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 PRELIMINARY THIRD QUARTER RESULTS
ANNOUNCES SPECIAL COMMITTEE TO REVIEW COMPANY'S EQUITY GRANTING PRACTICES AND
EXPECTED DELAY IN FILING OF FORM 10-Q
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Richardson, TX. November 14, 2006 -- Fossil, Inc. (NASDAQ: FOSL) today reported
third quarter net sales and gross profit and preliminary earnings for the
thirteen-week ("Third Quarter") period ended October 7, 2006.
The Company also announced today that a committee made up of all independent
members of its Board of Directors (the "Special Committee") is voluntarily
reviewing the Company's equity granting practices. The Special Committee has
just recently commenced a search for independent legal counsel to assist in the
review. The Company will not be able to comment on any aspect of the review or
possible outcome and there can be no assurance that the Company will not have to
restate its prior financial statements or adjust certain amounts presented in
this release until after the Special Committee completes such review. The
Company is not republishing or making reference to any financial results issued
prior to 2006 with the exception of historical period revenue and gross profit
and selected balance sheet information. Any financial disclosures relating to
operating expenses, taxes, net income and net income per share amounts within
this release should be considered preliminary.
Based on the current status of the Special Committee's review, the Company does
not expect that it will be in a position to file its report on Form 10-Q for the
period ended October 7, 2006 in a timely manner. The Company plans to become
current on its periodic reports required under the Securities Exchange Act of
1934, as amended, as soon as practical following the completion of the Special
Committee's review.
PRELIMINARY THIRD QUARTER RESULTS
Worldwide net sales rose 16.4% (14.8% excluding currency) to $299.7 million in
comparison to prior year quarter net sales of $257.5 million. Total
international wholesale sales rose 18.3% (15.0% excluding currency). Sales in
Europe increased 20.0% (15.1% excluding currency), primarily a result of sales
volume growth in licensed watches and FOSSIL and EMPORIO ARMANI jewelry.
European net sales also increased from the continued roll-out of ADIDAS watches
and DIESEL jewelry. Other international sales increased 14.8% from sales volume
growth in licensed watches and the continued roll-out of ADIDAS watches. Sales
from the Company's domestic watch business increased 14.4% (9.2% excluding sales
of discontinued product through non-traditional channels) compared to the prior
year quarter, principally due to sales volume growth in the mass market and
licensed watches. Domestic sales of FOSSIL watches, excluding discontinued
product sales, decreased by 3.3%, a significant improvement from the brands
performance during the first half of the year. During the year FOSSIL watches
have been significantly re-merchandised which has resulted in increased
sell-thru rates in department stores as well as company-owned retail stores.
Third Quarter net sales from the Company's accessories business rose 6.9%
compared to the prior year quarter with particular strength in FOSSIL women's
and men's leather products, partially offset by sales volume declines in RELIC
leather products and eyewear. Company-owned retail store sales increased 24.6%,
compared to the prior year quarter, as a result of a 23.8% increase in the
average number of stores opened during the Third Quarter and comparable store
sales gains of 4.0%.
Gross profit of $148.1 million represents an increase of 9.9% over the prior
year quarter amount of $134.8 million. Gross profit margin decreased by 290
basis points to 49.4% in the Third Quarter compared to 52.3% in the prior year
quarter. The decline in gross profit margin is mainly attributable to a sales
mix shift toward lower margin sales in the Company's international segment and
the impact of increased discontinued product sales through both non-traditional
channels and the Company's outlet stores at lower than historical margins. To a
lesser extent, Third Quarter gross profit margin further declined as a result of
an increased sales mix of the Company's lower margin mass market watches and
higher markdown levels, primarily in the Company's domestic accessories
business, due to the transition of May Company stores to Federated. Partially
offsetting these declines in gross profit margin was a 70 basis point increase
in gross profit margin as a result of a weaker U.S. dollar in comparison to the
prior year quarter.
Operating expenses, as a percentage of net sales were 38.3% in the Third
Quarter. Total operating expenses of $114.8 million includes approximately $1.5
million and $1.2 million of expenses related to a weaker U.S. dollar and SFAS
123R, respectively.
The Company reported operating income of $33.3 million. The increase in net
sales and leverage in operating expenses was more than offset by the decline in
gross profit margin resulting in operating profit margin of 11.1% of net sales.
