Exhibit 99.1
Contact: Mike Kovar
Chief Financial Officer
Fossil, Inc.
(972) 699-2229
Investor Relations: Allison Malkin
Integrated Corporate Relations
(203) 682-8200
FOSSIL, INC. REPORTS FOURTH QUARTER AND FISCAL 2005 RESULTS
Fourth Quarter Diluted EPS Totals $0.31
Fiscal 2005 Net Sales Top $1 Billion
Confirms Fiscal 2006 Guidance
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Richardson, TX. February 21, 2006 -- Fossil, Inc. (NASDAQ: FOSL) today reported
fourth quarter net sales and earnings for the thirteen-week period ("Fourth
Quarter") and fiscal year ended December 31, 2005.
Fourth Quarter Results:
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o Net sales increased 1.8% to $324.2 million compared to $318.4 million in
2004;
o Gross profit was $160.5 million, or 49.5% of net sales, compared to $172
million, or 54.0% of net sales, in 2004;
o Operating income totaled $33.4 million, or 10.3% of net sales compared to
$48.3 million, or 15.2% of net sales in 2004; and
o Net income was $22.2 million, or $0.31 per diluted share compared to $35.1
million or $0.47 per diluted share in 2004.
"Fourth Quarter results reached the high end of our revised estimates of $0.28
to $0.31," stated Mike L. Kovar, Fossil's Chief Financial Officer. "While we are
pleased that the final results settled in on the high end of the range, it still
does not diminish our disappointment in not reaching the original earnings
target. Shortfalls in our fashion watch product sales in the US and
internationally combined with lower consolidated gross profit margins were the
principal contributing factors. We did experience sales growth in other watch
categories, accessories and our retail stores. Most notably, in watches we
achieved a 19% increase in luxury watches with strong gains for our MICHELE(R),
BURBERRY(R) and ZODIAC(R) brands while sales from our accessories business and
Company-owned retail stores continued to grow at a double-digit pace. As we
begin fiscal 2006, we are enthusiastic regarding our new product launches.
ADIDAS(R) watches, MARC JACOBS(R) watches and MICHELE and DIESEL(R) jewelry are
expected to be solid contributors in 2006," added Mr. Kovar.
"A significant advantage our company has is its employees whom we believe are in
the best situation in the industry to generate innovative styles and creative,
cost effective marketing while continuing to provide the best global support of
our businesses and customers. However until we reinvigorate sales in our fashion
watch segment, our sales guidance is based on a continuation of the consolidated
sales trends we reported in the fourth quarter plus the estimated sales
contribution from new product launches. At the same time, we will focus on
reducing our expenses and inventory levels accordingly," concluded Mr. Kovar.
For the Fiscal Year Ended December 31, 2005:
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o Net sales rose 8.4% to slightly over $1.0 billion compared to $960.0
million in 2004;
o Gross profit was $533.7 million, or 51.3% of net sales compared to
$504 million, or 52.5% of net sales in 2004;
o Operating income totaled $109.4 million, or 10.5% of net sales
compared to operating income of $135.4 million, or 14.1% of net sales
in 2004;
o Net income was $78.1 million, or $1.07 per diluted share compared to
net income of $90.6 million, or $1.22 per diluted share in 2004; and
o Fiscal 2005 diluted earnings per share was $0.90 prior to
approximately $12 million of tax benefits related to the repatriation
of foreign earnings under the American Jobs Creation Act of 2004, "The
Act".
Worldwide net sales rose 1.8% (4.8% increase excluding currency impact) during
the Fourth Quarter with particular strength in luxury watches, accessory and
jewelry categories as well as increased sales from Company-owned stores.
Increases from these categories were partially offset by a reduction in sales
volume growth from the Company's global FOSSIL(R) watch business. Total
international wholesale sales declined 5.3% (a 1% increase excluding currency
impact) with Europe sales declining 8.4% (1% decrease excluding currency
impact). The decline in Europe sales was primarily a result of decreased sales
volume in FOSSIL watches partially offset by sales volume growth in FOSSIL
jewelry and licensed watches. Other international sales rose by 4.8% (7.1%
increase excluding currency impact), mainly due to sales volume increases
related to licensed watches. Domestic wholesale sales rose by 4.4%, which
included sales volume growth in accessories and MICHELE, mass market and
licensed watches. These increases were partially offset by an 18.6% decline in
FOSSIL watch sales. Sales from Company-owned retail stores increased 17.9%, as a
result of a 24.2% increase in the average number of stores opened during the
quarter partially offset by a comp-store sales decline of 2.3%. Worldwide net
sales for fiscal 2005 increased 8.4% (8.7% increase excluding currency impact)
primarily due to sales volume growth in the Company's domestic accessories
business and increased sales from Company-owned retail stores primarily driven
by a 25.7% increase in the number of stores opened during 2005.
