Fossil: Leave This One Buried

Fossil's (NASDAQ:FOSL) 2019 outlook has gone from uncertain to dismal, along with its prospects for the foreseeable future. At the beginning of the year, one could be forgiven for venturing cautious optimism. Though Q4 disappointed the market, it was encouraging to see $50 million in profits following nearly two years of quarterly losses. Continued development of the Wearables segment and a mysterious IP deal with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) represented digital lifeboat for a vintage ship. As it undertook aggressive measures to reduce costs, the company seemed headed toward modest profitability, a manageable sales decline, and leadership in an emerging segment.

These hopes were dashed after Q1 offered virtually nothing to encourage this narrative. Sales in nearly all categories, including wearables, continue to fall at an accelerating rate. Twelve month trailing (TTM) sales have fallen 30% since 2015 highs. Since that time, net losses have steadily eaten into retained earnings, which fell from over $1.3 billion to $340 million in just a few years. We feel that, given these facts, the stock's current valuation is fair to high for the company, and that there is little to entice a long-term investor unless more encouraging data comes in. We also expect high price volatility in the near term.

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