Fossil (FOSL) Taken to the Cleaners on Guidance

There has been almost no focus on individual names of late, since the macro picture has pushed all stocks en masse in one direction or another but this is still the tail end of earnings season for a few names.  Apparel/watch market Fossil (FOSL) finally had that moment all ‘momo’ stocks finally hit – the quarter/guidance that does impress.  And boom boom we go.

Like many (almost all!) stocks it has been hammered the past week especially, after holding up through the first two weeks of this selloff, but it still held some major resistance coming into this morning.  Now it’s broken, and aside from dead cat bounce opportunities is going to need a while to create a base.

But more importantly we see some issues in terms of margins and cost pressures that are going to be an issue for other names as well.  While revenue rose an impressive 35% year over year, and the estimate of $0.76 was beat by 4 cents, guidance for the next quarter came in very weak versus expectations: $1.00-$1.03 v $1.24.

Prices for Chinese labor are going up, and issue we have talked about at length the past few years. Over and above what it means for individual companies (margin pressure) in the coming years, it also puts even more pressure on the American (and western) consumer hooked on cheap prices in return for giving away tens of millions of jobs overseas.

Full report here.

Via Reuters:

  • Fashion accessories maker Fossil Inc (FOSL) forecast current quarter and full-year profit below expectations as it sees higher labor and material costs squeezing gross margins.
  • Fossil said its gross margin decreased by 140 basis points to 56.0 percent in the second quarter from 57.4 percent last year. This was primarily due to higher production costs, including component prices and factory labor in China.

Fossil is a global design, marketing and distribution company that specializes in consumer fashion accessories. The Company’s principal offerings include an extensive line of men’s and women’s fashion watches and jewelry sold under proprietary and licensed brands, handbags, small leather goods, belts, sunglasses, soft accessories, shoes, and clothing.

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About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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