Tuesday, May 11, 2010

Fossil up 7.5% after nice earnings beat (FOSL)

While the rest of the market is trading in the red a few minutes after the open, shares of Fossil (FOSL) are up 7.5% after beating earnings estimates handily.  EPS of 53cents was well ahead of the 32cents Wall Street was looking for, and revenue of $393million was 10% higher than expected.

It should be noted that half the upside to revenue expectations (and a decent % of the earnings beat) was thanks to the weak dollar (at least relative to the year ago period).

Gross margin increased 3.4%, almost half of it from currency impact.  Much of the reaming boost was due to less "clearance" of inventory in low-margin liquidation channels, and higher-margin licensed product sales.

From the release:
Gross profit increased by 29.5% to $219.4 million as a result of increased sales and gross profit margin expansion. Gross profit margin increased 340 basis points to 55.8% in the First Quarter compared to 52.4% in the prior year quarter with a weaker U.S. dollar contributing 130 basis points to the improvement. First Quarter gross profit margin also benefited from reduced levels of low margin sales through off-price liquidation channels and an increase in the sales mix of higher margin licensed watch products and direct to consumer sales in comparison to the prior year quarter. During the First Quarter, direct to consumer sales increased to 22.4% of consolidated net sales in comparison to 20.6% of consolidated net sales in the prior year quarter.

At the end of the quarter, cash and securities of $458million amounted to $6.83 per share.  The company has boosted guidance for the full year, and it's by no means aggressive.

Net of cash (discounting that cash 25% for repatriation taxes, as much of it is abroad), FOSL shares trade at about 12.5times new 2010 earnings guidance - I could see upside to the mid-40's within 12 months, and further gains if the company maintains it's new higher margin structure.

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