Fossil (FOSL) Slowdown, Disruption Finally Coming Home to Roost, Says KeyBanc

KeyBanc earlier maintained an Underweight rating on Fossil (NASDAQ: FOSL) and lowered its price target to $60.00 (from $65.00). Analyst Edward Yruma described lackluster Q2 results as "not entirely surprising."

"Our downgrade to Underweight on January 10, 2014 had two fundamental elements – a slowdown in the watch business and disruption from the AAPL watch – both are finally coming home to roost. Updated guidance (sales -1% to +3%, constant currency) seems to be more realistic, but visibility remains highly limited. Europe and Michael Kors seem to be two incremental headwinds that could intensify pressure on earnings," said Yruma.

"The Company was a bit less explicit about the sell-in/sell-through data, but noted that inventories will build in the 3Q. This concurs with our field work that sales trends remain highly challenged. Most importantly, the KORS business seems to be in the “ebb” part of its life cycle, which, at 26% of FOSL 2014 sales, can drive further pressure," continued the analyst.

Yuma added, "The Company noted that the entrant of a new player (Apple) caused uncertainty in the market by diverting spending “away from traditional products.” Our colleague Andy Hargreaves believes AAPL sold 2.8M watches in AAPL’s FQ3, which, while below his previous estimates, we believe is sufficiently large enough to disrupt the fashion watch market. FOSL intends to have an initial wearable product for holiday, but we think that it may not be enough to offset pressure from AAPL."

For an analyst ratings summary and ratings history on Fossil click here. For more ratings news on Fossil click here.

Shares of Fossil closed at $62.11 yesterday.

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