Fossil Group Inc. took some of the sting out of a difficult fourth quarter — and an anticipated rough road full of currency potholes ahead in 2015 — with the signing of a 10-year global licensing agreement for watches under the Kate Spade New York brand with Kate Spade & Co.
The initial agreement between the firms runs through 2025. The new collection will be sold in Kate Spade New York stores and through key global retailers beginning next year. Kate Spade had previously operated its own in-house watch business.
Kosta Kartsotis, chief executive officer of Richardson, Tex.-based Fossil, called Kate Spade New York “a unique brand experiencing explosive growth that has substantial long-term potential. The brand has a distinctive voice, fits perfectly within our portfolio and we look forward to a meaningful relationship for years to come.”
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Craig Leavitt, ceo of Kate Spade & Co., observed, “Our agreement supports Kate Spade & Co.’s long-term growth strategy of pursuing a partnered approach to product category expansion to drive licensing revenue and expand margins. We look forward to building a strong partnership as we benefit from Fossil Group’s significant experience in scalable watch production and their extensive global distribution.”
Fossil’s extensive brand portfolio expanded last year with the launch of Tory Burch and Emporio Armani Swiss, both part of its Swiss watch initiative, and was bolstered by 10-year extensions in its relationships with Giorgio Armani and Michael Kors, as well as partnerships with Google and Intel as it moved further into the wearable technology business.
However, as with other U.S.-based companies with significant overseas businesses, it saw its fourth-quarter results encumbered by recent swings in currency translations that it expects will continue in 2015.
With both fourth-quarter results and 2015 projections below the consensus estimates of analysts, shares, up 0.9 percent to $99.32 during regular trading on Tuesday, fell 14.1 percent to $85.30 in the first 90 minutes of after-hours trading.
Net income for the three months ended Jan. 3 rose 3.8 percent to $154.1 million, or $3, from year-ago profits of $148.5 million, or $2.68. Analysts’ estimates were for earnings per share of $3.07.
Sales were up 0.2 percent to $1.07 billion from $1.06 billion and up 3 percent on a constant-currency basis. Wall Street expected revenues of $1.12 billion.
Fossil calculated that the strength of the U.S. dollar effectively subtracted $32.5 million from quarterly net sales and 23 cents from eps.
With so much of the currency fluctuation coming at the end of the year, its effect on full-year results was considerably smaller. Net income fell 0.4 percent to $376.7 million, or $7.10 a diluted share, while sales rose 7.7 percent to $3.51 billion.
But Fossil said that the currency headwinds reduced sales by $17 million for the year and earnings by 17 cents.
In furnishing 2015 guidance, Fossil assumed that exchange rates affecting the company’s results would remain at “prevailing levels.”
For the year, eps is expected to come in between $5.45 and $6.05, versus analysts’ earlier expectations for eps of $7.54, with net sales ranging from a decrease of 3 percent to an increase of 1 percent, or $3.4 billion to $3.54 billion.
Fossil estimated that foreign currency would subtract 500 basis points from 2015 sales growth while 125 basis points would be lost to the comparison between the fiscal year just ended, which had 53 weeks, and the current year, which has 52. While $1.20 in eps is expected to be sacrificed to foreign exchange while restructuring charges are expected to subtract 35 cents from full-year eps.