Specialty retailer Fossil Group Inc. (FOSL) took a rather wild ride Thursday after reporting ever-important fourth-quarter earnings results after Wednesday's market close. While Fossil earned $1.01 a share for the quarter, that figure missed consensus expectations by eight cents. Revenue of $787 million fell 15% versus the like quarter last year and was below the $805 million consensus. In addition, the company warned that first-quarter results will lag original expectations.
Perhaps not surprisingly, Fossil shares opened Thursday down 17% and briefly traded below $13, a level not seen since late last March. However, FOSL recovered throughout the course of the day, ending down just 3% on more than seven times normal average volume.
A glimpse of the balance sheet reveals a company that is in better shape than it was a year ago. Fossil ended 2018 with $403 million, or about $8.15 per share, in cash, up markedly from $231 million, or $4.76 per share, at the end of 2017. In addition, debt has fallen from $446 million to $396 million. The former double-net and member of the 2018 Double Net Value Portfolio (the top performer) now trades at about 2.77x net current asset value.
Fossil clearly is a company in transformation. Since last year's fourth quarter, it has closed 67 stores and expects net reductions of another 30 in 2019. When I stumbled onto Fossil in late 2017, it was trading in the $7 range and seemed to have been overly punished. Normally, I am not a big fan of retail, but took the plunge because it seemed like a potential "50-cent dollar," the proverbial value investor's best friend. All the company needed to do was exhibit some life, which it did after putting up much better-than-expected 2017 fourth-quarter earnings.
From there it was off the races, as shares hit $31 in June 2018 and this 50-cent dollar turned out to be a 25-cent dollar. The stock moved much higher far more quickly than I had expected, and I was out in late June. While the stock was undervalued when I bought it, I was indeed lucky on this one.
With shares back in the limelight over the past year after Fossil was all but forgotten, the hurdles are a bit higher these days. I was encouraged by Thursday's intra-day comeback in the stock and by the improvement in the balance sheet, but not enough to take another position in the name, at least at this point.
I'd rather find the next under-the-radar story, perhaps another former cult stock that the growth crowd has walked away from and markets have overly punished. It's a tall order, but can be very rewarding.