Exhibit 99.1
Fossil, Inc. Reports Record Third Quarter Sales and Earnings
-Third Quarter Diluted EPS Rises 34.8% to $0.31;
-Introduces Fourth Quarter 2004 Earnings Guidance of $0.50
RICHARDSON, Texas, Nov. 9 /PRNewswire-FirstCall/ -- Fossil, Inc.
(Nasdaq: FOSL) today reported third quarter net sales and earnings for the
thirteen-week ("Third Quarter") and nine-month periods ended October 2, 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 on April 8, 2004.
Third Quarter Results:
-- Net sales increased 22.5% to $236.1 million compared to
$192.6 million in 2003;
-- Gross profit grew 25.3% to $121.5 million, or 51.5% of net sales,
compared to $97.0 million, or 50.3% of net sales, in the third
quarter of 2003;
-- Operating income rose 39.0% to $38.1 million, or 16.1% of net sales
compared to $27.4 million, or 14.2% of net sales in the third quarter
of 2003;
-- Net income increased 39.1% to $23.4 million compared to $16.8 million
in the third quarter of 2003; and
-- Diluted earnings per share increased 34.8% to $0.31, on 74.8 million
shares outstanding compared to $0.23, on 73.6 million shares
outstanding in the third quarter of 2003.
"We are pleased to report another record quarter," began Mike Kovar,
Senior Vice President and Chief Financial Officer. "During the Third Quarter
we experienced a 70 basis points improvement in operating expense leverage, a
level we haven't seen in over two years due to significant investments we've
been making in our brands, systems and people over that same time period. We
believe the continuation of solid sales growth for the third consecutive
quarter this year is a direct result of these investments and the strength of
our brand portfolio. Additionally, on the operating expense side, we are
beginning to anniversary certain expenses associated with our SAP system
implementation and the expansion of our distribution infrastructure that
commenced during the prior year quarter," he concluded.
For the Nine Months Ended October 2, 2004:
-- Net sales rose 22.9% to $641.6 million compared to $522.0 million in
2003;
-- Gross profit grew 26.4% to $334.2 million, or 52.1% of net sales
compared to $264.5 million, or 50.7% of net sales in 2003;
-- Operating income increased 39.7% to $88.6 million, or 13.8% of net
sales compared to $63.4 million, or 12.1% of net sales in 2003;
-- Net income increased 41.1% to $55.5 million compared to $39.3 million
in 2003; and
-- Diluted earnings per share increased 38.9% to $0.75 compared to $0.54
in 2003.
Also during the Third Quarter, the Company:
-- Signed a licensing agreement with Marc Jacobs International for men's
and women's watches; and
-- Received board of directors' approval for the repurchase of up to
600,000 shares of common stock.
Worldwide net sales rose 22.5% (19.2% excluding currency gains) during the
Third Quarter compared to the prior year quarter. Net sales related to new
initiatives, including MICHELE(R) and mass-market watches and the launch of
MICHAEL MICHAEL KORS(R) contributed approximately $14 million to the overall
sales increase. Worldwide net sales for the Third Quarter were also
positively impacted by an approximate $4.7 million special market sale (the
"Special Market Sale"). Total international wholesale sales rose 26.5% (19.2%
excluding currency gains), driven by a 74.0% increase in other international
sales as a result of sales volume growth across all brands, the newly acquired
MICHELE watches and the Special Market Sale. Sales in Europe rose 9.7% (0.3%
excluding currency gains), reflecting sales volume growth in licensed watches
and jewelry, partially offset by a decline in FOSSIL watch sales. Third
Quarter sales of the Company's domestic watch business increased 22.4% despite
a 10.9% decrease in FOSSIL(R) watches. Domestic watch sales growth was
primarily a result of approximately $7.9 million of sales related to the newly
acquired MICHELE watches, double-digit sales increases in RELIC(R) watches,
principally due to new customers and new designs, and the launch of MICHAEL
MICHAEL KORS and mass market watches. Domestic sales of the Company's
accessory and sunglass businesses rose 11.9% compared to the prior year
quarter with particular strength in FOSSIL men's and women's accessories and
FOSSIL eyewear. Company-owned retail store sales increased 25.1% during the
Third Quarter compared to the prior year quarter with comparable store sales
gains of 11.9%. Additionally, the Company experienced an 11% increase in the
average number of stores opened during the Third Quarter. The Third Quarter
represented the sixth consecutive quarter of double-digit comparable store
sales increases for the Company's retail store segment. For the first nine
months of fiscal year 2004, net sales increased 22.9% (18.9% excluding
currency gains).
Gross profit margin expanded by 120 basis points to 51.5% in the Third
Quarter compared to 50.3% in the prior year quarter. The increase in gross
profit margin is mainly attributable to foreign currency gains, primarily the
Euro. This increase was partially offset by lower gross product margins
associated with the Company's newly launched mass market business and the
Special Market Sale. For the first nine months of 2004, gross profit margin
increased by 140 basis points to 52.1% compared to 50.7% in the first nine
months of the prior year.
