As This Accessories Retailer Forays Into Wearables, Will It Be Enough To Offset Weak Jewelry Sales?

(Photo Credit: Christine)

Fashion accessory retailer, Fossil (FOSL), is set to report third quarter results on Thursday afternoon. Expectations are pretty muted at this point, with the Estimize community anticipating EPS of $1.14 and revenues of $785.56B, both metrics just above Wall Street’s estimate for $1.13 and $784.75B.

Fossil has an impressive portfolio of brands such as Michael Kors, Tory Burch, Armani, and the newly signed license with Kate Spade, creating the watches, jewelry and small leather goods for these designer brands. However, many of these brands have been struggling lately, especially their biggest brand, KORS (KORS), which has reported a decline in demand for their watches and jewelry over the last year, despite beating expectations in their latest report.

As tastes change and US consumer becomes very particular with how they allocate their discretionary income, Fossil remains cautious. In their Q2 report the company warned that Q3 2015 would be their weakest quarter of the year due to difficult year-over-year comparisons. Comparable store sales only increased 2% in the latest quarter, negatively impacted by a decline in China. A worsening economic landscape in China has Fossil bracing for the worst out of that region again this quarter. International sales were further exacerbated by the strong US dollar. While Fossil’s watches and leathers businesses saw comparable sales increases in Q2, jewelry sales declined and overall store traffic remains very light.

One bright spot could be the company’s investments in wearable technology in the form of smartwatches. The Fossil Q line was just announced last month, and has both the fashion and aesthetic of a traditional watch but the technology of a smart device. People are applauding the line’s sleek design, made with the same metal and leather materials as Fossil’s other watches, ditching the silicone and rubbery materials used on other popular smart watches. Also, the watches start at $125, much cheaper than some of the alternatives which is very important in an environment of value-focused consumers.