Fossil (FOSL) is at it again, the retailer which fell on tough times and was all but rejected by investors is once again on the move after reporting better than expected first quarter revenue and earnings on Wednesday. A member of my 2018 Double Net Value Portfolio, the company rang up $569 million in revenue during the quarter, nicely ahead of the $539 million consensus estimate. In addition "adjusted" losses per share of 64 cents, which excluded restructuring charges, bested the 84 cent consensus loss estimate. Same store sales were up 5%, and watch sales in the Americas were up 12% aided by Fossil brand wearables, an area where the company has made significant inroads. Markets liked what they saw, and shares are up about 29% this week. Year to date, the stock is up 143%.
Make no mistake, this is a scaled down version of the high-flying Fossil from a few years ago in several ways. First, the company has closed 81 stores over the past year, ending the quarter with 512, as it tries to (for lack of a better term) "right-size" itself in an era where brick and mortar specialty retail is taking it on the chin. Secondly, the stock is a shadow of its former self. Trading for over $100/share less than four years ago, and at one time garnering a market cap in excess of $6 billion, a downward spiral took the stock all the way down to $5.50 last November. It has recovered nicely since then to the $19 range, a 15 month high and a nice run, but little comfort to those who bought in at much higher prices years ago. Third, the company has reduced debt from about $650 million at the end of last year's second quarter, to $463 million currently.
All this adds up to a still well-known and formidable brand with an enterprise value of just $1.15 billion. There's still work to be done, and this may not be a long-term buy and hold, but it's yet another example of the opportunities that markets sometimes present when they too severely punish a name, or a group of names. That's what has happened to specialty retail, and the returns from selectively scooping these names up over the past nine months, since last summer's August retail Armageddon, have been phenomenal.
Value investing, at times, at least in my world, is about buying ugly companies in ugly industries, that most investors have shunned, with the notion that the punishment inflicted by the markets has been too severe. Even the ugliest, torn, most soiled dollar bill is still worth a dollar, and you'd pay 50 cents for such specimens all day long if you got the chance. Call it distressed value, call it lunacy; it does not always work, but when it does the rewards can be lucrative, and not just the financial rewards.
FOSL may not be completely fixed, but is showing some positive signs and investors are beginning to re-embrace the name. I'd like to find another dozen just like it.