Fossil stock falls postmarket on guidance cut amid inflation impact, uncertainty in China

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Fossil (NASDAQ:FOSL) stock slid 9.4% on Wednesday after the fashion accessory maker cut its FY outlook due to high inflation pushing shoppers to cut back on spending, likelihood of COVID-19 restrictions in China, and forex impact.

FOSL expects 2022 worldwide net sales to decline ~8-4% to $1.75B-$1.82B. Prior sales growth forecast was flat to 3%.

The new guidance includes estimated foreign currency negative impact of 450 bps vs. prior estimate of 350 bps.

FOSL now expects adj. operating margin of 2-4% vs. prior outlook of 5.5-6.5%.

The firm reported Q2 adj. EPS of -$0.33 vs. $0.08 in Q2 2021.

Revenue was $371.2M, down 10% on a reported basis and 5% in constant currency Y/Y. Net sales, in constant currency, fell 6% in Asia, 4% in the Americas and 3% in Europe.

Traditional watch sales fell 7% in constant currency, while smartwatch sales dropped 18%, driven by the Americas. Leathers and jewelry categories each grew 12% in constant currency.

Direct to consumer net sales grew 5% in constant currency, led by 26% growth in store sales, but largely offset by lower e-commerce sales.

Total digital sales declined 21% in constant currency, due to traffic shifts from owned e-commerce to brick and mortar distribution in Europe and the Americas, and lockdowns in China.

Gross margin decreased 240 bps to 51.6%, reflecting higher freight costs and unfavorable currency impact. Additionally, the year-ago period included tariff reductions.

Shares of FOSL, which ended 2.5% higher ahead of results, have fallen 38.5% YTD.

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