What's in Store for Fossil Group (FOSL) this Earnings? - Analyst Blog

Fossil Group Inc. ( FOSL ) is set to report fourth-quarter and full-year 2014 results after the market closes on Feb 17.

Last quarter, this global consumer fashion accessories maker and distributor posted a positive surprise of 7.69%. In fact, the company has delivered positive surprises in the last four quarters, with an average surprise of 5.53%.

Let's see how things are shaping up prior to the announcement.

Factors to Consider

Strong top-line growth driven by a double-digit increase in global watch sales has been the company's strength over the past several quarters. Product innovation and continued momentum of the Fossil brand have also been growth catalysts. In addition, the company has been delivering positive comparable store sales (comps) internationally driven by continued strengthening of the Fossil, Skagen and Michael Kors brands.

However, we note that poor footfall in stores has resulted in weak comps in fiscal 2014 in the U.S. due to a volatile retail environment. The leather business has also not been doing too well. With euro declining sharply at the end of third quarter 2014, the company expects currency headwinds of 250 basis points to hurt revenues in the fourth quarter of 2014.

For the fourth quarter of 2014, Fossil expects earnings in the range of $2.91 to $3.21 per share, higher than $2.68 per share reported last year. The company expects sales to increase approximately 3% to 6%, much lower than the prior year quarter's sales growth of 12.1%. The company expects operating margin in the range of 19.8% to 21.3% for the fourth quarter compared with 20.6% margin in the fourth quarter of 2013.

During the third quarter conference call, Fossil raised the lower end of its earnings guidance for 2014, but slightly lowered revenues and margin expectations. The company expects earnings in the range of $7.00 to $7.30 per share, marking an increase of 6.7% to 11.3% from $6.56 per share reported in 2013. Fossil expects sales growth in the range of 8.5% to 9.5% for 2014. Operating margin is likely to be in the range of 15.8% to 16.4% in 2014.

We believe that though lower outstanding share count owing to share buybacks will continue to support earnings, a sluggish leather business and higher operating expenses might diminish the impact of higher sales coming from a solid portfolio of watches.

Earnings Whispers?

Our proven model does not conclusively show that Fossil is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The ESP for Fossil is 0.00% as both the Zacks Consensus Estimate and the Most Accurate Estimate stand at $3.10 per share.

Zacks Rank #4 (Sell): Fossil holds a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank include:

The Kroger Co. ( KR ) with an Earnings ESP of +4.49% and a Zacks Rank #2 (Buy).

Kohl's Corporation ( KSS ) with an Earnings ESP of +0.56% and a Zacks Rank #2.

Macy's Inc. ( M ) with an Earnings ESP of +0.41% and a Zacks Rank #3 (Hold).

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MACYS INC (M): Free Stock Analysis Report

KOHLS CORP (KSS): Free Stock Analysis Report

FOSSIL GRP INC (FOSL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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