Fossil’s stock dropped over 4 percent in after-hours trading to $59.50 after the company delivered its second-quarter results, beating earnings estimates, but missing on revenue. Earnings came in at $1.12, but estimates were 82 cents for the second quarter. Revenue for the quarter was $740 million, but had been expected to be $751 million.
Fossil said the strong U.S. dollar hurt sales by $50.9 million and reduced earnings per share by 30 cents. Net sales decreased 4 percent or $33.8 million due to the negative impact in foreign currency. Gross margins also dropped to 55.3 percent because of changes in foreign currency.
Fossil chief executive officer Kosta Kartsotis said, “We drove strong growth in branded jewelry, a category that continues to resonate with customers around the globe and our leather business continued to accelerate. Our licensed watch portfolio business did not meet our expectations for the quarter as several factors and many unique regional challenges impacted near-term demand in the category.”
Fossil gave guidance for fiscal 2015 saying it would be significantly impacted by foreign currency changes. For the third quarter fiscal 2015 net sales will decrease in the range of 8 percent to 3 percent and earnings per share will be in a range of $1.45 to $1.70. Fiscal full-year 2015 guidance is a decrease of 1 percent to 3 percent and earnings in the range of $6.20 to $7.00.
The stock is down 34 percent for the past year as watch and accessory sales have declined. Fossil also makes watches for Michael Kors, which has experienced a decline in watch sales. The decline was in North America, not Europe or Asia. Kors said that new styles in 2016 would drive improved performance in its fiscal fourth quarter. Fossil will also be working with Tory Burch and Kate Spade.
Many investors feel that customers buying watches under $1,000 will gravitate toward the Apple Watch. Fossil did talk about consumers’ changing desires and the entrance of new players in the category. Fossil said it will also introduce wearable technology in the fall.