-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DaXasfn5LL2mkHPqDKVTATVi3VXnQZhnUfo9o0vj1PrEO574u9aoyoTrB/r33vrE IwimLH3HJcMy7QW4dv7ezQ== 0000891092-04-004006.txt : 20040810 0000891092-04-004006.hdr.sgml : 20040810 20040810160526 ACCESSION NUMBER: 0000891092-04-004006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040810 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSSIL INC CENTRAL INDEX KEY: 0000883569 STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873] IRS NUMBER: 752018505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19848 FILM NUMBER: 04964577 BUSINESS ADDRESS: STREET 1: 2280 NORTH GREENVILLE AVE CITY: RICHARDSON STATE: TX ZIP: 75082 BUSINESS PHONE: 9722342525 MAIL ADDRESS: STREET 1: 2280 N GREENVILLE CITY: RICHARDSON STATE: TX ZIP: 75082 8-K 1 e18788_8k.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (or Date of Earliest Event Reported): August 10, 2004 FOSSIL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-19848 75-2018505 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation or organization) Identification No.) 2280 N. Greenville Avenue Richardson, Texas 75082 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 234-2525. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits 99.1 Press Release, dated August 10, 2004, announcing financial results for the quarter ended July 3, 2004. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The information in this Current Report and the accompanying exhibit is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. On August 10, 2004, Fossil, Inc. issued a press release announcing financial results for the quarter ended July 3, 2004. A copy of this press release is attached hereto as Exhibit 99.1. 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 10, 2004 FOSSIL, INC. By: /s/ Mike L. Kovar ------------------------------- Name: Mike L. Kovar ------------------------------- Title: Senior Vice President and Chief Financial Officer 3 EXHIBIT INDEX Exhibit No. Description 99.1 Press Release, dated August 10, 2004, announcing financial results for the quarter ended July 3, 2004 EX-99.1 2 e18788ex99_1.txt PRESS RELEASE Exhibit 99.1 Fossil, Inc. Reports Record Second Quarter Sales and Earnings - Second Quarter Diluted EPS Rises 50% to $0.21, Exceeding First Call Consensus of $0.17 - Raises Fiscal 2004 Earnings Guidance Range to $1.21 - $1.24 RICHARDSON, Texas, Aug. 10 /PRNewswire-FirstCall/ -- Fossil, Inc. (Nasdaq: FOSL) today reported second quarter net sales and earnings for the thirteen-week ("Second Quarter") and six-month periods ended July 3, 2004. All share and price per share data has been adjusted to reflect a three-for- two stock split paid in the form of a stock dividend paid on April 8, 2004 (the "3-for-2 Stock Split"). Second Quarter Results: * Net sales increased 29.2% to $206.1 million compared to $159.6 million in 2003; * Gross profit grew 33.2% to $109.0 million, or 52.9% of sales, compared to $81.9 million, or 51.3% of sales, in the second quarter of 2003; * Operating income rose 48.4% to $24.0 million, or 11.7% of net sales compared to $16.2 million, or 10.2% of net sales in the second quarter of 2003; * Net income increased 51.9% to $15.8 million compared to $10.4 million in the second quarter of 2003; and * Diluted earnings per share increased 50% to $0.21, on 74,518,082 shares outstanding compared to $0.14, on 73,009,851 shares outstanding in the second quarter of 2003. "We are very pleased with our second quarter results," began Mike Kovar, Senior Vice President and Chief Financial Officer. "We experienced sales growth across all brands and geographic regions. MICHELE(R) watches, stellar growth in our Asian businesses, double digit comp growth in our retail stores and a resurgence in our domestic accessories business are specific areas that performed beyond our original forecast. We remain committed to expanding our current portfolio of brands and product lines in order to capitalize on the investments made in our design, distribution and sourcing infrastructure," concluded Mr. Kovar. For the Six Months Ended July 3, 2004: * Net sales rose 23.1% to $405.5 million compared to $329.4 million in 2003; * Gross profit grew 27.0% to $212.6 million, or 52.4% of net sales compared to $167.5 million, or 50.8% of net sales in 2003; * Operating income increased 40.2% to $50.5 million, or 12.5% of net sales compared to $36.0 million, or 10.9% of net sales in 2003; * Net income increased 42.6% to $32.1 million compared to $22.5 million in 2003; and * Diluted earnings per share increased 38.7% to $0.43 compared to $0.31 in 2003. Also during the Second Quarter, the Company: * Completed the acquisition of Tempus International Corp. (d/b/a Michele Watches) ("Michele Watches") in April; * Completed the 3-for-2 Stock Split; and * Increased the publicly available float of the Company's common stock