Fossil, Inc
(
FOSL
) reported fourth quarter 2012 adjusted earnings of $2.27 per
share, which exceeded the year-ago earnings of $1.87 per share by
21.4%. The results were within the management's guidance range of
$2.26-$2.29 per share and in line with the Zacks Consensus
Estimate. The year-over-year upside was driven by top-line
growth, positive comparable store sales and improved margins.
Quarter in Detail
Fossil's net sales during the quarter increased 14.1% to
$947.7 million, exceeding the Zacks Consensus Estimate of $933
million. On a constant currency basis, net sales increased 14.8%
to $953.5 million, driven by third consecutive double-digit
growth in global watch sales, mainly owing to the acquisition of
the Skagen brand (acquired in April, 2012). Fossil's jewelry
business improved, while sales in other categories including
eye-wear and leather businesses declined in the quarter.
The company witnessed growth in each of the geographic regions
and delivered comparable store sales growth of 2.4%, reflecting
global demand for Fossil products.
Despite currency headwinds, gross margin expanded 80 basis
points to 56.9% as the company managed to grow its outlet
channel, improve pricing across certain businesses, increase
production efficiencies and achieve favorable product mix.
Operating margin also expanded 60 basis points to 21.6% in the
quarter, despite higher operating expenses.
Segment Details
Net sales from the North America wholesale segment increased
15.0% to $353.1 million on a constant currency basis, primarily
driven by robust watch sales, including sales of Skagen-related
products. The segment also experienced modest increases in the
jewelry business.
Net sales in Europe grew 7.6% year over year on a constant
currency basis to $240.5 million, driven by increases in watch
sales mainly with the addition of the Skagen brand. However,
sales in other categories declined due to continued sluggish
economic conditions as well as the repositioning of the Fossil
jewelry products.
Net sales in the Asia-Pacific segment increased 18.6% to
$102.5 million on a constant currency basis, driven by increases
in the company's watch sales. Skagen-branded products contributed
$4.5 million to net sales.
Direct-to-Consumer segment net sales grew 20.4% year over year
on a constant currency basis to $257.4 million, primarily
attributable to strong comparable store sales and increase in the
average number of company-owned stores in the quarter. Growth in
watches and leather businesses also fueled the sales increase,
along with higher sales from the company's repositioned jewelry
products.
Full-Year 2012 Results
Fossil posted adjusted earnings of $5.39 per share, up 16.9%
from the year-ago earnings of $4.61 per share. The results were
in line with the Zacks Consensus Estimate, but lagged the
management's guidance range of $5.42-$5.45 per share.
In 2012, Fossil's net sales increased 11.3% to $2.86 billion,
exceeding the Zacks Consensus Estimate of $2.84 billion. On a
constant currency basis, net sales increased 13.5% to $2.57
billion, with sales increasing in each segment, driven primarily
by the acquisition of Skagen branded products, which contributed
$93.8 million to 2012 sales.
Guidance
Following strong fourth quarter and full-year 2012 results,
Fossil provided a favorable outlook for 2013. Fossil expects
sales to increase approximately 10% in the first quarter of 2013.
The company also expects earnings in the range of 93 cents to 98
cents per share and operating margin in the range of 12.5% to
13.5%.
For full-year 2013, the company expects sales to increase in
the range of 10% to 11%. The company also expects earnings in the
range of $5.85 to $6.15 per share and operating margin in the
range of 16.5% to 17.0%.
Our Take
We are impressed with Fossil's acquisition of Skagen, which
drove improvement in Asia Pacific wholesale business and added
strength across the North American watch business. It also
overshadowed the weaknesses of the European business.
Fossil has also been experiencing back-to-back increases in
comparable store sales. The company is also cash rich and rewards
its shareholders through share buybacks. However, higher labor
costs, currency fluctuations and uncertainties in Europe
continued to remain a headwind. Fossil holds a Zacks Rank #3
(Hold).
Other stocks worth considering in the consumer discretionary
sector are
Guess? Inc
(
GES
),
Hanesbrands Inc
(
HBI
) and
Michael Kors
(
KORS
), each of them holding a Zacks Rank #2 (Buy).
FOSSIL INC (FOSL): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
HANESBRANDS INC (HBI): Free Stock Analysis
Report
MICHAEL KORS (KORS): Free Stock Analysis
Report
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