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Weak Units Dim Prospects for Fossil's (FOSL) Q2 Earnings

Zacks Equity Research

Fossil Group, Inc. FOSL is slated to release second-quarter 2019 results on Aug 7, after market close. This renowned manufacturer of watches and other accessories has witnessed its bottom line outperform the Zacks Consensus Estimate in three of the trailing four quarters. However, the company reported a loss in the first quarter. Let’s see how things are placed, ahead of the upcoming quarterly release.

Soft Business Categories are Concerns

Fossil has been witnessing soft sales in traditional watches for a while, thanks to increased competition and rising demand for connected wearables. Further, sales of leathers and jewelry have been persistently weak since past few quarters on account of soft demand. Weakness across these categories are likely to persist and be a drag on performance in the second quarter.

The company also grapples with adverse impacts from business exits and store closures. Such factors have affected the top line, which has been persistently declining for nearly two years now. This raises concerns for the quarter to be reported.

Moreover, management expects unfavorable currency movements, business exits, store closures and supply-chain hurdles to persist in 2019. In fact, for the second quarter, the company expects net sales to decline 10-16%, as it expects negative impacts of approximately 3% from business exits and around 2% from unfavorable currency movements.

Nevertheless, we note that the company has been witnessing growth in its connected wearables category that includes smartwatches, hybrid watches and activity trackers. The segment is likely to sustain the momentum in the second quarter. Since the connected wearables portfolio form a smaller portion of the company’s overall business, growth in this channel might not be adequate to offset softness in the larger traditional watch unit as well as other categories. As a result, the company’s top and the bottom line are likely to remain dismal in the to-be-reported quarter.

Fossil Group, Inc. Price, Consensus and EPS Surprise


Fossil Group, Inc. Price, Consensus and EPS Surprise

Fossil Group, Inc. price-consensus-eps-surprise-chart | Fossil Group, Inc. Quote


Estimates Unveil Bleak Prospects

The Zacks Consensus Estimate is pegged at a loss of 7 cents per share for the quarter to be reported. The projection, which has been stable in the past 30 days, compares unfavorably with earnings of 17 cents delivered in the prior year quarter.

Further, the consensus mark for revenues is pegged at $496.5 million, which suggests a drop of almost 13.9% from the year-ago quarter’s tally.

What Does the Zacks Model Predict?

Our proven model doesn’t show that Fossil can beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Although Fossil carries a Zacks Rank #3, its Earnings ESP of 0.00% makes us less confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter.

Stocks Poised to Beat Estimates

Here are some companies you may want to consider as our model shows that they have the right combination of elements to beat estimates.

Ulta Beauty ULTA has an Earnings ESP of +0.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sally Beauty Holdings SBH has an Earnings ESP of +0.31% and a Zacks Rank #3.

The TJX Companies TJX has an Earnings ESP of +4.00% and a Zacks Rank #3.

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