If a company you're interested or invested in reports decent earnings but gets clobbered on their outlook, it can be a wake up call, or an opportunity.
Real Money Columnist Jonathan Heller faced that challenge recently with a retail stock called Fossil Group (FOSL).
The watch and luxury goods maker posted quarterly numbers on March 8th.
“The numbers looked pretty good,” Heller said on Real Money. “FOSL generated its first annual profit since 2016, bottom-lining $17 million or fully diluted earnings per share of 48 cents, and "adjusted" EPS of $1.12. Revenue rose 16% to $1.9 billion. For the fourth quarter, revenue rose 14% to $604 million, the operating margin increased from 3.5% to 7.8%, and FOSL earned 64 cents on an "adjusted" basis.”
Fossil’s balance sheet also improved, with FOSL ending the year with $251 million in cash, and $109 million in net cash. "While cash dropped $65 million over the past year, debt was down $85 million. Total debt now stands at $142 million, five years ago it was at $396 million."
But...
"The market soured on something in the earnings report - likely 2022 guidance, and the selloff began Wednesday, March 9 in aftermarket trading. On Thursday, shares were hammered mercilessly, and FOSL closed down 37.5% to $9.08. That put the market cap at $473 million. Adding current debt and subtracting cash puts the enterprise value EV at just $363 million."
In the end, “it was a very disappointing day for Fossil and perhaps an overreaction (it was in my view), but investors evidently did not take too kindly to 2022 guidance,” Heller said. “Sales growth of between 2% and 6%, and operating margins of between 6% and 7% simply did not resonate. The company does expect performance to be better in the second half of the year.”
Still “on occasion, I will trade on the 'overreaction,'" Heller wrote, adding that he's used the selloff to add some shares to his holding. “Whether this is throwing "good money after bad" or ends up being an opportunistic win remains to be seen.”
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