by approximately 7.3 million shares through a secondary offering, all from selling shareholders. Worldwide net sales rose 29.2% (26.4% excluding currency gains) during the Second Quarter with growth across all geographic regions and all major brands and product lines. Net sales related to new initiatives, including MICHELE and mass-market watches, contributed $12.1 million to the overall sales increase. Total international wholesale sales rose 31.6% (25.4% excluding currency gains) with sales in Europe increasing 20.4% (13.4% excluding currency gains), primarily as a result of sales volume growth in licensed brand watches and FOSSIL jewelry and watches. Other international sales increased 65.7% (62.9% excluding currency gains) with sales volume increases experienced across all markets as a result of continued market share gains in licensed brand and FOSSIL watches and additional contributions from the newly acquired Michele watches. Second Quarter sales of the Company's domestic watch business rose by 31.8% primarily as a result of approximately $9.3 million of sales related to the newly acquired MICHELE watches. Additional increases in the domestic watch category included strong double-digit increases in RELIC watches, principally due to new customers and new product launches, solid growth in licensed brand watches and the launch of mass market watches. Domestic FOSSIL watch sales increased approximately 1.6% during the Second Quarter. Domestic sales of the Company's accessory and sunglass businesses rose 25.3% compared to the prior year quarter with particular strength in FOSSIL women's accessories, RELIC accessories and FOSSIL eyewear. Company-owned retail store sales increased 21.6% as a result of a 13% increase in the average number of stores opened during the Second Quarter and comparable store sales gains of 11.5%. The Second Quarter represented the fifth consecutive quarter of double-digit comparable store sales increases for the Company's retail store segment. For the first six months of fiscal year 2004, net sales increased 23.1% (18.9% excluding currency gains). Gross profit margin expanded by 160 basis points to 52.9% in the Second Quarter compared to 51.3% in the prior year period. The increase in gross profit margin is mainly attributable to currency gains from stronger foreign currencies, primarily the Euro. To a lesser extent, the increase in gross profit margin was attributable to growth in the Company's international sales as a percentage of total sales. International sales generally produce higher gross profit margins than the Company's historical consolidated gross profit margin primarily due to slightly higher average unit selling prices. Offsetting these positive impacts on gross profit margin was an increase in the Company's reserves for excess and obsolete inventories primarily related to its tech watch division. For the first six months of 2004, gross profit margin increased by 160 basis points to 52.4% compared to 50.8% in the first six months of the prior year. Operating expenses, as a percentage of net sales, increased to 41.2% in the Second Quarter compared to 41.1% in the comparable prior year period. Included in Second Quarter operating expenses is approximately $1.4 million in additional costs related to the translation impact of stronger foreign currencies into U.S. dollars and $2.8 million related to operating expenses of Michele Watches. Excluding the currency impact, Michele Watches expenses and sales volume increases, operating expense increases were mainly driven by increases in (i) professional fees (ii) depreciation and amortization expense and (iii) bad debt expenses. Increases in professional fees were primarily related to consulting cost associated with the Company's U.S.-based SAP system implemented in July 2003, accounting and legal fees incurred in connection with the Company's European reorganization project and consulting costs related to the Company's Sarbanes-Oxley Section 404 readiness project. Depreciation and amortization expense increases are related to the Company's SAP software implementation, as well as other capital additions made in 2003, including the new European warehouse opened in September 2003. The increase in bad debt expense was principally due to an increase in the Company's bad debt provisions as a result of a higher accounts receivable balance at the end of the Second Quarter compared to the end of the prior year quarter. Advertising costs, as a percentage of net sales, increased slightly to 8.0% of net sales in the Second Quarter compared to 7.8% of net sales in the prior year quarter. For the first six months of the year operating expenses, as a percentage of net sales, increased to 40.0% compared to 39.9% in the comparable prior year period. Improved gross profit margins more than offset the modest increases in operating