Fossil Q2 Profit Triples, Raises Full Year Forecast

Richardson,TX–Fossil, Inc. (FOSL) reported today a profit for the second quarter that more than tripled from last year, helped by margin increase and sales growth especially in its fashion watches.

“An improving global economy, a resurgence in the fashion watch category and our laser focus to be a leader in the introduction of new materials and design innovation combined to deliver a 42% increase in our wholesale watch business during the second quarter,” said Mike Kovar, chief financial officer. “We are seeing balanced growth on a global basis and strong momentum among our major watch brands.”

Net sales for the quarter increased 30.6% to a record level of $412.56 million from $315.87 million in the same quarter of 2009. Wall Street analysts’ consensus had estimated the accessories company would hit $382.36 million for the quarter.

The company’s wholesale segment accounted for 75.1% of the total sales, while through its own retail stores accounts for 24.9% of total sales. Global retail comparable sales increased 15.5%. The company, which also approved an additional $30 million share buyback plan, said a steady flow of inventory replenishment resulted in North American watch shipments increasing nearly 60%. European wholesale sales rose 30%, reversing a slight decline from the first quarter. Asia Pacific wholesale revenue rose 11%.

“In our Fossil retail and e-commerce channels, double-digit comparable stores sales, in addition to the strong performance in our Fossil brand watch sales, propelled a 28% increase in Fossil branded sales globally,” Kovar said.

Gross profit margin increased 450 basis points to 57.4% from 52.9% in the prior-year quarter driven by an increase in sales of higher-margin watch products in comparison to its leathergoods products.

Fossil, which also sells jewelry, leathergoods, belts, sunglasses and apparel, said it continues to gain market share in the wholesale channel and that its Michael Kors, Fossil and Michele brands showed the strongest performance in the quarter. The second quarter also benefited from its growing jewelry category in North America and Europe, and the expansion of handbags and footwear categories internationally.

Full Year Forecast Increased

For the second quarter ended July 3, net income was $54.5 million, or 80 cents a share, compared with net income of $16.6 million, or 25 cents a share, a year ago.

The company also raised its earnings forecast for the full-year 2010 and now expects to earn between $3.13 a share and $3.23 a share, compared with its earlier estimate of $2.25 a share to $2.35 a share. The company earned $2.07 in fiscal 2009.

Fossil expects earnings in a range of $0.68 to $0.72, on quarterly sales growth of 25% to 27%. Analysts expect the company to report earnings of $0.63 per share on revenues of $423.06 million for the third quarter.

For the fourth quarter, the company projects earnings in a range of $1.12 to $1.18 per share, on sales growth of between 14% and 16%.

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