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Will Coronavirus Aggravate Fossil's Dismal Sales Trend?

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Fossil Group, Inc.’s FOSL provided an update on the coronavirus outbreak. The company is closing all its stores across North America as well as majority of its shops in Europe. The shutdown is scheduled to last till Mar 28.

Moreover, management stated that customers can continue to make online purchases via the company’s website, fossil.com. Fossil’s stores in the Asia Pacific region are currently operational. Moreover, the company has enhanced sanitization process and implemented work from home for several employees among other precautionary moves. However, uncertainty regarding the coronavirus outbreak has prompted the company to withdraw its guidance for the first quarter and full year 2020 that was issued on Feb 26.

We note that rising concerns related to the COVID-19 pandemic have derailed the economic activities globally. Companies are bearing the brunt of supply-chain bottlenecks due to travel restrictions imposed to contain the further spread of the deadly virus. The outbreak has caused people in most cities to stay indoors, resulting in lower store traffic. The deadly virus has infected more than 170,000 people worldwide and death toll has crossed 7,000.

Other apparel and shoes retailers that recently closed stores due to coronavirus outbreak are Urban Outfitters, Inc. URBN, Abercrombie & Fitch Co. ANF, American Eagle Outfitters Inc. AEO and Capri Holdings Limited among others.

Coming back to Fossil, consumers’ changing preferences and a tough retail landscape are hurdles for the company. Incidentally, Fossil has been witnessing soft sales in traditional watches for a long time due to increased competition and soft performance of older generation connected products. Further, sales of leathers and jewelry have persistently been weak since the past few quarters due to soft demand. Well, these trends persisted in fourth-quarter 2019, wherein jewelry and leather business sales fell 9% and 16%, respectively. Also, the company’s watch sales dropped 9% due to sluggishness in the traditional watch category.

Sluggish trends have in turn affected the overall quarterly outcome. In the fourth quarter of 2019, worldwide net sales fell 10% year over year. Also, store closures and business exits hurt sales by 160 basis points. Region-wise, sales dropped 16% and 11% to $317 million and $241 million in the Americas and Europe, respectively. We believe that the recently-announced store closures could further dent the company’s performance in these regions.

Notably, shares of this Zacks Rank #3 (Hold) company have slumped 74.2% in the past six months compared with the industry’s decline of 45.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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