What To Watch For After Fossil Reports A Rough Q3

Luxury goods retailer Fossil Group Inc FOSL reported "challenging" third-quarter results after the close Tuesday — including a GAAP EPS loss of 11 cents, down from a positive 36 cent-per-share figure a year ago — but there are signs of stabilization in the watch sector, according to KeyBanc Capital Markets. 

The Analyst/Firm

KeyBanc Capital Markets analyst Edward Yruma reviewed Fossil's third quarter results in a Tuesday note. 

The Rating

Yruma maintained an Overweight rating on the shares of Fossil and lowered its price target from $24 to $15. (See Yruma's track record here.) 

The Thesis

Fossil brand sales were positive, with wearables aiding growth at both its namesake brand and the Michael Kors business, Yruma said. 

The core fashion watch market is seeing some signs of stabilization, Yruma said: Watch sales fell 2.7 percent, an improvement from the high-single-digit declines seen in the previous two quarters.

Over time, wearable growth will offset modest declines in traditionals, the analyst said. 

Leather good and jewelry sales remain tepid, the analyst said, with 19- and 20-percent declines, respectively, according to KeyBanc. The sequential quarter-to-date improvement seen in the U.S. is expected to reach additional markets, Yruma said.  

Fossil lowered its adjusted non-GAAP earnings per share guidance from $0.35-$1.15 to a loss of $0.45 to earnings of $0.10, leading KeyBanc to adjust its estimates accordingly. 

The Price Action

Fossil shares, which closed Tuesday's session down 1.86 percent at $6.85 ahead of the quarterly report, were down 5.99 percent at $6.44 in pre-market trading.

The stock, which is at a multi-year low, has lost a whopping 75 percent year-to-date.

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