Exhibit 99.1
FOSSIL, INC. REPORTS FIRST QUARTER FISCAL 2005 RESULTS
-Sales Up 16.6% on Strength in Watches and Accessories
-First Quarter Diluted EPS Totals $0.32 With Tax Benefit Versus $0.22 Last
Year
-Revising Fiscal 2005 Earnings Guidance
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 2, 2005.
First Quarter Results:
* Net sales increased 16.6% to $232.5 million compared to $199.4 million
in the first quarter of 2004;
* Gross profit grew 19.0% to $121.2 million, or 52.1% of net sales,
compared to $101.9 million, or 51.1% of net sales, in the first
quarter of 2004;
* Operating income declined 1.6% to $24.5 million, or 10.5% of net sales
compared to $24.9 million, or 12.5% of net sales in the first quarter
of 2004;
* Net income increased 46.2% to $23.9 million compared to $16.3 million
in the first quarter of 2004 primarily on a reduction in income tax
expenses; and
* Diluted earnings per share rose 45.5% to $0.32, on 74,454,000 shares
outstanding compared to $0.22, on 73,744,000 outstanding in the first
quarter of 2004;
* Diluted earnings per share of $0.19 excluding the benefit for income
taxes.
"We began the quarter positively, posting solid sales increases across our
many watch and accessory brands," began Mike Kovar Senior Vice President and
Chief Financial Officer. "Despite continued momentum domestically and in
Asia, sales slowed markedly in certain European markets in March, which
tempered sales and earnings results for the quarter, especially given the
higher operating margin rates associated with this segment of our business.
While operating earnings were below our expectations, we were pleased with the
continued strength in our accessories business and retail segment.
Additionally, our new initiatives, such as Michele and mass market watches,
remain strong while adding new distribution channels to the Company. While we
are still forecasting double-digit sales growth over the balance of the year,
we believe it is prudent to revise our 2005 earnings guidance to reflect our
First Quarter results and some weakening in sales volume," Mr. Kovar added.
Worldwide net sales rose 16.6% (15.0% excluding currency gains) during the
First Quarter with particular strength in the domestic wholesale, retail and
other international segments. Total domestic wholesale sales rose by 22.2%
driven by a 25.6% sales gain in the Company's domestic watch business that
included $8.3 million in sales of MICHELE watches and $5.9 million in sales of
mass market watches. Sales of domestic FOSSIL watches decreased by 3.7% in
the First Quarter compared to the prior year quarter. Domestic sales of the
Company's accessory and sunglass businesses rose 18.4% compared to the prior
year quarter with particular strength in FOSSIL women's and men's leather
categories and FOSSIL eyewear. Company-owned retail store sales increased
30.8% as a result of a 12.5% increase in the average number of stores opened
during the quarter and comparable store sales gains of 12.3%. Total
international wholesale sales rose 8.4% (5.0% excluding currency gains) with
sales in Europe declining 1.4% (5.5% excluding currency gains), as a result of
weakness throughout the region in most product categories, other than FOSSIL
jewelry. Other international sales increased 32.2% (30.8% excluding currency
gains) with sales volume increases across all licensed brand watches. Total
worldwide sales for the First Quarter of MICHELE watches, which was acquired
in April of 2004, were $9.3 million.
Gross profit margin expanded by 100 basis points to 52.1% in the First
Quarter compared to 51.1% in the prior year period. As a result of further
weakening of the U.S. dollar in the First Quarter compared to the prior year
quarter, the Company's international segment net sales (primarily the Euro and
Pound based) translated into higher U.S. dollar amounts, benefiting comparable
gross profit margin by approximately 70 basis points during the quarter.
Additionally, gross profit margins were positively impacted by a higher sales
mix of retail store and other international sales, offset partially by a lower
sales mix of sales from the Company's European segment. 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
segment remained relatively unchanged from the prior year period, as higher
margin MICHELE watch sales were offset by lower margin mass market watch
sales.
Operating expenses, as a percentage of net sales, increased by 300 basis
points to 41.6% in the First Quarter compared to 38.6% in the comparable prior
year period. Operating expense increases were mainly driven by an increase of
approximately $10 million in personnel and other related costs associated with
the Company's new business initiatives and an increase of approximately
$5 million in advertising and marketing costs as the Company continues to
invest in new brands and markets. As a percentage of net sales, advertising
and marketing costs increased to 6.4% in the First Quarter compared to 5.0% in
the prior year quarter. Costs associated with new business initiatives
primarily relate to the Company's ADIDAS and Swiss watch and jewelry product
offerings, as well as costs associated with the consolidation of the Company's
European operations and continuation of the SAP system implementation. Of the
approximate $20 million increase in operating expenses, approximately
$1.3 million in additional costs related to the translation impact of stronger
foreign currencies into U.S. dollars and approximately $4.9 million of
expenses related to companies acquired after the first quarter of fiscal 2004.
