Fossil, Inc. (FOSL) continues to post outstanding numbers as the consumer has returned to spruce up their wardrobes with watches and other accessories. FOSL is still inexpensive, trading at just 13.5x forward earnings.
Fossil is a specialty retailer offering men’s and women’s fashion watches, jewelry, handbags, sunglasses, belts, apparel and footwear.
It sells through department stores, specialty retail stores and specialty watch stores throughout the world. It also operates 354 company owned stores and sells merchandise through its international and U.S. e-commerce web sites.
Record Sales in the Second Quarter
It was yet another amazing quarter for Fossil. Sales rose 30.6% to $412.6 million from $315.9 million a year ago.
For the first six months, sales jumped 26.1% to $805.8 million from $638.9 million.
Watches continued to be hot, as sales were up globally. North American watch shipments increased 59.2% as retailers replenished inventories instead of the de-stocking that happened a year ago. Michael Kors, Fossil and Michele brands had the strongest watch performance.
Jewelry also showed strength in North America and Europe. Only men’s leather products showed sales volume declines in the quarter.
Comparable store sales in Fossil’s own stores rose 15.5% in the second quarter.
Fossil easily beat the Zacks Consensus Estimate by 142%. Earnings per share were 80 cents compared to the Zacks Consensus of 33 cents.
The company’s own guidance in May had called for a range of 32 to 34 cents. So clearly even the company had no idea how good a quarter it was about to see.
It made just 25 cents in the year ago quarter.
Lots of Cash, Little Debt
Fossil has been busy building quite a cash position. As of July 3, cash, cash equivalents and securities totaled $443 million compared to $272.1 million at the end of the second quarter a year ago.
It had $458 million at the end of the first quarter. It still has just $7.9 million in debt which was the number at the end of the first quarter.
The company has been using some cash to buy more shares. It spent $11.2 million to buy 293,000 shares in the second quarter and completed its $20 million share buyback plan.
The board of directors recently approved another $30 million buyback which will be completed by the end of 2010.
Raised Full Year Guidance…Again
Is Fossil just issuing incredibly low guidance so that it can beat it easily or does it really not know how hot its retail segments are?
The company did raise its full year guidance to the range of $3.13 to $3.23 per share from $2.55 to $2.65 it issued in May. But it also just beat its own guidance by the same range.
For the third quarter, Fossil expects earnings to be in the range of 68 cents to 72 cents.
All Estimates Moved Higher
Not surprisingly, given the big beat and the incredibly bullish report, that the analysts all moved to raise estimates in line with the company’s guidance.
The 2010 Zacks Consensus rose to $3.23 from $2.63 in the last week which is the highest end of the company’s guidance.
For the third quarter, all 6 estimates also moved higher in the last week, pushing the consensus up to 72 cents from 64 cents. That is also on the high end of Fossil’s guidance range.
Value Fundamentals
Given its growth rate and attractive forward P/E, Fossil has a low PEG ratio of 0.9. Its industry trades with a PEG of about 1.0.
It’s price-to-book ratio is within the value parameters at 2.8, although the industry is a bit lower at 1.7.
The company has a stellar return on equity (ROE) of 20.1%, far superior to the industry’s 12%.
Fossil is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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