Time for Fossil to Dig up Some Revenue

Following a massive ~40% drop in shares after market close yesterday, it may be surprising to some that Fossil

has climbed back up, trading +1% for the day thus far. With controversy buzzing around the stock's weak European numbers and a pending acquisition, it appears that this quarter has confused investors and analysts as to where the company is headed this year. Fossil has cut its full-year outlook on heavy costs relating to not only the soft European market, but its most recent acquisition of Danish watchmaker Skagen. While the brand has tracked growth on its own, Skagen is expected to be built up further by FOSL - a company that is not in the position right now to be helping anyone but itself. The watch distributor reported decent EPS of $0.93 this quarter, but sales only grew 10%. While the company can be thankful for the fact that revenue saw growth at all, it is the miss of management-projected 15% increase that has analysts concerned. A gloomy European economy is mostly at fault for the lack of sales. As the future continues to look bleak across seas, FOSL is no longer wholly resilient against the tough times. Bank of America said that the significant deceleration the company has seen in Europe has led analysts to believe that the wholesale business on that end will only increase 3% more throughout the remainder of the year. Not all hope is lost for Fossil's brand internationally. Like clockwork, the Asian market has picked up the European slack as it is being seen currently as a long-term growth opportunity. While Europe only brought in 4.7% revenue growth in the first quarter, Asia more than quadrupled that number bringing in 19%. "Asia wholesale grew 19% in 1Q but the company noted that concessions in Korea (which represent >50% of all concessions) posted comps of -5.9% due to macroeconomic weakness in that country. We still see Asia as a longer term growth opportunity but the recent decline in concession comps in Korea could weigh on sentiment. We are modeling Asia wholesale sales up 18% in F2012," Bank of America commented today. With several firms downgrading and upgrading Fossil today, the company's stock is experiencing similar fluctuation. Benchmark is seeing the dip in shares as an enormous opportunity to Buy, while the sell-off has forced J.P. Morgan to dub the stock with a Neutral rating as the firm sees no opportunity for shares to move higher in the next six to nine months. Other analysts have remained on the sidelines, as Fossil does pose a debacle with its potential long-term success and most recent flounder. For example, Piper Jaffray has chosen to remain a buyer of the stock despite present weakness, as the far-off future expansion in the Asian Pacific region is set to reinstate confidence in the brand and increase revenue. Clearly, recovering over a quarter of shares will be difficult for Fossil to scale up throughout the rest of 2012. While its second quarter is jumping off to a brutally rough start, the company will likely see happier days in the future as the Asian market is working itself up for a slew of expansion projects over the course of the next few years. FOSL is currently trading at $79.37, down 15.82% YoY.