Exhibit 99.1
[LOGO OF FOSSIL]
2280 North Greenville Avenue, Richardson TX 75082
Contact: Mike Kovar
Chief Financial Officer
Fossil, Inc.
(469) 587-3334
Investor Relations: Allison Malkin
Integrated Corporate Relations
(203) 682-8200
FOSSIL, INC. REPORTS SECOND QUARTER RESULTS
Second Quarter Diluted EPS Totals $0.16, Including $0.01 of
Stock Option Expense
Raises Fiscal 2006 Guidance
RICHARDSON, Texas, Aug. 15 /PRNewswire-FirstCall/ -- Fossil, Inc.
(Nasdaq: FOSL) today reported second quarter net sales and earnings for the
thirteen-week ("Second Quarter") and twenty-seven week ("Six Month Period")
periods ended July 8, 2006.
Second Quarter Results (2006 vs 2005):
* Net sales increased 14.6% to $259.2 million compared to $226.2 million;
* Gross profit grew 8.3% to $127.0 million, or 49.0% of net sales,
compared to $117.3 million, or 51.8% of net sales;
* Operating income totaled $16.2 million, or 6.2% of net sales, compared
to $16.3 million, or 7.2% of net sales; and
* Net income totaled $11.2 million, or $0.16 per diluted share inclusive
of $0.01 per diluted share for stock option expense, compared to $9.7
million, or $0.13 per diluted share.
"A shift in advertising expenses from the second quarter to the first
quarter this year, in comparison to 2005, in addition to a lower effective tax
rate added positively to the Second Quarter results, allowing us to report a
healthy 23% increase in earnings per share," began Mike Kovar, Senior Vice
President and Chief Financial Officer. "The Second Quarter also marked solid
progress toward achieving our key strategic initiatives. We increased our watch
sales globally and continued to experience solid growth in our accessories and
jewelry categories. Our retail stores reported strong comp and door growth
resulting in increasing profits for this segment during the second quarter. In
addition, sales associated with new business initiatives, including ADIDAS
watches, assisted by the backdrop of the World Cup games in Germany, added
nicely to the quarter."
Six Month Period Results (2006 vs 2005):
* Net sales increased 14.1% to $523.5 million compared to $458.7 million;
* Gross profit increased 9.1% to $260.0 million, or 49.7% of net sales,
compared to $238.4 million, or 52.0% of net sales;
* Operating income totaled $33.2 million, or 6.3% of net sales, compared
to $40.8 million, or 8.9% of net sales; and
* Net income totaled $21.0 million, or $0.31 per diluted share inclusive
of $0.02 for stock option expense, compared to $33.5 million, or $0.45
per diluted share ($22.5 million, or $0.30 per diluted share, excluding
the nonrecurring tax benefit pursuant to the American Jobs Creation Act
of 2004).
During the Second Quarter worldwide net sales rose 14.6% (14.4% excluding
currency impact) in comparison to the prior year quarter, primarily driven by
sales growth in the Company's international, domestic accessories and company-
owned retail business segments. Total international wholesale sales rose 19.3%
(19.0% excluding currency impact). Sales in Europe increased 18.7% (18.5%
excluding currency impact), primarily as a result of the launch of the ADIDAS
watch and DIESEL jewelry categories that on a combined basis generated net sales
of $7.7 million during the Second Quarter. In addition, European net sales
increased from sales volume growth in FOSSIL jewelry, licensed watches and
FOSSIL watches. Other international sales increased 20.6% (19.8% excluding
currency impact) as a result of growth in licensed watches and the launch of
ADIDAS watches.
All major licensed brands of watches contributed to the growth in the Company's
international segment during the Second Quarter. Second Quarter sales of the
Company's domestic watch business declined by 5.8%, primarily as a result of
sales volume declines in FOSSIL watches partially offset by sales volume
increases in BURBERRY, DIESEL, mass market, and RELIC watches. Domestic sales of
FOSSIL watches, excluding off-price sales, decreased approximately 19.4% during
the Second Quarter. Second Quarter net sales from our accessory and sunglass
businesses rose 19.0% compared to the prior year quarter with particular
strength in FOSSIL women's and men's accessories and RELIC accessories and
sunglasses, partially offset by sales volume declines in FOSSIL eyewear.
Company-owned retail store sales increased 28.8% as a result of a 26.9% increase
in the average number of stores opened during the Second Quarter and comparable
store sales gains of 8.3%. For the Six Month Period consolidated net sales
increased 14.1% (15.7% excluding currency impact) and were principally due to
increased sales in the Company's international, domestic accessory and retail
segments as well as revenues associated with the recently launched ADIDAS
watches. The Company estimates that approximately $16 million of net sales
during the Six Month Period is attributable to the additional reporting week
during the first quarter.
