Fossil watch sales down 17%; Slashes fourth-quarter outlook

The stock of Fossil Inc., a leading maker of fashion watches, dropped 27% on Thursday after weaker-than-expected domestic and foreign sales forced it to downsize sales and earnings forecast for its fourth quarter and the year.

The Richardson, Tex., company said fourth quarter net sales would rise 2 percent to $324 million, instead of the $343 million originally predicted. It said earnings per share for the quarter and the year would be much lower than predicted, primarily due to lower-than-anticipated sales and margins. Year end inventory, it added would be about 30 percent to 40 percent higher than prior year levels. A full report will be issued later this month.

“We’re disappointed in not reaching our fourth quarter and full year financial goals,” said Mike Kovar, chief financial officer. He cited a “sales shortfall” in its North American domestic business, including a 17 percent Q4 decline in brand FOSSIL watches, plus lower sales growth in Europe and Asia. Together, he said, these “offset the continued double-digit sales growth in our accessories business and company-owned retail stores.”

For the 2006 fiscal year, the company expects net sales to rise by about 9 percent, around 7 percent in the first half and about 10 percent in the second. “This is principally due to tougher currency comparisons in the year’s first half, and the launch of new business initiatives in to the second half,” he said.

Fossil is a design, development, marketing and distribution company.” Its major offerings are watches sold under its own bands (Fossil, Relic, MW, Michele, Wrist Net, Wrist PDA and Zodiac ) and licensed brands (i.e., Burberry, DKNY. Diesel, Kors, Marc Jacobs, and Emporia Armani). It also offers small leather goods, belts, handbags, sunglasses, jewelry, and apparel. Its products are sold in department stores and specialty retail stores in over 90 countries around the world, in addition to its online Web site.

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