Wells Fargo: Weak Guidance Reignites Fossil Group Bear Case

Fossil Group Inc FOSL shares were sinking Thursday, one day after the watchmaker reported a fourth-quarter earnings miss and weak first-quarter sales guidance.

Fossil guided to Q1 sales falling 16-22 percent year-over-year and a loss of $18 to $30 million. 

The Analyst 

Wells Fargo analyst Ike Boruchow maintained an Underperform rating on Fossil with an $8 price target. 

The Thesis 

Fossil, one of the worst-performing stocks in 2017, staged a comeback in 2018, when it was the best-performing stock in the S&P 500 — but it appears the bear case will be reignited, Boruchow said in a Wednesday note.

“FOSL’s 2019 outlook came in well below expectations, with Q1 top-line planned to fall at the largest rate in company history; however with a 2H outlook that embeds meaningful optimism." 

The traditional watch business is undergoing a secular decline, and the smartwatch threat is real, the analyst said.

The problem for Fossil is that its wearables category has failed to make a meaningful impact on the business; taking on the Apple Inc. AAPL Watch is a tough task for the company. 

“Importantly, FOSL’s push into the smartwatch category has been disappointing over the past two years. More recently, the category inflected negatively in 4Q18,” Boruchow said. 

Given that secular pressure on traditional watches is far from subsiding, the falloff in wearables truly hurts any real bull case that was previously made for the stock, according to Wells Fargo. 

Fossil Group shares were down 11.22 percent at $14 at the time of publication Thursday.

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Photo courtesy of Fossil Group.