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Watchmaker Fossil Group Inc. is still trying to find the right mix — with disappointing performances from its older connected styles and department stores leading it to fourth-quarter losses.
And now the company, trying to build in the smartwatch space and in the midst of a multiyear restructuring, is also going to have to deal with supply chain disruptions from the coronavirus, although it has enough stock on hand for now.
Fourth-quarter losses totaled $6.9 million, or 14 cents a share, down from earnings of $47.6 million, or 94 cents, a year earlier. Sales for the three months ended Dec. 28 dropped 9.6 percent to $711.6 million from $786.9 million.
This year, Fossil is projecting results before income taxes to range from a loss of $57 million to earnings of $3 million as net sales declines range from 11.5 percent to 4.5 percent.
Investors wanted something more and sent shares of the company down 17.2 percent to $4.40 Tuesday morning, giving the firm a market capitalization of just $222.3 million — a relatively paltry valuation for a company with annual revenues of $2.2 billion.
Fossil said its 2020 guidance includes the fallout of the coronavirus.
“Given our strong inventory levels and the efforts of sourcing and assembly sites to safely return to production in the next few weeks, we do not anticipate a material disruption to our supply chain over the next several months,” the firm said.
Sales are expected to be disrupted in mainland China, Hong Kong, Macau, South Korea, and the firm’s travel retail businesses, which all together accounts for about 10 percent of global turnover.
Fossil warned, though, that the “dynamic nature” of the outbreak meant its long-term financial impact “cannot be reasonably estimated.”
So, the company’s quarterly update focused more on the here and now and the strategic steps it could plan on.
Kosta Kartsotis, chairman and chief executive officer, said: “We are disappointed to close the year with a challenging fourth quarter, which primarily reflects lower than expected performance in our older generation connected products and ongoing softness in the department store channel. These pressures more than offset strong performance in our Gen 5 offering — our latest generation display product — and our Hybrid HR product, as well as double-digit growth in Asia and solid growth in our third-party e-commerce channel. The topline softness resulted in heightened promotional activity and an inventory write-down, which had a substantial impact on our gross margins and profitability in the quarter.”
To get back ahead, Fossil is going to focus more on going it alone.
“As we navigate the challenging operating environment, we are taking actions to pivot our business model by deploying greater resources toward the direct to consumer channel, accelerating our connected product offerings and building on our success in the Asia region,” Kartsotis said.
The goal is to stabilize the business in its traditional channels through product innovation and marketing while reengineering the back-end to cut out costs.
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