Piper Jaffray analyst, Erinn Murphy, reiterated her Underperform rating and $29 PT on Fossil (NASDAQ: FOSL) as weak guidance was initially overshadowed by a low quality earnings beat. She sees shares of FOSL as a show me situation and would be sellers this morning.

FOSL reported better-than expected Q4 results with EPS of $1.46 ahead of the Street's $1.31. Of note, $0.14 of the EPS beat was due to a favorable tax rate. While shares reacted favorably on a short squeeze in the aftermarket tied to better Q4 sales and FY16 EPS guidance bracketing consensus (guide: $2.80-$3.60; Street: $3.33), Q1 guidance was offered well below expectations with sales down (7%)-(10%) and EPS of $0.05-$0.20 (Street: $0.41). On the call, management indicated that the watch category was negative and Michael Kors continued to underperform,

Despite lacking visibility for the brand in 2016, management was positive on 2H potential due to the robust launch of wearables.

Fossil offered initial FY16 guidance calling for sales growth of down (3.5%) to +1.0% on a reported basis. EBIT margins are expected in a 7.0%-8.5% range, while EPS is anticipated at $2.80 to $3.60 (vs. the Street $3.12). Looking at Q1, sales growth is expected down (7.0%)-(10.0%) on a reported basis, EBIT margins in a 1.0%-2.5% range and EPS is anticipated at $0.05- $0.20 (vs. the Street $0.41).

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Shares of Fossil closed at $34.46 yesterday.