Fourth Quarter Net Sales Rise 18.5% to
$830.8 Million Fourth Quarter Diluted EPS
Increases 28.1% to $1.87 Fiscal Year Net Sales
Climb 26.4% Fiscal Year Diluted EPS Rises 22.3% to
$4.61
Fossil, Inc. (Nasdaq:FOSL) (the "Company") today reported net sales
and earnings for the thirteen-week ("Fourth Quarter") and fifty-two
week ("Fiscal Year") periods ended December 31, 2011.
Fourth Quarter Results (2011 vs 2010):
- Net sales increased 18.5% to $830.8 million compared to $701.1
million;
- Gross profit increased 16.4% to $465.9 million, or 56.1% of net
sales, compared to $400.1 million, or 57.1% of net sales;
- Operating income increased 16.6% to $174.4 million, or 21.0% of
net sales, compared to $149.5 million, or 21.3% of net sales;
- Net income increased 22.0% to $117.9 million compared to $96.7
million; and
- Diluted earnings per share increased 28.1% to $1.87 per diluted
share on 63.2 million shares compared to $1.46 per diluted share on
66.3 million shares.
Fiscal Year Results (2011 vs 2010):
- Net sales increased 26.4% to $2.6 billion compared to $2.0
billion;
- Gross profit increased 24.6% to $1.4 billion, or 56.1% of net
sales, compared to $1.2 billion, or 56.9% of net sales;
- Operating income increased 25.4% to $472.0 million, or 18.4% of
net sales, compared to $376.4 million, or 18.5% of net sales;
- Net income increased 15.5% to $294.7 million compared to $255.2
million; and
- Diluted earnings per share increased 22.3% to $4.61 per diluted
share on 64.0 million shares compared to $3.77 per diluted share on
67.7 million shares.
"We are pleased to cap off another outstanding year for Fossil
by continuing with strong, double-digit sales growth across our
operating segments," stated Mike Kovar, Executive Vice President
and Chief Financial Officer of Fossil, Inc. "The Fourth
Quarter double-digit sales increases were broad-based across major
brands, product categories and geographies, driven by the ongoing
success of our two core global growth strategies, our FOSSIL®
accessories lifestyle business and our multi-brand watch
business. Several noteworthy accomplishments include the
FOSSIL brand surpassing $1 billion in sales for the year, a third
consecutive fourth quarter double-digit comparable store sales
increase, and tremendous progress achieved in developing our
infrastructure in Asia to support future growth. We are proud
to have achieved record earnings while maintaining our operating
margin at similar levels to the prior fiscal year even with the
challenges of absorbing significant product cost pressure and
investing in support of our future expansion."
"As we begin fiscal year 2012, we will continue to emphasize the
strategies that contributed to our strong performance last year,"
Mr. Kovar stated further. "We will continue our investment in
support of our expansion in Asia and in our direct to consumer
channel with expectations that this will lead to sustainable
long-term growth. We are also excited by the new opportunities
presented by our recently announced agreement to acquire Skagen
Designs, Ltd. We remain confident in our strategies and expect
fiscal 2012 to represent another year of strong growth and
significant accomplishments toward our long-term goals and
objectives."
Operating Results
Worldwide net sales increased 18.5% during the Fourth Quarter in
comparison to the prior fiscal year fourth quarter, representing
double-digit sales growth across all of the Company's operating
segments. The impact of a weaker euro during the latter part
of the Fourth Quarter cut marginally into our record sales growth
achievements. On a constant dollar basis, worldwide net sales
rose 18.8% during the Fourth Quarter over the prior fiscal year
fourth quarter, primarily resulting from a 20.6%, or $104.0
million, increase in watch sales and a 23.7%, or $26.3 million,
increase in the Company's leather business. Net sales of
FOSSIL branded products, inclusive of Fossil branded watches,
increased by approximately 19% on a constant dollar basis during
the Fourth Quarter in comparison to the prior fiscal year fourth
quarter, across both the wholesale and direct to consumer channels
of distribution. For the Fiscal Year, consolidated net sales
increased 23.8%, or $482.6 million, in constant dollars compared to
the prior fiscal year driven by sales growth ranging from 21.9% to
27.8% in each of the Company's global wholesale and direct to
consumer businesses.
