Fossil -5% as Q1 brings lower profit, higher expenses

Fossil (FOSL) -5.1% AH after Q1 earnings declined 8.2% Y/Y, as higher operating expenses more than offset sales growth in its watch market.

Q1 revenues hit the high end of company guidance by jumping 14% to $776.5M, driven by growth in sales of watches and jewelry, but operating expenses climbed 19% to $338.5M; sees continued higher expenses in 2014 and views this year as a transition to investing in infrastructure to investment in areas that will fuel growth.

Retail same-store sales fell 2.4% Y/Y, as a decline in North America largely was driven by a drop in mall traffic, while direct-to-customer sales rose 18%.

Issues downside guidance for Q2, seeing EPS of $0.90-$0.97 vs. $1.17 analyst consensus estimate and revenue growth of 8%-9.5% ($762M-$832M) vs. $774M consensus.

Issues downside guidance for FY 2014, seeing EPS of $6.90-$7.30 vs. $7.22 consensus while reiterating revenue growth guidance of 8%-10% ($3.52B-$3.58B) vs. $3.58B consensus.

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