Shares of Fossil Group (NASDAQ: FOSL) rose 13% Thursday after the watchmaker showed off progress toward its turnaround in its first-quarter earnings report.
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.
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."
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.
More From The Motley Fool
- 10 Best Stocks to Buy Today
- The $16,728 Social Security Bonus You Cannot Afford to Miss
- 20 of the Top Stocks to Buy (Including the Two Every Investor Should Own)
- What Is an ETF?
- 5 Recession-Proof Stocks
- How to Beat the Market