) reported fourth-quarter 2011 adjusted earnings of $1.81 per
share, which exceeded both the year-ago earnings and the Zacks
Consensus Estimate by 35 cents and 4 cents, respectively. The
fiscal year 2011 adjusted earnings of $4.47 per share also exceeded
the year-ago earnings of $3.77 per share. However, the earnings
lagged the Zacks Consensus Estimate of $4.52 per share.
Adjusted earnings in the reported quarter exclude net foreign
currency losses of 3 cents per share and include a favorable
increase of 9 cents per share related to a lower outstanding share
count as a result of the company's ongoing stock repurchase
program. In fiscal 2011, adjusted earnings exclude a net foreign
currency gain of 14 cents per share.
On a reported basis, earnings exceeded the prior-year results by
22.0% to $1.87 per share, while it increased 15.5% to $4.61 per
share in fiscal year 2011.
Fossil's profits were driven by double-digit sales growth across
its major brands, product categories, and geographies, led
chiefly by the success of its two core global growth
strategies, its accessories lifestyle business and the multi-brand
Furthermore, robust sales growth of FOSSIL brand, double-digit
comparable store sales increase in the fourth-quarter, and
continuous improvement in developing the infrastructure in Asia to
support future growth resulted in solid performance in the year
For the first quarter of 2012, Fossil expects its earnings
guidance to a range of 90 to 92 cents per share. For the fiscal
year 2012, the company expects its earnings to be in a range of
$5.40 to $5.50 per share.
Worldwide net sales of Fossil during the quarter grew 18.5% to
$830.8 million, reflecting double-digit sales growth across all of
the company's operating segments. On a constant currency basis, all
major watch brands reported strong double-digit sales growth of
20.6%, whereas the leather business sales climbed 23.7% in the
fourth quarter 2011. Net sales of FOSSIL branded products,
inclusive of Fossil branded watches, also expanded by 19.0% on a
constant dollar basis.
In fiscal 2011, consolidated net sales increased 23.8% on a
constant currency basis, driven by sales growth ranging from 21.9%
to 27.8% in each of the company's global wholesale and direct to
For the first quarter and fiscal 2012, the company expects its
net sales to increase approximately 15%.
Net sales from the North America wholesale segment increased
17.3% to $307.1 million, primarily driven by increase in the watch
sales and leather businesses. Further, shipments from the company's
subsidiaries in Canada and Mexico as well as shipments to third
party distributors, located primarily in South America, also
contributed to the sales growth in the quarter.
European wholesale net sales grew 18.5% year over year to $223.5
million, as all the major watch brands experienced sales volume
gains in all the key markets. The leather businesses also gained in
the quarter, with double-digit sales percentage gains in Germany
and more than double of sales on a smaller scale of business across
France and Italy. Jewelry product shipments and sales to third
party distributors also contributed to the sales growth.
Net sales in the Asia-Pacific wholesale segment increased 15.7%
to $86.4 million, driven by increases in the company's watch sales,
partially offset by a decrease in non-strategic businesses that the
company has exited over the last twelve months.
Direct-to-Consumer segment net sales grew 22.6% year over year
to $213.8 million, primarily due to profits in the constant dollar
comparable store sales and an increase in the average number of
company-owned stores open in the quarter. The company's e-commerce
Business segment revenues also gained momentum in the quarter.
Fossil's gross margin in the quarter contracted 100 basis points
(bps) to 56.1% in the reported quarter. The downswing in gross
profit margin was largely driven by inflation in watch components
and labor costs throughout the year, as well as increases in sales
to off-price retailers at reduced margins. In fiscal 2011, gross
profit margin decreased 80 bps to 56.1%, primarily as a result of
similar factors experienced during the quarter, offset by an
approximate 180 bps improvement as a result of a weaker U.S.
Operating margin also declined 30 bps to 21.0% in the fourth
quarter 2011 on the back of a decrease in gross profit margin,
partially offset by operating expense leverage. In fiscal 2011,
operating profit margin decreased slightly to 18.4% as compared to
18.5% in the prior fiscal year.
Other Financial Update
The company had cash, cash equivalents and securities of $287.7
million at the end of December 31, 2011 compared with $401.7
million at the end of the prior year period. Fossil also had $15.2
million of debt at the end of fiscal 2011.
Inventory was $489.0 million at the end of fiscal year 2011, up
31.5% from $371.9 million at the end of the prior-year period.
Accounts receivable increased by 14.9% to $302.5 million at the
end of the year 2011 compared with $263.2 million at the end of the
prior-year period, primarily due to an increase in wholesale
shipments. Days sales outstanding for the wholesale segment was 43
days in comparison with 44 days in the prior-year quarter.
Till the end of the fourth quarter, the company repurchased
approximately 6.2 million shares for $450.1 million of its common
stock, under the company's $750 million buyback authorization
announced in August 2010.
In the year 2011, Fossil agreed to purchase the privately held
Nevada-based Skagen Designs, Ltd. and some of its partners for
approximately $225 million in cash and 150,000 Fossil shares. The
total value paid by Fossil was approximately $236.8 million. The
acquisition is expected to close by February, 2012, subject to
As per the deal, Skagen will get an additional 100,000 Fossil
shares, if Skagen products surpass certain revenue targets.
Skagen Designs is an international company engaged in the
manufacture and marketing of contemporary Danish design accessories
including watches, jewelry, sunglasses and clocks.
The acquisition is thus expected to enhance Fossil's portfolio
with Skagen's unique designs and ample potential as a lifestyle
brand. On the other hand, Skagen will also be benefited by Fossil's
ever increasing opportunities to grow and expand.
We are encouraged by Fossil's in-house team of dedicated
designers and product specialists who help steer the company ahead
by following emerging lifestyle and fashion trends to bring
innovative and unique products to its customers. However, stiff
) and difficult macroeconomic conditions are matters of
The company currently retains a Zacks #4 Rank on Fossil shares,
which translates into a short-term Sell rating. On a long-term
basis, we provide a Neutral recommendation on the stock.
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