Urban Outfitters soars; Fossil stumbles
Retail stocks are fluctuating on earnings reports and analyst calls.
Conversely, Fossil (FOSL) was downgraded from "buy" to "hold" on Tuesday morning as the retailer finds itself at a branding crossroads.
With Christmas a few months down the road, seasonality has begun to affect the retail market in a mostly positive way. Companies ranging from Gap (GPS) to Foot Locker (FL) and DSW (DSW) have experienced positive results following recent earnings reports.
While some may credit the change of season with Urban Outfitters' upturn as well, how does the cooling weather apply to Fossil's downgrade? As we slink away from the summer months and the holidays begin to shift into focus, many would think the watchmaker is more likely to see increased sales and heightened investor confidence. That is not the case this time around, according to Omar Saad of research firm ISI Group.
Saad says that watches have the opportunity to become the next handbag in terms of accessories. That should be great news for Fossil, however, the retailer is currently facing a high-risk, high-reward opportunity as it attempts to take control of the industry.
"Opportunity to build a designer watch category comes once in a lifetime," Saad wrote in Tuesday's research report. "We think FOSL is poised to capitalize on this unique opportunity and actually create the aspirational watch category ($200-$1,000 price point) and ultimately replicate Sunglass Hut's success in eyewear."
ISI's downgrade was intended to allow investors to wait out the situation. In fact, ISI believes that Fossil could see monopoly-esque growth in the near future.
Those not ready to jump into Fossil yet can find solace in other retail stocks that are on the mend. Urban Outfitters jumped over 15% in after-hours trading Monday as the company reported net income of $61.29 million, or $0.42 cents per share, compared to $56.69 million, or $0.35 cents per shares, in the same quarter one year prior.
It exceeded many analysts' expectations for the first time this year, leading research firms like Piper Jaffray and Sterne Agee to raise price targets. The retailer has been reporting good news throughout the month of August, and recently signed a deal with Viacom's (VIA) (VIAB) Comedy Central to promote the 2012 presidential election through hilarious t-shirts, cups and posters.
The retailer continued to climb Tuesday, and was up more than 17% by midday to $36.78. Fossil, however, was trading down over 1% percent at around $87.50,
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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