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Fossil Conference Call Highlights

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Fossil Group Inc (NYSE: FOSL) reported its third quarter earnings on Tuesday. Shares of the company are up 8 percent.

Below are some key highlights from its conference call.

Performance Metrics:

• As you know, our overarching goal is to consistently deliver profitable top line growth while investing in high-return initiatives that can fuel our momentum over the long term.
• We believe fiscal 2014 is shaping up to represent a year of progress towards this objective.
• For the quarter, sales increased 10%, reflecting growth across all regions, with Europe and Asia leading the way.
• Europe's solid performance for the quarter reflected balanced growth, with all major markets increasing over last year.
• In our most mature market, North America, we were pleased with the sequential improvement in the growth rate for the region.
• Clearly, our unique assortments, creative designs, and compelling brands all contributed to the performance and position us to achieve continued market share gains going forward.
• Globally, we continue to see the strongest gains in watches and jewelry.
• Once again, watches led our volume growth, increasing double-digits in our Fossil and Skagen lifestyle brands, as well as our multi-brand watch portfolio.
• We are focused on optimizing this important category for the coming years.
• We were encouraged by the leather handbag performance for Fossil as the appeal of the new full-price women's handbag assortment translated into improved performance for the category in our stores.
• Combined with sales that were better than planned and our continued commitment to share repurchase, we delivered earnings per share that exceeded our expectations and increased substantially over last year to $1.96 a share.
• The quarter included many noteworthy highlights that we expect to build upon to enhance our growth in the fourth quarter and beyond.
• First, we grew our own lifestyle brands. The Fossil brand grew modestly during the quarter, led by double-digit wholesale watch growth in all regions.
• Fossil's strongest growth was once again in Asia, where we have been working hard to expand our distribution.
• In Europe, we opened our first flagship store in Frankfurt in a high-profile location with the largest opening day in the history of the brand.
• Though it is still early, the encouraging performance of the category reflects our elevated design aesthetic and more prominent placements in key department stores given the expansion of our shop-in-shop program.
• Our goal is to continue building on the positive performance during the holiday season with our updated collection that's been well-received by our wholesale partners and customers alike.
• We are very excited about Skagen, where our business accelerated in all regions during the quarter.
• Watches and jewelry posted strong double-digit gains and we launched the brand's first assortment of handbags with the performance exceeding our expectations in our Skagen retail stores.
• We opened two new important stores, one in Frankfurt, Germany, and the second in Times Square in New York City, both of which are off to strong start.
• These stores along with the remodeled stores in London allow us to showcase the full array of product in an environment that represents the true image of the brand.
• We delivered a solid 12% increase for the quarter, benefiting from the performance of several brands within the portfolio.
• The diversity of our portfolio with important lifestyle brands continues to be a very strong competitive advantage.
• The growth of the portfolio during the quarter continued to be balanced geographically with double-digit increases in Europe and Asia, and solid growth in the Americas.
• Michael Kors once again performed very well during the quarter as the brand continues to gain significant momentum in many of our international markets.
• In addition, Armani and Diesel were key contributors in the growth of the portfolio.
• Our goal is to continue to push all of our brands to reach their full potential.
• And third, we continue to attract new brands and businesses that complement and extend our capabilities on a global basis.
• We are very excited about the launch of the Tory Burch collection during the quarter.
• The feedback has been tremendously positive since the launch.
• And given the brand already enjoys significant momentum, we are excited to be a part of the future growth of the brand and remain confident that it can be an exciting business for us.
• Tory Burch is a great example of the Fashion Swiss opportunity that we have as a company.
• We think it could be a powerful tool to develop our international business and affords us the opportunity to combine the appreciation for Swiss-made craftsmanship with the lifestyle brands that customers connect with.
• In addition, we renewed our Michael Kors licensing agreement for watches and jewelry for 10 years.
• And finally, we achieved growth across all of our regions. The Americas grew 6% during the quarter with an increase in watch and jewelry shipments to major department stores and to boutiques driving the growth.
• Our teams have been working with our wholesale partners to ensure that they have sufficient inventory levels to drive their sales plans.
• While we are encouraged with the trend during the quarter, we continue to be cautious regarding the current retail environment in the United States.
• We continued our very strong performance in Europe, a region that is a great reflection of a business executing strategies well, leveraging the diversity of our brands, channels, and categories.
• The 16% growth in the region was broadly based as we grew both watches and jewelry and expanded our business in all of our major markets.
• In watches, Fossil and Skagen, as well as our multi-brand watch portfolio, delivered double-digit growth.
• Jewelry also increased double-digits.
• We continue to be pleased with the trends we are seeing in our retail stores, where comps have been positive in nearly all of our European markets, despite the challenging traffic.
• In Asia, sales grew 13% overall, and we saw double-digit gains in our larger markets of Japan and Australia.
• Our Korean business continued to be soft in the quarter, reflecting tepid market conditions in the country.
• In China, while sales grew double-digits during the quarter including positive comps in the retail channel.
• Having said that, we remain excited about the opportunity it represents over time given the favorable market demographics.

Financials:

• Third quarter net sales grew 10% to $894 million.
• We exceeded our earnings expectations, as strong sales and disciplined expense management offset lower gross margin as regional mix benefits were offset by outlet promotions.
• Sales growth during the quarter came from a very strong performance in Europe, a solid increase in Asia and a sequential improvement in the Americas.
• The Fossil brand grew 2% driven by a double-digit increase in watches, partially offset by declines in leathers and jewelry.
• In leathers, while the total category declined given last year's higher clearance volumes, we are now in a much healthier inventory position.
• Our multi-brand watch portfolio remains very strong, growing 12% in the quarter, with strong performances from key brands while some brands were down.
• In North America wholesale, sales increased 6% to $319 million.
• Our U.S. sales increase drove the region performance and grew as a result of increased shipments to major department stores and boutiques, as well as a successful launch of Tory Burch.
• In Europe wholesale, sales increased 16% to $242 million, which includes $2 million of favorable currency benefit.
• Our European growth was driven by high-teen growth in both our multi-brand watch portfolio, as well as the jewelry category.

Posted-In: conference callEarnings News

 

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