Fossil Inc. Reports Operating Results (10-Q)
Fossil, Inc. has a market cap of $4.24 billion; its shares were traded at around $86.54 with a P/E ratio of 14.6 and P/S ratio of 1.7. Fossil, Inc. had an annual average earning growth of 18.4% over the past 10 years. GuruFocus rated Fossil, Inc. the business predictability rank of 4.5-star.
Highlight of Business Operations:Consolidated Net Sales. Net sales rose 18.1% with each of our wholesale segments reporting increased sales growth rates as compared to the first quarter of fiscal 2012. Our acquisition of Skagen Designs, Ltd. and certain of its international affiliates (Skagen Designs), on April 2, 2012 contributed $25.2 million toward our overall sales growth for the Second Quarter. On an organic basis, excluding sales related to the SKAGEN® brand, worldwide net sales increased 13.5% for the Second Quarter as compared to the Prior Year Quarter. Global watch sales led our Second Quarter sales growth, increasing 17.1%, or $68.5 million, while the sales from our leather business grew 8.2%, or $7.5 million, primarily related to our Direct to consumer channel. For the Year To Date Period, consolidated net sales increased by 14.7%, or $160.7 million, representing sales growth in each our global wholesale and Direct to consumer businesses. We believe watch sales across all of our operating segments are benefiting from a resurgence in the watch category in general, resulting in consumers allocating more of their discretionary spending to this fashion category. We also believe our results are outpacing those of our competitors as consumers respond positively to our innovative product offerings and focused presentations at retail. We attribute this favorable consumer response to our designs, which incorporate newer materials into the construction of the watch while also maintaining a very strong price to value relationship. With respect to the FOSSIL brand, we have followed a strategy of focusing our marketing efforts on point-of-sale presentations, as well as our catalog and web-based marketing initiatives and the growth of our FOSSIL store and e-commerce footprint. We believe these strategies are clearly communicating the aspirational lifestyle image of the brand and are resonating strongly with consumers around the world. During the Second Quarter, net sales of FOSSIL branded products increased by 3.6%, or $8.6 million, as compared to the Prior Year Quarter.
North America Wholesale Net Sales. During the Second Quarter, net sales from the North America wholesale segment rose 18.2%, or $38.7 million, in comparison to the Prior Year Quarter. This sales growth was primarily attributable to a 25.2%, or $39.5 million, increase in watch sales, including $10.8 million of sales related to SKAGEN branded products. Sales from our jewelry business also favorably impacted the Second Quarter, increasing 95.1%, or $4.4 million, primarily the result of the continued roll-out of the MICHAEL KORS® jewelry line. These sales gains were partially offset by decreases in our leathers and eyewear businesses of 9.2%, or $4.0 million, and 33.0%, or $2.0 million, respectively. The decrease in the leathers business was principally a result of decreased sell-through rates in our womens handbag category in the department store channel, while the decrease in eyewear sales was a result of the repositioning of the FOSSIL branded eyewear business. During the Second Quarter, exclusive of sales related to SKAGEN branded products, U.S. wholesale sales increased 14.7%, or $24.5 million, in comparison to the Prior Year Quarter. Additionally, shipments from our subsidiaries in Canada and Mexico increased 23.5% and 65.2%, respectively, during the Second Quarter. For the Year To Date Period, North America wholesale net sales increased 13.8%, or $57.9 million, as compared to the Prior Year YTD Period. This increase was principally driven by the same categories and factors as experienced during the Second Quarter.
Europe Wholesale Net Sales. Europe wholesale net sales increased 14.0%, or $19.9 million, during the Second Quarter as compared to the Prior Year Quarter, inclusive of a $9.2 million contribution from sales related to SKAGEN branded products. Excluding sales related to SKAGEN branded products, sales growth of 7.5% was primarily attributable to a 13.0%, or $13.5 million, increase in watch shipments, partially offset by an 11.4%, or $2.7 million, decrease in the jewelry business. Jewelry sales volumes decreased as a result of the repositioning of the FOSSIL jewelry business. Sales to third party distributors also favorably impacted the Second Quarter, contributing a 10.3% sales increase, or $2.9 million, as compared to the Prior Year Quarter. Europe wholesale net sales increased 9.2%, or $27.0 million, for the Year To Date Period as compared to the Prior Year YTD Period, primarily a result of a 14.0%, or $29.4 million, increase in watch sales. The Year To Date Period also benefitted from a 20.5%, or $3.9 million, increase in the leathers business, while the jewelry category decreased 11.9%, or $6.0 million, as compared to the Prior Year YTD Period.
comparable store sales gains of 22% and 15% in the second quarter of fiscal 2011 and 2010, respectively. Additionally, net sales from our e-commerce businesses increased by 3.9%, or $0.3 million. For the Year To Date Period, net sales from our Direct to consumer segment increased 18.2%, or $45.1 million, in comparison to the Prior Year YTD Period, primarily as a result of an 8.2% increase in the average number of stores open and comparable store sales increases of 4.5%. Net sales from our e-commerce businesses increased 11.1%, or $1.9 million, for the Year To Date Period in comparison to the Prior Year YTD Period. Comparable store sales related to our global full price accessory concept decreased by 5.1% and 3.3% for the Second Quarter and Year To Date Period, respectively. Global outlet comparable store sales increased 8.6% and 13.0% for the Second Quarter and Year To Date Period, respectively.
Operating Expenses. Operating expenses, expressed as a percentage of net sales, increased to 42.2% in the Second Quarter compared to 40.5% in the Prior Year Quarter. Total operating expenses in the Second Quarter increased by $42.6 million. For the Second Quarter, operating expenses were favorably impacted by approximately $8.7 million as a result of the translation of foreign-based expenses into U.S. dollars. Non-recurring costs associated with the Skagen Designs acquisition amounted to $1.2 million during the Second Quarter. This amount included acquisition and transition related costs of $5.6 million, partially offset by a $4.4 million favorable gain resulting from a Second Quarter mark to market valuation adjustment of a Skagen-related contingent purchase price liability. The mark to market valuation was triggered by the decline in the Companys stock price from the date of the acquisition to the end of the Second Quarter. On a constant dollar basis and excluding non-recurring expenses related to the Skagen acquisition, operating expense increases were primarily related to the addition of Skagen operating costs, expenses associated with the increase in the number of Company-owned retail stores and expense increases across our wholesale segments. Increased expense levels in our wholesale segments were primarily attributable to the continuing strategic investments in our Asia Pacific segment, primarily related to headcount additions and concession related costs. Additionally, we recorded approximately $4.7 million of expenses in the Second Quarter in connection with legal costs and accruals related to the expected settlement amount of routine business litigation. For the Year To Date Period, operating expenses expressed as a percentage of net sales increased to 42.0% compared to 39.8% in the Prior Year YTD Period and included an $11.1 million favorable impact from the translation of foreign-based expenses due to a stronger U.S. dollar. On a constant dollar basis, operating expenses for the Year To Date Period increased by $90.5 million as compared to the Prior Year YTD Period, with increases across all of our operating segments, primarily the result of the same factors that impacted the Second Quarter.
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