Fossil is crashing

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.”

Macquarie added:

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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