Exhibit 99.1
FOSSIL, INC. REPORTS RECORD FOURTH QUARTER AND YEAR-END RESULTS
Fourth Quarter Net Sales Increases 23% to $318.4 Million;
Fourth Quarter Diluted EPS Rises 28% to $0.50;
Fiscal 2004 Diluted EPS Increases 34% to $1.25
RICHARDSON, Texas, Feb. 22 /PRNewswire-FirstCall/ -- Fossil, Inc. (Nasdaq:
FOSL) today reported fourth quarter net sales and earnings for the thirteen-week
period ("Fourth Quarter") and fiscal year ended January 1, 2005 with each period
reflective of the 3 for 2 stock split completed April 8, 2004.
Fourth Quarter Results:
* Net sales increased 22.8% to $318.4 million compared to $259.2 million
in 2003;
* Gross profit grew 29.8% to $175.9 million, or 55.2% of net sales,
compared to $135.5 million, or 52.3% of net sales, in 2003;
* Operating income rose 22.7% to $56.9 million, or 17.9% of net sales
compared to $46.3 million, or 17.9% of net sales in 2003;
* Net income increased 29.6% to $37.6 million compared to $29.0 million
in 2003; and
* Diluted earnings per share rose 28.0% to $0.50, on 74.7 million weighted
average shares outstanding compared to $0.39, on 73.5 million weighted
average shares outstanding in 2003.
"Strong sales growth across all geographic areas fueled record setting
results," began Mike Kovar, Senior Vice President and Chief Financial Officer.
"The Company significantly increased its advertising spending domestically and
internationally during the quarter to spur growth in a sluggish economy,
introduce new product and establish brand name presence. Infrastructure spending
also continued to allow the Company to meet its current needs and establish a
solid foundation for future growth. While these additional expenditures limited
further earnings leverage during the quarter we were pleased that we were able
to report solid results while funding these important initiatives," stated Mr.
Kovar.
For the Fiscal Year Ended January 1, 2005:
* Net sales rose 22.9% to $960.0 million compared to $781.2 million in
2003;
* Gross profit grew 27.5% to $510.1 million, or 53.1% of net sales
compared to $400.0 million, or 51.2% of net sales in 2003;
* Operating income increased 32.5% to $145.5 million, or 15.2% of net
sales compared to operating income of $109.7 million, or 14.0% of net
sales in 2003;
* Net income rose 36.2% to $93.1 million compared to $68.3 million in
2003;
* Diluted earnings per share increased 34.3% to $1.25 compared to $0.93 in
2003.
Worldwide net sales rose 22.8% (18.7% excluding currency gains) during the
Fourth Quarter with particular strength in licensed watch, accessory and jewelry
categories. Total international wholesale sales rose 25.5% (16.9% excluding
currency gains). Sales in Europe increased 23% (12.6% excluding currency gains),
primarily as a result of increased sales of FOSSIL(R) watches and jewelry and
licensed watches. Other international sales rose by 34.4% (31.6% excluding
currency gains), primarily as a result of increased sales of licensed watches
and the addition of MICHELE(R) watches. Domestically, wholesale sales rose by
19.4%, which includes sales of $8.9 million and $5.2 million attributable to
MICHELE and mass market watches, respectively. In total, MICHELE watches,
acquired in the second quarter of 2004, contributed approximately $10.9 million
in sales during the Fourth Quarter. Additionally, domestic sales growth in
FOSSIL and RELIC(R) accessories and RELIC watches were partially offset by
declines in FOSSIL watches, for which sales declined by 16.1% compared to the
fourth quarter of fiscal 2003. Company-owned retail store sales increased 23.6%
as a result of a 13% increase in the average number of stores opened during the
quarter and comp-store sales gains of 7%. Worldwide net sales for fiscal 2004
increased 22.9% (18.9% excluding currency gains).
