Flores managed the Hornets from 2015-16, and has since led Espanyol and Shanghai Shenhua.
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The Hornets have just one point from four matches to start the Premier League season, having drawn Newcastle United 1-1 in Week Four. Their only win came against Coventry City in the League Cup.
The club announced that Gracia was fired earlier Saturday, and that a new hiring was imminent. Gracia led Watford to the FA Cup Final and was the first manager in nine to manage the Hornets for more than 50 matches (51).
Flores, 54, won 16 matches, drew nine, and lost 19 in a single season at Watford. The Hornets finished 13, eight points clear of the drop zone, drew Chelsea twice and beat Liverpool 3-0 amongst their more memorable results of the season.
Watford also made it to the semifinals of the FA Cup, knocking Newcastle United and Arsenal out of the competition.