TECH TOCK

Wearables wrecked Fossil’s earnings, so it bought a wearables company

Obsession
Fashion
Obsession
Fashion

While retailers everywhere, including Macy’s and Nordstrom, reported suffering a rubbish third quarter, Fossil was experiencing the same.

The watch company’s third quarter (PDF) profits beat expectations, but revenue didn’t and—you guessed it— the company cut its 2015 year-end forecast. Its stock dropped 36% Friday, and the Dallas Morning News noted that its president lost half a billion dollars in wealth as a result.

Part of the blame, the company said, was currency-related (for instance: Europe accounted for a third of all sales in the last three months, and the euro is down about 11% against the dollar this year), but it also called out its customers’ increasingly tech-heavy wrists.

“The challenge remains with our watch business, which declined in the quarter,” CEO Kosta Kartsotis said on the company’s earnings call. “The traditional watch category remains sluggish, as tech-enabled devices offer consumers additional choices”

So, in addition to investing in its own smartwatches and fitness trackers, Fossil plunked down $260 million earlier in the week on Misfit, which makes fitness trackers and other wearables. The company is positioning the purchase as a nice hedge against a further slowdown in the watch industry. With everyone from Apple to Ralph Lauren jumping into the market and big wearable names like Fitbit going public, it seems like a decently smart bet. Per CFO Dennis Secor:

Well I think our view is that, we’re at a point now where this is a natural evolution. We see these markets coming together where those who traditionally have not participated in the traditional watch market, they’re now more accessible to us because we have the ability to add tech to the product. So we are, as I said a few minutes ago, I really think the way we view this is that we’ve now got the best of both worlds in that we can be all things to all people on the wrist.

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