Fossil Group Inc. is trying to prove it’s not a dinosaur by being smarter — and leaner.
The company posted net losses and declining sales in the second quarter, but came out better than Wall Street analysts feared with some serious momentum in smartwatches, stronger gross margins and lower expenses.
After sending shares of Fossil down 8.2 percent in regular trading, traders reversed course and pushed the stock up 2.7 percent to $27.02 in after-hours trading.
Kosta Kartsotis, chairman and chief executive officer, told investors that smartwatch sales grew 91 percent in the quarter — to about $116 million — and accounted for 25 percent of the company’s total watch sales, up from about 10 percent a year ago.
But even with that growth, smartwatches can do only so much for now.
“Due to structural and industry issues facing us, we expect to become a smaller but a more profitable business,” Kartsotis said. “Total sales will contract as we exit unprofitable stores, businesses, and product lines. Connected watches will continue to demonstrate strong growth but will not offset the decline in traditional watches in the near term.”
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For the second quarter, Fossil’s net losses narrowed to $7.8 million, or 16 cents a share, from $344.7 million, or $7.11, a year earlier. Excluding restructuring and impairment changes, the company would have had a profit of 17 cents — handily beating analyst expectations for a 57 cent loss.
Sales for the three months fell 3.4 percent to $576.6 million with the company’s most prominent line of business, watches, declining 1.4 percent to $463 million.
Fossil depends more on a connected future than most other brands. While it’s traditional watch business declined around the world, constant currency sales of connected watches grew in the Americas, Europe and Asia.
The question is whether that business ultimately grows to become big enough — and sustainable enough — to power the company into the future.
To help it make the leap, Fossil is packing more technology into its offering. This week, the brand introduced its latest Wear OS smartwatches, which added tap-to-pay capability for shoppers using Near Field Communication technology.
That puts the firm in the middle of a growing trend.
Mobile wallets, which can be accessed through smartwatches and phones, are expected to account for as much as $1 trillion in transactions this year, according to a recent study from Juniper Research.