Fossil maintains strong momentum in the third quarter

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Fossil Group, Inc. (FOSL), a retailer specializing in
consumer fashion accessories, said worldwide net sales increased 18 percent in the
third fiscal quarter. In keeping with the momentum of the first half of the
fiscal year, all of the company’s regions experienced a growth in sales in
watches, jewelry and leathers.

The Richardson-based retailer said wholesale net sales grew 18 percent to $810 million in the period ending Sept. 28 from $684.2 million in the third quarter last year, surpassing the Zacks Consensus Estimate of $773 million.

Fossil’s improvement in the third quarter does not come as a surprise considering its strong watch sales. Since acquiring the Skagen brand in April 2012, the company has experienced double-digit growth in global watch sales, which were further boosted after the February 2013 launch of an exclusive collection of men’s and women’s watches designed by Karl Lagerfeld.

Expansion will continue into 2014 with the release of Emporio Armani Swiss and Tory Burch lines of watches.

While all of the retailer’s international stores improved, the European market did particularly well with growth in nearly every market. Wholesale operations grew 28 percent to $210 million, an increase strongly driven by jewelry sales.

Wholesale sales in the Asia Pacific region increased 7 percent to $105 million, a figure that includes a $5 million unfavorable currency translation impact.

North American wholesale sales increased 18 percent to $301 million.

In the third quarter earnings call, Kosta Kartsotis, chief executive officer, expressed some concerns heading into the holiday season with weak traffic and heavy promotions in the U.S. stores.

“In United States, traffic remains a headwind and there are concerns about consumer confidence as we go into the holiday season,” Kartsotis said.

Some experts expected smartphones to challenge the watch business, but sales of Fossil and similar companies suggest that the timepiece remains a popular fashion accessory.

Positive expectations for Fossil were heightened by news that Michael Kors Holdings (KORS) experienced a 49 percent increase in net income in the second fiscal quarter from a year before. Michael Kors watches are sold at Fossil, and the company has experienced a surge in sales of the label over the past few years.

Looking ahead, the company said it expects sales to increase approximately 6 percent to 8 percent in the fourth quarter due to $20 million shift of shipments into the fiscal 2013 third quarter from the fourth quarter and the $17 million shift of North American holiday shipments from the third quarter of fiscal 2012 into the fourth quarter.

After releasing the prediction that the positive momentum will slow down, shares for the company are down 5.2 percent today.

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