Fossil: Color on Quarter (22.87)
- Wells Fargo downgraded to Underperform from Market Perform.
- Cowen cuts tgt to $15.
- Telsey Advisory Group lowers their FOSL tgt to $23 from $27. The wearables offering has seen an uptick, particularly at the Kors and Fossil brands. In addition, management sees the ability to recapture margin through improved volume pricing, mid-single digit revenue growth, and driving organizational efficiencies. However, the costs of investment in the wearables roll out remain heavy, at a time when the headwinds of the slowing traditional watch market, a strong dollar, and increasing interest expense are weighing on profitability. In addition, the jewelry and leathers businesses have remained slower as management focuses its efforts on connected technologies. They therefore still see earnings visibility as challenging, and remain cautious on the shares of FOSL.
- Mizuho cut tgt to $17 from $19 following a disappointing FY17 guide that reflects the business model transition. While FOSL ramped up the wearables business to 5.5% of FY16 sales on 100+ wearable SKUs across 8 brands, the strategy to give up margins to drive cost efficiencies could end up backfiring on the LT margin profile for the total business. Additionally, they were disappointed the FY17 guide already reflects 40% of the New World Fossil profit improvement, demonstrating limited upside to EPS from cost cuts going forward. Given multiple headwinds and lack of sales/margin clarity, they maintain their negative stance.
- Note we initially reported GAAP EPS guidance for Q1 and FY17 last night but we have since edited that comment, it was below consensus either way but should have read: guided Q1 adj. EPS of ($0.25)-(0.10) vs. $0.11 Capital IQ Consensus; revs down 9.5-13% to ~$574-597 mln vs. $659.18 mln Capital IQ Consensus. Sees FY17 adj. EPS of $1.00-1.70 vs. $1.91 Capital IQ Consensus; revs flat to down 6.5% to ~$2.84-3.04 bln vs. $3.06 bln Capital IQ Consensus.