Fossil (FOSL) is having one of the best days in its history after the watchmaker topped earnings estimates and offered positive commentary on the future, sending the stock up nearly 19%.
With a surge of $20.29 to $127.71, the shares were among the top percentage gainers in the U.S. on Tuesday. At its session peak, Fossil reached a 52-week high of $129.25. Volume was heavy, reaching more than four times a normal day's level only two hours into New York trading. While short-covering may have been influencing the upward move — total shares short have edged up in the past month, and shares equaling 7.4% of Fossil's float are sold short — the stronger-than-expected financials were also sparking buyers.
Fossil, based in Richardson, TX, earned $67.7 million, or $1.15 a share, in the second quarter, up from $57.3 million and 92 cents a share in the same period of the prior year. FactSet produced an adjusted figure of $1.10 to factor out a benefit of 8 cents a share from costs that are being pushed into the third quarter and a tax-related deduction of 3 cents. Even doing so, Fossil easily exceeded the consensus estimate of 93 cents a share.
In a press release, the company cited strength in its namesake Fossil brand and new Skagen line "and double-digit sales increases in our multi-brand watch portfolio and in jewelry." Fossil also credited the quarterly results to revenue increases in Europe and Asia.
Because of the stronger dollar, sales were trimmed by $2.3 million when overseas revenue was converted to the U.S. currency, but Fossil's top line still rose 11% to $706.2 million, around $13 million more than had been expected. Watches accounted for 77% of Fossil's sales in the quarter, with leather goods and jewelry the bulk of the rest. Along with its own 493 shops, Fossil's wares are sold through department stores and other retailers.
For the third quarter, Fossil is looking for earnings of $1.30 to $1.37, including the 8 cents of costs that will be moved from the second quarter. Pulling out that expense, adjusted earnings would be $1.38 to $1.45. As for the fiscal year, Fossil now is expecting a profit of $6.15 to $6.35, the second forecast increase in recent months. Coming into this year, Fossil was projecting $5.85 to $6.15, then raised the range from $6.00 to $6.26 after its first-quarter report.
Regardless of that, generally speaking Wall Street is lukewarm on Fossil. The shares have only five buy or overweight ratings, while getting nine hold or sell ratings. On Monday, Barclays offered a negative take on the stock and the watch industry more broadly. That sent Fossil's stock down 4%.
While praising the company for its operational strengths, the concern, as it has been for some time, is that the watch sector is succumbing to the new, modern world, namely the fact that just about everyone carries a mobile phone that posts the time, making a watch for some people an unnecessary gadget. (Then again, maybe the watch isn't dead quite yet.)
The multiple at which Fossil trades is essentially in line with its watch group peers. Fossil's 16.2 price-to-earnings ratio for the next 12 months is below that of Guess? (GES) and Switzerland's Swatch Group, but ahead of Japan's Citizen Holdings and Seiko Holdings. Fossil, however, has now gone through the average analyst price target of $115.38.
Investors have gone on an up-and-down journey with Fossil in the past year and a few months. The stock's highest close came in April 2012 at $138.30. But only a month after that record, Fossil slumped 37% in a single session following an earnings disappointment. It dropped below $70 before stabilizing and beginning its recovery to the current point.
Factoring in the post-earnings jump, Fossil is up 36.7% in 2013, nearly doubling the S&P 500's gain. In the past year, the stock has added 82.3%, almost quadruple the market in that time and reflecting the bounce-back from the spring 2012 selloff.
- Consumer Discretionary