May 08, 2012 at 14:07 PM EDT
As Consumer Cyclicals Plunge, Buying Opportunities Arise: Caris
Watch and accessories company Fossil (FOSL) is getting pulverized by traders today — it was down 38% at last check. The company’s earnings outlook for 2012 stunned investors who didn’t expect quite so much softness in Europe. Other stocks with exposure to European consumers are also trading lower. But Caris & Company analyst Dorothy Lakner [...]

Watch and accessories company Fossil (FOSL) is getting pulverized by traders today — it was down 38% at last check. The company’s earnings outlook for 2012 stunned investors who didn’t expect quite so much softness in Europe. Other stocks with exposure to European consumers are also trading lower. But Caris & Company analyst Dorothy Lakner thinks that the sell-off is overdone for many of the companies that are falling in sympathy with Fossil.

“[W]e think there’s a pretty big distinction to be made here — for our names, weakness in Europe is not new, as it is for FOSL where Europe sales rose 18% in 4Q and 27% for all of 2011,” Lakner wrote.

She added that “the pullbacks represent buying opportunities in our names, given the ‘news’ on Europe for them isn’t really new.”

Abercrombie & Fitch (ANF) “As for ANF, we already know about the weakness in Europe sales there, which began in 2H11 and we know that ANF said it thought it had raised prices too high (in addition to having a mix too skewed to higher priced items like hoodies versus tees), something that we think has been remedied this season.”

Guess? (GES) “For this year, and given its big exposure to Italy, management was very cautious in its guidance, forecasting a low single digit decline for the year, but down much more significantly (low teens) in 1Q with additional impact from the realignment of its European jewelry business. European retail comps expected down mid single digits, with tougher compares in 1H vs 2H, and wholesale expected to be down as well. In sum, Europe could be worse, but we don’t think investors should assume that based on the FOSL news.”

True Religion (TRLG) “While one could worry about softer international sales at TRLG, we think the strength in Consumer Direct and improved trend in US wholesale (that was new news!) more than offset it.”

Tiffany (TIF): “Softest for TIF was the UK (strong for FOSL) likely due to a weaker financial sector with strength in Germany and Austria (not that big for TIF). But TIF’s sales in Europe were also shored up by rising tourist business, especially from Asian (Chinese) tourists. We continue to assume very little growth in European sales for TIF this year. Europe is estimated at 11% of sales versus 22% for Other Asia and 17% for a recovering Japan, both of which have higher operating margins versus Europe, so are larger contributors to earnings. And we think the US may be helped by the greater emphasis we see on opening price points and new product.”

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