Fossil profit tops Street, but sees weak third quarter

(Reuters) - Cost cuts and better inventory management helped Fossil Inc (FOSL.O) post second-quarter earnings that topped market estimates, but the watchmaker warned that a stronger dollar will weigh on third-quarter results.

Shares of the seller of jewelry, leather goods, belts, sunglasses and apparel slumped as much as 13 percent before paring some losses to trade down $3.09 at $24.63 Tuesday morning on Nasdaq.

The company, which reported second-quarter sales below market estimates, expects revenue to decline 6 percent to 9 percent in the third quarter.

However, the watchmaker, whose products are sold in over 90 countries, raised its full-year profit outlook as it expects sales to pick up in the fourth quarter.

To contend with a weak sales climate, Fossil has undertaken several measures to contain costs, including selective layoffs, and salary reductions for all executive officers and senior vice-presidents.

For the third quarter, the company forecast a profit of 38 cents to 42 cents a share, including a hit of about 5 cents related to the stronger U.S. dollar.

Analysts on average were expecting earnings of 48 cents a share, before special items, on revenue of $378.6 million, according to Reuters Estimates.

Net income fell to $16.6 million, or 25 cents a share, in the second quarter, from $25.1 million, or 36 cents a share, a year ago.

Fossil, known for its namesake watches and Relic handbags, said sales fell 11 percent to $315.9 million.

On a conference call with analysts, a company executive said Fossil's reluctance to sell to credit-challenged customers and bankruptcy proceedings of one of its principal customers in Germany hurt sales in the second quarter.

Analysts on average were expecting a profit of 20 cents a share, before items, on revenue of $321.5 million.

For the full year, the company expects earnings of $1.63 to $1.73 a share. It had earlier forecast $1.50 to $1.70.

(Reporting by Viraj Nair and Mihir Dalal in Bangalore; Editing by Maju Samuel and Deepak Kannan)