Key Highlights

  • Fossil shares are trading down 10.53% at $8.92 versus a prior close of $9.97.
  • The stock surged 26.68% on Wednesday after third quarter results.
  • Net sales grew 2% to $276 million, with the Fossil Brand up 14%.
  • Gross Margin expanded 10.9 points to 59.9%.
  • Full-year net sales guidance was raised to $980 million to $990 million.

Fossil (NASDAQ:FOSL) is trading down 10.53% at $8.92, giving back part of Wednesday's 26.68% surge to $9.97. Investors are balancing a strong third quarter and higher guidance against questions about the fourth quarter. Peer Movado (NYSE:MOV) is trading down 1.35%.

Third Quarter Marks a Turn

Net sales grew 2% to $276 million, including a roughly $10 million wholesale shipment pulled forward from the fourth quarter and about 190 basis points of drag from store closures. The Fossil brand grew 14%. Management said traditional watches, wholesale and direct online all contributed, with the U.S. and India strong and EMEA improving.

Gross margin expanded 10.9 points to 59.9%, helped by lower minimum Royalty guarantees, full-price selling, Supply chain gains and lower tariffs. Selling and administrative costs fell 8% to $135 million, or 48.9% of sales.

Profit Returns

Adjusted Operating Income was $30 million, an 11% margin and a $45 million improvement from a year ago. Net Income was $12 million, or $0.19 per diluted share. Year-to-date net income is about breakeven, and management expects positive reported net income and Earnings Per Share for the full year.

Guidance Raised, With a Catch

Full-year net sales guidance rose to $980 million to $990 million from $955 million to $975 million, and adjusted Operating Margin guidance rose to 5.5% to 6.5% from 4% to 6%. Management still expects positive free Cash Flow and gross margin in the upper 50% range.

The catch is the fourth quarter. Guidance includes the $10 million wholesale timing shift, and selling and administrative costs are expected in the low 50% range of sales as Fossil invests in Demand generation. Inventory is also up 13%.

Brand Moves

The Diesel license was extended through 2032, and a renewed Nick Jonas ambassador deal brings a 2027 campaign and watch collection. Early sales of the Swiss-made Signature CS1 and the Machine X1 are ahead of plan, according to management.

Fourth Quarter Margins Decide Whether the Rally Holds

After a four-year high, the stock is digesting a quick gain. Northland, Craig-Hallum and Lake Street lifted targets to between $12 and $12.50, and Maxim kept a Buy rating, all above the $8.92 price.

The next markers are fourth quarter selling costs against the low 50% guide, how much of the $10 million pull-forward leaves a Revenue gap, and holiday sell-through on the new Machine X1. A second quarter of Fossil brand growth would support the turnaround case.