We maintained our Neutral rating on
) following appraisal of fourth quarter and full year 2011
Fossil posted earnings of $1.87 per share in the fourth quarter
exceeding the prior-year earnings of $1.46 per share, driven by
double-digit sales growth and lower share count. The results also
exceeded the Zacks Consensus Estimate of $1.77 per share.
Worldwide net sales climbed 18.5% to $830.8 million in the
quarter, reflecting strong sales momentum in all its segments. On a
constant currency basis, worldwide net sales soared 18.8% during
the quarter, primarily resulting from increases in watch sales and
the company's leather business.
We are optimistic about the company's portfolio which has many
recognized brand names such as Adidas, Armani Exchange, Burberry,
Diesel, DKNY, Emporio Armani, Marc, Michele, Michael Kors, Relic
and Zodiac. The company has extended its product categories of
existing brands with the introduction of jewelry collections under
some of its brands and has introduced soft accessories under its
Fossil brand name.
Fossil has a significant exposure in the international markets
which has been driving its long-term growth strategy. The company
has penetrated the international markets by forming and acquiring
subsidiaries operating outside US. The acquisition of privately
held Nevada-based Skagen Designs, Ltd. early April 2012 is expected
to help Fossil to expand its brands in the markets of Europe and
other emerging markets of East Asia, where Skagen has significant
presence. We believe that expansion in international markets will
boost company's growth over the long term.
However, the company is generating weak margins due to a rise in
production costs. In addition, inflation in costs of watch
components and labor costs throughout the year, along with
increases in sales to off-price retailers impacts the margins of
the company. Fossil continues to expect the prices to continue to
rise into 2012.
Further, the company faced a difficult macro-economic
environment in 2011, and expects the same to persist in 2012. The
company's customers remain sensitive to macroeconomic factors
including interest rate hikes, credit availability, unemployment
levels, and high household debt levels, which may negatively impact
their discretionary spending, and in turn the company's growth and
Fossil faces the risk of import restrictions such as antidumping
or countervailing duties, tariffs or other restrictions, as most of
its products are manufactured overseas. The weak economy and the
rising costs keep us on the sidelines.
FOSSIL INC (
): Free Stock Analysis Report
To read this article on Zacks.com click here.