Fossil Inc., the American watch and accessories company that owns brands including Fossil and Skagen and licenses for Michael Kors, Burberry, Marc by Marc Jacobs and Adidas, has announced its Q1 results, with global sales falling just below its expectations.
A release from the company issued this morning shows that net sales were up 9.8% in Q1 2012 compared to Q1 2011, totalling $589.5 million (£364.8m), while its gross profit margin decreased 40 basis points to 55.8% of net sales, compared to 56.2% of net sales in Q1 2011.
Mike Kovar, executive vice president, chief financial officer and treasurer at Fossil Inc. said the results were somewhat below the company’s expectation, but follow changes to its merchandising and strategies in Europe, as well as rising labour and component costs.
"While our first quarter earnings were on target with our guidance, net sales came in slightly below our expectations. We experienced a sequential quarter improvement in sales growth from our Asia Pacific wholesale business, continued strength across our North American watch business and strong same store sales comps across our global retail base, especially when considering the strong double-digit comp performance in the prior fiscal year first quarter.
“However, in Europe, a softening macro environment toward the end of the first quarter and changes in our merchandising and assortment strategies across certain categories negatively impacted both our wholesale and retail sales in that region."
Kovar added that while the company had been “cautious about the European economy and its impact on our financial results”, it is confident that its sell-through will remain strong, and expects growth in same-store sales. There are also plans to increase Fossil brands' retail presence.
“The continued rollout of concessions in Asia Pacific and the integration of Skagen Designs Ltd., the purchase of which was effective April 2nd, will result in double-digit sales and earnings growth for fiscal 2012,” explained Kovar.
A closer look at the results show that across the company's operating segments, sales growth on a constant dollar basis ranged from 4.7% to 18.8% based primarily on watch and leather product sales increases.
Global watch sales made the most significant contribution, increasing 13.7%, or $50.9 million (£31.5m).
Net sales of FOSSIL branded products increased by 5.4% during Q1 as compared to the prior fiscal year first quarter, with double-digit growth in watches and leather goods being partially offset by decreases in eyewear and jewellery sales.
Net sales from the North America wholesale segment increased by 9.3%, or $19.2 million (£11.8m), on a constant dollar basis during Q1 on top of a 33.9% increase in the prior fiscal year first quarter.
The increase is primarily attributable to sales volume gains in Fossil’s watch business of 13.8%, or $19.6 million (£12.1m).
Sales through Fossil’s Canadian and Mexican subsidiaries each increased by more than 25% in Q1.
In Europe sales growth was attributable to a 6.5%, or $6.9 million (£4.27m) increase in watch shipments.
In Asia Pacific the company’s wholesale net sales increased 18.8% in Q1, with its watch sales up 20.1%, while concession sales in Asia increased by 28.8%.
Fossil Inc.’s gross profit of $329 million (£203m) in the first quarter increased 9.0% in comparison to $301.8 million in Q1 2011.
Foreign currency exchange rate changes negatively impacted gross profit margin by approximately 20 basis points, while increased factory labour costs meant that gross profit margins were also negatively impacted.
Certain component costs and a higher percentage of sales to third party distributors during the first quarter also attributed to losses.
Looking ahead, the company hopes to increase its net sales further in Q2, and forecasts a net sales increase of approximately 16% with constant dollar net sales increasing 19%.
Net sales of Skagen are included in this estimate and are expected to benefit overall sales growth by 6% during the second quarter 2012.
Fossil’s principal offerings include an extensive line of men's and women's fashion watches and jewellery sold under proprietary and licensed brands. The company's products are sold to department stores and specialist watch and jewellery stores in the U.S. and across the world in approximately 120 countries, through 22 company-owned foreign sales subsidiaries and a network of approximately 60 independent distributors.
The company also distributes its products in over 390 Company-owned and operated retail stores and through international e-commerce websites and the company's U.S. e-commerce website.