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Why Fossil Group Stock Jumped Thursday

Jeremy Bowman, The Motley Fool

What happened

Shares of Fossil Group (NASDAQ: FOSL) rose 13% Thursday after the watchmaker showed off progress toward its turnaround in its first-quarter earnings report. 

So what

Revenue in the period fell 18% (15% in constant currency) to $465.3 million, as timepieces have become less necessary in the smartphone era. Nonetheless, that result topped estimates of $456.1 million. The company said comparable retail sales fell 9% in the quarter, but e-commerce sales continued to grow.

The entrance to a Fossil store

Image source: Fossil.

The company experienced significant revenue declines in its three product categories -- watches, leather, and jewelry -- and in both the Americas and Europe. However, in Asia, constant-currency revenue rose 4%, with solid growth in China and India.

Gross margin increased by 280 basis points, a promising sign, to 53.3%; this was due to a cutback on sales in the off-price channel, and a favorable mix shift to higher-margin sales in Asia.

Adjusted loss per share improved from a loss of $0.64 to one of $0.42, beating expectations for a loss of $0.60 per share.

CEO Kosta Kartsotis said: "We began fiscal 2019 reporting sales and earnings that exceeded our expectations. Given the ongoing disruptions in our category, we continue to plan our business conservatively but are operating with a sense of urgency to transform our sales channels and to increase product innovation across our categories."

Now what

Looking ahead, the company sees revenue declining between 7% and 12% for the full year. It also expects pre-tax income of $30 million to $75 million.

While the continuing declines in revenue are troubling, investors are learning to accept them as the company copes with a struggling brick-and-mortar channel and a watch market in transition. However, Fossil seems to be making progress in its turnaround efforts as it moves toward wearables and e-commerce. Growth in China and India also shows that the brand isn't struggling everywhere, and the improvement in gross margin is a positive sign for the bottom line.

The stock is unlikely to return to its previous heights, but Fossil seems to be moving in the right direction for now.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.