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Fossil rides surging offshore growth

by Tanya Basu
Feb 12, 2013


Tanya Basu/MEDILL

Fossil posted better than expected earnings Wednesday, predicting growth and expansion in international sectors.

Fossil Inc. turned in substantially higher fourth quarter earnings Tuesday, as the the Texas-based accessories maker continued its successful international expansion strategy.

“During the quarter, we grew sales in each of our major geographies and improved the overall profitability of our business, validating the strength of our business model,” said CEO Kosta Kartsotis.

In the quarter ended Dec. 29, Fossil’s earnings jumped 28 percent to $151.1 million, or $2.51 per diluted share, from $117.9 million, or $1.87 a share, in the year-ago quarter. Sales climbed 14 percent to $947.7 million from $830.8 million a year ago.

The latest quarter was affected by acquisition related transaction costs along with certain tax benefits, when adjusted to exclude such one-time factors, per-share earnings were $2.27, topping Wall Street expectations by a penny.

Fossil’s sales of watches, jewelry and leather goods have been benefiting from a booming international market for accessories, even as the global economy struggles to return to solid footing.

“I think there is a huge amount of opportunity [internationally] for us,” CEO Kartsotis told analysts during a conference call.

But the company’s international growth was underwhelming in the latest quarter, said Anna Andreeva, analyst with FBR. Europe, which is beset by economic troubles, “continues to not do well,” she said.

“China was supposed to be a big opportunity for this business,” she added, but the China market “is pretty stagnant. This is disappointing. The region has tempered their expectations in the near term.”

“It’s very important to note that more than half of [Fossil’s] growth is international,” said Andreeva.

Along with its offshore expansion, Fossil is pursuing a diversification strategy, which involves mixing accessible brands like Relic and Michele with more exclusive brands. The latest example of that effort came Tuesday, when Fossil unveiled a deal with handbag designer Tory Burch Co. to launch a collection of timepieces in late 2014.

“I am thrilled to partner with Fossil,” said Tory Burch, CEO of the Tory Burch Co. “Expanding into timepieces will perfectly complement our accessories collection,” she added.

And the company isn’t being shy with future forecasts: in its press release, Fossil predicted a further 10-11% upturn in sales for 2013, with earnings of about $6.15 per share. That’s in line with the $6.13 analysts surveyed by Yahoo Finance are expecting.

In Nasdaq trading Tuesday, Fossil shares rose $3.19, or 3 percent, to close at $110.65.

For full-year 2012, Fossil had net income of $343.4 million, or $5.59 a share, up from $294.7 million, or $4.61 a share, in the prior year. Sales rose to $2.86 billion from $2.57 billion in 2011.