Exhibit 99.1
[FOSSIL LOGO]
2280 North Greenville Avenue, Richardson TX 75082
Contact: Mike Kovar
Chief Financial Officer
Fossil, Inc.
(972) 699-2229
Investor Relations: Allison Malkin
Integrated Corporate
Relations
(203) 222-9013
FOSSIL, INC. REPORTS RECORD SECOND QUARTER SALES AND EARNINGS
Richardson, TX. August 12, 2003 -- Fossil, Inc. (NASDAQ: FOSL) today reported
second quarter net sales and earnings for the thirteen-week ("Second Quarter")
and six-month periods ended July 5, 2003.
Second Quarter Results:
o Net sales increased 12% to $159.6 million compared to $142.5 million in
2002;
o Gross profit grew 14.5% to $81.9 million, or 51.3% of sales, compared to
$71.5 million, or 50.2% of sales, in the second quarter of 2002;
o Operating income totaled $16.2 million compared to $16.2 million in the
second quarter of 2002;
o Net income increased 6.7% to $10.4 million compared to $9.7 million in the
second quarter of 2002; and
o Diluted earnings per share totaled $0.21, on 48,673,000 shares outstanding
compared to $0.20, on 48,487,000 shares outstanding in the second quarter
of 2002.
"Despite a very difficult global environment, we experienced expansion of our
worldwide market share in the Second Quarter demonstrating the continued
strength of our global brand model," began Mike Kovar, Senior Vice President and
Chief Financial Officer. "While the wholesale business for the Second Quarter
was challenging, we are encouraged by double-digit comp store increases from our
Company-owned stores which we believe are a reliable indicator of the health of
our FOSSIL business," continued Mr. Kovar. "As we look ahead, leveraging the
investments currently being made in our brands, people and processes and
expected revenue contributions from our new businesses should allow us to
further expand our dominant market position and increase our profitability."
For the Six Months Ended July 5, 2003:
o Net sales rose 15.1% to $329.4 million compared to $286.1 million in 2002;
o Operating income totaled $36.0 million compared to operating income of
$35.4 million in 2002;
o Net income increased 4.5% to $22.5 million compared to $21.6 million in
2002;
o Diluted earnings per share increased to $0.46 compared to $0.45 in 2002.
1
Worldwide net sales rose 12.0% (6.4% excluding the effects of translation gains)
during the Second Quarter with particular strength from our international
businesses, Company-owned stores and RELIC(R) leather. Global sales of new
product initiatives, including BURBERRY(R) and ZODIAC(R) watches and EMPORIO
ARMANI(R) jewelry contributed $4.1 million to sales in the quarter. Total
international wholesale sales rose by 30.0% (14.6% excluding the effects of a
stronger Euro) while total domestic wholesale sales were down 4.8%. The sales
increase from international businesses was primarily a result of increased sales
of FOSSIL and licensed brand watches and FOSSIL jewelry. Acquisitions
contributed approximately $4 million in sales through international businesses
during the quarter. Company-owned retail store sales increased 28% as a result
of a 19% increase in the average number of stores opened during the quarter,
which includes six stores acquired during the first quarter of the year, and
comp-store sales gains of 15%. Second Quarter sales of the Company's domestic
watch business declined by 7.9% mainly attributed to the discontinuance of the
EDDIE BAUER(R) private label watch business, the launch of COLUMBIA(R) watches
in last year's second quarter and a decline in sales of FOSSIL and RELIC
watches. Second Quarter domestic sales of FOSSIL watches declined by 5.4%,
compared to a 22% gain in the second quarter last year, but trended up on a
sequential quarter basis. Domestic sales of the Company's accessory and sunglass
businesses, on a combined basis, rose 2.1% compared to the prior year quarter.
Worldwide net sales for the first six months of 2003 increased 15.1% (9%
excluding the effects of translation gains).
Gross profit margin expanded by 110 basis points to 51.3% in the Second Quarter
compared to 50.2% in the prior year period. The increase in gross profit margin
is mainly attributable to the growth in the Company's international and
Company-owned store sales as a percentage of total sales, both of which
generally produce higher gross profit margins than the Company's historical
consolidated gross profit margin, currency gains primarily from a stronger Euro
and improved gross margin in Company-owned stores. For the first six months of
2003, gross profit margin increased by 80 basis points to 50.8% compared to
50.0% in the first six months of the prior year.
Operating expenses, as a percentage of net sales, increased to 41.1% in the
Second Quarter compared to 38.8% in the comparable prior year period. Included
in Second Quarter operating expenses is approximately $2.7 million in additional
costs related to the translation impact of a stronger Euro into U.S. dollars and
$2.4 million related to operating expenses of acquired businesses. Excluding the
impact of these increases, operating expense increases were mainly driven by
increased advertising expenses and personnel and other costs associated with new
business initiatives. As a percentage of net sales, advertising cost increased
to 7.8% in the Second Quarter compared to 5.8% in the prior year quarter. On a
sequential quarter basis advertising costs increased 150 basis points primarily
related to an expanded presence at the Basel Watch Fair that took place in
April. Increases in personnel and other costs associated with new initiatives
primarily relate to the Company's Swiss watch, jewelry and tech watch businesses
for which there have been minimal revenue contributions to-date. For the first
six months of the year operating expenses, as a percentage of net sales,
increased to 39.9% compared to 37.6% in the comparable prior year period.