During the Fourth Quarter, net sales from the North America
wholesale segment rose 18.0%, or $47.0 million, on a constant
dollar basis in comparison to the prior fiscal year fourth
quarter. This increase was principally attributable to a
20.9%, or $41.5 million, increase in watch sales and, to a lesser
extent, a 9.5%, or $4.8 million, increase in leather
sales. During the Fourth Quarter, U.S. wholesale sales
represented the strongest contribution, increasing 12.5% from the
prior fiscal year fourth quarter on top of a 38.5% increase in the
fiscal 2010 fourth quarter. Additionally, shipments from the
Company's subsidiaries in Canada and Mexico as well as shipments to
third party distributors, located primarily in South America,
recorded strong sales increases of more than 27% on a constant
dollar basis during the Fourth Quarter in comparison to the prior
fiscal year fourth quarter.
Europe wholesale net sales increased 18.5%, or $35.0 million, in
constant dollars during the Fourth Quarter as compared to the prior
fiscal year fourth quarter. The sales growth was largely
attributable to a 20.1%, or $27.8 million, increase in watch
shipments representing growth across all major markets. The
Fossil branded leather business made significant strides in gaining
market share throughout Europe, evidenced by double-digit sales
percentage gains in Germany and a more than doubling of sales on a
smaller base of business across France and Italy. On an
overall basis, the leathers category increased 54.9% during the
Fourth Quarter, or $5.4 million. Sales to third party
distributors and jewelry product sales also favorably impacted the
Fourth Quarter, recording a 29.3% sales increase, or $6.8 million,
and a 4.9% sales increase, or $1.8 million, respectively, as
compared to the prior fiscal year fourth quarter.
Asia wholesale net sales rose 13.8%, or $10.3 million, on a
constant dollar basis during the Fourth Quarter in comparison to
the prior fiscal year fourth quarter, primarily the result of an
18.1%, or $11.6 million, increase in watch sales. This
increase was partially offset by a $2.7 million decrease in
non-strategic businesses that the Company has exited over the last
twelve months. In the Fourth Quarter, combined sales volumes
in the Company's strategic markets of China, Korea and Japan
increased 27.9% as compared to the prior fiscal year fourth
quarter. The Company operated 213 concession locations in Asia
at the end of the Fiscal Year with a net 52 new
concessions opened during the last twelve months. For Fiscal
Year 2011, concession sales in Asia increased by 74.1%, with
comparable store sales growing 24.1% in comparison to the prior
fiscal year.
Direct to consumer net sales for the Fourth Quarter increased
22.5%, or $39.4 million, on a constant dollar basis in comparison
to the prior fiscal year fourth quarter, primarily the result of
constant dollar comparable store sales gains of 14.4% and a 7.6%
increase in the average number of company-owned stores open during
the Fourth Quarter. Net sales from the Company's e-commerce
businesses gained momentum throughout the Fourth Quarter,
increasing 11.7% in December and 8.2%, or $1.8 million, on a
constant dollar basis for the full Fourth Quarter in relation to
the comparable periods in the prior fiscal year.
