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Feb 15, 2017

S3 BLACKLIGHT: Fossil Short Selling Increases on Weak Sales

Watch and fashion accessory designer Fossil Group Inc.’s (FOSL US) weak holiday season was evident in its recently released 1st quarter earnings guidance with sales expected to be down 13% for the quarter. Weak sales are expected to continue throughout the year as FOSL gave themselves a wide earnings full year outlook of $1.00 to $1.70 per share. Analysts were predicting earnings of $1.78 per share. FOSL expects to lose $0.10 to $0.25 per share in the first quarter compared to analyst expectations of a gain of $0.07.

Fossil is experiencing a two pronged hit to its main product line with the popularity of wearing watches, especially amongst millennials, declining every year and stiff competition from wearable technology products. In order to recapture some of their market share and boost sales, Fossil will be expanding its wearable technology line even though margins are substantially thinner for those products.

FOSL short interest decreased 39% in 2016, ending the year at $201 million. With Fossil’s stock price down 30.35% in 2016, short sellers made $76 million in mark to market P\L net of financing for a return of 27.29% for the year.

2017 started off slowly for short sellers with Fossil’s stock price down only 1.12% and short interest increasing by only $13 million. Fossil is down 25% in February, including today’s price move, and total short interest has increased by $57 million, to $258 million, up 28% for the year. Short sellers have made $64 million in mark to market net of financing P\L year to date 2017 for a return of 30.55%.

If sluggish watch sales continue we would expect increased short selling in Fossil Group as well as other traditional watchmakers such as Movado Group Inc. (MOV US) and Swatch Group AG (UHR VX).

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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