Fossil Group (FOSL) Announces Misfit Inc. Acquisition Along Side 3Q Miss; Nomura Securities Cuts Price Target to $40
Nomura Securities reiterated a Neutral rating on Fossil (NASDAQ: FOSL), and cut the price target to $40.00, following the company's 3Q report. Watch sales remain under pressure, a fact not helped by KORS’s prior success. Management noted that excluding KORS decline, watch sales were flat on a constant currency basis. FX continues to play a large role in FOSL EPS reports with an implied 6% topline currency translation impact in 3Q and a $0.40 impact to EPS. Concurrent with the EPS report, FOSL announced its agreement to acquire Misfit, Inc., a wearables manufacturer w/~$30mn in ’15 revs. The $260mn acquisition will be funded with a mix of cash/debt with plans to close in late 4Q.
Analyst Simeon Siegel commented, "FOSL’s 3Q results and 4Q guide exacerbated investor fears of an ongoing sales and margin bleed. And as if accepting the fate of wearables, the company announced its acquisition of Misfit (and its ~$30mn revenue base). At this point, we remain concerned over FOSL’s trajectory as it operates primarily in a challenging channel (department stores), selling a product that is working to reinvent itself. We lower our estimates meaningfully and cut out TP to $40."
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Shares of Fossil closed at $51.01 yesterday.