Gross profit of $465.9 million in the Fourth Quarter increased
16.4% in comparison to $400.1 million in the prior fiscal year
fourth quarter. The increase was primarily a result of higher
net sales partially offset by a 100 basis point reduction in gross
profit margin which fell to 56.1% in the Fourth Quarter from 57.1%
in the prior fiscal year fourth quarter. The decrease in gross
profit margin was primarily driven by inflation in watch components
and labor costs throughout the year, as well as increases in sales
to off-price retailers at reduced margins. The margin
reduction in off-price sales was primarily a result of sales of
discontinued inventory in the Company's footwear, RELIC® watch and
mass market businesses at amounts below costs. To a lesser
extent, an increase in the sales mix of lower margin sales to third
party distributors also negatively impacted the Fourth Quarter
gross profit margin. Foreign currency rate changes during the
Fourth Quarter, as compared to the prior fiscal year fourth
quarter, benefited gross profit margin by approximately 80
basis points. For the Fiscal Year, gross profit margin
decreased by 80 basis points to 56.1% compared to 56.9% in the
prior fiscal year. This decrease was a result of similar factors
experienced during the Fourth Quarter, offset by an
approximate 180 basis point improvement as a result of a
weaker U.S. dollar during the Fiscal Year in comparison to the
prior fiscal year.
Operating expenses, expressed as a percentage of net sales,
decreased to 35.1% in the Fourth Quarter compared to 35.7% in the
prior fiscal year fourth quarter. Total operating expenses in
the Fourth Quarter increased by $40.9 million, primarily as a
result of increased sales. During the Fourth Quarter,
operating expenses in the Company's wholesale segments, direct to
consumer segment and corporate cost areas increased by $17.5
million, $17.4 million and $6.1 million, respectively, as compared
to the prior fiscal year fourth quarter. A majority of the
expense growth in the wholesale segments was related to ongoing
investments in the Asia region. Expense growth in other
regions was primarily related to increased compensation costs and
marketing expenses, although marketing expenses decreased as a
percentage of net sales adding to the expense leverage achieved
during the Fourth Quarter. Expense increases in the direct to
consumer segment were primarily attributable to store growth,
increased web-based marketing expenditures and ongoing costs
associated with the Company's customer relationship management
initiative. Expense growth in the corporate cost area was
primarily attributable to increased payroll costs, including stock
compensation, and higher operating costs associated with the
Company's new corporate headquarters. In addition, the prior
fiscal year fourth quarter included a non-cash charge of
approximately $3.7 million related to an other than temporary fixed
asset impairment. For the Fiscal Year, operating expenses as a
percentage of net sales decreased to 37.7% compared to 38.3% in the
prior fiscal year and included an unfavorable impact of
approximately $23.3 million related to the translation of
foreign-based expenses due to a weaker U.S. dollar.
Operating income increased $24.8 million, or 16.6%, in the
Fourth Quarter compared to the prior fiscal year fourth
quarter. As a percentage of net sales, operating income
decreased slightly to 21.0% of net sales in the Fourth Quarter
compared to 21.3% of net sales in the prior fiscal year fourth
quarter, primarily as a result of a decrease in gross profit
margin, partially offset by operating expense leverage. During
the Fourth Quarter, operating income was positively impacted by
approximately $7.0 million as a result of the translation of
foreign-based sales and expenses into U.S. dollars. During the
Fiscal Year, operating profit margin decreased slightly to 18.4%
compared to 18.5% in the prior fiscal year. The Company's
operating income for the Fiscal Year included approximately $39.2
million of net currency gains related to the translation of
foreign-based sales and expenses into U.S. dollars.
Other income/expense-net decreased unfavorably by $10.6 million
and $27.0 million for the Fourth Quarter and Fiscal Year,
respectively, in comparison to the respective prior fiscal year
periods. These decreases were primarily driven by unfavorable
foreign currency charges resulting from mark-to-market, hedging and
other transactional activities during the Fourth Quarter and Fiscal
Year in comparison to the respective prior fiscal year
periods. Although during 2011 the Company recorded hedge
losses, the Company estimates that outstanding forward contracts
with scheduled settlement dates in the first quarter of fiscal year
2012 would generate hedge gains of approximately $1.7 million at
the current prevailing foreign currency exchange rates.
