Watchmaker Fossil Inc. said Tuesday that net sales for the second quarter ended July 7 increased 18.2 percent to $306.5 million compared to $259.2 million in the second quarter of 2006. Its gross profit grew 18.5 percent to $150.5 million year-over-year.

The Richardson, Texas-based company said operating income increased 42.7 percent to $23.1 million, inclusive of $4.4 million of expenses, including legal, accounting, and tax costs, related to the company’s historical equity granting practice review (the “Grant Review”), compared to $16.2 million. Net income rose 30.6 percent to $14.7 million, inclusive of $3.3 million of Grant Review expenses, compared to net income of $11.2 million.

Fossil’s fiscal year 2006 first quarter included an extra week. The company estimates this extra week resulted in an additional $16 million of net sales and $5 million of operating expenses during the 2006 first quarter and year-to-date periods.

“With the equity granting practices review and the SEC’s related informal investigation now behind us, we are excited to once again be up-to-date on our filings and providing our stockholders with more in-depth analysis of our financial results,” said Mike Kovar, senior vice president and chief financial officer of Fossil, Inc. “Our Second Quarter picked up where our first quarter left off, delivering a solid double-digit increase in sales and significant gains in profitability. Our results demonstrate the increasing strength of and consumer demand for our watch and jewelry product offerings across the globe.”

He added, “We believe these sales growth drivers, combined with our commitment to manage expenses and inventory, point to a solid year of growth at increased rates of profitability for the company.”

For the six-month period ended July 7, the company said net sales increased 16.8 percent to $611.3 million compared to $523.5 million in the prior year. Gross profit increased 17.9 percent year-over-year to $306.6 million.

Net income totaled $39.7 million, year-over-year inclusive of $6.8 million of Grant Review expenses, compared to $21 million,

During the second quarter, Fossil said worldwide net sales rose 18.2 percent (15.4 percent excluding currency impact) in comparison to the prior year quarter, primarily driven by sales volume growth in the company’s international watch and jewelry, domestic watch and direct to consumer businesses. Total international wholesale sales rose 32.6 percent (27 percent excluding currency impact).

The company said it believes that innovations in the watch and jewelry lines introduced in the second half of 2006 and early 2007, continue to fuel sales growth domestically and internationally. Sales in Europe increased 28.9 percent (20.8 percent excluding currency impact), primarily led by sales volume increases in Fossil and licensed watches and Fossil and Emporio Armani jewelry.

JCK