Gross profit margin was 49.5% in the Fourth Quarter compared to 54% in the prior
year period. The decline in gross profit margin was mainly attributable to i) a
stronger US dollar in comparison to foreign currencies of other countries in
which the Company distributes its product, ii) a reduction in the sales mix
related to the Company's international sales which generally carry higher gross
profit margins than the Company's historical consolidated gross profit margin,
iii) an increase in the sales mix of the Company's domestic accessories business
which generally has lower gross profit margins than the Company's historical
consolidated gross profit margin, iv) increases in inbound and outbound freight
cost, and v) to a lesser extent, slightly higher markdowns as a percentage of
net sales. For the year, gross profit margin was 51.3% compared to 52.5% in
fiscal 2004. The decrease was primarily the net result of i) a sales mix shift
from the Company's higher gross profit margin producing international businesses
and domestic watch business to the lower gross margin producing domestic
accessories business, partially offset by ii) an increase in sales from
Company-owned retail stores which generally produce higher gross profit margins
than the Company's historical consolidated gross profit margin.
Operating expenses, as a percentage of net sales, increased to 39.2% in the
Fourth Quarter compared to 38.8% in the comparable prior year period. Included
in Fourth Quarter operating expenses is an approximate $3.7 million reduction in
expenses related to the translation impact of a stronger U.S. dollar partially
offset by an increase of approximately $1.7 million of operating expenses
related to businesses acquired during 2005. Excluding these items, operating
expense increases were mainly driven by increased payroll expenses and partially
offset by reduced advertising expenses. Advertising expense declined
approximately $3.0 million to 10.5% of net sales compared to 11.6% of net sales
in the Fourth Quarter of fiscal 2004. For the year, operating expenses as a
percentage of net sales increased to 40.8% compared to 38.4% in Fiscal 2004
primarily resulting from an increase in payroll expenses.
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During the Fourth Quarter, lower gross profit margins combined with increased
operating expenses resulted in an operating profit margin of 10.3% of net sales
compared to 15.2% of net sales in the prior year quarter. Operating income for
the Fourth Quarter was unfavorably impacted by approximately $5.9 million as a
result of the translation impact of a stronger U.S. dollar, as compared to a $9
million benefit in the fourth quarter last year. For the year, operating profit
margin was 10.5% of net sales compared to 14.1% of net sales in fiscal 2004.
Fourth Quarter and fiscal 2005 other income (expense) decreased unfavorably by
approximately $3.1 million and $11.3 million, respectively, when compared to the
comparable prior year periods. This unfavorable decrease was related to
increased currency losses associated with settlement and the mark-to-market
impact of certain foreign currency payable and receivable balances as the US
dollar strengthened against the Company's other major balance sheet related
currencies since the end of the Company's 2004 fiscal year.
The Company's effective income tax rate was 36.1% during the Fourth Quarter and
24.6% for the full year compared to 33.7% and 35.8%, respectively, in the prior
year comparable periods. The reduction in the tax rate for the full year was due
to the repatriation of foreign earnings pursuant to The Act. For fiscal 2006,
the Company estimates that its tax rate will approximate 37%.
