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Soft Sales Likely to Hurt Fossil Group (FOSL) in Q3 Earnings

Fossil Group Inc FOSL is slated to report third-quarter 2017 results on Nov 7, after the market closes.

The company’s earnings have surpassed estimates in three out of the trailing four quarters, with an average surprise of 0.9%. However, earnings have declined on a year-over-year basis since the last eight quarters. The company has been struggling with lower sales of traditional watches and dismal performance of its leather and jewelry businesses.

Owing to such headwinds, shares of Fossil Group have plunged 51.3% in the past six months, compared with the industry’s decline of 20.2%.

Further, these hurdles are likely to impact the company’s third-quarter performance. Let’s take a look at how things are shaping up for this announcement.

What to Expect?                                                              

The Zacks Consensus Estimate for the third quarter is pegged at a loss of 12 cents, depicting a considerable deterioration from earnings of 42 cents in the prior-year quarter. Estimated loss of the period under review has however remained stable in the past 30 days. We note that on a non-GAAP basis, management projects bottom-line results to range between a loss of 26 cents and earnings of 7 cents. On a GAAP basis, the company expects loss in the range of 44-11 cents per share. .

Further, analysts polled by Zacks expect sales for third quarter to decline 11.5% from the prior year to reach $653.2 million. The slump in top line lies within management’s projected decline of 8–14%. We note that the top line has missed the Zacks Consensus Estimate in eight out of the last 10 straight quarters and have also been registering year-over-year decline for quite some time.

Fossil Group, Inc. Price, Consensus and EPS Surprise

Factors Impacting the Quarter

Fossil Group continues to expect a challenging retail environment for its traditional watch category across its key markets, owing to intensifying competition and evolving consumer preference toward connected wearables. The company has been striving hard for the revival of its watch category by adding new products under its smartwatches and connected wearable’s portfolio. However, the new launches are yet to yield significant revenues to offset the declines witnessed in sales of traditional watches.

Additionally, low consumer response is expected to affect Fossil Group’s leather and jewelry businesses. Notably, the performance of these businesses has remained dismal during the first half of 2017.

Further, in order to boost sales of its existing and newly launched products, Fossil Group has been investing highly in promotional activities, thereby increasing operating expenses. This trend is likely to persist for the third quarter as well. On a non-GAAP basis, management expects operating margin for the quarter under review in the range of a decline of 1.2% to an increase of 2%from the year-ago period. .

What Does the Zacks Model Unveil?

Our proven model does not show that Fossil is likely to beat estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Fossil Group currently carries a Zacks Rank #3 (Hold), the company’s Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies which, according to our model, have the right combination of elements to deliver earnings beat.

Zumiez Inc ZUMZ has an Earnings ESP of +2.67% and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Home Depot Inc HD has an Earnings ESP of +0.76% and carries a Zacks Rank #2.

Ross Stores Inc ROST has an Earnings ESP of +0.27% and carries a Zacks Rank #2.

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