The increase in gross profit margin was more than offset by increased
operating expenses, resulting in the Company's First Quarter operating profit
margin declining by 200 basis points to 10.5% of net sales compared to 12.5%
of net sales in 2004. Operating income included approximately $1.9 million of
net currency gains related to the translation of foreign sales and expenses
into U.S. dollars.
Commencing in the First Quarter, the Company reclassified certain prior
year currency gains and losses related specifically to revaluation of open
foreign currency account balances. This reclassification resulted in the
Company's prior year quarter cost of sales increasing by approximately
$1.6 million and other income (expense) increasing favorably by $1.6 million.
The Company believes accounting for these gains and losses in other income
(expense) presents more accurately the comparative results of operations of
the Company. Additionally, the Company believes this reclassification will
result in its financial statements being presented on a more comparable format
to its industry peers.
First Quarter other income (expense) increased unfavorably by
approximately $3.6 million when compared to the prior year quarter. This
unfavorable increase is related to $2.1 million of currency losses related
specifically to revaluation of open foreign currency account balances during
the First Quarter compared to gains of $1.6 million in the prior year quarter.
The benefit for income taxes of approximately $2 million in the First
Quarter primarily represents the reduction of deferred tax liabilities that
were previously recorded for subsidiary earnings not considered indefinitely
invested. During 2005, pursuant to the American Jobs Creation Act of 2004,
the Company commenced its repatriation plan of subsidiary earnings and
expects, at a minimum, to repatriate approximately $125 million. As a result
of this plan, during the First Quarter the Company recorded a tax benefit. In
comparison to the Company's prior year effective tax rate, this tax benefit
resulted in an additional $0.13 diluted earnings per share during the First
Quarter. In the event the Company repatriates amounts in excess of
$125 million, its 2005 full year effective tax rate could be further reduced
below its historical levels.
The Company's balance sheet remains strong with $149.1 million in cash and
short-term marketable securities and no long-term debt at quarter end.
Inventory at quarter-end was $195.6 million, an increase of 37.5% compared to
prior year inventory of $142.3 million. Accounts receivable increased to
$130.3 million at quarter-end compared to $110.1 million at April 3, 2004.
Day's sales outstanding increased to 51 days for the First Quarter compared to
50 days in the prior year period. Working capital rose to $362.5 million, an
increase of $24.5 million over working capital of $338.0 million at April 3,
2004.
The Company believes second quarter 2005 diluted earnings per share will
approximate $0.14, compared to actual diluted earnings per share of $0.21 in
the second quarter of 2004. The Company does not expect second quarter
estimates to include any additional tax benefits. For fiscal 2005, the
Company currently estimates diluted earnings per share of approximately
$1.48 compared to its previous guidance range of $1.53 to $1.57 and versus
actual fiscal 2004 diluted earnings per share of $1.25. Excluding the effects
of the tax benefit for the full year, the Company expects full year 2005
diluted earnings per share of approximately $1.35. This guidance revision is
primarily related to lower than expected First Quarter results and the
reduction in forecasted sales volumes primarily stemming from its European
based businesses for the remainder of the year. The Company currently
estimates fiscal 2005 sales growth in a range of 14% to 16% versus its
previous guidance range of 15% to 17%, with second quarter 2005 sales at or
slightly below the low end of the 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 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
Weeks Ended Weeks Ended
------------ ------------
April 2, April 3,
2005 2004
------------ ------------
Net sales $ 232,510 $ 199,395
Cost of sales 111,348 97,543
Gross profit 121,162 101,852
Selling expenses 69,503 56,851
Administrative exp. 27,144 20,093
Operating income 24,515 24,908
Interest expense 60 5
Other (exp.) inc.- net (2,543) 1,041
Tax (benefit) provision (1,982) 9,599
Net income $ 23,894 $ 16,345
Basic earnings per share $ 0.34 $ 0.23
Diluted earnings per share $ 0.32 $ 0.22
Weighted average shares Outstanding:
Basic 71,143 70,007
Diluted 74,454 73,744
Consolidated Balance
Sheet Data (in 000's):
April 2, April 3,
2005 2004
------------ ------------
Working capital 362,520 $ 338,046
Cash, cash equivalents and
short-term investments 149,110 162,639
Accounts receivable 130,309 110,065
Inventories 195,623 142,308
Total assets 749,213 595,979
Notes payable - current 2,924 2,871
Deferred taxes and other
long-term liabilities 23,284 39,741
Stockholders' equity 546,150 440,465
SOURCE Fossil, Inc.
-0- 05/10/2005
/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