First Quarter Net Sales and Earnings Reach Record
Levels
Diluted EPS of $0.53 More Than Double Prior Year
Quarter
Global Retail Comps Up 19.4%
Raises Fiscal 2010 Diluted EPS Guidance to $2.55 to
$2.65
____________________________________________________________
Fossil, Inc. (Nasdaq:FOSL) (the "Company") today reported net sales
and earnings for the thirteen-week period ended April 3, 2010
("First Quarter").
First Quarter Results (2010 vs 2009):
-
Net sales increased 21.7% (17.5% in constant dollars) to $393.2
million compared to $323.0 million;
-
Gross profit margin rose 340 basis points to 55.8% of net sales,
compared to 52.4% of net sales;
-
Operating income increased 115.4% to $51.3 million, or 13.0% of
net sales, compared to $23.8 million, or 7.4% of net sales;
-
Net income increased 107.3% to $35.9 million compared to $17.3
million; and
-
Diluted earnings per share rose 103.8% to $0.53 per diluted
share on 68.0 million shares compared to $0.26 per diluted share on
66.7 million shares.
Mike Kovar, Executive Vice President and Chief Financial
Officer, stated, "We are pleased to report a great start to 2010
with record First Quarter net sales and earnings. Improving
economic conditions, global retail comps of 19.4% as well as
significant sales increases in our wholesale business proved to be
a winning combination. During the quarter, we continued to gain
market share by leveraging our global platform and design
innovation. This was especially evident in North America and Asia,
but we also saw considerable strengthening in our European
wholesale businesses. Our retail stores continue to deliver
outstanding comp results and, combined with our expanding on-line
and catalog activities, are generating a lot of excitement for the
FOSSIL® brand."
"Our strong balance sheet puts us in a great position to
continue to fuel the momentum we are currently experiencing," Mr.
Kovar continued. "While we expect to see improving operating
leverage during 2010, we will also continue to invest in our
businesses to support our long term growth goals, expand our market
share and broaden our global footprint. We expect fiscal 2010
to represent a strong year for Fossil."
Operating Results
Worldwide net sales rose by 17.5% on a constant dollar basis
during the First Quarter as a result of strong sales growth in the
Company's direct to consumer and North America wholesale
segments. In comparison to the prior year quarter, the
translation impact of a weaker U.S. dollar increased the Company's
reported net sales by approximately $13.5 million during the First
Quarter.
Direct to consumer net sales for the First Quarter increased by
29.6% on a constant dollar basis in comparison to the prior year
quarter, primarily the result of constant dollar comparable store
sales gains of 19.4% and a 9.2% increase in the average number of
company-owned stores open during the First Quarter. Net sales
from the Company's e-commerce businesses also increased 26.3% on a
constant dollar basis for the First Quarter in comparison to the
prior year quarter.
Net sales in the North America wholesale segment, which consists
of the Company's operations in the U.S., Canada and Mexico,
increased by 29.8% on a constant dollar basis for the First Quarter
in comparison to the prior year quarter. Replenishment orders,
continued innovation and an upturn in the watch category
contributed to the sales increase. While capitalizing on
innovation in style and materials introduced throughout 2009, the
Company is capturing an increased market share of an increasing
watch business in the U.S. department stores as consumers are
allocating more of their discretionary spending toward the watch
category. Overall watch sales increased by 50.1% for the
First Quarter in comparison to the prior year quarter with sales
volume growth across all major watch brands. The strongest
performances were delivered by MICHAEL KORS®, FOSSIL and
MICHELE®. North America wholesale accessory sales volumes
increased by 6.5% for the First Quarter in comparison to the
prior year quarter primarily the result of increased shipments of
FOSSIL accessory jewelry, men's leather products and footwear,
partially offset by a slight sales volume decline in Fossil women's
leather products.
Internationally, Asia Pacific wholesale sales volumes increased
10.8% on a constant dollar basis principally due to further market
penetration in Korea as well as double-digit growth in
Japan. The Asia Pacific wholesale results included a $4
million sales return from the Company's third party distributor in
Korea as part of the transition of this market to a Company-owned
subsidiary. European wholesale shipments decreased 1.3% in
constant dollars primarily due to sales volume declines in FOSSIL
and DKNY® watches and jewelry, partially offset by sales volume
growth in all other licensed brand watches and FOSSIL leather
products.
