After market close on Wednesday, we got another progress report from specialty retailer Fossil Group (FOSL) , courtesy of the company's second-quarter earnings release.
Revenue rose nearly 59% to $411 million and the company had "adjusted" earnings of 7 cents a share, vs. a $21.7 million loss or 44 cents a share for the same period last year. Although that comparable period was a full "COVID" quarter -- a fairly easy comp -- there were several positives here for the former high-flying retailer, whose shares traded once traded above $130 per share, and closed Thursday at $13.98, up 9%.
Digital sales rose 10% year over year, accounting for 41% of revenue. While gross margins rose 30 basis points, operating expenses fell from 68.5% of sales to 50.5%. Revenue from China grew 38%, while revenue from the Americas was up 64%. Europe, the Middle East and Africa (EMEA) was also strong as sales rose 44%. The high-margin jewelry category was strong, up "triple digits" for the quarter, although it accounts for about 10% of company sales.
The balance sheet also showed sequential improvement. Cash rose from $247 million to $252 million, or $4.84/share, and debt fell from $195 million to $178 million; FOSL ended the second quarter with $74 million, or just over $1.40/share in net cash. This is a company that had more than $800 million in debt at the end of 2016, and has made great strides in deleveraging in what has been a difficult environment for many retailers in recent years.
Keep in mind, that FOSL currently has no analyst coverage; there are no consensus estimates. For its part, the company did issue some guidance at Thursday's earnings call; management increased full-year net sales growth to between 14% and 17%, up from May's call when it issued expectations of between 12% and 16%. In addition, FOSL increased guidance for EBITDA margins to a range of 6%-8%, up from 5%-7%. Finally, sales growth for the third quarter is pegged at between 5% and 10%, which puts expected Q3 revenue between $457 million and $479 million.
This is my second go-around owning FOSL, what I've viewed as somewhat of a turnaround play, although I've never been under any illusions that it will ever recapture it's cult-stock, $130+/share heyday. It fits within a category of value investing, where I attempt to find companies whose best day's may be in the rearview mirror, but where the market has discounted them to beyond what I believe is deserved. Some would call that "dumpster diving," which can be incredibly satisfying when it works, and devastating when it does not. This is likely not a long-term hold (current positions initiated in late 2019, and a position on which I will occasionally write short-term out of the money covered calls.