Fossil Group Inc’s FOSL turnaround was expected to be driven by wearable growth and traditional watch stabilization, neither of which have materialized, according to KeyBanc Capital Markets.
The Analyst
KeyBanc’s Edward Yruma downgraded Fossil Group from Overweight to Sector Weight.
The Thesis
Although Fossil Group recorded 5% growth in its gen wearable product in the third quarter, growth should have been stronger, given the secular trends in the industry, Yruma said in a note.
He added that the company has made progress with tis wearable strategy, but competitors continue to fare better in this category.
The analyst mentioned that the Hybrid HR product looked “promising,” with a two-week battery life, iPhone compatibility and heart rate functionality. He expressed concern, however, regarding the premium product’s lack of integrated cellular capabilities.
The rate of decline in Fossil Group’s traditional category has slowed, which is positive. Yruma said, however, that the weakness continued to be “more pronounced than previously expected” and that the trends had not yet stabilized.
The analyst added that Fossil Group continued to be impacted by significant pressures in the wholesale channel.
He reduced the earnings estimates for the fourth quarter, fiscal 2019 and fiscal 2020 from $1.57 per share to 73 cents per share, from $1.49 per share to 12 cents per share and from $1.68 per share to 15 cents per share respectively.
Price Action
Shares of Fossil Group were down 20.06% to $10.04 at the time of publishing.
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