Fossil, Inc. (FOSL) is hot as it recently reported a record first quarter and raised its full year guidance. It also surprised on the Zacks Consensus for the fourth quarter in a row.
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 350 company owned stores and sells merchandise through its international and U.S. e-commerce web sites.
Fossil Reports a Record First Quarter
On May 11, Fossil confirmed just how hot retail sales are right now as it reported record first quarter results in sales and earnings.
It blew by the Zacks Consensus Estimate by 65.6%. Earnings per share were 53 cents compared to the consensus of 32 cents and far above the 26 cents it earned a year ago.
Sales jumped 21.7% to $393.2 million compared to $323 million in the year ago period. On a constant dollar basis, sales increased by 17.5%. The quarter was boosted by Fossil’s direct to consumer and North America wholesale segments where it continued to gain market share.
E-commerce was also hot, as sales on a constant dollar basis rose 26.3% compared to the first quarter of 2009.
Watch sales were also hot in North America, increasing by 50.1% from the year ago period with sales volumes growing across all major watch brands. The strongest categories were the Michael Kors, Fossil and Michele lines. North American accessory sales volumes also rose 6.5%.
Asia Pacific also saw sales volumes increase 10.8% due to double-digit growth in Japan and further market penetration in Korea.
Only Europe struggled a bit, as wholesale shipments decreased 1.3% due to sales volume declines in Fossil and DKNY watches and jewelry.
Cash Is Still King
Fossil had only $7.9 million in debt at the end of the first quarter. As of Apr 3, 2010 it had cash, cash equivalents and securities of $458.2 million up from $202.9 million at the end of the prior year quarter.
It’s also controlling its inventory better as it saw a 12.2% decrease to $250.3 million compared to $285.1 million at the end of the first quarter in 2009.
Guidance Raised
Given the strong first quarter results, it’s not surprising that Fossil raised its fiscal 2010 earnings per share guidance to the range of $2.55 to $2.65. The company made $2.07 per share in fiscal 2009.
Net sales are expected to increase 12% to 14% year over year in fiscal 2010. Operating margins are forecast to expand to the 15% to 15.5% range from 13.7% in fiscal 2009.
For the second quarter, Fossil expects earnings per share in the range of 32 to 34 cents. Net sales in constant dollars are projected in the range of 20% to 22%.
Given the raised guidance, the Zacks Consensus Estimates also jumped. The full year rose 12.8% to $2.64 per share in the last 7 days with 8 estimates moving higher in that time. This is at the high end of the company’s range.
Is Fossil a Value Stock?
Fossil is a value stock, but just barely. It is trading just on the cusp of the value parameters, at 15x forward earnings. I wouldn’t call it cheap, but it’s still trading just a little bit below its industry average, which is 15.8x forward estimates.
It also has a price-to-book ratio of 2.7 which is within the value parameters of under 3.0. Fossil has a solid 1-year return on equity of 17% which is above the industry average of 12.6%.
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.