Operating income included approximately $2.6 million of net currency gains
related to the translation of foreign sales and expenses into U.S. dollars.
Income before income taxes of $32.3 million represents operating income of $33.3
million less interest expense of $1 million. The Company's provision for income
taxes of $10.4 million resulted in an effective income tax rate of 32.2%. The
Third Quarter provision for income taxes includes a benefit of approximately
$1.8 million relating to favorable adjustments to income tax liabilities
previously recorded.
The Company reported Third Quarter net income of $21.9 million, or $0.32 per
fully diluted share, on approximately 68.6 million shares outstanding.
SELECTED BALANCE SHEET INFORMATION
At October 7, 2006, cash, cash equivalents and short-term investments were $77.1
million with no long-term debt and $54.7 million of short-term bank debt. The
Company continued to make progress in slowing the pace of inventory growth
reporting $269.9 million of inventory at quarter-end, a 3.4% increase over the
prior year quarter inventory of $261.1 million. The Company believes it will
report fiscal year 2006 year-end inventory balances near or slightly below that
amount reported at the end of fiscal year 2005. Day's sales outstanding
decreased to 51 days for the Third Quarter compared to 54 days for the prior
year quarter.
2006 OUTLOOK
The Company estimates net sales growth in the low double-digit range for the
fourth quarter of fiscal year 2006. The Company expects its 2006 fourth quarter
gross profit margin will be slightly higher than its gross profit margin
reported for the fourth quarter of 2005. Both the net sales and the gross profit
margin guidance exclude the impact of further discontinued product sales. The
Company expects it will be able to include earnings estimates for future periods
once the Special Committee completes its review of the Company's equity granting
practices.
SAFE HARBOR
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: the potential accounting, financial, tax and other impact of the
Special Committee's review of the Company's equity granting practices; 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 the results of current 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.
ABOUT FOSSIL
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.
SELECTED NET SALES INFORMATION
The following tables sets forth certain components of the Company's consolidated
net sales and the percentage relationship of the components to consolidated net
sales for the periods indicated (amounts in millions):
Amounts % of Total
----------------------------- -----------------------------
Thirteen Weeks Ended Thirteen Weeks Ended
----------------------------- -----------------------------
October 7, October 1, October 7, October 1,
2006 2005 2006 2005
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Europe $ 94.2 $ 78.5 31.4% 30.5%
Other International 41.2 35.9 13.8% 13.9%
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Total International 135.4 114.4 45.2% 44.4%
Domestic Watch 65.3 57.1 21.8% 22.2%
Domestic Other 49.9 46.7 16.6% 18.1%
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Total Domestic 115.2 103.8 38.4% 40.3%
Worldwide Retail 49.1 39.3 16.4% 15.3%
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Total Net Sales $ 299.7 $ 257.5 100.0% 100.0%
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The following table is intended to illustrate by factor the total of the
percentage change in sales by segment and on a consolidated basis:
Analysis of Percentage Change in Third Quarter Net Sales
Versus Prior Year Quarter
Attributable to Changes in the Following Factors
-------------------------------------------------------------
Exchange Organic
Rates Acquisitions Growth Total Change
------------- ------------- ------------- -------------
Europe 4.9% 0.0% 15.1% 20.0%
Other International 0.1% 6.5% 8.2% 14.8%
Domestic Wholesale 0.0% 0.0% 11.1% 11.1%
Retail Worldwide 0.6% 0.0% 24.0% 24.6%
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Total 1.6% 0.9% 13.9% 16.4%
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SELECTED BALANCE SHEET DATA (IN MILLIONS):
October 7, October 1,
2006 2005
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Cash, Cash Equivalents and Short-Term Investments $ 77.1 $ 88.6
Accounts Receivable 168.7 151.8
Inventories 269.9 261.1
Notes Payable - Current 54.7 14.1
Note: As stated in the attached press release, as a result of the Special
Committee's review of the Company's equity granting practices, there can be no
assurance that the Company will not have to restate its prior financial
statements or adjust certain amounts presented in this release. Therefore, any
financial disclosures relating to operating expenses, taxes, net income and net
income per share amounts within this release should be considered preliminary.
Reference is also made to the section captioned "Safe Harbor" in the attached
press release.