Gross profit margin expanded by 290 basis points to 55.2% in the Fourth
Quarter compared to 52.3% in the prior year period. The increase in gross profit
margin is mainly attributable to stronger foreign currencies, primarily the
Euro, increased gross profit margins for the FOSSIL domestic watch business and
growth in the Company's higher margin producing international and retail stores
segments as a percentage of consolidated net sales. The increase in FOSSIL
margins is attributable to a higher sales mix of metal bracelet styles versus
leather strap styles that generally result in higher average unit retail prices
and increased margin. Gross profit margin increases were partially offset by an
increase in sales mix related to lower margin mass market watch and accessory
sales. For the year, gross profit margin increased by 190 basis points to 53.1%
compared to 51.2% in Fiscal 2003.
Operating expenses, as a percentage of net sales, increased to 37.4% in the
Fourth Quarter compared to 34.4% in the comparable prior year period. Included
in Fourth Quarter operating expenses is approximately $3.4 million in additional
costs related to the translation impact of stronger foreign currencies into U.S.
dollars and $4.7 million of operating expenses associated with new initiatives,
including MICHELE, mass market and MICHAEL MICHAEL KORS(R) watches. Excluding
this impact, operating expense increases were mainly driven by increased
advertising expense, payroll and consulting costs. Advertising expense increased
approximately $12.9 million to 11.6% of net
sales compared to 8.6% of net sales in the Fourth Quarter of fiscal 2003. This
increase was primarily due to increased cooperative advertising with customers
related to the FOSSIL brand in the United States, increased media, outdoor and
point-of-sale activity for the FOSSIL brand in Europe and new fixture roll-outs
for certain other watch brands. Increased payroll and consulting costs were
related to supporting: (i) new initiatives, such as Swiss-made watches and
jewelry, (ii) the SAP implementation roll-out, (iii) the Company's
Sarbanes-Oxley Section 404 compliance project and (iv) the European
consolidation effort. For the year, operating expenses as a percentage of net
sales increased to 38.0% compared to 37.2% in Fiscal 2003.
During the Fourth Quarter, improved gross profit margins were offset by
increased operating expenses as a percentage of sales which resulted in the
Company's operating profit margin remaining unchanged at 17.9% of net sales when
compared to the prior year quarter. Operating income for the Fourth Quarter
included approximately $9 million in additional income as a result of the
effects of stronger foreign currencies. For the year, operating profit margin
increased to 15.2% of net sales from 14.1% of net sales in Fiscal.
The Company's effective income tax rate decreased to 34.0% and 35.8% during
the Fourth Quarter and full year, respectively, compared to 36.9% and 37.6%,
respectively, in the prior year comparable periods. 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 and included $191.7 million in
cash and working capital of $365.7 million at January 1, 2005. Fiscal 2004
ending inventory of $179.2 million represents an increase of 41.3% compared to
year-end inventory of $126.8 million in fiscal 2003. The Company indicated that
the inventory percentage increase is misleading given the unusually low
inventory levels at the end of Fiscal 2003. In fact, inventory at fiscal 2003
year-end rose by 4.1%, as compared to fiscal 2002, even as net sales grew by
17.8%. For comparison purposes the Company believes that a two-year assessment
of its inventory growth in relationship to sales growth provides a better
indication of its inventory position. Specifically, from Fiscal 2002 to Fiscal
2004 sales grew by 45% with inventory increasing by 47% during the same period.
Accounts receivable at January 1, 2005 increased to $155.3 million at year-end
compared to $119.9 million at January 3, 2004. Day's sales outstanding increased
to 44 days for the Fourth Quarter compared to 42 days in the prior year period.