Gross profit increased by 29.5% to $219.4 million as a result of
increased sales and gross profit margin expansion. Gross profit
margin increased 340 basis points to 55.8% in the First Quarter
compared to 52.4% in the prior year quarter with a weaker U.S.
dollar contributing 130 basis points to the improvement. First
Quarter gross profit margin also benefited from reduced levels of
low margin sales through off-price liquidation channels and an
increase in the sales mix of higher margin licensed watch products
and direct to consumer sales in comparison to the prior year
quarter. During the First Quarter, direct to consumer sales
increased to 22.4% of consolidated net sales in comparison to 20.6%
of consolidated net sales in the prior year
quarter.
First Quarter operating expenses expressed as a percentage of
sales decreased to 42.8% compared to 45.1% in the prior year
quarter. Total operating expenses increased by $22.6 million,
which included a $5.1 million unfavorable impact from the
translation of foreign-based expenses as a result of the weaker
U.S. dollar as compared to the prior year quarter. On a
constant dollar basis, operating expenses increased $17.5 million,
primarily the result of increased sales. The Company's wholesale
and corporate cost areas accounted for $7.5 million and $3.6
million, respectively, of the increase while the Company's direct
to consumer business operating expenses increased by $6.4
million. Expense increases associated with the Company's
wholesale segments were primarily attributable to increased payroll
and marketing expenses. Expense increases within the Company's
direct to consumer segment were primarily attributable to store
growth.
Increased net sales, improved gross profit margin and operating
expense leverage resulted in a 115.4% increase in operating income
for the First Quarter. As a percentage of sales, operating
income increased to 13.0% in the First Quarter, compared to 7.4% in
the prior year quarter. During the First Quarter, operating
income was favorably impacted by approximately $5.1 million as a
result of the translation of foreign-based sales and expenses into
U.S. dollars.
Other income (expense) decreased unfavorably by $2.5 million
during the First Quarter in comparison to the prior year quarter
principally as a result of lower levels of foreign currency
transaction gains experienced in the First Quarter as compared to
the prior year quarter.
The Company's income tax expense for the First Quarter was $15.7
million, resulting in an effective income tax rate of
30.4%. For the comparable prior year quarter, income tax
expense was $9.3 million, resulting in an effective rate of 35.0%.
The Company estimates its fiscal year 2010 effective tax rate will
approximate 35%, excluding any discrete events.
First Quarter net income increased by 107.3% to $35.9 million,
or $0.53 per diluted share, inclusive of a favorable $0.05 per
diluted share impact related to the weaker U.S. dollar.
Selective Balance Sheet Information
At April 3, 2010, cash, cash equivalents and securities
available for sale totaled $458.2 million compared to $202.9
million at the end of the prior year quarter and the Company had
$7.9 million of debt at the end of the First
Quarter. Continued inventory control measures and better than
anticipated sales resulted in a 12.2% decrease in inventory to
$250.3 million at the end of the First Quarter compared to $285.1
million in the prior year quarter. Accounts receivable
increased by 3.3% to $163.7 million at April 3, 2010 compared to
$158.4 million at the end of the prior year quarter, primarily due
to an increase in wholesale shipments during the First Quarter
versus the comparable prior year quarter. First Quarter days
sales outstanding for the Company's wholesale segments was 47 days
in comparison to 54 days in the prior year quarter.
Sales and Earnings Guidance
As the Company continues to grow its retail store base and
e-commerce businesses, sales from its direct to consumer segment
are expected to increase as a percentage of the total sales mix,
benefiting the Company's profitability in the fourth quarter,
generally at the expense of the first and second quarters when, due
to seasonality, it is more difficult to leverage direct to consumer
expenses against direct to consumer sales. For the second
quarter of fiscal 2010, the Company expects reported and constant
dollar year-over-year net sales to increase in a range of 20% to
22%. Second quarter fiscal 2010 diluted earnings per share are
expected to be in a range of $0.32 to $0.34.
For fiscal year 2010, the Company expects reported net sales to
increase year-over-year in a range of 12% to 14% with constant
dollar sales increasing in a range of 14% to 16%, resulting in
operating margin expanding to the 15.0% to 15.5% range compared to
operating margin of 13.7% in fiscal 2009. Diluted earnings per
share for fiscal year 2010 are expected to be in a range of $2.55
to $2.65. This range includes an unfavorable currency impact
of approximately $0.10 per diluted share primarily related to the
translation impact of an average stronger dollar for the full year,
net of expected hedging gains. The Company's forward guidance
is based upon the current prevailing rate of the U.S. dollar
compared to other foreign currencies for countries in which the
Company operates. Specific to the euro/U.S. dollar currency
exchange rate, the Company's guidance is predicated upon a 1.28
rate for the balance of fiscal year 2010.
