Fossil Group Inc. FOSL is set to report third quarter 2015 results after the market closes on Nov 10.
Last quarter, this global consumer fashion accessories maker and distributor posted a positive surprise of 45.24%. In fact, the company has delivered positive surprises in three out of the last four quarters, with an average surprise of 22.17%.
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. Fossil’s foray into wearable technology allows it to bring smartwatches to its customers, shaping the fusion of fashion and technology. The connected wearables and smartwatches are also expected to bring a unique branded experience to customers.
However, we note that the company expects tempered growth internationally in 2015, especially in China and also expects several challenges to impact international demand. Moreover, the company is witnessing sluggish comps in the U.S. 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.
In fact, during the second quarter conference call, the company had stated that it expects the third quarter to be the weakest quarter in terms of top line performance, given the strong growth rates posted last year, especially in the Americas and in Europe.
Fossil expects adjusted earnings in the range of $1.45 to $1.70 per share for the third-quarter of fiscal 2015, on a constant currency basis. The company expects net sales to decline in the range of 3% to 8%, which excludes currency headwinds of 700 basis points (bps). The company expects adjusted operating margin in the range of 13.5% to 15% for the third quarter, which excludes a 340 bps negative impact from currency and 60 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.
Zacks ESP: The ESP for Fossil is +5.31% as the Zacks Consensus Estimate of $1.13 is lower than the Most Accurate Estimate of $1.19 per share.
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 +2.63% and a Zacks Rank #3 (Hold).
Dean Foods Company DF, with an Earnings ESP of +4.00% and a Zacks Rank #3.
Energizer Holdings, Inc. ENR, with an Earnings ESP of +13.12% and a Zacks Rank #3.
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