Fossil Group Inc. reported that sales dropped in the second quarter and that it expects more of the same for the rest of the year. However, Fossil managed to beat analysts’ estimates for both earnings and sales, causing the stock to rise in after-hours trading.
Net income for the quarter dropped to $6 million, or 13 cents a diluted share, from $54.6 million, or $1.12 a share, a year ago. Adjusted earnings per share totaled 12 cents and beat the FactSet estimate for earnings of 9 cents a share. That helped push the stock up more than 8 percent, to $32.86, after the close.
Net sales for the three months ending July 2 fell to $685.4 million from $740 million a year earlier. This also beat the FactSet estimate for sales of $672 million. Fossil saw increases in leather and jewelry sales, but the declines in watches was too much to offset the gains.
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“Our financial results for the quarter, while below last year, were very much in line with our expectations from both a top- and bottom-line perspective,” said chief executive officer Kosta Kartsotis. “In fact, despite an overall decline in sales, there are several areas of the business that performed well, though they are being masked by continued weakness in the traditional watch category, particularly among our licensed brands.”
Fossil said that it expects the impact of the acquisition of the wearable tech company Misfit to be dilutive to its 2016 results along with foreign currency headwinds.
Gross margins also dropped, from 55.3 percent one year ago to 51.9 percent this past quarter. The decline was blamed on promotional activity at the outlet stores and the negative impact from foreign currencies.
Looking ahead to the third quarter, Fossil is projecting net sales to decrease in the range of 2 percent to 6 percent. Diluted earnings are forecast to be in the range of 15 to 40 cents a share. This is much lower than the FactSet estimate of 67 cents a share.
For fiscal year 2016, Fossil is forecasting net sales to decline in the range of 1.5 percent, to 5 percent, and diluted earnings per share in the range of $1.80 to $2.65. The Capital IQ estimate is for earnings of $2.03.