Fossil Group Inc.FOSL is set to report second quarter 2015 results after the market closes on Aug 11.
Last quarter, this global consumer fashion accessories maker and distributor posted a positive surprise of 42.19%. In fact, the company has delivered positive surprises in three out of the last four quarters, with an average surprise of 12.18%.
Let’s see how things are shaping up prior to the announcement.
Factors to Consider
Product innovation and continued momentum of the Fossil brand have been the company’s growth catalysts. In addition, the company has been delivering positive comparable store sales (comps) internationally driven by continued strengthening of the Fossil and Skagen brands.
However, we note that in the U.S., the company is witnessing sluggish comps since the past few quarters due to weak traffic. Poor footfall in the stores has been impacting the business, especially at its full price stores owing to a tough retail environment. While there have been a number of new entrants in the U.S, the existing brands are nearing maturation. This is raising competition. The company is also witnessing changing consumer shopping behaviors at an unprecedented rate, and therefore it has a cautious stance in the United States. Currency is also expected to significantly hurt the company’s operations in the to-be reported quarter.
A soft macroeconomic condition in China is also slowing the company’s growth in Asia. China continues to be challenging in terms of distribution and expansion as well as softening economic trends. The company is also witnessing sluggish business in Hong Kong due to some of the political upheaval there, thus resulting in fewer Chinese stores. This sluggish development might slow down growth in China in 2015.
For the second-quarter of fiscal 2015, Fossil expects adjusted earnings in the range of $1.18 to $1.29 per share, excluding 27 cents per share of currency impact and 11 cents per share of restructuring charges.Earnings estimates are also declining over the past 30 days for the second quarter.
The company expects organic sales growth in the range of 4% to 6%, which excludes currency headwinds of 650-700 bps. The company expects adjusted operating margin in the range of 11.5% to 12.5% for the second quarter, which excludes 250 basis points negative impact from currency and 100 bps from restructuring charges.
Earnings Whispers?
Our proven model does not conclusively show that Fossil is likely to beat earnings this quarter. This 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.
Negative Zacks ESP:The ESP for Fossil is -7.14% as the Zacks Consensus Estimate of 84 cents is higher than the Most Accurate Estimate of 78 cents 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 are:
Campbell Soup Company CPB, with an Earnings ESP of +2.38% and a Zacks Rank #2 (Buy).
Dean Foods Company DF, with an Earnings ESP of +3.85% and a Zacks Rank #2.
The J. M. Smucker Co. SJM, with an Earnings ESP of +3.28% and a Zacks Rank #3.
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