Fossil is crashing.
On Friday morning shares of the watch and accessory retailer were down as much as 32% after the company’s sales fell across the board in the third quarter. Additionally, Fossil announced on Thursday that it acquired Misfit, a wearable technology company, for $US260 million.
In a note to clients following Fossil’s announcements, analysts at Macquarie wrote, “We are absolutely perplexed.”
We thought Fossil had the right partners for the wearable initiative with Intel and Google. And out of nowhere… Boom! Fossil decides to acquire the wearable start-up Misfit by paying $US260M. This definitely takes the Wearable Paradox to the next level. We are still curious to know what the intellectual and patented know-how is behind Misfit and what R&D spend is needed for Fossil to become a player in a space that is replacing conventional watches.
The firm noted that Fossil faces a strategic disadvantage in the wearable technology space due to a lack of patents, but it seems that the twin news of poor results and a big purchase in the wearable space is spooking investors on Friday.
As for the company’s earnings, excluding the impact of currency fluctuations, sales at Fossil fell 8% in the third quarter, falling 10% in the Americas, 3% in Europe, and 10% in Asia.
Sales totaled $US771.3 million the third quarter while earnings per share came in at $US1.19. Fossil’s sales number was less-than-forecast by analysts while earnings per share were in-line, according to estimates from Bloomberg.
In the fourth quarter, Fossil expects sales to fall 2%-11%, with currency adjustments taking a 5% bite out of sales.
Macquarie also noted that inventories at Fossil were up 7% in the third quarter, and so this, combined with a forecast decline in fourth quarter sales, paints a negative future for profit margins.
And overall, this has just been a disastrous year for Fossil, with the stock down nearly 70% year-to-date.
Here’s the ugly chart.
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