Exhibit 99.1
Fossil, Inc. Reports Record Second Quarter Sales and Earnings
- Second Quarter Diluted EPS Rises 50% to $0.21, Exceeding First Call
Consensus of $0.17
- Raises Fiscal 2004 Earnings Guidance Range to $1.21 - $1.24
RICHARDSON, Texas, Aug. 10 /PRNewswire-FirstCall/ -- Fossil, Inc.
(Nasdaq: FOSL) today reported second quarter net sales and earnings for the
thirteen-week ("Second Quarter") and six-month periods ended July 3, 2004.
All share and price per share data has been adjusted to reflect a three-for-
two stock split paid in the form of a stock dividend paid on April 8, 2004
(the "3-for-2 Stock Split").
Second Quarter Results:
* Net sales increased 29.2% to $206.1 million compared to $159.6 million
in 2003;
* Gross profit grew 33.2% to $109.0 million, or 52.9% of sales, compared
to $81.9 million, or 51.3% of sales, in the second quarter of 2003;
* Operating income rose 48.4% to $24.0 million, or 11.7% of net sales
compared to $16.2 million, or 10.2% of net sales in the second quarter
of 2003;
* Net income increased 51.9% to $15.8 million compared to $10.4 million
in the second quarter of 2003; and
* Diluted earnings per share increased 50% to $0.21, on 74,518,082
shares outstanding compared to $0.14, on 73,009,851 shares outstanding
in the second quarter of 2003.
"We are very pleased with our second quarter results," began Mike Kovar,
Senior Vice President and Chief Financial Officer. "We experienced sales
growth across all brands and geographic regions. MICHELE(R) watches, stellar
growth in our Asian businesses, double digit comp growth in our retail stores
and a resurgence in our domestic accessories business are specific areas that
performed beyond our original forecast. We remain committed to expanding our
current portfolio of brands and product lines in order to capitalize on the
investments made in our design, distribution and sourcing infrastructure,"
concluded Mr. Kovar.
For the Six Months Ended July 3, 2004:
* Net sales rose 23.1% to $405.5 million compared to $329.4 million in
2003;
* Gross profit grew 27.0% to $212.6 million, or 52.4% of net sales
compared to $167.5 million, or 50.8% of net sales in 2003;
* Operating income increased 40.2% to $50.5 million, or 12.5% of net
sales compared to $36.0 million, or 10.9% of net sales in 2003;
* Net income increased 42.6% to $32.1 million compared to $22.5 million
in 2003; and
* Diluted earnings per share increased 38.7% to $0.43 compared to $0.31
in 2003.
Also during the Second Quarter, the Company:
* Completed the acquisition of Tempus International Corp. (d/b/a Michele
Watches) ("Michele Watches") in April;
* Completed the 3-for-2 Stock Split; and
* Increased the publicly available float of the Company's common stock
by approximately 7.3 million shares through a secondary offering, all
from selling shareholders.
Worldwide net sales rose 29.2% (26.4% excluding currency gains) during the
Second Quarter with growth across all geographic regions and all major brands
and product lines. Net sales related to new initiatives, including MICHELE
and mass-market watches, contributed $12.1 million to the overall sales
increase. Total international wholesale sales rose 31.6% (25.4% excluding
currency gains) with sales in Europe increasing 20.4% (13.4% excluding
currency gains), primarily as a result of sales volume growth in licensed
brand watches and FOSSIL jewelry and watches. Other international sales
increased 65.7% (62.9% excluding currency gains) with sales volume increases
experienced across all markets as a result of continued market share gains in
licensed brand and FOSSIL watches and additional contributions from the newly
acquired Michele watches. Second Quarter sales of the Company's domestic
watch business rose by 31.8% primarily as a result of approximately $9.3
million of sales related to the newly acquired MICHELE watches. Additional
increases in the domestic watch category included strong double-digit
increases in RELIC watches, principally due to new customers and new product
launches, solid growth in licensed brand watches and the launch of mass market
watches. Domestic FOSSIL watch sales increased approximately 1.6% during the
Second Quarter. Domestic sales of the Company's accessory and sunglass
businesses rose 25.3% compared to the prior year quarter with particular
strength in FOSSIL women's accessories, RELIC accessories and FOSSIL eyewear.
Company-owned retail store sales increased 21.6% as a result of a 13% increase
in the average number of stores opened during the Second Quarter and
comparable store sales gains of 11.5%. The Second Quarter represented the
fifth consecutive quarter of double-digit comparable store sales increases for
the Company's retail store segment. For the first six months of fiscal year
2004, net sales increased 23.1% (18.9% excluding currency gains).
Gross profit margin expanded by 160 basis points to 52.9% in the Second
Quarter compared to 51.3% in the prior year period. The increase in gross
profit margin is mainly attributable to currency gains from stronger foreign
currencies, primarily the Euro. To a lesser extent, the increase in gross
profit margin was attributable to growth in the Company's international sales
as a percentage of total sales. International sales generally produce higher
gross profit margins than the Company's historical consolidated gross profit
margin primarily due to slightly higher average unit selling prices.
Offsetting these positive impacts on gross profit margin was an increase in
the Company's reserves for excess and obsolete inventories primarily related
to its tech watch division. For the first six months of 2004, gross profit
margin increased by 160 basis points to 52.4% compared to 50.8% in the first
six months of the prior year.
Operating expenses, as a percentage of net sales, increased to 41.2% in
the Second Quarter compared to 41.1% in the comparable prior year period.
