Fossil Profit Tops Street; Stock Down On Weak Q2 Outlook

(RTTNews) - Fashion accessories and watch retailer Fossil Group Inc (FOSL), Tuesday reported a decline in first-quarter profit, hurt by lower operating margin, higher tax rate and interest expense, while the prior year recorded one-time gains.

Nonetheless, results for the quarter topped Wall Street estimates on strong demand for its watches and jewelry across all regions, partly offset by muted demand for leathers.

Fossil provided weak guidance for the second quarter, sending its shares down five percent in after-hours trade on the Nasdaq.

The results come as Fossil expands internationally and sees momentum in Europe, Asia and the Americas, even as mall traffic overall remains a cause for concern.

Richardson, Texas-based Fossil reported first-quarter net earnings of $66.3 million, compared with $72.2 million or $1.21 per share last year. On a per share basis, earnings climbed to $1.22 from $1.21 a year ago, on a lower share count.

On average, 18 analysts polled by Thomson Reuters estimated earnings of $1.17 per share for the quarter. Analysts' estimates typically exclude special items.

Results for the prior-year quarter included $0.11 benefit related to the acquisition of the company's Spanish joint venture.

Sales for the first quarter jumped 17 percent to $776.5 million from $680.9 million in the prior year. Fifteen analysts had a consensus sales estimate of $771.60 million for the quarter.

Growth was led by the company's multi-brand watch portfolio and modest growth in the Fossil and Skagen brands, with net sales of watches up 17 percent.

Jewelry sales increased significantly, while sales of leathers marginally declined. The company said both its wholesale and direct to consumer sales gained.

Meanwhile, global retail comps fell 2.4 percent, with a decrease in North America, while increases were seen in Asia Pacific and Europe.

Gross margin for the quarter was up 150 basis points to 57.1 percent, on sales of higher margin products, reduced freight and other costs, and acquisitions, partly offset by promotional activity in outlet stores and reserves associated with leathers.

Operating margin fell 40 basis points to 13.5 percent as the company expanded its retail store and concession base, spent on infrastructure and advertising royalties.

Results were also impacted by a higher tax rate at 31.3 percent, compared with 28.1 percent a year ago.

For the second quarter, Fossil expects earnings of $0.90 to $0.97 per share and sales growth of 8 percent to 9.5 percent. Analysts currently expect earnings of $1.16 per share on sales growth of 9.5 percent.

For fiscal year 2014, Fossil still expect earnings of $6.90 to $7.30 per share and sales growth of 8 percent to 10 percent, implying that to be in the range of $3.52 billion to $3.59 billion.

Analysts currently expect earnings of $7.20 per share on sales of $3.59 billion for the year.

Fossil stock closed Tuesday at $111.45, down $0.63 or 0.56%, on a volume of 790k shares on the Nasdaq. In after hours, the stock dropped $5.85 or 5.25% at $105.60.