Fossil Group, Inc. (FSL.F)

Very soft in Asia, supposedly due to Covid. Expecting virtually no improvement this year. Management sounded like they couldn't get the call over quickly enough, offered few specific ideas, struck me as a bunch of business students trying to run a big company and unfortunately in way over their heads. No discussion of how they're going to improve numbers, just blaming the "tough environment", and telling us things will get better eventually. I'm relatively new to this company and own only the baby bonds, and this call was not real impressive in my opinion. Very disappointing. No discussion or analysts questions about how long they company expects to be able to bleed cash.

A few months back some people were saying GME is doomed and a couple of years till BK, now see GME performance. To me FOSL has a brand recognition so the chances of turn around is very high by introducing new product lines or partnering. All short thesis is who wears watches and those wearing it wear smart watches and Fosil can't compete with Apple etc. But, smart watches is not their main revenue generating product and they should scrap it and stick with traditional/ fashion watches and other products and introduce new stuff. So reducing cost to manage debt and getting rid off losing segments with addition of new stuff matching with their strength could turn around the company fast.

Had a chance to go through the conference call. In my opinion:

The Good
1. $250M positive cashflow in 2018; at $13, it's trading under 3 x ttm cashflow;
2. Accelerated and paid off $125M in debt in January v. refinancing it;
3. Doing that drops interest xp to $35M/year;
4. Given cashflow, reached $0 net debt;
5. Already addressed the supplier issue by diversifying away from the sole source problem;
6. Inventory is relatively lean and fresh.

The Bad
1. Had a supplier problem with a sole source of subassemblies that caused supply constraints;
2. Caused a delay that won't fully work itself out until Q2;
3. The liquidation of excess inventory of older gens boosted sales in Q4 17, Q1 18, and 2Q 18 so comps are harder this year without the excess inventory to liquidate;
4. Europe macroeconomic environment stinks;
5. Traditional watch sales continue to decline.

The Ugly
1. Smartwatch sales aren't growing rapidly even taking into consideration the supplier issue;
2. The Q1 guidance includes a $20M gain on sale of IP to Google so it will be real bad from ops.

The cashflow size and $0 net debt puts a floor on this one in my opinion, but there's really nothing positive to look forward to for more than six months.

Watch sales down half a billion from 2019. Anybody really surprised?
Company can blame Covid but not really. Fosl's downward trend in watch sales started long before with proliferation of smart phones and then the smartwatch. Company says they are moving towards the digital watch sector...opps about five years too late. Apple, Fitbit/Google, and Samsung must be shaking in their boots now that fosl finally realized this.
Company puts out that it has 320 mil cash and equivalent and 230 mil of debt. Hmm....what about the 520mil in accts pay and accrued expenses against accts rec of 230mil.
Sure you can build up cash if you don't pay your bills.