May 8, 2012
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Fossil says Europe to weigh on results, shares plunge

May 8, 2012

Fossil Inc (FOSL.O) missed sales estimates for the second straight quarter and warned that a weak European market will continue to weigh on its results through the year, prompting investors to wipe off more than $3 billion of the fashion accessories maker's market value.

Fossil watches

Shares of the company, which handily beat estimates for most of the last two years, plunged 40 percent on Tuesday to $75.56 on the Nasdaq. The disappointing forecast erased most of the gains the stock made this year.

Fossil's warning about Europe follows a spate of similar forecasts from companies like McDonald's Corp (MCD.N), Kraft Foods Inc (KFT.N) and Estée Lauder Cos Inc (EL.N).

"(Fossil) is a company that was beating sales guidance by 5 to 7 percentage points for the past two and a half years," FBR Capital Markets analyst Anna Andreeva said.

The company, which sells its namesake brand as well as Michael Kors (KORS.N), Armani Exchange and Marc by Marc Jacobs, reported first-quarter revenue of $589.5 million, missing analysts' expectations by about 5 percent.

Fossil cut its sales target for Europe, which accounts for a quarter of its total revenue.

"As we anticipate economic softness to continue in Europe we are reducing our previous (sales) growth expectations of mid teens for the year (in Europe) down to low-to-middle single digits," Fossil Chief Executive Kosta Kartsotis said on a call with analysts.

In the first quarter, Fossil's sales in Europe grew marginally, weighed down by softness in Germany and a weakening environment in Italy and Spain.

Wholesale revenue in Europe was virtually flat at $152.9 million while it rose 8.8 percent to $225 million in North America.

The company, which sells jewelry, leather goods, belts, sunglasses and apparel besides watches, cut its full-year earnings estimate to between $5.30 and $5.40 per share from $5.40 to $5.50.

Analysts on average were estimating earnings of $5.56 per share, according to Thomson Reuters I/B/E/S.

The company also expects full-year gross margins to come in below last year's 56.1 percent.

Some of the hit to margins would come from integration costs related to its $236.8 million acquisition of Danish watchmaker Skagen Designs Ltd.

First-quarter earnings rose to $58.1 million, or 93 cents per share, from $55.2 million, or 86 cents per share, last year. This came in 1 cent above analysts' expectations.

(Reporting by Arpita Mukherjee in Bangalore; Editing by Sreejiraj Eluvangal)

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