Gross profit margin decreased by 280 basis points to 49.0% in the Second
Quarter compared to 51.8% in the prior year quarter. The decline in gross profit
margin in comparison to the prior year quarter is mainly attributable to a
higher mix of lower margin off-price sales as the Company continues to rebalance
its watch brand assortments and reduce its overall inventory levels. To a lesser
extent, Second Quarter gross profit margin further declined as a result of
higher inbound and outbound freight expense, due primarily to increased fuel
costs in comparison to the prior year quarter, increases in provisions for
inventory reserves and slightly lower gross profit margins related to the
Company's jewelry business as a result of component cost increases. Foreign
currency rate and sales mix changes had no significant impact on the Company's
Second Quarter gross profit margins in comparison to the prior year quarter. For
the Six Month Period gross profit margin declined by 230 basis points to 49.7%
compared to 52.0% in the comparable prior year period. This decrease was
primarily related to the impact of a stronger U.S. dollar in comparison to the
prior year period and factors similar to those which contributed to the decline
in gross profit margin during the Second Quarter.
Operating expenses, as a percentage of net sales, decreased to 42.8% in the
Second Quarter compared to 44.6% in the prior year quarter. The improvement in
operating expenses as a percentage of net sales is due to a $4.3 million shift
in expenses related to the Basel Watch Fair which occurred during the first
quarter of fiscal year 2006 in comparison to the second quarter of fiscal year
2005. As a result of this shift, advertising costs, that include trade show
expenses, decreased to 6.0% of net sales compared to 8.2% of net sales in the
prior year quarter. Excluding the benefit of this expense shift, total operating
expenses increased by approximately $14.2 million over the prior year quarter
and were primarily due to increases in payroll, rent and depreciation and
amortization expenses. Increases in payroll expenses were a result of increased
headcount and the impact of additional compensation expense attributable to the
implementation of SFAS 123R. Increases in rent expense are primarily related to
the increase in the number of company-owned retail locations opened since the
end of the prior year quarter. Depreciation and amortization expense increases
related to capital additions made subsequent to the prior year quarter,
including new administrative offices, expansion and automation of our central
distribution center in Germany and new company-owned store openings. For the Six
Month Period, operating expenses as a percentage of net sales increased to 43.3%
compared to 43.1% in the prior year period with increases by expense category
similar to those experienced in the Second Quarter. In comparison to the first
six months of fiscal 2005, the Six Month Period included $3.5 million of
additional payroll cost associated with the extra reporting week in the first
quarter and approximately $1.8 million of compensation expense attributable to
the implementation of SFAS 123R. These additional costs were partially offset by
a $2.8 million benefit related to the translation impact of a stronger U.S.
dollar.
The increase in net sales and leverage in operating expenses was more than
offset by the decline in gross profit margin and resulted in the Company's
Second Quarter operating profit margin declining to 6.2% of net sales compared
to 7.2% of net sales in the prior year quarter. Second Quarter operating income
included approximately $479,000 of net currency gains related to the translation
of foreign sales and expenses into U.S. dollars. For the Six Month Period,
operating profit margin declined to 6.3% of net sales from 8.9% of net sales in
the prior year comparable period and included the negative impact of $4.3
million related to the translation of foreign sales and expenses into U.S.
dollars.
Interest expense of $951,000 during the Second Quarter compares to $21,000
during the prior year quarter. This increase is related to interest on higher
outstanding borrowings under the Company's revolving lines of credit principally
used to fund common stock repurchases during the fourth quarter of fiscal year
2005 and the first quarter of fiscal year 2006 and capital expenditures made
since the end of the prior year quarter. Interest expense of $1.5 million during
the Six Month Period compares to $82,000 during the comparable prior year
period, with the increase also attributable to interest on higher outstanding
borrowings under the Company's revolving lines of credit.
Second Quarter other income (expense) decreased favorably by approximately
$2.8 million when compared to the prior year quarter. This favorable decrease
includes $1.1 million of foreign currency gains associated with the revaluation
of open foreign currency account balances. As the U.S. dollar weakened
throughout the Second Quarter, the Company realized currency gains related to
revaluing foreign currency payable and receivable balances that will ultimately
be settled in U.S. dollars. In the prior year quarter, the Company recorded
currency losses of approximately $1.7 million. For the Six Month Period, other
income (expense) decreased favorably by approximately $4.4 million compared to
the prior year period, with this favorable decrease primarily attributable to
the impact of currency gains in the current year versus currency losses in the
prior year.
