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Are Fossil Earnings Sounding an Alarm for Luxury Retailers?

Disappointing results at accessory retailer Fossil sparked a selloff of the company’s stock that rippled throughout the retail sector, including the seemingly Teflon high-end retail sector.

Fossil watch
Source: Fossil
Fossil watch

Although Fossil’s first-quarter profit and revenue rose 4.2 percent and 9.8 percent respectively, revenue fell shy of analysts’ expectations. But it’s the company’s concerns about Europe and its lowered guidance that is sending its shares tumbling.

Prior to today, Fossil shares were up 58 percent this year. Now, the stock is negative for the year-to-date period.

“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,” Fossil’s Chief Financial Officer Mike Kovar said in the company’s earnings release.

However, sales actually rose in Europe for Fossil year over year, but those sales are making up a smaller percentage of total sales, dropping to 25.9 percent from 28.3 percent last year.

Fossil now estimates it will earn between $5.30 and $5.40 a share, down from its previous forecast of $5.40 to $5.50 a share. On average, analysts estimated the company would earn $5.65 a share, according to Thomson Reuters.

In the wake of Fossil’s report, shares of Michael Kors , Ralph Lauren , Coach, Tiffany , Signet , Abercrombie & Fitch fell.

While quarterly earnings are in the rear-view mirror for most of the S&P 500, many of the retailers will begin reporting this week. The market is concerned the weak sales out of Europe could be an unwelcome theme from retailers in the coming days.

Investors will be looking to see if growth in other areas can offset any weakness at European operations. Asia remains a key growth area for many retailers, particularly the high-end — and so too are Asian tourists shopping in Europe.

Rahul Sharma, global consumer fund manager and founder of Neev Capital thinks Europe isn’t necessarily a weak point for all retailers. “Fossil’s issues may partly be of its own making,” Sharma said. “Europe is no bed of roses, but bigger PVH Corp. and VF Corp aren’t as dour…for Louis Vuitton Moet Hennessey Asia slowed, but Europe picked up as Chinese tourists took advantage of lower prices (on a weaker Euro) to pick up goods in Europe.”

Meanwhile, Robin Lewis, CEO of The Robin Report and a professor at The Fashion Institute of Technology, says the European debt crisis has reached a boiling point.

According to Lewis, the recent elections in France and Greece, which unseated incumbents, only adds uncertainty and he wouldn’t be surprised to see luxury consumers close their pocketbooks sooner rather than later.

“Europe is a little shaken on (renewed) concerns that Greece may have to exit the euro and that could cause some psychological chaos which could hurt the luxury consumer,” he said.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Courtney Reagan on Twitter @CourtReagan.

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