As of January 1, 2005 the Company had purchased 180,000 shares of the
600,000 share repurchased plan announced in September 2004 at a cost of
approximately $5.0 million. The Company anticipates continuing this program in
2005. The purpose of this share repurchase plan is to mitigate the dilutive
impact of stock option grants during the course of the year under the Company's
2004 Long-Term Incentive Plan.
Management currently estimates net sales growth for 2005 in the 15% to 17%
range with no single quarter's growth in 2005 to be significantly above or below
this range. This estimate is inclusive of approximately $10 million in
incremental sales resulting from the Company's acquisition of its distributors
in Taiwan and Sweden in January 2005. Full year 2005 gross profit margin is
projected to slightly exceed 2004 levels as the Company's international
businesses and retail segment are expected to continue to increase as a
percentage of consolidated net sales. Management anticipates full year 2005
operating expenses, as a percentage of net sales, to remain relatively unchanged
from 2004 levels as a result of continuing costs related to: (i) further
development of the Company's jewelry and Swiss watch infrastructure, (ii)
supporting the expanded footprint of its SAP operating system, (iii) continued
higher levels of advertising expenditures as well as new fixture roll-outs and
(iv) costs associated with developing new licensed watch businesses, MARC
JACOBS(R) and adidas(R), which are not expected to contribute significantly to
net sales until 2006. These estimates assume the Euro to U.S. Dollar exchange
rate remains near its current trading level.
During 2005, pursuant to the American Jobs Creation Act of 2004, management
expects to repatriate subsidiary earnings which were not considered indefinitely
invested. As a result the Company will receive an 85% dividends received
deduction for eligible dividends, resulting in a lower effective tax rate for
2005. Based upon preliminary estimates of amounts available for potential
repatriation, management believes the Company's 2005 effective tax rate could be
reduced to approximately 32%, which equates to an approximate one-time benefit
of $0.09 diluted earnings per share for the year. The Company will use these
funds on qualified expenditures in the United States in accordance with its
approved Domestic Reinvestment Plan.
The Company's initial guidance for 2005 does not include the effect of
expensing stock options as required under new accounting rules, which the
Company will implement during the third quarter of fiscal 2005.
The Company currently estimates first quarter 2005 diluted earnings per
share of approximately $0.26 compared to diluted earnings per share of $0.22 in
the first quarter of 2004. For fiscal 2005, the Company currently estimates
diluted earnings per share in a range of $1.53 to $1.57 compared to fiscal 2004
diluted earnings per share of $1.25. The Company's first quarter and full year
guidance includes fully diluted estimated earnings per share gains of
approximately $0.02 and $0.09, respectively, resulting from the estimated
reduction in the Company's effective tax rate.
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 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 52 For the 52
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
January 1, January 3, January 1, January 3,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales $ 318,400 $ 259,199 $ 959,960 $ 781,175
Cost of sales 142,492 123,694 449,865 381,210
Gross profit 175,908 135,505 510,095 399,965
Selling expenses 91,572 71,323 270,789 225,686
Administrative exp. 27,460 17,836 93,840 64,529
Operating income 56,876 46,346 145,466 109,750
Interest expense 15 36 30 62
Other (exp.) inc.- net 72 (313) (337) (217)
Tax provision 19,347 16,994 52,016 41,136
Net income $ 37,586 $ 29,003 $ 93,083 $ 68,335
Basic earnings
per share $ 0.53 $ 0.42 $ 1.32 $ 0.98
Diluted earnings
per share $ 0.50 $ 0.39 $ 1.25 $ 0.93
Weighted average shares
Outstanding:
Basic 71,113 69,875 70,672 69,817
Diluted 74,736 73,491 74,462 73,182
Consolidated Balance
Sheet Data (in 000's):
January 1, January 3
2005 2004
------------ ------------
Working capital $ 365,678 $ 313,561
Cash, cash equivalents
and short-term investments 191,707 164,053
Accounts receivable 155,301 119,852
Inventories 179,167 126,789
Total assets 782,341 587,541
Notes payable - current 26,924 2,805
Deferred taxes and other
long-term liabilities 43,539 32,861
Stockholders' equity 526,514 423,426
SOURCE Fossil, Inc.
-0- 02/22/2005
/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 /