expenses. As a result, the Company's Second Quarter operating profit margin increased to 11.7% of net sales compared to 10.2% of net sales in the prior year quarter. Operating income for the Second Quarter included approximately $7 million in additional income as a result of the effects of stronger foreign currencies. For the first six months of the year operating profit margin increased to 12.5% of net sales from 10.9% of net sales in the prior year period. Other income totaled $1.0 million in the Second Quarter compared to other income of $508,000 in the prior year quarter. This increase in other income is primarily related to exchange rate gains associated with non-inventory transactions. For the first six months of the year, other income improved by approximately $200,000. The Company's balance sheet remains strong. At quarter-end, cash increased 7.2% to $142.0 million from $132.5 million at July 5, 2003. During the Second Quarter, the Company paid approximately $50 million in cash to acquire Michele Watches. Inventory at quarter-end was $162.2 million, 36.3% above the prior year quarter inventory of $119.0 million and slightly higher than the 29.2% sales increase. This increase primarily relates to a $10.1 million increase in the Company's domestic accessories and sunglass inventories as a result of receipt timings. Management expects these categories to record continued strong double-digit sales gains in the second half of the year. At quarter end, accounts receivable increased approximately 49.1% to $105.3 million compared to $70.6 million at the end of the prior year quarter. Days sales outstanding increased to 46 days for the Second Quarter compared to 40 days in the prior year period, primarily due to the shift to a higher percentage of sales from international markets and an increase in the average collection cycle. On a sequential quarter basis, days sales outstanding decreased 5 days from 51 days in the first quarter of 2004. Working capital rose to $310.6 million, an increase of $49.7 million over working capital of $260.9 million at July 5, 2003. We are expecting third quarter 2004 diluted earnings per share of approximately $0.30, which reflects current First Call Consensus estimates, and 30% growth compared to diluted earnings per share of $0.23 in the third quarter of 2003. For the fiscal year, the Company estimates diluted earnings per share in a range of $1.21 to $1.24 compared to diluted earnings per share of $0.93 in fiscal 2003 and the current First Call consensus estimate of $1.19. Expected revenue increases for the second half of the Company's fiscal year are in the 20% range. 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 Amended Form S-3 dated May 25, 2004. Fossil 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 FOSSIL(R), RELIC(R), MW(R), MW MICHELE(R), and ZODIAC(R) brands as well as licensed brands for some of the most prestigious companies in the world, including EMPORIO ARMANI(R), DKNY(R), DIESEL(R) and BURBERRY(R). The Company also offers complementary lines of small leather goods, belts, handbags and sunglasses under the FOSSIL and RELIC brands, jewelry under the FOSSIL and EMPORIO ARMANI brands and FOSSIL 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. Additionally, 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. Consolidated Income Statement Data For the 13 For the 13 For the 26 For the 26 (in 000's): Weeks Ended Weeks Ended Weeks Ended Weeks Ended July 3, July 5, July 3, July 5, 2004 2003 2004 2003 Net sales $206,122 $159,593 $405,517 $329,360 Cost of sales 97,101 77,725 192,876 161,876 Gross profit 109,021 81,868 212,641 167,484 Selling expenses 61,237 51,141 118,285 102,279 Administrative exp. 23,749 14,529 43,842 29,185 Operating income 24,035 16,198 50,514 36,020 Interest expense 5 4 10 8 Other inc. (exp.) - net 1,018 512 488 279 Tax provision 9,268 6,317 18,867 13,759 Net income $15,780 $10,389 $32,125 $22,532 Basic earnings per share $0.22 $0.15 $0.46 $0.32 Diluted earnings per share $0.21 $0.14 $0.43 $0.31 Weighted average shares Outstanding: Basic 70,641 69,820 70,344 69,719 Diluted 74,518 73,010 74,154 72,685 Consolidated Balance July 3, July 5, Sheet Data (in 000's): 2004 2003 Working capital $310,611 $260,921 Cash, cash equivalents and short-term investments 142,029 132,464 Accounts receivable 105,325 70,629 Inventories 162,186 118,960 Total assets 637,902 489,502 Notes payable - current 2,768 2,541 Deferred taxes and other long-term liabilities 42,997 30,606 Stockholders' equity 455,816 363,128 SOURCE Fossil, Inc. -0- 08/10/2004 /CONTACT: Mike Kovar, Chief Financial Officer of Fossil, Inc., +1-972-699-2229; or Investors, Allison Malkin of Integrated Corporate Relations, +1-203-682-8200, for Fossil, Inc./ /Web site: http://www.fossil.com / (FOSL) CO: Fossil, Inc. ST: Texas IN: FAS TEX REA -----END PRIVACY-ENHANCED MESSAGE-----