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Fossil, Inc. (FOSL)
Q3 2011 Earnings Call
November 8, 2011 9:00 a.m. ET
Allison Malkin - ICR, Investor Relations
Kosta Kartsotis - Chairman of the Board and Chief Executive Officer
Mike Kovar - Executive Vice President, Chief Financial Officer, and Treasurer
Jennifer Pritchard - President, Retail Division
Randal Konik - Jefferies & Co.
Omar Saad - ISI Group
Ike Boruchow - JPMorgan
Oliver Chen - Citigroup
Barbara Wyckoff - CLSA
Anna Andreeva - FBR Capital Markets
Eric Beder - Brean Murray, Carret & Co.
Rick Patel - Bank of America Merrill Lynch
John Kernan - Cowen and Company
Scott Krasik - BB&T Capital Markets
Cliff Greenberg - Baron Capital
Ronald Bookbinder - The Benchmark Company
Previous Statements by FOSL
» Fossil's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Fossil Inc. F4Q08 (Qtr End 1/3/09) Earnings Call Transcript
» Fossil Inc. Q3 2008 Earnings Call Transcript
» Fossil F2Q08 (Qtr End 7/05/08) Earnings Call Transcript
I would now hand the conference over to Ms. Allison Malkin. Please go ahead, madam.
Thank you. Good morning everyone.
Before we begin, you should be aware that during this conference call certain discussions will contain forward-looking information. Actual results could differ materially from those that will be projected during these discussions. Fossil's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available on our Form 10-K and 10-Q reports filed with the SEC. In addition, Fossil undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure and reconciliation of this GAAP financial measure to GAAP will be provided as supplemental financial information through this release under the earnings release section, under the About section on Fossil's website.
Please note that you may listen to a live webcast or a replay of this call by visiting Fossil's website and then clicking on the About Us section on the bottom of the home page and then on Investor Relations. In addition, Yahoo! has had certain glitches this morning posting our earnings release. You may also find our press release for the third quarter on our Investor Relations section of our website.
Now, I would like to turn the call over to Fossil's Chairman and CEO, Kosta Kartsotis. Kosta?
Thanks, Allison. Good morning, everyone, and thanks for joining us. With us today to discuss our third quarter results are Mike Kovar, our CFO; and Jennifer Pritchard, our President of Retail. Mark Quick is in New York today and not on the call.
We are pleased to report third quarter results that achieved our sales targets and exceeded our earnings expectations. We continue to report broad-based and consistent growth across all of our brands and geographies. In total, net sales rose approximately 23%, 18% in constant currency, on top of a 40% sales increase last year. Across all channels and in constant dollars, North America was up 16%, Europe was up 21%, and Asia was up 19%.
In Asia, our emphasis has been on growing our focus areas of China and Korea which rose 72% and 51% respectively. In fact, when you exclude Japan and also Australia and India, where strategic decisions impacted short-term results, the Asia region was up 53%. We are very pleased with the ongoing progress of our two core businesses. The overall Fossil brand and our multi-brand watch business. Growth from both of these businesses fueled our 18.5% operating margin, beating our internal plans.
We think demonstrates the strong type of margins the company can achieve, even though we are increasing our investments to support future growth and observing higher production cost. The Fossil brand was up 14% for the quarter, with watches up 13% and leathers up 28%. As you know, we have been focused on building Fossil into an accessories based global lifestyle brand.
Increasingly, we are able to communicate a unique point of view and an American vintage inspired brand through our web stores and catalog. This is resonating with customers all over the world and presenting us with a significant long-term opportunity. Over the past few years our strategy has been to increase customer awareness and their engagement in the brand through product, image, and an engaging experience at the point of sale.
We have improved in storytelling and have moved towards more iconic products and platforms that have improved our visual presentation and our brand clarity. We have a lot of opportunity to make the brand even stronger as we become even more global. Our brand is clearly more aspirational but sill affordable and based on value. We have seen our customers respond very favorably to higher price point merchandize that has even more detail and authenticity.
Our stores are doing well all over the world and we feel we are in the early innings of a rather large multi-year opportunity. As to our multi-brand watch business, sales were up 20% for the quarter, on top of last year’s Q3 increase of 49%. We saw significant increases across all our brands and geographies as our global platform provided compelling lifestyle branded watches to our customers around the world.
The growth in Q3 was led by an 87% increase in Marc by Marc, a 62% gain in Armani Exchange, a 43% increase in Michael Kors, a 34% growth in Burberry, and a 32% increase in Diesel. Michael Kors continues on a strong growth track with a 31% increase in North America. And an aggressive roll-out in Europe that resulted in an 89% sales increase in that region. This brand remains on track to achieve approximately $300 million in sales this year, which is an increase of $110 million over last year.
And our Emporio Armani business, which is its 15th year, had a 27% increase and combined with AX, this brand will also be approaching $300 million for the year. The ongoing and long-term opportunity for all of these brands is significant, especially when you consider our growing distribution in Asia. We are also pleased to be working with Karl Lagerfeld to develop our watch business under the Karl brand. This would be a great project for us given that Karl Lagerfeld is a unique globally known fashion icon with a unique point of view.