offset by the strong dollar, higher markdowns and promotional activity in the outlet stores.

Here’s the reason why the shareholders are heading for the exits. The forecast for the second quarter is for earnings to be in the range of 0 to 15 cents, while the FactSet estimate was for 58 cents.

Looking ahead for fiscal 2016, Fossil expects net sales to decrease in the range of 5.0 to 1.5 percent. Diluted earnings per share are forecast to be in the range of $1.80 to $2.80 for the year. The Capital IQ estimate was for $3.03.

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