Fossil Q3 Profit, Sales Rise Despite Pinch in Europe

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Richardson, TX—Weakness in European retail, which has plagued many companies lately, has hit Fossil, which today released its third quarter report. However, thanks to its strong North American wholesale business, the watch and accessories company still managed a 10% profit rise.

For the quarter ended Sept. 29, Fossil posted earnings of $76.8 million, or $1.26 a share, up from $69.6 million, or $1.09 a share, a year earlier. Excluding acquisition costs and other items, per-share earnings were $1.28.

Net revenue rose 6.4% to $684.2 million helped by strong watch sales worldwide and improved leathergoods. However, jewelry and eyewear business offset that growth, too.

Analysts’ estimates, which exclude special items, expected earnings of $1.16 a share on sales of $713.10 million.

Gross margin fell to 55.8% from 55.9%.

“Double-digit growth in our direct-to-consumer business and Asia Pacific region, coupled with expense management and improved gross margin resulted in third quarter earnings surpassing our initial guidance,” stated Mike Kovar, executive vice president/chief financial officer. “Incremental sales from our recently acquired Skagen brand additionally helped fuel top line sales growth despite an overall challenging sales environment in Europe. In addition, we continued to experience double-digit increases in the sales of watches against a backdrop of sizeable growth over the last two years.”

Q4: ‘Not Expecting Improvement in Europe’

In North America, wholesale net sales increased increased 5.9%, which also was helped by the Skagen acquisition. Jewelry sales also increased in North America, helped by the Micahel Kors jewelry line.

“Third Quarter North American net sales were negatively impacted by a slight shift in the retail calendar in addition to the impact of certain U.S. wholesale customers delaying initial holiday receipts from late third quarter to the fourth quarter,” the company said.

The company’s European wholesales business, however, was more of a mix: sales rose 0.4% which included Skagen sales. Excluding Skagen sales, however, European wholesale sales dropped 5%, mostly due to a decline in jewelry sales brought on by a repositioning and repricing of jewelry and the softness of many European nation’s retail.

“Additionally, the third quarter was unfavorably impacted by reduced wholesale shipments of leather products of $2 million,” Fossil said.

Asia Pacific wholesale net sales rose 26.6%, also showing a $1.7 million gain in sales due Skagen products. Fossil’s 247 concession location in Asia had a 23.5% increase in sales with comparable sales up 4.9%.

In the company’s direct-to-consumer division, net sales increased by 19%, boosted by an increase if stores. Comparable store sales were up 1.8%.

As for the fourth quarter, Fossil forecast earnings in the range of $2.26 to $2.29 a share on net sales growth of about 12%. Analysts’ consensus expects earnings of $2.27

Moreover, Kosta Kartsotis, chief executive, told analysts in a post earnings conference call that “we are not expecting improvements in our performance in Europe wholesale for the fourth quarter.”

The company’s full year forecast was increased to $5.42 to $5.45 a share from $5.20 to $5.25. Analysts’ forecast $5.29 a share.


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