Why Fossil (FOSL) Is A Touch-Me-Not Stock For Investors

Fossil Group, Inc. (NASDAQ:FOSL) has been in the red for quite some time as it is witnessing a decline in the traditional watches and leather businesses, alongside battling the perils of the tough retail landscape.

This has led the shares of this Zacks Rank #5 (Strong Sell) company to underperform both the Zacks categorized Retail – Apparel/Shoe industry and the broader sector on a year-to-date basis. The stock plunged nearly 64%, while the industry declined 21.7%. In fact, the industry is currently placed at the bottom 8% of the Zacks Classified industries (236 out of 256). Further, the Zacks categorized Retail-Wholesale sector that is currently placed at the bottom 19% of the Zacks Classified sectors (13 out of 16) gained 17.4%.

Moreover, shares of Fossil have plummeted 48.3% since the company reported dismal first-quarter 2017 results on May 9. Currently, the share price is hovering close to its 52-week low of $8.98.

Headwinds Affecting Fossil

We note that Fossil is witnessing soft sales in traditional watches over the past few quarters due to increased competition from new entrants in the market. Another key reason for the decline is the fall in its multi-brand licensed watch portfolio. Moreover, we note that the company’s sales of traditional watches have fallen prey to the rise of tech-enabled watches and the success of Michael Kors brand, which has engulfed considerable market share.

Furthermore, the exit of Burberry from the watch business is likely to affect Fossil's sales as the company manufactures watches for the brand. Burberry is expected to wind up its watch business by the end of 2017, following the expiration of its licensing agreement with Fossil. Driven by these factors, the company expects continued weakness in this category throughout 2017.

This along with the softness in leather business and a tough retail environment caused the company to post top-line misses in eight of the last 10 quarters, including the first quarter of fiscal 2017. Also, the company posted wider than expected loss per share for the quarter.

Moreover, the company is currently witnessing sluggish comparable store sales in the U.S. due to soft traffic trends owing to a tough retail landscape. This has particularly weighed on the performance of its full-price stores. Additionally, Fossil has been delivering lower margins in the retail channel, primarily due to increased promotions as well as higher mix of connected products. Gross margin contracted 300 basis points in the fiscal first quarter.

Not to mention, Fossil remains exposed to challenges relating to the changing consumer shopping behaviors at an unprecedented rate as well as unfavorable foreign currency translations for its products sourced internationally. Going forward, currency rate fluctuations are expected to hinder the company’s sales and overall profitability. This apart, Fossil is certainly not immune to economic challenges in many of its key markets.

Stocks that Warrant a Look

Meanwhile, investors may bet on better-ranked stocks in the same industry including The Children's Place, Inc. (NASDAQ:PLCE) , J.Jill, Inc. (NYSE:JILL) and Canada Goose Holdings Inc. (NYSE:GOOS) .

Children's Place has a long-term earnings growth rate of 8% and posted an average earnings beat of 36.6% in the trailing four quarters. Also, the stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Canada Goose Holdings carries a Zacks Rank #2 (Buy) and has an impressive long-term earnings growth rate of 47%. The stock has surged almost 30% year to date.

J.Jill, a Zacks Rank #2 stock has a long-term earnings growth rate of 19.8%.

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