Exhibit 99.1
Fossil, Inc. Reports Record First Quarter Fiscal 2004 Results
-- First Quarter Diluted EPS rises 29.4% to $0.22, Exceeding First Call
Consensus of $0.20
-- Raises Fiscal 2004 Earnings Guidance to $1.17 - $1.20
RICHARDSON, Texas, May 10 /PRNewswire-FirstCall/ -- Fossil, Inc. (Nasdaq:
FOSL) today reported first quarter net sales and earnings for the thirteen-
week period ("First Quarter") ended April 3, 2004.
First Quarter Results:
* Net sales increased 17.5% to $199.4 million compared to $169.8 million
in the first quarter of 2003;
* Gross profit grew 21.0% to $103.6 million, or 52.0% of net sales,
compared to $85.6 million, or 50.4% of net sales, in the first quarter
of 2003;
* Operating income rose 33.6% to $26.5 million, or 13.3% of net sales
compared to $19.8 million, or 11.7% of net sales in the first quarter
of 2003;
* Net income increased 34.6% to $16.3 million compared to $12.1 million
in the first quarter of 2003; and
* Diluted earnings per share rose 29.4% to $0.22, on 73,744,188 weighted
average shares outstanding compared to $0.17, on 72,369,884 weighted
average shares outstanding in the first quarter of 2003.
Subsequent to the First Quarter, the Company:
* Completed the acquisition of Michele Watches;
* Announced a three-for-two stock split, which was distributed to
stockholders on April 8, 2004; and
* Entered into a licensing agreement for MICHAEL Michael Kors watches.
"Our diversified brand and distribution strategy was critical in achieving
better-than-expected results during the first quarter," began Mike Kovar,
Senior Vice President and Chief Financial Officer. "We experienced sales
growth across all segments and all major brands with significant growth coming
from our Company-owned retail stores and other international businesses. We
are confident the new business initiatives with Michele Watches and MICHAEL
Michael Kors and the mass market opportunity will strengthen our distribution
and diversification strategy further positioning the Company for long-term
sales growth and earnings leverage."
Worldwide net sales rose 17.5% (11.5% excluding currency gains) during the
First Quarter with sales volume growth in FOSSIL and licensed watches as well
as increased sales from Company-owned retail stores. Worldwide sales of
FOSSIL watches increased 13.1% (8.3% excluding currency gains). Total
international wholesale sales rose 28.9% (15.8% excluding currency gains) with
sales in Europe increasing 20.4% (4.6% excluding currency gains), primarily as
a result of sales volume growth in FOSSIL and licensed brand watches. Other
international sales increased 56% (51.2% excluding currency gains) with sales
volume increases experienced across all markets as a result of continued
market share gains in FOSSIL and licensed watches. First Quarter sales of the
Company's domestic watch business rose by 4.2% with particular strength in
RELIC watch sales, which recorded growth of approximately 60%, a result of
door expansion and new product launches. This increase in RELIC watches was
offset by a 5.2% decline in domestic sales of FOSSIL watches, primarily due to
reduced shipments to certain specialty retailers. Domestic sales of the
Company's accessory and sunglass businesses rose 4.7% compared to the prior
year quarter with particular strength in FOSSIL eyewear and FOSSIL men's
leather. In total, domestic wholesale sales rose by 4.3%. Company-owned
retail store sales increased 31.3% as a result of a 14.9% increase in the
average number of stores opened during the quarter and comparable store sales
gains of 19.6%. The First Quarter represented the fourth consecutive quarter
of double-digit comparable store sales increases for the Company's retail
store segment.
Gross profit margin expanded by 160 basis points to 52.0% in the First
Quarter compared to 50.4% in the prior year period. The increase in gross
profit margin is mainly attributable to expanded gross profit margin in the
Company's international businesses as a result of stronger foreign currencies
and increased gross profit margins from Company-owned retail stores.
Additionally, a higher mix of sales related to the Company's international
businesses and Company-owned retail stores as a percentage of total sales
benefited overall gross profit margin. Sales from international businesses
and Company-owned retail stores generally produce higher gross profit margins
than the Company's historical consolidated gross profit margin. Gross profit
margin from the Company's domestic wholesale businesses remained relatively
unchanged from the prior year period.
Operating expenses, as a percentage of net sales, improved by 10 basis
points to 38.7% in the First Quarter compared to 38.8% in the comparable prior
year period. Included in First Quarter operating expenses is approximately
$3.5 million in additional costs related to the translation impact of stronger
foreign currencies into U.S. dollars. Excluding the currency and sales volume
increase impact, operating expense increases were mainly driven by increases
in (i) personnel and other related costs associated with the Company's new
business initiatives, (ii) depreciation and amortization expense and (iii)
professional fees. Cost associated with new business initiatives primarily
relate to the Company's Swiss watch and mass market product offerings.
Depreciation and amortization expense increases are related to the Company's
SAP software implementation, as well as other capital additions made in 2003.
Increases in professional fees were primarily related to consulting cost
associated with the Company's U.S. based SAP system, that was implemented in
July 2003, and accounting and legal fees incurred in connection with the
Company's European reorganization project. Advertising expense decreased
approximately $800,000 in the First Quarter as a result of certain new product
launch costs incurred during the prior year quarter.
