Shares of Fossil Group Inc. jumped more than 70 percent in after-market trading as the company blew past Wall Street’s fourth-quarter hopes and said its wearable tech business was finding its footing.
“While sales and earnings were challenged as expected [in 2017], we generated progress toward our objectives that include: driving growth in wearables across our portfolio of powerful brands, leveraging our scale to lower supply chain costs, increasing our digital capabilities and continuing the transformation of our business,” said Kosta Kartsotis, chairman and chief executive officer.
Fossil’s net losses for the quarter ended Dec. 30 tallied $79.9 million, or $1.65 a share, but the bottom line would have showed profits of 64 cents if not for $2.29 in per-share charges tied to changes in tax law and valuations allowances. Revenues fell 4 percent to $920.8 million.
The adjusted earnings came in 24 cents ahead of the 40 cents analysts projected and helped push the stock up $6.38 to $15.42 in after-hours trading (adding to the 7.8 percent gain the stock saw in regular trading).
For the full year, Fossil logged net losses of $478.2 million, or $9.87 a share, or adjusted profits of 5 cents a share. Sales dropped 8.4 percent to $2.79 billion.
Kartsotis noted that the firm’s wearables business nearly doubled to over $300 million last year, making up 14 percent of total watch sales.
“With wearable launches ahead of holiday, we significantly improved the trajectory for Michael Kors watches and drove a double-digit increase in fourth-quarter Armani watch sales,” he said, referring to two of the company’s licenses. “Overall, we introduced a number of new hybrid and display smartwatches across 14 brands and believe the continuation of this effort, combined with the innovation we are introducing across our traditional styles, has us poised for stabilization and growth over time.”
It has been a heavy lift to establish Fossil in wearables business, but the ceo said by the end of the year “wearable product costs were aligned with our margin goal, setting the stage to increase gross margin in 2018.”
Last year, the company’s gross margin slipped 230 basis points to 48.7 percent.
Fossil has also been focusing on extending its e-commerce reach and cut expenses by $95 million last year.
“In the year ahead, we expect to be a smaller yet more profitable company that is on a solid path for the future,” Kartsotis said. “Our priorities are focused on delivering innovative wearable and traditional watch styles while improving performance in the handbag and jewelry categories and driving increases in digital sales.”
He said business in North America would continue to be challenging, but that a recent credit agreement gave Fossil more financial flexibility and would help it invest behind growth.