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Wells Fargo: Fossil Group May Have Little To Celebrate In The Holiday Quarter

Priya Nigam

The top-line performance and overall direction of Fossil Group Inc’s (NASDAQ: FOSL) business continue to be concerning, according to Wells Fargo.

The Analyst

Ike Boruchow maintained an Underperform rating on Fossil Group with an unchanged $8 price target.

The Thesis

Following weak performance in the first and second quarters, the focus is now on Fossil Group’s performance in the back half of the year, and the outlook is not compelling, Boruchow said in a Thursday note. (See his track record here.) 

The company had a slow start to the year, with an 18% decline in its first-quarter top-line, representing the highest quarterly sales decrease in its history, the analyst said. After this performance, expectations for the second quarter were not high, and the results were broadly in-line, he said. 

The traditional watch business continues to be under severe pressure, while the wearables business is underperforming, Boruchow said.

“At the end of the day this remains a top-line story and given the negative trends in FOSL’s largest category, we continue to be very concerned with the direction of the business.”
Wells Fargo has two main reasons for its negative outlook on the back half of the year, the analyst said. 

At the midpoint, the company’s third-quarter sales guidance implies a fourth consecutive quarter of double-digit decline in constant currency terms, he said; moreover, management reduced the high end of its gross margin guidance.

Price Action

Fossil Group shares were up 5.05% at $10.92 at the time of publication Thursday. 

Related Links

Fossil Group's Earnings Preview

Fossil's Q1 Beat Elicits Mixed Analyst Reactions

Latest Ratings for FOSL

Date Firm Action From To
Aug 2018 Maintains Overweight Overweight
Jun 2018 Maintains Overweight Overweight
Feb 2018 Maintains Neutral Underperform

View More Analyst Ratings for FOSL
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