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Fossil Shares Up Tuesday on 3.3% Profit Dip

Fossil earnings beat expectations and improved outlook translate to 9% stock increase.

Shares of Fossil Inc. rose 9 percent Tuesday after the firm’s lower third-quarter profits beat analysts’ expectations and the company increased its fourth-quarter guidance.

In the three months ended Oct. 3, the Richardson, Tex.-based accessories maker posted net income of $35.3 million, or 52 cents a diluted share, 3.3 percent less than the $36.5 million, or 54 cents a share, reported in the year-ago quarter. Sales dropped 6.9 percent to $381.4 million from $409.8 million in 2008, with about $7 million of the decline attributable to unfavorable currency translation. But gross margin increased to 55.3 percent of sales from 54.7 percent.

Analysts polled by Yahoo Finance had estimated earnings per share of 42 cents on revenues of $376.9 million, on average.

“Our third-quarter results surpassed our expectations, driven by retail sales stemming from company-owned stores, a more favorable product sales mix and increased expense leverage,” said Mike Kovar, executive vice president and chief financial officer.

The company said it expects profits in the current quarter to benefit from an increase in its direct-to-consumer business as a percentage of total sales. It now expects fourth-quarter EPS of between 82 cents and 86 cents, up from earlier guidance of 74 cents to 80 cents.

In a research note, Jefferies & Co. Inc. analyst Randal Konik wrote that he expected Fossil sales to accelerate in the fourth quarter and should benefit from currency translation in the period.

“Finally, we like the company’s value-oriented pricing proposition in this environment and on-trend product in a favorable fashion cycle,” Konik wrote.

Investors boosted shares of Fossil $2.61 Tuesday to close at $31.52. The stock established a new 52-week high of $32.07 in intraday trading.

For the nine months, Fossil’s profits declined 24.6 percent to $69.2 million, or $1.03 a share, from $91.8 million, or $1.33 a share, a year ago. Sales in the three quarters dipped 8.8 percent to $1.02 billion from $1.12 billion.