The Company ended the 2005 fiscal year with $64.0 million in cash and working
capital of $322.2 million. During the Fourth Quarter, the Company used
approximately $58 million of its cash balances to repurchase approximately 3
million common shares under a 3.5 million share repurchase program. Inventory at
fiscal year end 2005 rose by 34.5% to $241.0 million, as compared to prior
year-end inventory of $179.2 million. The increase in inventories was mainly
attributable to the following factors: i) actual fourth quarter sales falling
below the Company's original expectations, ii) higher levels of luxury watch
inventories primarily due to longer production lead times, iii) increased levels
of in-transit inventories related to accessories, primarily to support continued
growth in the segment, and iv) inventory increases associated with new
businesses acquired in 2005. Accounts receivable at December 31, 2005 declined
to $142.0 million compared to $155.3 million at January 1, 2005. Day's sales
outstanding decreased to 40 days for the Fourth Quarter compared to 44 days in
the prior year period. The decrease in days sales outstanding was primarily due
to a sales mix shift from international sales to domestic sales and an increase
in sales mix from Company-owned stores. The Company's collection cycle for its
international sales are generally longer when compared to that of its domestic
businesses.
On January 17, 2006 the Company completed the 3.5 million share repurchase
program announced in November 2005 at a total cumulative cost of approximately
$70 million. The Company currently has approximately 700,000 shares remaining
under a previous buyback authorization.
The Company is also confirming its previous guidance for 2006. For the first
quarter of fiscal 2006, the Company expects diluted earnings per share to
approximate $0.12, as compared to the first quarter fiscal 2005 diluted earnings
per share of $0.32, or $0.19 diluted earnings per share excluding an approximate
$10 million tax benefit related to The Act. For the 2006 fiscal year management
estimates net sales growth of approximately 9% with sales in the first half of
fiscal 2006 expected to rise about 7%, with the second half increasing by
approximately 10%. This is primarily due to (i) tougher currency comparisons in
the first half of the year; and (ii) the launch of new business initiatives
weighted more heavily to the second half of the year. Management estimates
diluted earnings per share for fiscal 2006 of approximately $1.05, which
includes a $0.03 to $0.04 per diluted share negative impact from the
implementation of SFAS No. 123R, "Share-Based Payment", as well as a $0.06 per
diluted share benefit from a lower share count given that the Company completed
its 3.5 million share repurchase program in January 2006. This compares to
actual fiscal 2005 earnings of $1.07 per diluted share or $0.90 per diluted
share, excluding tax benefits. This guidance reflects the current prevailing
currency exchange rates between the U.S dollar and foreign currencies of other
countries in which the Company operates.
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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 Current Report on Form
8-K dated September 14, 2004 and the Company's Form 10-K and Form 10-Q reports
filed with the Securities and Exchange Commission.
Fossil, Inc. 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 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.
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FOR THE 13 FOR THE 13 FOR THE 52 FOR THE 52
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
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CONSOLIDATED INCOME STATEMENT DATA DECEMBER 31, JANUARY 1, DECEMBER 31, JANUARY 1,
(in 000's): 2005 2005 2005 2005
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Net sales ........................................ $ 324,203 $ 318,400 $ 1,040,468 $ 959,960
Cost of sales .................................... 163,689 146,379 506,761 455,919
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Gross profit ..................................... 160,514 172,021 533,707 504,041
Selling expenses ................................. 98,282 96,221 315,045 274,842
Administrative exp. .............................. 28,847 27,460 109,270 93,840
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Operating income ................................. 33,385 48,340 109,392 135,359
Interest expense ................................. 204 16 316 30
Other inc. (exp.) - net .......................... 1,518 4,612 (5,512) 5,773
Tax provision .................................... 12,534 17,864 25,505 50,533
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Net income ....................................... $ 22,165 $ 35,072 $ 78,059 $ 90,569
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Basic earnings per share ......................... $ 0.32 $ 0.49 $ 1.10 $ 1.28
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Diluted earnings per share ....................... $ 0.31 $ 0.47 $ 1.07 $ 1.22
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Weighted average shares outstanding :
Basic ........................................ 70,178 71,113 70,834 70,672
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Diluted ...................................... 72,119 74,736 73,209 74,462
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DECEMBER 31, JANUARY 1,
CONSOLIDATED BALANCE SHEET DATA (in 000's): 2005 2005
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Working capital .................................. $ 322,169 $ 363,164
Cash, cash equivalents and short-term investments 64,010 191,707
Accounts receivable .............................. 141,958 155,301
Inventories ...................................... 241,009 179,167
Total assets ..................................... 747,013 783,824
Notes payable - current .......................... 8,552 27,085
Deferred taxes and other long-term liabilities ... 32,537 43,539
Stockholders' equity ............................. 526,149 524,000
END OF RELEASE
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