Fossil Q1 Profit Jumps on Stronger Sales

Richardson, TX–Fossil Inc. reported today that its first-quarter profits jumped 55% beating retail analysts forecasts as its watch sales increased worldwide.

The company also raised its full-year earnings estimates, too, and shares of the company rose past $100 today in early trading.

For the quarter ended March 31, Fossil earned $55.8 million, or 86 cents a share, compared with $35.9 million, or 53 cents a share, a year earlier. The company said sales rose 37% to $537 million. Analysts’ average estimate expected the company to earn 66 cents a share on revenue of $512 million.

Growth Potential in Asia-Pacific Middle Class

Revenues from its North American wholesale rose 34% to $206.8 million and direct-to-consumer sales rose 30% to $114.2 million. Much of the sales increases were attributed to watches, where sales grew 37% to $28.7 million. Sales of jewelry and leathergoods increased 28.6% to $6 million.

Looking ahead, Fossil raised its full-year estimate to earnings of $4.44 to $4.54 a share on sales growth of 21% to 23% up from its February forecast of $4.22 to $4.32 on 19% to 21% sales growth.

Fossil also forecast a second-quarter profit in the range of 70 to 73 cents a share on sales growth of 28% to 30%, while analysts’ average expected 75 cents on $512 million, about a 24% sales growth.

The company cited growth in the middle class in the Asia-Pacific region as offering a huge potential for future growth. First quarter sales in Asia-Pacific were up $57.4% to $22.2 million. Kosta Kartsotis, ceo, said during a call with analysts, that Fossil plans to expand its own stores as well as multibrand shops inside Asian department stores.

Despite labor costs increasing in China, Kartsotis said, “we’re very willing to pay them because efficient flow of product is more important” than the impact on margins.

“Customers are willing to pay more for better materials, hardware and details. We’re not really raising prices on the same items across the board but reformulating some merchandise,” Kartsotis said.

Direct-to-consumer sales through its 360 stores and catalog and Internet operation increased 28% from the same period last year.

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