Included in Second Quarter operating expenses is approximately $1.4 million in
additional costs related to the translation impact of stronger foreign
currencies into U.S. dollars and $2.8 million related to operating expenses of
Michele Watches. Excluding the currency impact, Michele Watches expenses and
sales volume increases, operating expense increases were mainly driven by
increases in (i) professional fees (ii) depreciation and amortization expense
and (iii) bad debt expenses. Increases in professional fees were primarily
related to consulting cost associated with the Company's U.S.-based SAP system
implemented in July 2003, accounting and legal fees incurred in connection
with the Company's European reorganization project and consulting costs
related to the Company's Sarbanes-Oxley Section 404 readiness project.
Depreciation and amortization expense increases are related to the Company's
SAP software implementation, as well as other capital additions made in 2003,
including the new European warehouse opened in September 2003. The increase
in bad debt expense was principally due to an increase in the Company's bad
debt provisions as a result of a higher accounts receivable balance at the end
of the Second Quarter compared to the end of the prior year quarter.
Advertising costs, as a percentage of net sales, increased slightly to 8.0% of
net sales in the Second Quarter compared to 7.8% of net sales in the prior
year quarter. For the first six months of the year operating expenses, as a
percentage of net sales, increased to 40.0% compared to 39.9% in the
comparable prior year period.
Improved gross profit margins more than offset the modest increases in
operating expenses. As a result, the Company's Second Quarter operating
profit margin increased to 11.7% of net sales compared to 10.2% of net sales
in the prior year quarter. Operating income for the Second Quarter included
approximately $7 million in additional income as a result of the effects of
stronger foreign currencies. For the first six months of the year operating
profit margin increased to 12.5% of net sales from 10.9% of net sales in the
prior year period.
Other income totaled $1.0 million in the Second Quarter compared to other
income of $508,000 in the prior year quarter. This increase in other income
is primarily related to exchange rate gains associated with non-inventory
transactions. For the first six months of the year, other income improved by
approximately $200,000.
The Company's balance sheet remains strong. At quarter-end, cash
increased 7.2% to $142.0 million from $132.5 million at July 5, 2003. During
the Second Quarter, the Company paid approximately $50 million in cash to
acquire Michele Watches. Inventory at quarter-end was $162.2 million, 36.3%
above the prior year quarter inventory of $119.0 million and slightly higher
than the 29.2% sales increase. This increase primarily relates to a $10.1
million increase in the Company's domestic accessories and sunglass
inventories as a result of receipt timings. Management expects these
categories to record continued strong double-digit sales gains in the second
half of the year. At quarter end, accounts receivable increased approximately
49.1% to $105.3 million compared to $70.6 million at the end of the prior year
quarter. Days sales outstanding increased to 46 days for the Second Quarter
compared to 40 days in the prior year period, primarily due to the shift to a
higher percentage of sales from international markets and an increase in the
average collection cycle. On a sequential quarter basis, days sales
outstanding decreased 5 days from 51 days in the first quarter of 2004.
Working capital rose to $310.6 million, an increase of $49.7 million over
working capital of $260.9 million at July 5, 2003.
We are expecting third quarter 2004 diluted earnings per share of
approximately $0.30, which reflects current First Call Consensus estimates,
and 30% growth compared to diluted earnings per share of $0.23 in the third
quarter of 2003. For the fiscal year, the Company estimates diluted earnings
per share in a range of $1.21 to $1.24 compared to diluted earnings per share
of $0.93 in fiscal 2003 and the current First Call consensus estimate of
$1.19. Expected revenue increases for the second half of the Company's fiscal
year are 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 in the Company's
Amended Form S-3 dated May 25, 2004.
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 http://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 For the 13 For the 13 For the 26 For the 26
(in 000's): Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 3, July 5, July 3, July 5,
2004 2003 2004 2003
Net sales $206,122 $159,593 $405,517 $329,360
Cost of sales 97,101 77,725 192,876 161,876
Gross profit 109,021 81,868 212,641 167,484
Selling expenses 61,237 51,141 118,285 102,279
Administrative exp. 23,749 14,529 43,842 29,185
Operating income 24,035 16,198 50,514 36,020
Interest expense 5 4 10 8
Other inc. (exp.) - net 1,018 512 488 279
Tax provision 9,268 6,317 18,867 13,759
Net income $15,780 $10,389 $32,125 $22,532
Basic earnings
per share $0.22 $0.15 $0.46 $0.32
Diluted earnings
per share $0.21 $0.14 $0.43 $0.31
Weighted average shares
Outstanding:
Basic 70,641 69,820 70,344 69,719
Diluted 74,518 73,010 74,154 72,685
Consolidated Balance July 3, July 5,
Sheet Data (in 000's): 2004 2003
Working capital $310,611 $260,921
Cash, cash equivalents
and short-term investments 142,029 132,464
Accounts receivable 105,325 70,629
Inventories 162,186 118,960
Total assets 637,902 489,502
Notes payable - current 2,768 2,541
Deferred taxes and
other long-term liabilities 42,997 30,606
Stockholders' equity 455,816 363,128
SOURCE Fossil, Inc.
-0- 08/10/2004
/CONTACT: Mike Kovar, Chief Financial Officer of Fossil, Inc.,
+1-972-699-2229; or Investors, Allison Malkin of Integrated Corporate
Relations, +1-203-682-8200, for Fossil, Inc./
/Web site: http://www.fossil.com /
(FOSL)
CO: Fossil, Inc.
ST: Texas
IN: FAS TEX REA