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Fossil issues Q4 earnings warning, introduces fiscal '06 guidance

03
Feb '06

Fashion retailer Fossil Inc has informed that it anticipates fourth quarter net sales, ended December 31st 2005, to approximate $324 million, representing a 2 percent increase over fourth quarter fiscal 2004 net sales of $318 million and versus the company's previous guidance of $343 million.

The company has not completed all aspects of its financial close at this time but estimates that fourth quarter diluted earnings per share will be in the range of $0.28 to $0.31. These estimates are in comparison to fourth quarter fiscal 2004 diluted earnings per share of $0.47 and the company's previous expectations of $0.48. The earnings shortfall was primarily a result of lower consolidated sales and gross profit margins than previously anticipated.

As a result of its updated fourth quarter guidance, the company now estimates full year fiscal 2005 diluted earnings per share will be in the range of $1.04 to $1.07 per diluted share, $0.87 to $0.90 per diluted share, excluding approximately $12 million of tax benefits related to repatriation of foreign earnings under the American Jobs Creation Act of 2004 ("The Act"), as compared to fiscal 2004 diluted earnings per share of $1.22.

The company also noted that its inventory at year end is expected to be approximately 30 percent to 40 percent above prior year levels. It is scheduled to report full results for the fourth quarter and fiscal 2005 year ending December 31, 2005 during the week of February 20th.

Mike Kovar, Chief Financial Officer stated, "We are disappointed in not reaching our fourth quarter and full year financial goals. Our sales shortfall in our domestic watch business inclusive of a 17% decline in fourth quarter sales of FOSSIL(R) watches and lower than expected sales growth in Europe and Asia offset the continued double-digit sales growth in our accessories business and company-owned retail stores. In comparison to the prior year fourth quarter, gross profit margins fell by over four hundred basis points based primarily on a sales mix shift from higher to lower margin businesses and higher to lower margin geographical regions, in addition to higher freight costs and slightly higher markdowns.

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