The Company's income tax expense for the Fourth Quarter was
$46.0 million, resulting in an effective income tax rate of
27.3%. Fourth Quarter income tax expense was positively
impacted due to certain tax provision offsets carrying a higher
effective tax rate. During the prior fiscal year fourth
quarter, income tax expense was $55.0 million, resulting in an
effective income tax rate of 35.5%. Income tax expense was
$144.2 million for the Fiscal Year, resulting in an effective
income tax rate of 31.9%. For fiscal year 2010, income tax
expense was $119.3 million, resulting in an effective income tax
rate of 31.1%. For fiscal year 2012, the Company estimates its
effective tax rate will be at or slightly below the 2011 fiscal
year rate, excluding any discrete events.
Fourth Quarter net income attributable to Fossil, Inc. increased
by 22.0% to $117.9 million, or $1.87 per diluted share, inclusive
of an unfavorable $0.03 per diluted share related to net foreign
currency losses and a favorable $0.09 per diluted share increase
related to a 4.7% lower outstanding share count as a result of the
Company's ongoing stock repurchase program. For the Fiscal
Year, net income attributable to Fossil, Inc. increased by 15.5% to
$294.7 million, or $4.61 per diluted share, compared to the $255.2
million, or $3.77 per diluted share, earned during the prior fiscal
year. Net income attributable to Fossil, Inc. for the Fiscal
Year included net foreign currency gains of $0.14 per diluted
share.
Selective Balance Sheet Information
At December 31, 2011, cash, cash equivalents and securities
available for sale totaled $287.7 million compared to $401.7
million at the end of the prior fiscal year and the Company had
$15.2 million of total debt at the end of the Fiscal
Year. During the period from the announcement of the Company's
$750 million buyback authorization in August 2010 until the end of
the Fourth Quarter, the Company has repurchased approximately
$450.1 million of its common stock, representing approximately 6.2
million shares.
Inventory at Fiscal Year-end was $489.0 million, representing an
increase of 31.5% from the prior fiscal year-end balance of $371.9
million. An approximate five day reduction in lead times in
watch shipments in December 2011 resulted in approximately $30
million of inventory receipts shifting from the first quarter of
fiscal 2012 to the Fourth Quarter. Accounts receivable
increased by 14.9% to $302.5 million at December 31, 2011 compared
to $263.2 million at the end of the prior fiscal year, primarily
due to an increase in wholesale shipments during the Fourth Quarter
versus the prior fiscal year fourth quarter. Fourth Quarter
days sales outstanding for the Company's wholesale segments was 43
days in comparison to 44 days in the prior fiscal year fourth
quarter.
Sales and Earnings Guidance
The Company expects first quarter and fiscal 2012 net sales
growth in the 15% range. First quarter fiscal 2012 diluted
earnings per share are expected to be in a range of $0.90 to
$0.92. For fiscal year 2012, the Company expects diluted
earnings per share in a range of $5.40 to $5.50. 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. The Company's sales and earnings
guidance does not include any impact from the Company's anticipated
acquisition of Skagen Designs, Ltd. The transaction has
cleared regulatory requirements in the U.S. and Germany, however,
U.K. regulatory approval is still pending. The Company
anticipates receiving regulatory clearance from the U.K. by the end
of March.
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, lower 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 1, 2011 and its Quarterly Reports
on Form 10‑Q filed with the Securities and Exchange Commission (the
"SEC").