The Company's effective income tax rate for the Second Quarter decreased to
28.0% compared to 30.5% in the prior year quarter. The lower effective tax rate
for the Second Quarter was the result of a reduction in certain income tax
contingency reserves. Income tax expense was $10.1 million for the Six Month
Period, an effective tax rate of 32.6%. For the comparable prior year period
income tax expense was $2.2 million, resulting in an effective rate of 6.3%. The
lower effective tax rate was a result of the Company's ability, pursuant to the
American Jobs Creation Act of 2004, to reduce previously recorded deferred tax
liabilities by repatriating foreign earnings at an effective tax rate
substantially below the statutory rate at which these deferred tax liabilities
were established.
At July 8, 2006, cash balances were $78.3 million with no long term debt.
Inventory at quarter-end was $264.6 million, 21.2% above the prior year quarter
inventory of $218.4 million. On a sequential quarter basis, the Company
continued to make progress in bringing its inventory growth more in- line with
net sales growth. The Company expects inventory growth, on a comparable basis to
fiscal year 2005, to continue to decline during the remainder of fiscal 2006
and, on an absolute dollar basis, has a goal of reporting fiscal year 2006
year-end inventory balances near those reported at the end of fiscal year 2005.
The Company currently estimates third quarter 2006 diluted earnings per
share will approximate $0.30 (inclusive of $0.01 diluted per share associated
with SFAS 123R), compared to 2005 third quarter diluted earnings per share of
$0.28, $0.30 including tax benefits. Management currently estimates diluted
earnings per share for fiscal year 2006 will approximate $1.11, inclusive of
approximately $0.05 per diluted share negative impact from the implementation of
SFAS 123R, as well as a $0.06 per diluted share benefit from a lower share count
as a result of common stock repurchases completed by the Company since the
fourth quarter of fiscal 2005. This compares to the Company's previous guidance
of $1.07 per diluted share and fiscal 2005 earnings of $0.90 per diluted share,
or $1.07 per diluted share, including tax benefits. This guidance reflects the
current spot rate of U.S. dollar compared to other foreign currencies primarily
the Euro and Pound. The Company estimates sales growth in the low double-digit
range for the second half of fiscal year 2006.
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: continued acceptance of the Company's products in the
marketplace; intense competition, both domestically and internationally; changes
in external competitive market factors, such as introduction of new products,
development of new competitors, competitive brands or competitive promotional
activity or spending; changes in consumer demands for the various types of
products that Fossil offers; changes in consumer tastes and fashion trends;
inventory risks due to shifts in market demands; changes in foreign currency
rates in relation to the United States dollar; the Company's ability to
successfully implement manufacturing, distribution and other cost efficiencies;
changes in accounting rules; accuracy of forecast data; general economic
conditions; acts of terrorism or acts of war; government regulation; and
possible future litigation, as well as the risks and uncertainties set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 2005
and its 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 http://www.fossil.com . Certain product, press
release and SEC filing information concerning the Company is available at the
website.
Consolidated Income
Statement Data (in 000's):
For the 13 For the 13 For the 27 For the 26
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 8, July 2, July 8, July 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 259,238 $ 226,235 $ 523,463 $ 458,746
Cost of sales 132,204 108,983 263,416 220,331
Gross profit 127,034 117,252 260,047 238,415
Selling expenses 79,675 72,816 164,655 141,614
Administrative exp. 31,163 28,143 62,205 55,993
Operating income 16,196 16,293 33,187 40,808
Interest expense 951 21 1,547 82
Other inc. (exp.) - net 365 (2,391) (538) (4,933)
Tax provision 4,372 4,228 10,148 2,246
Net income $ 11,238 $ 9,653 $ 20,954 $ 33,547
Basic earnings per share $ 0.17 $ 0.14 $ 0.31 $ 0.47
Diluted earnings per share $ 0.16 $ 0.13 $ 0.31 $ 0.45
Weighted average shares
Outstanding:
Basic 66,884 71,104 67,122 71,124
Diluted 68,299 73,904 68,700 74,202
Consolidated Balance Sheet Data
(in 000's):
July 8, July 2,
2006 2005
------------ ------------
Working capital $ 314,363 $ 354,744
Cash, cash equivalents and
short-term investments 78,335 132,786
Accounts receivable 128,477 117,943
Inventories 264,639 218,365
Total assets 796,997 736,463
Notes payable - current 52,133 3,721
Deferred taxes and other
long-term liabilities 36,666 26,040
Stockholders' equity 534,402 541,410
END OF RELEASE