Fossil Group, Inc. (FOSL) shares moved sharply lower after the company released weak financial results and guidance. Revenue fell 9.6% to $711.6 million, missing consensus estimates by $13.05 million, and net losses came in at six cents per share. Higher promotional activity and an inventory write-down depressed gross margins to 43.3% versus 53% a year ago.
The company does not see significant improvement in its operations this year – in part due to the impact of nCoV-19. Management sees full-year revenue falling between 11.5% and 4.5%, which would put it below the consensus forecast of $2.15 billion. The virus has affected both manufacturing in China and demand around the world.
Analysts have been in wait-and-see mode over the past few months. In November, KeyBanc analyst Edward Yruma downgraded the stock to Sector Weight from Overweight, saying that the turnaround driven by wearable growth and traditional watch stabilization has not manifested and that competitors continue to drive the bulk of growth in the category.
From a technical standpoint, the stock broke down to fresh 52-week lows following the announcement. The relative strength index (RSI) fell deeper into oversold territory with a reading of 20.19, but the moving average convergence divergence (MACD) remained in a bearish downtrend. These indicators suggest that there could be a relief rally, but the trend remains lower.
Traders should watch for consolidation above trendline support at $2.35 and pivot point resistance at $5.32, although a move to $2.35 could be an extreme reaction to the news. If the stock rebounds higher and breaks out from pivot point resistance, traders could see a move toward the 50-day moving average at $7.24 or trendline resistance at $7.90.
The author holds no position in the stock(s) mentioned except through passively managed index funds.