UPDATE: Fossil 1Q Net Rises 4.2%; Reduces Full-Year Outlook

Fossil Inc.'s (FOSL) first-quarter earnings rose 4.2%, but the watch and fashion accessories maker cut its full-year outlook after a softening European economy contributed to slower-than-expected sales growth.

Shares recently lost nearly one-quarter of their value, down 24% to $95.59 premarket, as the company lowered its full-year earnings estimate by 10 cents, now projecting $5.30 to $5.40 a share, and raised its sales guidance to a 16% increase from its February forecast of 15% sales growth. Analysts polled by Thomson Reuters were expecting $5.65.

The company also offered a weak outlook for the current quarter, expecting earnings of 77 cents to 79 cents a share on 16% sales growth. Analysts surveyed by Thomson Reuters expect 94 cents on a 17% sales increase.

"In Europe, a softening macro environment toward the end of the first quarter and changes in our merchandising and assortment strategies across certain categories negatively impacted both our wholesale and retail sales in that region," Chief Financial Officer Mike Kovar said.

The company remains "cautious" about the European economy, Kovar said.

Fossil, which designs watches, jewelry, handbags, belts and clothing, has seen double-digit percentage sales increases for over two years, aided by its expansion in Asia. But the impact of a weaker euro hurt its fourth-quarter sales growth and contributed to the downbeat first quarter.

Last month, Fossil bought Skagen Designs Ltd. and some of its international affiliates, giving the retailer a broader range of consumer accessories for its collection.

Fossil reported a profit of $58.1 million, or 93 cents a share, up from $55.8 million, or 86 cents, a year earlier. Sales rose 9.8% to $589.5 million.

Its February projection was per-share earnings of 90 cents to 92 cents a share on 15% sales growth, below analysts' estimates at the time.

Gross margin fell to 55.8% from 56.2%.

Retail same-store sales rose 7.7%. Direct-to-customer revenue increased 18% while wholesale sales were up 7.5%. Fossil's wholesale customers range from high-end sellers like Neiman Marcus Group Inc. and Nordstrom Inc. (JWN) to low-price retailers like Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT).

-By Karen Talley, Dow Jones Newswires; 212-416-2196; [e-mail]

-By Melodie Warner, Dow Jones Newswires; 212-416-2283; [e-mail]