Increased sales and improved gross profit margins were more than offset by
increases in operating expenses. As a result, the Company's Second Quarter and
first six months operating profit margin decreased to 10.2% and 10.9% of sales,
respectively, compared to 11.4% and 12.4% in the second quarter and first six
months of 2002, respectively.
Other income totaled $512,000 in the Second Quarter compared to other expense of
$192,000 in the prior year quarter. This increase in other income is primarily
related to exchange rate gains associated with the Company's Canadian
businesses. For the first six months of the year, other income improved by
approximately $300,000.
2
The Company's balance sheet remains strong. At quarter-end, cash increased 58%
to $132.5 million from $83.9 million at July 6, 2002. Inventory at quarter-end
was current and on-plan at $119.0 million, 6.1% above prior year inventory of
$112.1 million. Accounts receivable increased approximately 2.6% to $71.3
million at the end of the Second Quarter compared to $69.5 million at the end of
the prior year quarter. Days sales outstanding decreased to 41 days for the
Second Quarter compared to 43 days in the prior year period. Working capital
rose to $260.9 million, an increase of $65.9 million over working capital of
$195.0 million at July 6, 2002.
The Company also noted that since the announcement of its stock repurchase
program in May, it has purchased 305,000 shares of stock at a cost of
approximately $7.5 million, or $24.49 per share. Currently, approximately
323,000 shares remain available for purchase under this program.
The Company estimates third quarter diluted earnings per share in the range of
$0.32 to $0.34 compared to diluted earnings per share of $0.29 last year and
versus the current First Call consensus estimate of $0.33. For the fiscal year,
the Company estimates diluted earnings per share in a range of $1.33 to $1.36
compared to diluted earnings per share of $1.22 in fiscal 2002 and the current
First Call consensus estimate of $1.33. Expected revenue increases for the
second half of the Company's fiscal year are in the 15% range.
Certain statements contained herein that are not historical facts constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: general economic conditions, competition, acts of terrorism or
acts of war, government regulation, changes in foreign currency valuations in
relation to the United States Dollar and possible future litigation, as well as
the risks and uncertainties set forth on the Company's Current Report on Form
8-K dated June 25, 2003.
Fossil is a design, development, marketing and distribution company that
specializes in consumer products predicated on fashion and value. The Company's
principle offerings include an extensive line of watches sold under the
Company's propriety brands FOSSIL, RELIC and ZODIAC as well as licensed brands
for some of the most prestigious companies in the world including EMPORIO
ARMANI, BURBERRY, DKNY(R) and DIESEL. The Company also offers complementary
lines of small leather goods, belts, handbags, sunglasses under the FOSSIL and
RELIC brands, jewelry under the FOSSIL and EMPORIO ARMANI brands and FOSSIL
apparel. The Company's products are sold in department stores and specialty
retail stores in over 90 countries around the world, in addition to the
Company's e-commerce website at www.fossil.com. Additionally, certain product,
press release and SEC filing information concerning the Company is available at
the website.
3
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Consolidated Income Statement For the 13 For the 13 For the 26 For the 26
Data (in 000's): Weeks Ended Weeks Ended Weeks Ended Weeks Ended
----------- ----------- ----------- -----------
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July 5, July 6, July 5, July 6,
2003 2002 2003 2002
------- ------- ------- -------
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Net sales $ 159,593 $ 142,460 $ 329,360 $ 286,139
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Cost of sales 77,725 70,985 161,876 143,172
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Gross profit 81,868 71,475 167,484 142,967
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Selling expenses 51,141 42,614 102,279 82,371
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Administrative exp. 14,529 12,692 29,185 25,164
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Operating income 16,198 16,169 36,020 35,432
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Interest expense 4 15 8 99
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Other inc. (exp.) - net 512 (192) 279 (4)
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Tax provision 6,317 6,224 13,759 13,777
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Net income $ 10,389 $9,738 $ 22,532 $ 21,552
========= ====== ========= =========
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Basic earnings per share $ 0.22 $ 0.21 $ 0.48 $ 0.47
========= ========= ========= =========
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Diluted earnings per share $ 0.21 $ 0.20 $ 0.46 $ 0.45
========= ========= ========= =========
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Weighted average shares
Outstanding:
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Basic 46,546 45,944 46,479 45,727
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Diluted 48,673 48,487 48,457 48,107
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Consolidated Balance Sheet Data (in 000's): July 5, July 6,
2003 2002
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Working capital $260,921 $195,034
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Cash, cash equivalents and short-term investments 132,464 83,881
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Accounts receivable 71,292 69,472
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Inventories 118,960 112,122
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Total assets 489,502 405,971
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Notes payable - current 2,541 ---
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Deferred taxes and other long-term 30,606 15,881
liabilities
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Stockholders' equity 363,128 291,024
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END OF RELEASE