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,
soft accessories, shoes and clothing. In the watch and jewelry
product categories, 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
approximately 120 countries worldwide through 22 Company-owned
foreign sales subsidiaries and a network of approximately 60
independent distributors. The Company also distributes its
products in over 390 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 except per share data): |
For the 13 Weeks
Ended |
For the 13 Weeks
Ended |
For the 52 Weeks
Ended |
For the 52
Weeks Ended |
|
December 31,
2011 |
January 1,
2011 |
December 31,
2011 |
January 1,
2011 |
Net sales |
$ 830,756 |
$701,076 |
$ 2,567,302 |
$2,030,690 |
Cost of sales |
364,887 |
300,958 |
1,128,116 |
875,526 |
Gross profit |
465,869 |
400,118 |
1,439,186 |
1,155,164 |
Selling and distribution expenses |
220,152 |
191,388 |
715,350 |
583,860 |
General and administrative
expenses |
71,353 |
59,194 |
251,845 |
194,890 |
Operating income |
174,364 |
149,536 |
471,991 |
376,414 |
Interest expense |
1,070 |
956 |
2,391 |
1,119 |
Other (expense) income – net |
(4,491) |
6,110 |
(18,041) |
8,915 |
Tax provision |
46,001 |
54,959 |
144,157 |
119,320 |
Less: Net income attributable to
noncontrolling interest |
4,891 |
3,074 |
12,700 |
9,685 |
Net income attributable to Fossil, Inc. |
$117,911 |
$96,657 |
$294,702 |
$255,205 |
Basic earnings per share |
$ 1.88 |
$ 1.48 |
$ 4.66 |
$ 3.83 |
Diluted earnings per share |
$ 1.87 |
$ 1.46 |
$ 4.61 |
$ 3.77 |
Weighted average common shares
outstanding : |
|
|
|
|
Basic |
62,606 |
65,331 |
63,298 |
66,701 |
Diluted |
63,190 |
66,273 |
63,965 |
67,687 |
|
|
|
|
|
|
Consolidated Balance Sheet Data
(in 000's): |
December 31,
2011 |
January 1,
2011 |
Working capital |
$844,124 |
$801,329 |
Cash, cash equivalents and securities
available for sale |
287,653 |
401,658 |
Accounts receivable, net of
allowances |
302,467 |
263,218 |
Inventories |
488,983 |
371,935 |
Total assets |
1,642,922 |
1,467,573 |
Short-term debt |
9,009 |
5,314 |
|
|
|
Long-term liabilities |
134,798 |
76,377 |
Stockholders' equity |
1,116,846 |
1,051,708 |
|
|
|
|
|
|
Sales Mix Breakdown
($ in millions) |
Amounts For the 13
Weeks Ended |
Percentage of Total
For the 13 Weeks Ended |
|
December 31, 2011 |
January 1, 2011 |
December 31, 2011 |
January 1, 2011 |
Wholesale: |
|
|
|
|
North America |
$ 307.1 |
$ 261.8 |
37.0% |
37.3% |
Europe |
223.5 |
190.2 |
26.9% |
27.1% |
Asia |
86.4 |
74.7 |
10.4% |
10.7% |
|
|
|
|
|
Total wholesale |
617.0 |
526.7 |
74.3% |
75.1% |
|
|
|
|
|
Direct to consumer |
213.8 |
174.4 |
25.7% |
24.9% |
|
|
|
|
|
Total net sales |
$ 830.8 |
$ 701.1 |
100.0% |
100.0% |
|
|
|
|
|
|
Sales Mix Breakdown
($ in millions) |
Amounts For the 52
Weeks Ended |
Percentage of Total
For the 52 Weeks Ended |
|
December 31, 2011 |
January 1, 2011 |
December 31, 2011 |
January 1, 2011 |
Wholesale: |
|
|
|
|
North America |
$ 967.5 |
$ 779.2 |
37.7% |
38.3% |
Europe |
695.4 |
547.4 |
27.1% |
27.0% |
Asia |
297.0 |
220.8 |
11.5% |
10.9% |
|
|
|
|
|
Total wholesale |
1,959.9 |
1,547.4 |
76.3% |
76.2% |
|
|
|
|
|
Direct to consumer |
607.4 |
483.3 |
23.7% |
23.8% |
|
|
|
|
|
Total net sales |
$ 2,567.3 |
$ 2,030.7 |
100.0% |
100.0% |
CONTACT: Mike Kovar
Chief Financial Officer
Fossil, Inc.
(972) 699-6811
Allison Malkin
ICR, Inc.
(203) 682-8225
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