Specialty retailer Fossil Group's (FOSL) "much anticipated" - by me, anyway - fourth quarter earnings release following Wednesday's market close, was met with a 16% drubbing yesterday. Fourth quarter revenue fell 26% to $528 million, and the company lost $3.9 million, or 8 cents per share versus a $6.9 million, or 14 cent loss for the same period last year.
Under the circumstances, it was not a bad quarter. The gross margin improved 590bps, and the company has done a good job of cutting operating expenses. Digital sales represented 43% of Q4 revenue, up 50% over last year.
In addition, I give props to FOSL for continuing to improve the balance sheet. The company ended the quarter with $316 million, or just over $6 per share in cash, and $228 million in debt, for $89 million in net cash. That's an improvement from last year's Q4 cash of $200 million, and debt of $205 million, for net debt of negative $5 million.
However, I was not surprised by yesterday's action in the stock. It's been on quite a tear recently, is up 400% since early August, and has been extremely volatile.
On Wednesday's earnings call, management said that it believes digital sales will be greater than 50% over the long-term. That ties into the company's move away from brick and mortar. Total store count fell by 30 over the past year, from 451 to 421, and the company plans to cut another 65 to 75 locations this year. Management is also forecasting 2021 revenue growth of between 10% and 15%. While there are no consensus estimates for FOSL, an analyst for independent research firm CFRA, which has a sell on the stock, suggested that management guidance was too aggressive. That likely played a role in yesterday's drop.
This is my second go-around with a position in FOSL. Neither was intended to be a long-term hold, but rather an opportunistic "dumpster-dive" into a name that will likely never be what it once was, but was seemingly suffering from greater punishment than was deserved. It ended well the first time, after which the shares tanked, and I took another run, building a new position in November/December of 2019, with an average cost of about $7.30. In late January, I wrote some out of the money calls (at the time) on that position, and the stock immediately ran higher. I am satisfied having shares called away at option expiration, should they remain above $15. If that does not happen, I will re-evaluate.
