Fossil Beats Q2 Earnings, Sales Expectations; Raises Outlook, Too

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Fossil brand is pushing arm candy looks incorporating bracelets and watches for back to school.

Fossil brand is pushing arm candy looks incorporating bracelets and watches for back to school.

Richardson, TX—Fossil today raised its full year earnings forecast after posting an 18% jump in its second quarter earnings as its sales increased even in Asia and Europe where economic uncertainty has hindered sales.

For the quarter ended June 29, the watch and accessories company posted earnings of $67.7 million, or $1.15 a share, compared to $57.3 million, or 92 cents a year earlier. That was better than the 93 cents a share that analysts’ average estimate had expected.

Net sales rose 11.4% to $706.2 million ahead of analysts’ expectations for $691.2 million.

In watches, the company saw double digit gains throughout its brand portfolio as with the global expansion of its Fossil brand. While sales of jewelry increases, leathergoods and eyewear declined.

Revamped Jewelry Collection a Hit

In Europe, where sales have dwindled in many fashion categories, wholesale sales increased 15% helped by increases in watch and jewelry sales that offset reduced shipments in leathergoods and eyewear. Strongest growth was in Germany and the United Kingdom while France posted a “modest sales decline.”

Asia-Pacific had a 17.7% increase with all markets experiencing increases, particularly China, India and Japan. In the United States, wholesale sales were up a more modest 4.2%.

“During the quarter we advanced each of our core growth initiatives with strength in Fossil and Skagen brands and double-digit sales increases in our multibrand watch portfolio and in jewelry,” said Kosta Kartsotis, chief executive. “We continued to leverage the power of our brands and our distribution infrastructure to expand our international footprint, fueling robust revenue increases in both Europe and Asia. Our team made substantial progress on many key operational initiatives that drove significant gross margin expansion in the quarter.”

Fossil’s gross margin widened by 1.9 percentage points to 57.9%.

Fossil also saw the benefits of repositioning its jewelry as “affordable luxury,” a similar image the company has developed for its watches and handbags.

Noting that jewelry sales were up some 24% as a result, Denis Secord, chief financial officer, told analysts on a conference call that “our customers have continued to respond very favorably to our Fossil global jewelry assortment, delivering positive jewelry comparables in our full-price stores in all regions.”

Given its strong second quarter showing, Fossil raised its full year earnings forecast to $6.15 to $6.35 a share, up from a previous estimate of $6 to $6.25 a share. Net sales should grow by 11% to 12%, the company predicted. Analysts’ average estimate expects Fossil to report annual earnings of $6.17 a share.

For the current quarter, Fossil forecast earnings of $1.30 to $1.37 a share below analysts’ estimate for $1.46 a share. The company said it expects operating expenses to rise with third quarter hurt by marketing and advertising initiatives ahead of the holiday season.

Fossil’s results which were hailed by analysts sent the price of its share up some 18% in trading earlier today, marketing the fourth-biggest gain since the company’s initial public offering in 1993.




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