Financial Performance

Big Q2 Loss Sends Fossil Shares Down 24%

The company announces the departure of CFO Dennis Secor as it reports growth in wearables could not offset declining traditional watch sales.
Matthew HellerAugust 9, 2017

Shares in Fossil Group fell sharply on Wednesday after the watchmaker reported it swung to a quarterly loss and announced the resignation of CFO Dennis Secor.

Fossil has moved into smartwatches amid the decline of its traditional watch business but its second-quarter results did little to convince investors that the strategy is working.

The company swung to a loss of $344.7 million, or $7.11 a share, from a profit of $6 million, or 12 cents a share, a year earlier, while net sales dropped 13% to $596.8 million, well below analysts’ estimates of $618 million.

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“Growth in connected watches was more than offset by declines in traditional watches,” Fossil said in a news release.

Though Fossil said it was pleased with the performance of its wearables unit and optimistic about the category in general, it acknowledged “challenging” conditions. Growing awareness of smartwatches “is proving to take longer than we had anticipated,” Secor said on the earnings call.

Investors aren’t showing much patience. In trading Wednesday, Fossil shares tumbled nearly 24% to $9.02, following steep selloffs in the past two quarters.

Fossil “ultimately needs to drive higher volumes to bring wearables margins at parity with traditional watches — at this point, the ability to significantly scale the category remains a question mark,” Jefferies analyst Randal Konik wrote in a client note.

For the third quarter, Fossil gave more downbeat guidance, predicting sales will likely fall 8% to 14%, with losses of $0.11 to $0.44 per share. The company also announced Secor had resigned for “personal reasons” and would be replaced by board member and current Pier 1 Imports CFO Jeffrey N. Boyer, effective Oct. 16.

Fossil CEO Kosta Kartsotis still expressed confidence that wearables “have the ability to help mitigate the ongoing softness in the traditional watch category and ultimately, we believe, turn current headwinds into tailwinds.”

But The Motley Fool warned, “The watchmaker is running out of time, and shareholders should expect the coming holiday season at the end of 2017 to be crucial in determining whether Fossil can truly recover from the difficulties it has faced in recent years.”