Operating expenses, as a percentage of net sales, decreased 70 basis
points to 35.4% in the Third Quarter compared to 36.1% in the comparable prior
year period. Operating expenses increased $13.9 million to $83.5 million in
the Third Quarter compared to $69.6 million in the comparable prior year
period. Additional expenses included in this year's Third Quarter were
approximately $2 million related to the translation impact of stronger foreign
currencies into U.S. dollars and $3 million of operating expenses associated
with new initiatives, including MICHELE, mass market and MICHAEL MICHAEL KORS
watches. Excluding the currency impact, new initiative expenses and sales
volume increases, operating expense increases were primarily driven by
increases in professional fees and payroll 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 audit and consulting costs related to the Company's Sarbanes-Oxley
Section 404 compliance project. Advertising costs, as a percentage of net
sales were 4.3% of net sales in the Third Quarter compared to 5.1% of net
sales in the prior year quarter. The decline in advertising expenses as a
percentage of net sales was primarily due to the anniversary of a one time
advertising commitment associated with the launch of EMPORIO ARMANI(R) jewelry
in the prior year quarter. For the first nine months of the year operating
expenses, as a percentage of net sales were 38.3% compared to 38.5% in the
comparable prior year period.
Improved gross profit margins and a decline in operating expenses as a
percentage of sales resulted in the Company's Third Quarter operating profit
margin increasing to 16.1% of net sales compared to 14.2% of net sales in the
prior year quarter. Operating income for the Third Quarter included
approximately $6.0 million in additional income as a result of the effects of
stronger foreign currencies. For the first nine months of the year, operating
profit margin increased to 13.8% of net sales from 12.1% of net sales in the
prior year period.
Other expense totaled approximately $900,000 in the Third Quarter compared
to other expense of approximately $200,000 in the prior year quarter. The
increase in other expense is primarily related to an increase in minority
interest expense. For the first nine months of the year, other expense was
approximately $400,000 compared to other income of approximately $100,000 in
the prior year period.
The Company's effective income tax rate decreased to approximately 37.1%
during the Third Quarter and year-to-date period compared to approximately
38.0% in the prior year comparable periods.
The Company's balance sheet remains strong, including $103.6 million in
cash and no long-term debt at quarter end. Inventory at October 2, 2004 was
$208.1 million, a 49.5% increase over the prior year quarter inventory of
$139.2 million. Also, at quarter end, accounts receivable increased
approximately 24.5% to $143.2 million compared to $115.0 million at the end of
the prior year quarter. Days sales outstanding increased by one day to
55 days for the Third Quarter compared to 54 days in the prior year period.
Working capital rose to $328 million, an increase of $47 million over working
capital of $281 million at October 4, 2003.
The Company currently expects fourth quarter 2004 diluted earnings per
share of approximately $0.50, which reflects current First Call Consensus
estimates, and represents 28% growth compared to diluted earnings per share of
$0.39 in the fourth quarter of 2003. As such, the Company estimates full year
fiscal 2004 diluted earnings per share of approximately $1.25, which
represents growth of 34% from diluted earnings per share of $0.93 in fiscal
2003. Management estimates sales increases in the 20% range for the fourth
quarter.
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 September 14, 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 and licensed brands. The Company also
offers complementary lines of small leather goods, belts, handbags,
sunglasses, jewelry and 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 . Certain product, press release and SEC filing
information concerning the Company is available at the Company's 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 For the 39 For the 39
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 2, October 4, October 2, October 4,
2004 2003 2004 2003
Net sales $236,043 $192,616 $641,560 $521,976
Cost of sales 114,497 95,640 307,373 257,516
Gross profit 121,546 96,976 334,187 264,460
Selling expenses 60,932 52,084 179,217 154,363
Administrative exp. 22,538 17,508 66,380 46,693
Operating income 38,076 27,384 88,590 63,404
Interest expense 4 18 14 26
Other (exp.) inc.- net (898) (183) (410) 96
Tax provision 13,802 10,383 32,669 24,142
Net income $23,372 $16,800 $55,497 $39,332
Basic earnings per share $0.33 $0.24 $0.79 $0.56
Diluted earnings per share $0.31 $0.23 $0.75 $0.54
Weighted average shares
Outstanding:
Basic 70,889 69,959 70,525 69,799
Diluted 74,772 73,640 74,365 73,056
Consolidated Balance Sheet Data (in 000's):
October 2, October 4,
2004 2003
Working capital $327,806 $281,206
Cash, cash equivalents and short-term
investments 103,640 106,830
Accounts receivable 143,158 115,022
Inventories 208,054 139,179
Total assets 690,506 531,114
Notes payable - current 2,714 7,335
Deferred taxes and other long-term
liabilities 27,533 35,007
Stockholders' equity 487,546 380,438
SOURCE Fossil, Inc.
-0- 11/09/2004
/CONTACT: Mike Kovar, Chief Financial Officer of Fossil, Inc.,
+1-972-699-2229; or investor relations, 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: HOU REA FAS
SU: ERN ERP