What time is it? Fossil suffers as people use phones and wearables to answer
NEW YORK-- Shares of Fossil Group slid nearly 29% Wednesday after the company delivered results that missed Wall Street estimates and offered a disappointing profit outlook. The results highlight the pressure that a growing preference for using wearables such as the Apple Watch and smartphones to track the time is having on traditional watchmakers.
Late Tuesday, Fossil said first-quarter profit fell 84% to $5.8 million as sales fell in several key markets. The strong U.S. dollar was a factor, but even without the impact of currency translation, sales fell 7% in North America, 8% in Europe and 4% in Asia.
Total sales including the currency impact, fell 9%. In 2016, the company said it expects sales to fall 5% to 15% and it predicts per-share profit of $1.80 to $2.80, below the $3.13 analysts were expecting before the announcement.
"While our financial results were in line with our expectations, they were below last year given the persistent headwinds pressuring the traditional watch category and the challenging retail environment, particularly in our wholesale channel," said Fossil Group CEO Kosta Kartsotis in a statement released with the results. "We are disappointed that those headwinds have intensified, which will impact this year’s expectations, despite our further expense management."
Late last year Fossil launched it’s first product running Google’s Android Wear smartwatch platform, the $275 Q Founder. The watch was praised for its stylish design but as with others in the budding smartwatch category it has yet to resonate with consumers.
“There’s going to be plenty of more investment for them before they get a lot of those products to market, and even so, the first couple of iterations don’t always get so widely adopted or there are kinks or things to work out,” says Christine Short, senior vice president with crowd sourced financial service Estimize. “I wouldn’t expect to see any benefits to fitness trackers or smartwatches for Fossil until probably 2017 and then again, because of the high investments in that space, I would expect the next three quarters of 2016 to be pressed as far as bottom line growth goes.”
There is concern the company isn't moving fast enough.
"We continue to hear about the wearable initiative and the roll-outs that will come in (the second half of the year)," Macquarie Research analysts Laurent Vasilescu and Dan Isaacson wrote in a note to clients. "However ... the 2015 (annual report) speaks of no patents that were material to Fossil's business. We believe this will require Fossil to compete on fashion alone instead of technology."
Fossil shares lost $11.66 to close at $28.44.
Follow Eli Blumenthal on Twitter @eliblumenthal