When a major department store closes a store, often Fossil (FOSL) loses a place to sell its watches. And that harsh reality of retail right now is really taking its toll on the watchmaker.
After Tuesday's market close, Fossil reported a net loss of $1 a share for the period ended April 1, steeper than the loss of 27 cents a share analysts surveyed at Factset expected. The company posted revenue of $581.8 million, lower than Wall Street's estimates for $591 million.
Shares of Fossil crashed 21 percent to $14.44 in Wednesday trading.
In America, sales plunged 17 percent, while watch sales dropped 9 percent, leather items fell 21 percent and jewelry slipped 12 percent. In its retail business, same-store sales fell 11 percent.
Although Fossil badly missed estimates, CEO Kosta Kartsotis said on a company earnings call this evening that its results were "in line with our expectations" and that the downturn in the retail industry, including its own move to close 40 stores since the year-ago period, was to blame for the weak results. Not everyone agreed with the CEO's assessment, however.
"Results were disappointing with top line weakness and margin deterioration driving an earnings miss. With soft demand across categories, geographies, and channels, there is no silver lining to results," wrote Jefferies analyst Randal Konick on Wednesday.
For the second quarter, Fossil predicts it will incur a net loss of between 83 cents and $1 a share and for the full year, it expects a loss in the range of 30 cents to 40 cents a share. The company anticipates that its revenue will decline 8 percent to 11.5 percent in the second quarter and 1.5 percent to 6 percent for the full year.
"We were sticker-shocked by the magnitude of the second quarter guide," said Macquarie Capital analyst Laurent Vasilescu.
Fossil is in the unenviable position of having to battle two major fundamental shifts: a transition to smartwatches and the upheaval in its distribution channel. In March, Moody's Investors Service downgraded Fossil's secured credit facilities, citing weakness in its traditional watch segment.
In its downgrade, Moody's said Fossil will have trouble competing against Fitbit (FIT) , which is alarming considering the rival has also experienced a drop in demand for its fitness trackers.
In its fourth quarter, Fossil said it would make a "big bet" on tech wear to offset its declining traditional watch sales. In 2016, Fossil launched 100 wearables for Alphabet's Google (GOOGL) Android Wear 2.0 platform.
On Tuesday's call, Kartsotis reaffirmed that Fossil would be focusing on tech going through the production and sale of "hybrid smartwatches," including touchscreen watches.
"Our entire team is very energized for the challenge ahead of us," Kartsotis said.
Kartsotis may want to temper his enthusiasm given the brutal retail scene at the moment.
So far in May, announced store closings are nearly twice that of this time last year, while announced openings are up 20 percent, according to new data from global think tank Fun Global Retail & Technology. Overall, closings have been announced for 3,296 stores this year, up a disturbing 97 percent year-over-year. Most of the shuttered stores have comes from the department and specialty store categories.
In February, J.C. Penney (JCP) -- a retailer that sells Fossil watches -- announced a plan to shut down 138 underperforming stores. The store closures, which are poised to be completed by July 31, represent 13 to 14 percent of J.C. Penney's current store base and less than 5% of annual sales.
J.C. Penney had said same-store sales at the targeted locations were "significantly below" the remaining store base and operate at a much-higher-expense rate due to poor productivity. The company is expected to gain some $200 million in annual cost savings from the closings. Fellow department stores Macy's (M) (which also sells Fossil) and Sears have continued to close stores in droves amid the shift to online shopping.
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Editor's Pick: Originally published May 10.
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