Fossil stock is up 28 percent this morning to $44.31 after beating earnings and sales estimates for the fourth quarter.
The watchmaker reported net income of $70.4 million for diluted earnings per share of $1.46, easily beating the FactSet estimate of $1.31. It was a big drop from last year’s $3 a share, but traders opted to look past that decline.
Sales came in at $993 million, which also topped the FactSet estimate of $928 million. Expectations were low for Fossil as many analysts had warned against investing in the company and downgraded the stock over the past two months.
There was definitely some reason to be concerned. Net sales for the fiscal fourth quarter decreased by 7 percent, or $72.3 million, and sales decreased 8 percent for the overall year to $3.2 billion. The strong dollar impacted fiscal 2015 sales by $207.5 million.
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Kosta Kartsotis, chief executive officer, commented on the results. “We look back on 2015 as a year of both significant challenges and accomplishments. We anticipated economic, competitive and consumer headwinds, which all materialized and in some cases intensified, putting pressure on sales and earnings.”
Fossil had difficult comparisons against 2014’s successful Michael Kors watches. Plus, it was late to develop a smartwatch, which it has remedied by acquiring the wearable tech company Misfit.
While some analysts like Telsey Advisory Group jumped on the Fossil bandwagon and raised its target price to $40 from $35, others like Oliver Chen at Cowen and Co. preferred to take a wait-and-see approach. Chen continues to rate Fossil at market perform and he trimmed his price target from $42 to $41. Chen said he was staying on the sidelines and will monitor Fossil’s progress on the Misfit integration.
“So, why aren’t we recommending Fossil? We prefer to have greater visibility on connected tech synergies and better confidence that Fossil can profitably grow upon converging on the right balance of tech and fashion,” wrote Chen.
Looking ahead, Fossil expects the operations of Misfit to be dilutive to 2016 results. For fiscal 2016, Fossil is forecasting net sales to be in the range of a 3.5 percent decrease to a 1 percent increase. The diluted EPS are guided to a wide range of between $2.80 and $3.60.