Safe Harbor
Certain statements contained herein that are not historical
facts constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve a
number of risks and uncertainties. The actual results of the
future events described in such forward-looking statements could
differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results
to differ materially are changes in economic trends and financial
performance, changes in consumer demands, tastes and fashion
trends, lowered levels of consumer spending resulting from a
general economic downturn, shifts in market demand resulting in
inventory risks, changes in foreign currency rates, and the outcome
of current and possible future litigation, as well as the risks and
uncertainties set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 2010.
About Fossil
Fossil is a global design, marketing and distribution company
that specializes in consumer fashion accessories. The
Company's principal offerings include an extensive line of men's
and women's fashion watches and jewelry sold under proprietary and
licensed brands, handbags, small leather goods, belts, sunglasses,
cold weather products, apparel and footwear. In the watch and
jewelry product category, the Company's offerings include a diverse
portfolio of globally recognized proprietary and licensed brand
names under which its products are marketed. The Company's
extensive range of accessories products, brands, distribution
channels and price points allows it to target style-conscious
consumers across a wide age spectrum on a global basis. The
Company's products are sold to department stores, specialty retail
stores, and specialty watch and jewelry stores in the U.S. and in
over 100 countries worldwide through 23 company-owned foreign sales
subsidiaries and a network of 59 independent distributors. The
Company also distributes its products in over 350 Company owned and
operated retail stores and through international e-commerce
websites and the Company's U.S. e-commerce website at
www.fossil.com, where certain product, press release and SEC filing
information concerning the Company is also available.
The Fossil, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3296
Consolidated Income
Statement Data (in 000's):
|
For the 13
Weeks Ended
|
For the 13
Weeks Ended
|
|
April 3,
2010
|
April 4,
2009
|
Net sales
|
$ 393,228
|
$ 323,027
|
Cost of sales
|
173,810
|
153,648
|
Gross profit
|
219,418
|
169,379
|
Selling expenses
|
124,855
|
108,087
|
Administrative exp.
|
43,301
|
37,489
|
Operating income
|
51,262
|
23,803
|
Interest expense
|
57
|
63
|
Other income – net
|
405
|
2,893
|
Tax provision
|
15,703
|
9,313
|
Net income
|
$35,907
|
$17,320
|
Basic earnings per share
|
$ 0.54
|
$ 0.26
|
Diluted earnings per share
|
$ 0.53
|
$ 0.26
|
Weighted average shares
Outstanding:
|
|
|
Basic
|
67,039
|
66,554
|
Diluted
|
67,953
|
66,742
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (in 000's):
|
April 3,
2010
|
April 4,
2009
|
Working capital
|
$744,518
|
$576,397
|
Cash, cash equivalents and securities available for sale
|
458,156
|
202,916
|
Accounts receivable
|
163,665
|
158,404
|
Inventories
|
250,321
|
285,082
|
Total assets
|
1,274,220
|
1,048,661
|
Short-term debt
|
3,565
|
4,849
|
Deferred taxes and other long-term liabilities
|
61,357
|
79,451
|
Stockholders' equity
|
1,000,869
|
814,352
|
|
|
|
|
|
|
Sales Mix Breakdown
(in 000's)
|
Amounts
For the 13 Weeks Ended
|
Percentage of Total
For the 13 Weeks Ended
|
|
April 3, 2010
|
April 4, 2009
|
April 3, 2010
|
April 4, 2009
|
Wholesale
|
|
|
|
|
North America wholesale
|
$ 153.8
|
$ 117.5
|
39.1%
|
36.4%
|
Europe
|
112.5
|
107.4
|
28.6%
|
33.2%
|
Asia Pacific
|
38.7
|
31.6
|
9.9%
|
9.8%
|
Total wholesale
|
305.0
|
256.5
|
77.6%
|
79.4%
|
|
|
|
|
|
Direct to consumer
|
88.2
|
66.5
|
22.4%
|
20.6%
|
|
|
|
|
|
Total net sales
|
$ 393.2
|
$ 323.0
|
100.0%
|
100.0%
|
CONTACT: Fossil, Inc.
Mike Kovar, Chief Financial Officer
(972) 699-6811
Integrated Corporate Relations
Investor Relations:
Allison Malkin
(203) 682-8200
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