Fourth Quarter Diluted EPS Totals $0.69
Fiscal 2008 Diluted EPS Increases 15.4% to $2.02
Fiscal 2008 Net Sales Rise 10.5% to $1.58 Billion
RICHARDSON, Texas, Feb. 17, 2009 (GLOBE NEWSWIRE) -- Fossil, Inc. (Nasdaq:FOSL) (the "Company") today reported net sales and earnings for the thirteen-week ("Fourth Quarter") and fifty-two week ("Fiscal Year") periods ended January 3, 2009.
Fourth Quarter Results (2008 vs 2007):
* Net sales increased 0.2% (6.3% in constant dollars) to
$464.1 million compared to $463.1 million;
* Gross profit fell 2.4% to $242.4 million, or 52.2% of net sales,
compared to $248.4 million, or 53.6% of net sales;
* Operating income decreased 29.6% to $58.0 million, or 12.5% of
net sales, compared to $82.4 million, or 17.8% of net sales;
* Net income fell 12.9% to $46.3 million compared to $53.1 million;
and
* Diluted earnings per share decreased 8.0% to $0.69 on 66.6 million
shares compared to $0.75 per diluted share on 70.6 million shares.
Fiscal Year Results (2008 vs 2007):
* Net sales increased 10.5% (9.4% in constant dollars) to
$1.58 billion compared to $1.43 billion;
* Gross profit increased 14.7% to $851.2 million, or 53.8% of net
sales, compared to $742.0 million, or 51.8% of net sales;
* Operating income increased 10.3% to $205.8 million, or 13.0% of
net sales, compared to $186.5 million, or 13.0% of net sales;
* Net income increased 12.0% to $138.1 million compared to
$123.3 million; and
* Diluted earnings per share increased 15.4% to $2.02 on
68.3 million shares compared to $1.75 per diluted share on
70.3 million shares.
Mike Kovar, Executive Vice President and Chief Financial Officer stated, "Despite a challenging retail environment and difficult currency comparisons, the Company was able to achieve sales on level with the prior year and deliver solid results for the Fourth Quarter. For the Fiscal Year, we delivered record sales and earnings while also continuing to advance our key initiatives. Growth in our FOSSIL(r) brand sales globally, an increasing global distribution presence and a significant expansion of our direct to consumer channel during the year are noteworthy achievements, all of which we believe position the Company for long-term growth and increasing consumer recognition. Additionally, our watch product offerings grew across all distribution channels during the Fourth Quarter giving us confidence that the value proposition our portfolio offers is resonating with consumers."
Operating Results
On a constant dollar basis, worldwide net sales rose 6.3% during the Fourth Quarter to $464.1 million. On a global basis, net sales from each of the Company's product offerings, namely watches, leather goods, eyewear and jewelry grew in the Fourth Quarter with varying results by brand. Domestically, net sales from the Company's wholesale watch business rose 6.3%, primarily as a result of sales volume growth in MICHAEL KORS(r), mass market and MICHELE(r) watches, partially offset by sales declines in FOSSIL watches. Net sales from domestic accessory businesses declined by 4.0% during the Fourth Quarter as a result of sales volume declines in FOSSIL men's and women's leather goods partially offset by sales volume growth in RELIC(r) accessories and FOSSIL eyewear and jewelry. Net sales from the Company's domestic wholesale channel were benefited by $4.9 million and $4.2 million for watches and accessories, respectively, as a result of sales through off-price liquidation channels during the Fourth Quarter. Direct to consumer sales increased 20.0% (or 26.2% on a constant dollar basis). This increase is primarily the result of a 30.5% increase in the average number of company-owned stores open during the Fourth Quarter, constant dollar comparable store sales gains of 3.2% and a 34.4% increase in e-commerce sales. During the Fourth Quarter, total international wholesale sales declined 8.9% (but increased 0.9% on a constant dollar basis) and wholesale sales in Europe dropped 9.2% (but increased 3.2% on a constant dollar basis). In constant dollars, European wholesale sales were primarily led by sales volume increases in BURBERRY(r), EMPORIO ARMANI(r) and DIESEL(r) watches, FOSSIL men's and women's leather products and sales related to the launch of DKNY(r) jewelry that commenced during the third quarter of 2008. Theses sales volume increases were partially offset by sales volume declines in FOSSIL and DKNY watches. During the Fourth Quarter, other international wholesale sales decreased 8.0% (or 4.5% on a constant dollar basis) as a result of sales volume declines in DKNY watches, partially offset by sales volume increases in leather and jewelry categories. Within the Company's other international wholesale segment, on a constant dollar basis, wholesale shipments from North American operations, which include the Company's subsidiaries in Canada and Mexico and export sales from the U.S., declined by 12.2% during the Fourth Quarter. Constant dollar wholesale sales generated in the Company's Asia Pacific region increased 0.9% during the Fourth Quarter. For the Fiscal Year, consolidated net sales increased 10.5% (or 9.4% on a constant dollar basis), principally due to sales volume growth in the direct to consumer and international wholesale segments.
