Fossil Q3 Profit, Sales Beat Forecasts

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Fossil brand

Richardson, TX—Fossil Group Inc. reported Tuesday that its third quarter profit and sales both beat estimates as growth in watches, jewelry and leathergoods and gross margin boosted earnings.

For the quarter ended Sept. 28, Fossil posted a 17% increase in profit to $89.7 million, or $1.58 a share, compared with a profit of $76.8 million, or $1.26 a share, in third quarter 2012.

Net sales rose 18.1% to $820 million. Sales increased across all geographic regions with double-digit growth in the watch category along with global expansion of core brands like Fossil and Skagen during the quarter. Sales of jewelry and leathergoods also contributed to the year-over-year growth, the company said. The effect of translation of a weaker U.S. dollar contributed $2.5 million to the company’s export sales, too.

The results easily beat analysts’ average estimate expecting $1.36 a share on sales of $771.9 million.

Results were released after the market closed, but the company’s stock rose 3% to $134.21 a share, a new 52-week high.

Fossil also reported a $20 million shift of sales, primarily in North America, from the fourth quarter into the third quarter.

‘Solid’ 20% Increase in Watches

Gross margin grew 160 basis points to 57.4%, driven by growth in international markets, the impact of concession expansion and a greater sales mix of higher margin products that partially offset increased promotional activity to drive traffic.

Commenting on the results, Kosta Kartsotis, chairman/ceo, said: “Once again, our watch portfolio performed well, delivering a 20% increase with solid increases from both long-standing and newer brands. Our design innovation, supply-chain and global distribution network afford us a competitive advantage to partner with the best lifestyle brands in the world. We continue to see opportunities to garner an even greater share of the growing global watch market by leveraging our distribution to grow existing brands and by adding new brands like Tory Burch, which we’ll launch next year.”

Net sales in North America increased 18.2% to $300.3 million helped by the shift in shipments.

In Europe, sales were up 23.3% to $201.5 million, driven by double-digit increases in watch sales and jewelry. Strong sales in Germany and the U.K. as well as in the company’s third-party distributor markets boosted sales during the quarter. On the other hand, Italy experienced a modest decline in sales.

Net sales in the Asia-Pacific increased 12.9% to $110.2 million, driven by double-digit increases in watch sales. China, Japan and India contributed significantly to the sales gain, the company said.

In the direct-to-consumer division, sales were up 15.8% to $195.9 million, attributable to global retail store sales growth, partially offset by a decrease in comparable store sales. Sales of jewelry products improved in the quarter, while both watches and leather products performed slightly below the company’s overall same store sales result.

Highly Promotional Holiday?

While third quarter wound up with impressive gains, the company cautioned that fourth quarter was uncertain due to a decline in mall traffic and retailers’ indications that heavy discounting could signal a highly promotional holiday season, said Dennis Secor, chief financial officer.

Still, Fossil’s conversion rates in its own stores have been up.

“Once we get shoppers in the store, they like the product. Traffic is our problem right now,” Kartsotis said.

Fossil has reiterated its fiscal year earnings guidance, expecting a range of $6.15 to $6.35 a share with sales increases in the 12% to 12.75% range. Analysts’ consensus forecast $6.30 a share.

For fourth quarter, Fossil forecast sales to increase 6% to 8% with per share earnings in the range of $2.26 to $2.46 a share.




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