Zacks_Analysts' Blog : Fossil Beats; Outlook Optimistic - Analyst Blog

Fossil (FOSL) reported results for the fourth quarter of 2010 with earnings of $1.46 per share, which were well above the Zacks Consensus Estimate of $1.35. The earnings were significantly above the previous year’s earnings of $1.03, driven by the successful execution of its key strategies.

Revenue Details

Worldwide net sales during the quarter grew 32.8% to $701.1 million; representing sales growth ranging from 27% to 48% across all of the company’s operating segments. Strong increases in watch sales, the growth of the jewelry category in North America and Europe and the expansion of leather categories internationally primarily fueled quarterly sales increases.

Further, the translation impact of a stronger U.S. dollar during the quarter reduced the company’s reported net sales by approximately $10.3 million in comparison with the prior-year quarter.

Segments

Net sales from the North America wholesale segment increased 37.3% to $261.8 million, driven by innovative product offerings and a continuing resurgence in the overall fashion watch category. European wholesale net sales grew 27.1% year over year to $190.2 million. The resurgence of the fashion watch category and the reviving economy in Europe led to a strong double-digit growth in the quarter.

Net sales in the Asia-Pacific wholesale segment increased 10.7% to $74.4 million driven by increases in the company’s watch and leather categories across the region. Direct to consumer segment net sales grew 24.9% year over year to $174.4 million and the company’s e-commerce business segment revenues grew 56.5% year over year.

Margins

Gross margin for the quarter grew 70 basis points (bps) to 57.1% versus 56.4% in the prior-year quarter. The increase was primarily due to an increase in the mix of sales of higher margin watch products, which was partially offset by a stronger U.S. dollar.

Cash and Balance Sheet

The company had cash, cash equivalents and securities of $401.6 million compared to $413 million at the end of the prior year. During fiscal 2010, the company invested approximately $199.2 million to repurchase approximately 3.6 million shares of its common stock.

Guidance

Concurrent with the earnings release, the company provided its outlook for fiscal 2011 and first quarter 2011. Fossil expects fiscal 2011 net sales growth in the range of 19% to 21%, with a major portion of the increase in the first half of the year.

For the first quarter of 2011, net sales are expected to increase in a range of 28% to 30% while earnings are expected to be in the range of 62 cents to 65 cents.

For fiscal year 2011, the company expects diluted earnings per share to increase in the range of $4.22 to $4.32, which include a 10-cent favorable currency impact due to weaker U.S. dollar.