Gross profit margin declined by 140 basis points to 52.2% in the Fourth Quarter compared to 53.6% in the prior year quarter. The decline in gross profit margin was primarily the result of a stronger U.S. dollar, which impacted gross profit margin unfavorably by 230 basis points, low margin sales through off-price liquidation channels and an increase in markdowns principally related to the Company's domestic wholesale segment. Partially offsetting the decline in gross profit margin was an increase in the sales mix of higher margin direct to consumer segment sales. During the Fourth Quarter direct to consumer sales increased to 23.5% of consolidated net sales in comparison to 19.6% of consolidated net sales in the prior year period. For the Fiscal Year, gross profit margin increased to 53.8% compared to 51.8% in the prior year. The Fiscal Year gross profit margin improvement was the result of an increase in the sales mix of the Company's higher margin direct to consumer and international wholesale segments and an approximately 40 basis point improvement relating to the weaker U.S. dollar on a year-over-year comparable basis.
Total operating expenses of $184.4 million in the Fourth Quarter represent an $18.4 million increase in comparison to the prior year quarter. Fourth Quarter operating expenses as a percentage of net sales increased to 39.7% compared to 35.9% in the prior year quarter. Fourth Quarter operating expenses include a $9.0 million favorable impact from the translation of foreign-based expenses as a result of the stronger U.S. dollar offset by a non-cash charge of approximately $9.5 million related to the write-down of certain other than temporary investment, fixed asset, and intangible asset impairments. On a constant dollar basis and excluding the non-cash charges, the increase in operating expenses was principally driven by a $15.3 million increase in the Company's direct to consumer segment and a $2.6 million increase in operating expenses related to wholesale businesses. The increase in the direct to consumer segment was primarily related to the impact of a net 80 new stores opened during the Fiscal Year and expenses associated with the expansion of the Company's e-commerce and catalog operations. For the Fiscal Year, operating expenses as a percentage of net sales increased to 40.8% compared to 38.8% in the prior year and included an additional $7.3 million in expenses related to the translation impact of foreign-based expenses due to an average weaker U.S. dollar on a comparable year-over-year basis. Prior year operating expense includes approximately $13.1 million related to the Company's completed equity grant review.
Operating income decreased to 12.5% of net sales in the Fourth Quarter compared to 17.8% of net sales in the prior year quarter as a result of decreased gross profit margin and higher operating expense as a percentage of sales. During the Fourth Quarter, operating income was negatively impacted by approximately $17.3 million as a result of the translation of foreign-based sales and expenses into U.S. dollars. For the Fiscal Year, operating profit margin remained unchanged at 13.0% in comparison to the prior year. The Company's operating income for the Fiscal Year included approximately $6.7 million of net currency gains related to the translation of foreign-based sales and expenses into U.S. dollars.
Other income (expense) increased unfavorably by $6.1 million and $17.7 million during the Fourth Quarter and Fiscal Year, respectively, in comparison to the prior year periods. These increases were primarily driven by increased foreign currency transaction losses partially offset by forward contract gains. As the U.S. dollar significantly strengthened during the Fourth Quarter, the Company recognized currency losses related to foreign currency payable balances denominated in U.S. dollars. Although the Company hedges a portion of its U.S. dollar denominated payables, primarily for those subsidiaries with related exposure to the Euro or British Pound, it does not historically enter into forward contracts for its other, generally smaller international subsidiaries, due to the unpredictable nature of such subsidiaries' cash flows.
The Company's income tax expense for the Fourth Quarter and the Fiscal Year was $4.1 million and $51.3 million, respectively, resulting in an effective income tax rate of 8.1% and 27.1%, respectively. During the Fourth Quarter, the Company reduced certain current and long-term tax reserves in connection with the completion of prior year income tax audits.
