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Lower Profits at Fossil, Cuts Planned

Fossil Inc. matched anal­ysts' estimates with lower fourth-quarter earnings last week but forecast a slow beginning to 2009.

Fossil Inc. matched anal­ysts’ estimates with lower fourth-quarter earnings last week but forecast a slow beginning to 2009 and said it was instituting selective layoffs and other cost-cutting initiatives.

A stronger dollar weakened the company’s overseas revenue. Net income for the three months ended Jan. 3 fell 12.9 percent to $46.3 million, or 69 cents a diluted share, from $53.1 million, or 75 cents, in last year’s quarter. Excluding charges related to write-downs and other items, profit was 84 cents a share. Revenue rose 0.2 percent to $464.1 million from $463.1 million. Gross margins dropped 140 basis points to 52.2 percent of sales.

Analysts polled by Yahoo expected earnings per share of 69 cents on sales of $483.5 million.

Burdened by the rise of the dollar, international wholesale sales declined 8.9 percent and dropped 9.2 percent in Europe. On a constant dollar basis, total wholesale sales grew 0.9 percent and European sales rose 3.2 percent, the company said.

Fossil said a shift in sales mix to its direct-to-consumer segment, which benefited profitability in the fourth quarter, will hurt first- and second-quarter results in 2009.

As a result, the company expects first-quarter sales to fall 8 to 10 percent and earnings to decline to a range of 14 to 16 cents a diluted share, below the consensus estimate of 19 cents.

Fossil said it has initiated a hiring freeze and suspended merit-pay increases, bonus payments and company contributions toward employee retirement plans.

Best known for watches under the Fossil and licensed brands, the company said it has instituted salary reductions for all executive officers and senior vice presidents, and is completing selective layoffs across its global organization.

Fossil expects annual savings of about $16 million from these reductions.

“The challenging global economic environment and the expected continuing impact on discretionary retail companies require us to remain vigilant in managing the relationship between our revenue and operating expense growth,” said Mike Barnes, president and chief operating officer, adding that the company has over $175 million in cash, a strong cash flow model and no outstanding borrowings under its revolving credit facility.

For the year, Fossil’s profit rose 12 percent to $138.1 million, or $2.02 cents a share, versus $123.3 million, or $1.75 cents, a year ago. Excluding charges, EPS was $2.06. Net sales grew 10.5 percent to $1.58 billion from $1.43 billion last year.

Shares of Fossil picked up 46 cents, or 3.8 percent, to close at $12.55 in Nasdaq trading Tuesday.