Shares of Fossil Inc. fell 12.5 percent Tuesday to close at $82.25 because the firm’s fiscal year 2011 forecast was below analysts’ estimates.
For fiscal year 2011, diluted earnings per share are forecasted at between $4.44 and $4.50, which compares with fiscal year 2010 diluted EPS of $3.77. However, analysts were expecting $4.63 for the year.
Company executives on the conference call to analysts following the firm’s report of second-quarter results discussed possible consumer spending cutbacks given current economic events, and a 32 percent rise in labor rates in China-based factories, not to mention appreciation in the yuan.
The company estimated that third-quarter diluted EPS would be in the range of $1 to $1.03, and fourth-quarter diluted EPS between $1.78 and $1.82.
For the three months ended July 2, income attributable to Fossil fell 5.7 percent to $51.4 million, or 80 cents a diluted share, from $54.5 million, or 80 cents, a year ago. Sales rose 34.9 percent to $556.7 million from $412.6 million.
Kosta Karsotis, chief executive officer, told analysts during a conference call, “The second-quarter sales increase of 35 percent represented the fifth consecutive quarter of at least 25 percent top-line growth.”
He added that the Fossil brand continues to show strong growth in what the firm believes is the early stage of a strong watch trend. In addition to the Fossil line, another contributor to the quarter was the Michael Kors brand. “The Michael Kors watch brand continues to surpass our expectations. The brand is maintaining a strong momentum in North America, is just beginning to expand into Europe, and is still small but showing huge potential in Asia. By the end of the year, we expect Michael Kors to reach an annual sales volume level of approximately $300 million, representing a more than $100 million increase over the prior year,” the ceo said.
Fossil branded sales rose 17 percent in the quarter, boosted by a 22 percent growth in sales of Fossil accessories, he said.
Karsotis noted that North America led Fossil’s comp performance with a 25 percent increase, followed by Asia with a 19 percent gain and Europe, which rose 12 percent.
Mike Kovar, executive vice president and chief financial officer, said that “both labor and material costs are running higher than our previous expectations for 2011.”
For the six months, income rose 18.6 percent to $107.2 million, or $1.66 a diluted share, from $90.4 million, or $1.33, last year. Sales rose 35.7 percent to $1.09 billion from $805.8 million.
Eric Beder, analyst at Brean Murray, Carret & Co., reiterated his “buy” rating on Fossil. “Given the strong top-line growth, ability to pass along and defray higher costs and what we believe is the continued strength of the current watch cycle, we think now is an opportune time to become aggressive in the name,” he said.
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