Gross profit increased by approximately $18 million, or 21%, during the
First Quarter as a result of strong sales gains combined with improvements in
gross profit margin. This increase in gross profit more than offset increased
operating expenses, resulting in the Company's First Quarter operating profit
margin to increase by 160 basis points to 13.3% of net sales compared to 11.7%
of net sales in 2003. Operating income for the First Quarter included
approximately $3 million of additional income as a result of the effects of
stronger foreign currencies.
Other income (expense) primarily reflects interest income from cash
investments, royalty income, minority interest expense of the Company's
majority-owned subsidiaries and equity in the earnings (losses) of its non-
consolidated joint venture. During the First Quarter, other income (expense)
decreased unfavorably by approximately $300,000 primarily as a result of
increased minority interest expense partially offset by increased interest
income due to higher levels of invested cash balances maintained during the
First Quarter of 2004.
The Company's effective income tax rate decreased to 37% during the First
Quarter, compared to 38% in the prior year comparable period. This decrease
was primarily related to a higher percentage of income generated from
countries whose statutory income tax rates are lower than the Company's
historical average income tax rate.
The Company's balance sheet remained strong with $162.6 million in cash
and short-term marketable securities and no long-term debt at quarter end.
Cash increased by $45.5 million from $117.1 million at April 5, 2003 due
primarily to higher levels of operating cash flows. Inventory at quarter-end
was $142.3 million, an increase of 16.4% compared to prior year inventory of
$122.2 million. Accounts receivable increased to $112.6 million at quarter-
end compared to $80.5 million at April 5, 2003. Day's sales outstanding
increased to 51 days for the First Quarter compared to 43 days in the prior
year period. This increase is attributable to an increase in the Company's
average collection cycle and a decrease in the relative percentage of return
allowances in the Company's net accounts receivable balance. The collection
cycle has increased as a result of a larger percentage of international sales
that historically have longer collection periods than those experienced in the
US. To this point, international sales rose to 47% of sales in the First
Quarter of 2004 compared to 43% of sales in the prior year quarter. The
Company has experienced an increase in its domestic billing cycle in the U.S.
that has also impacted the Company's comparative day's sales outstanding.
Working capital rose to $338.0 million, an increase of $89.1 million over
working capital of $248.9 million at April 5, 2003.
The Company believes second quarter 2004 diluted earnings per share will
approximate $0.17, which reflects current First Call Consensus estimates,
compared to diluted earnings per share of $0.14 in the second quarter of 2003.
For fiscal 2004, the Company currently estimates diluted earnings per share in
a range of $1.17 to $1.20 compared to its previous guidance range of $1.11 to
$1.14. This increase is primarily related to the Company's better than
expected First Quarter results and planned accretion related to the
acquisition of Michele Watches. The low-end of the Company's current guidance
range represents growth of approximately 26% over Fiscal 2003 actual diluted
earnings per share of $0.93. The current First Call Consensus earnings per
share estimate for fiscal 2004 is $1.13. The Company estimates fiscal 2004
sales growth in the 20% 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 principal offerings include an extensive line of fashion watches
sold under the Company's proprietary FOSSIL(R), RELIC(R), MW(R), MW
MICHELE(R), and ZODIAC(R) brands as well as licensed brands for some of the
most prestigious companies in the world, including EMPORIO ARMANI(R), DKNY(R),
DIESEL(R) and BURBERRY(R). The Company also offers complementary lines of
small leather goods, belts, handbags and 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.
All share and per share data presented below has been adjusted to reflect
the three-for-two stock split distributed to stockholders on April 8, 2004.
Consolidated Income
Statement Data (in 000's):
For the 13 For the 13
Weeks Ended Weeks Ended
------------- -------------
April 3, 2004 April 5, 2003
------------- -------------
Net sales $199,395 $169,767
Cost of sales 95,775 84,151
-------- --------
Gross profit 103,620 85,616
Selling expenses 57,048 51,138
Administrative exp. 20,093 14,656
-------- --------
Operating income 26,479 19,822
Interest expense 5 4
Other inc. (exp.) - net (530) (233)
Tax provision 9,599 7,442
-------- --------
Net income $16,345 $12,143
======== ========
Basic earnings per share $0.23 $0.17
======== ========
Diluted earnings per share $0.22 $0.17
======== ========
Weighted average shares
outstanding:
Basic 70,007 69,618
======== ========
Diluted 73,744 72,370
======== ========
Consolidated Balance
Sheet Data (in 000's):
April 3, 2004 April 5, 2003
------------- -------------
Working capital $338,046 $248,859
Cash, cash equivalents
and short-term investments 162,639 117,133
Accounts receivable 112,583 80,525
Inventories 142,308 122,215
Total assets 595,979 478,893
Notes payable - current 2,871 2,505
Deferred taxes 39,689 27,482
Stockholders' equity 440,465 349,757
SOURCE Fossil, Inc.
-0- 05/10/2004
/CONTACT: Mike Kovar, Chief Financial Officer, of Fossil, Inc.,
+1-972-699-2229; or Investors, Allison Malkin of Integrated Corporate
Relations, +1-203-222-9013, for Fossil, Inc. /
/Web site: http://www.fossil.com/
(FOSL)
CO: Fossil, Inc.
ST: Texas
IN: TEX FAS REA
SU: ERN