Fossil Group Inc (NASDAQ: FOSL) is having an overwhelmingly strong start to the trading session this morning after reporting its earnings. While earnings missed expectations, when we dig into the details, we see why investors are so excited. With e-commerce sales up and expectations of increasing gross margins, investors seem to be downplaying the earnings miss. Today, we’ll talk about what we saw from earnings, what we’re seeing from the stock as a result, and what we’ll be watching for with regard to FOSL ahead.
FOSL Gains After Reporting Earnings
As mentioned above, Fossil is having an overwhelmingly strong start to the trading session this morning in the pre-market hours after reporting earnings. Here’s what we saw from the report:
- Earnings – During the quarter, earnings per share took a big hit. In fact, the company reported a loss in the amount of $1.65 per share. During the quarter, analysts expected that the company would generate earnings in the amount of $0.40. However, the company said that the earnings miss was the result of changes in taxes. In fact, after adjusting for a tax charge and other effects surrounding changes in tax law, the company said earnings came in at $0.64 per share.
- Revenue – Revenue proved to be a big hit. During the quarter, FOSL was expected to generate revenue in the amount of $890 million. However, the company actually reported revenue in the amount of $920 million, blowing away expectations.
- Upbeat Data – Also, FOSL said that its focus on wearables is helping quite a bit. In fact, it expects that this focus will boost gross margins. Not to mention, the company reported a 31% increase in e-commerce sales in the fourth quarter.
In a statement, Kosta Kartsotis, Chairman and CEO at FOSL, had the following to offer:
In fiscal 2017, Fossil Group, embarked on a set of strategic initiatives aimed at accelerating the evolution of the business to position the Company for long term profitable growth. While sales and earnings were challenged as expected, we generated progress toward our objectives that include: driving growth in wearables across our portfolio of powerful brands, leveraging our scale to lower supply chain costs, increasing our digital capabilities, and continuing the transformation of our business through New World Fossil. To this end, fiscal 2017 saw us nearly double wearables to over $300 million, representing 14% of total watch sales. This success drove an increase in Fossil watch sales for the second half of the year with positive comps in our direct business during the important holiday quarter. With wearable launches ahead of holiday, we significantly improved the trajectory for Michael Kors watches and drove a double digit increase in fourth quarter Armani watch sales. Overall, we introduced a number of new hybrid and display smartwatches across 14 brands and believe the continuation of this effort, combined with the innovation we are introducing across our traditional styles, has us poised for stabilization and growth over time. Also, positioning us well is the work we did across the supply chain. By year end, wearable product costs were aligned with our margin goal, setting the stage to increase gross margin in 2018. On the digital front, we greatly increased our reach, helping to drive a 31% increase in e-commerce sales in the fourth quarter, and our New World Fossil initiative led to $95 million reduction in expenses for the year placing us right on track to achieve our $200 million profit improvement goal. I am proud of our team as their combined efforts, focus and passion led to significant accomplishments toward each of our objectives, giving us a stronger platform from which to continue our progress in fiscal 2018.
What We’re Seeing From The Stock
As investors, one of the first lessons that we learn is that the news moves the market. In this particular case, the news proved to be overwhelmingly positive. While earnings was a bust thanks to changes in tax law, revenue was a big hit. Not to mention, Fossil is seeing strong growth in e-commerce and expecting to see gains in gross margins. So, it’s no surprise to see that the stock is running for the top this morning. At the moment (8:32), FOSL is trading at $16.19 per share after a gain of $7.15 per share or 79.09% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on FOSL. In particular, we’re interested in following the company’s ongoing growth in the e-commerce space as well as expansion of gross margins. We’re also interested to see what internal changes take place due to the changes in tax law. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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