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Apparel Stock Q2 Earnings to Watch on Aug 9: FOSL, XELB

Zacks Equity Research

The Q2 earnings season (or the quarter ended Jun 30, 2016) is on its last leg with almost 82.8% S&P 500 companies already having reported their quarterly results.

The second quarter will likely be the fifth quarter in a row to display a declining trend in earnings. Per the Zacks Earnings Preview Report report, the quarter saw a 4.5% decline in earnings due to a 1% dip in revenues, both on a year-over-year basis.

However, we note a sequential improvement in earnings. Interestingly, this quarter is seeing positive revenue growth and is currently reversing the trend displayed in the preceding quarter. Almost 70.5% of the companies surpassed earnings estimates and 52.9% outpaced top-line expectations.

A few companies are still scheduled to report their financial results this week.

The second-quarter earnings season is critical for investors to ascertain the most attractive picks as the market has somewhat stabilized after Brexit, which shook the global economy in Jun 2016. Post Brexit, investors have become jittery and are resorting to safe haven stocks.

In this scenario, the consumer sector might be quite reliable.

So far, the consumer sector has reported modest results this quarter. Lower gas prices, an improving job scenario and increasing consumer confidence have been supporting the improvement in results.

In the consumer discretionary sector, 77.1% (as of Aug 5) companies in the S&P 500 index have already reported second-quarter earnings. Out of these, 88.9% of the companies have posted an earnings beat, while 44.4% surpassed revenue estimates.

However, the apparel industry within the consumer discretionary sector is constantly grappling with issues like competition and declining footfall. For this industry, change is the only constant and the players are under perennial pressure to hit the right chord with the fashion conscious consumers.

It must be noted that an increasing number of customers are resorting to online purchases of late. This has dealt a major blow to apparel retailers who are dependant on mall traffic.

Nonetheless, let’s take a look at what’s in store for these three major textile, apparel and shoe stocks, each of which is scheduled to release Q2 numbers on Aug 9.

Leading apparel retailer Fossil Inc. FOSL is set to report Q2 results on Aug 9. The company has an Earnings ESP of -11.11% and a Zacks Rank #5 (Strong Sell). The Zacks Consensus Estimate is pegged at 9 cents per share.

FOSSIL GRP INC Price and EPS Surprise

FOSSIL GRP INC Price and EPS Surprise | FOSSIL GRP INC Quote

Last quarter, this global consumer fashion accessories maker and distributor posted a positive surprise of 42.86%. In fact, the company has beaten estimates in all the four quarters, with an average positive surprise of 32.07%.

Notably, product innovation and continued momentum of the Fossil brand have been the company’s growth catalysts. Keeping in line with the regular innovations in technology, Fossil has forayed into the domain of wearable technology and introduced smartwatches for its customers, thereby seamlessly fusing fashion with technology.

However, softness in watch sales as a result of a decline in its multi-brand licensed watch portfolio, weak comps in the U.S., sluggish performance in key international markets and unfavorable currency have been weighing on the company’s performance. Internationally too, Fossil is battling economic challenges in many key markets including China, Europe, Russia and Greece. The company does not anticipate any significant change in the scenario  any time soon and thus, does not expect much international growth. (Read: Will Weakness in Watches Hurt Fossil's Q2 Earnings?)

Xcel Brands, Inc. XELB is set to report Q2 results on Aug 9. The company carries a Zacks Rank #3 (Hold) but has an Earnings ESP of 0.00%. It reported a negative earnings surprise of 100% in the preceding quarter and an average negative surprise of 86.67% for the trailing four quarters. The Zacks Consensus Estimate is currently pegged at 8 cents per share for Q2.

XCEL BRANDS INC Price and EPS Surprise

XCEL BRANDS INC Price and EPS Surprise | XCEL BRANDS INC Quote

Stay tuned! Check later on our full write-up on earnings releases of these stocks.

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