) reported third quarter 2012 earnings of $1.28 per share, which
exceeded both the year-ago earnings by 17.4% and the Zacks
Consensus Estimate by 9.4%. The results also exceeded
management's guidance range of $1.15-$1.17 per share. The upswing
in results was driven by top-line growth, improved margins and
prudent expense management.
Quarter in Detail
Fossil's net sales during the quarter increased 6.4% to $684.2
million, driven by strong global watch sales and improved leather
businesses. The jewelry and eye-wear businesses partially offset
the sales growth. Net sales lagged the Zacks Consensus Estimate
of $715 million. The acquisition of Skagen brand also fueled
Excluding the sales related to Skagen-branded products, which
was acquired in April 2, 2012, the company reported net sales
growth of 5.9%.
Fossil's gross margin in the quarter contracted 10 basis
points (bps) to 55.8% in the quarter, mainly due to foreign
currency headwinds. Operating margin declined 200 bps to 16.5% in
the third quarter of 2012 due to foreign currency translation as
well as higher operating expenses.
Net sales from the North America wholesale segment increased
5.6% to $254.0 million on a constant currency basis, primarily
driven by robust watch sales, including sales of Skagen-related
products. The segment also experienced increases in jewelry
business, despite a decline in global jewelry line, owing to the
rollout of the Michael Kors jewelry line.
Wholesale net sales in Europe declined 8.3% year over year on
a constant currency basis to $163.5 million, largely due to a
decline in the company's jewelry business and reduced leather
shipments, partially offset by a slight increase in watch
Net wholesale sales in the Asia-Pacific segment increased
24.2% to $97.6 million on a constant currency basis, driven by
increases in the company's watch sales. Skagen-branded products
contributed $1.7 million to net sales.
Direct-to-Consumer segment net sales grew 16.3% year over year
on a constant currency basis to $169.1 million, primarily
attributable to strong comparable store sales and increase in the
average number of company-owned stores in the quarter.
Other Financial Update
The company had cash, cash equivalents and securities of $149
million as of September 20, 2012 compared with $139.0 million as
of June 30, 2012.
Since the end of the year-ago quarter, the company repurchased
approximately 3.1 million shares of its common stock for $262.8
million The company had authorized a $750 million buyback program
in August 2010. The company has now completed the repurchase of
approximately 8.5 million of shares worth $646.4 million.
For the fourth quarter of 2012, Fossil has lowered its net
sales guidance. It expects it sales to increase approximately 12%
in contrast to 16% growth forecasted previously. On a constant
currency basis, the company expects net sales to increase 13%
compared with 18% forecasted previously. The lowered guidance is
due to expectation of a decline in European wholesale
Adjusted earnings (excluding non-recurring costs associated
with the acquisition of Skagen as well as certain tax benefits)
for the fourth quarter are expected in the range of $2.26 - $2.29
per share. The Zacks Consensus Estimate is pegged at $2.27 per
For fiscal 2012, Fossil has raised its adjusted earnings per
share in a range of $5.42 to $5.45 compared with the previous
range of $5.29 to $5.34. The Zacks Consensus Estimate projects
earnings of $5.29 per share for the full year.
Currently, Fossil, which faces stiff competition from
), carries a Zacks #3 Rank (short-term Hold rating). We have a
Neutral recommendation on the stock over the long term.
FOSSIL INC (FOSL): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
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