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Fossil Profits Gain in First Quarter

Investors cheer as outlook expanded for the year.

Apparel’s loss is Kosta Kartsotis’ gain.

Coming off of a strong first quarter, the chief executive officer of Fossil Inc. said his company was benefiting from waning consumer interest in apparel.

“If you look at business, especially in accessories and watches, it appears to be very strong,” Kartsotis said on a conference call with analysts Tuesday. “We are probably benefiting from an ongoing situation where there is not as much interest in apparel or it’s kind of an overserved category.”

If a small percentage of apparel sales move into accessories, it has a big impact, he noted.

“We expect that to continue,” Kartsotis said. “So we’re we think in a very strong position in terms of the ongoing business.”

 

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Fossil’s first-quarter net income rose 24.3 percent to $72.2 million, or $1.21 a diluted share, from $58.1 million, or 93 cents, a year earlier.

The company said a noncash gain from the buyout of its Spanish joint venture boosted earnings by 11 cents a share, which was partially offset by a 5 cent decline tied to fiscal calendar differences with its customers. The firm also shipped some goods earlier than projected, boosting earnings by 7 cents a share.

Sales for the quarter ended March 30 rose 15.5 percent to $680.9 million from $589.5 million.

“We increased Fossil brand sales, driven by double-digit watch growth and the resurgence of our retail jewelry business,” Kartsotis said in a statement. “Our multibrand watch portfolio sustained its positive momentum with strong performances across several brands, and we continued to develop Skagen with the introduction of a new jewelry line in the quarter.”

In the company’s wholesale business, North American sales gained 13.3 percent to $29.8 million, as turnover in Europe increased 13.5 percent to $20.5 million and sales in the Asia-Pacific region advanced 15.3 percent to $11.7 million.

Fossil’s direct-to-consumer sales increased 22.7 percent to $30.7 million.

The results were strong enough for Fossil to sweeten its outlook for the year. The company is now projecting earnings per share of $6 to $6.26, up from the $5.85 to $6.15 projected in February. Sales are still slated to rise between 10 percent and 11 percent.

Investors liked what they saw and pushed the stock up 9 percent to $107.88 on Wall Street.

Still, the company has its doubters.

Eric Beder, an analyst at Brean Capital, reiterated his sell rating on the stock.

While he acknowledged he was “impressed” by strong first-quarter revenues, Beder noted, “The company continues to feel the effects of a slowing timepiece marketplace, and we believe bottom-line momentum will remain challenged.…We believe the current rally will not be sustained until Fossil can cleanly beat both the top and bottom lines; when that occurs, we will admit our ‘mistake.’”