Shares of specialty retailer Fossil Group (FOSL) popped 24% yesterday after the company posted a third quarter profit, in what turned out to be a pretty good quarter. I'd like to put that in context with consensus expectations, but unfortunately no analysts are currently covering the name. I still find that surprising as this is not a large retailer, but it is a formidable brand name.
The company did outperform its own -35% to -45% expectations for revenue, which actually fell 19% year/over year, but was up 68% over last quarter. While we typically don't look at retail results through the lens of sequential results, in this pandemic-influenced economy, it is an important indicator of how bad things got (y/y second quarter revenue was down 48%), and also demonstrates resilience that investors may not have believed FOSL possessed.
This was also a profitable quarter, as the company earned 31 cents/share. I did not expect that FOSL would be in the black, but the combination of $75 million in expense reductions, with fairly solid e-commerce sales, combined for the company's most profitable quarter since the fourth quarter of 2018.
FOSL generated $1.60 in free cash flow per share, and ended the quarter with $324 million, or $6.31 per share in cash, and $239 million in debt, for net cash of $1.66/share. That's a substantial improvement over the same quarter last year, which ended with $148 million in cash, and $264 million in debt.
Looking to the fourth quarter, the company is projecting that revenue will be down 30% to 40% from last year's $712 million, which would put it in the $425-$500 million range. Management also believes that the company will end the ever important fourth quarter with $300-$325 million in cash, suggesting a cash-flow neutral quarter. Anything substantially better than this guidance could drive shares higher, but anything goes in this pandemic world.
FOSL currently trades at .9x tangible book value, and has an enterprise value of just $296 million (Market cap - cash + debt).
The 2020 holiday retail season should be fascinating!