Watches falling out of favor, Capri CEO says, sending shares of Fossil, Movado lower

A Fossil Group Inc. Q Grant hybrid smartwatch is arranged for a photograph at the 2017 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Thursday, Jan. 5, 2017.
David Paul Morris | Bloomberg | Getty Images

While Capri Holdings just put up a quarter that beat profit expectations, CEO John Idol pointed out a key weakness in one category that pulled down shares of several competitors.

The parent company of Michael Kors, Versace and Jimmy Choo is seeing weakness in sales of fashion watches.

"[The] fashion watch category continues to see declines globally, and we are being impacted by this secular trend," Idol said on the fiscal third-quarter conference call. "We now expect declines in watches to continue in the fourth quarter and into next year at a greater rate than we had anticipated."

Shares of watchmakers Fossil and Movado fell on the comments. Fossil shares, which are down nearly 88 percent over the past year, plunged nearly 10 percent, while Movado shares dropped 3 percent. Movado shares are off nearly 4 percent over the past year. 

Capri is not the first retailer to call out the weakness in recent weeks. In its holiday sales release, Macy's CEO Jeff Gennette noted weak watch sales, among several other categories.

The earlier hints of watch weakness could be a warning sign ahead of other retailers' earnings reports still to come.

The soft sales may reflect consumer adoption of smartwatches, or a shift to consumers wearing watches less often now that mobile phones are ever-present time-telling devices.

Over the same time period that Capri and Macy's saw weakness in fashion watches, Apple saw strength for its smartwatch. While the tech company does not provide a breakout for sales of its watch alone, on its fiscal first-quarter earnings conference call, Apple CEO Tim Cook said the tech company "had our best quarter ever for wearables, home, and accessories" noting "almost 50 percent growth from wearables, thanks to strong sales of both Apple Watch and AirPods."

According to Strategy Analytics, the Apple Watch held the top spot for smartwatches with 45 percent of the global market in the third quarter of 2018. FitBit jumped to second with a 15 percent share of the market, overtaking Samsung at 11 percent and Garmin at 8 percent. I

The Michael Kors smartwatch continued to outperform the broader category, Idol said. He added that in fashion watches, "slim silhouettes, particularly those in luxury leather band offerings" were better selling, but in general "the overall watch category was more challenged than we anticipated in the quarter."