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A N N U A L R E P O R T
NET SALES
(in millions of dollars)
03
04
05
06
07
OPERATING INCOME
(in millions of dollars)
03
04
05
06
07
NET INCOME
(in millions of dollars)
03
04
05
06
07
STOCKHOLDERS’ EQUITY
(in millions of dollars)
03
04
05
06
07
1500
1400
1300
1200
1100
1000
900
800
700
600
0
190
180
170
160
150
140
130
120
110
100
0
130
120
110
100
90
80
70
60
50
40
0
800
750
700
650
600
550
500
450
400
350
0
FINANCIAL HIGHLIGHTS
Fiscal Year
IN THOUSANDS, EXCEPT PER SHARE DATA
2007
2006
2005
2004
2003
Net sales .....................................................
$ 1,432,984
$ 1,213,965
$ 1,043,120
$
957,309
$ 781,175
Gross profit .................................................
Operating income .......................................
Income before taxes ...................................
742,031
186,485
187,526
Net income .................................................
123,261(1)
608,919
123,325
118,795
77,582
535,140
108,988
102,948
502,610
130,744
136,208
75,670(2)
89,545(3)
Earnings per share:(4)
Basic .....................................................
Diluted ..................................................
1.81(1)
1.15
1.75(1)
1.13
1.07(2)
1.04(2)
1.27(3)
1.23(3)
398,018
105,645
106,492
66,076
0.95
0.92
Weighted average common and common
equivalent shares outstanding:(4)
Basic .....................................................
Diluted ..................................................
68,213
70,333
67,177
68,817
70,476
72,424
70,367
72,998
69,591
71,935
Working capital ...........................................
$
546,410
$
357,608
$
326,502
$ 369,864
$
311,709
Total assets .................................................
1,122,628
852,597
Total long-term liabilities .............................
66,432
Stockholders’ equity ...................................
771,662
22,914
602,201
745,142
35,628
526,317
783,423
43,539
524,426
587,738
32,861
422,974
Return on average stockholders’ equity......
18.3%
14.2%
14.0%
19.2%
17.8%
(1) Includes $8.6 million in expenses, net of tax, relating to our voluntary evaluation of our accounting for equity-based compensation, including the appropriateness
of accounting measurement dates used to determine the amounts of compensation charges and related tax effects which have been previously disclosed in filings
with the U.S. Securities and Exchange Commission.
(2) Includes a one time tax benefit of $12 million related to the repatriation of subsidiary earnings which were not considered permanently invested pursuant to the
American Jobs Creation Act of 2004.
(3) Includes one time after tax charges related to cumulative rent expense adjustments and settlement of a supplier claim of $2.0 million and $550,000 respectively.
(4) All share and per share price data have been adjusted to reflect three-for-two stock splits effected in the form of a stock dividend paid on April 8, 2004.
Improving our Operating Margin Performance
During fiscal 2007 our efforts to improve operating margin performance
centered on three initiatives:
» Increasing our product margins,
» Managing our inventory levels, and
» Leveraging our infrastructure.
Significant emphasis was placed upon collaboration between our
product and design teams and component suppliers to ensure new styles
delivered during 2007 were being engineered to meet our margin criteria
without sacrificing quality. Our continuing efforts to manage inventory
more strictly and reduce our discontinued inventory composition also
positively impacted our year over year gross margin performance. We
were also able to leverage significant infrastructure additions made over
the last several years, reduce our spending on marketing to more effective
initiatives and manage our headcount needs. As a result, excluding
certain non-recurring expenses, we were able to improve our operating
margin performance by 370 basis points in comparison to the prior year.
In summary, we believe that our distinctive business model of owning our
distribution in key markets and offering a portfolio of owned and licensed
global brands allows for many competitive advantages while providing
us with a sustained platform for growth. This, along with the growing
demand for our brands across our watch and accessory categories, has
us well positioned as we begin fiscal 2008. We would like to thank our
employees worldwide, our customers, suppliers and our stockholders for
their continued support and dedication.
Sincerely,
Tom Kartsotis
Chairman
Kosta N. Kartsotis
Chief Executive Officer
Michael W. Barnes
President and Chief Operating Officer
LETTER TO STOCKHOLDERS
Dear Stockholders,
Successful execution of our key strategic initiatives resulted in record sales
and earnings during fiscal 2007. Net sales of $1.4 billion and net income
of $123 million continue to demonstrate the advantages of our global
operating platform, compelling brands and commitment to operational
excellence. The 18% increase in net sales, coupled with improved gross
margins and SG&A leverage, resulted in 13% operating margins and a
55% rise in diluted earnings per share. Our powerful portfolio of brands
continues to provide us with new points of distribution, allowing us to
maximize sales growth for our owned and licensed watch and accessory
businesses in both new and existing markets.
During 2007, our key strategic initiatives included:
» Expanding the FOSSIL brand,
» Increasing our global footprint,
» Accelerating growth in our direct to consumer segment, and
» Improving our operating margin performance.
Expanding the FOSSIL Brand
During fiscal 2007 we continued our initiative to reposition the FOSSIL
brand toward a modern vintage styling by introducing more contemporary
watches and accessories and by focusing the point of view of the brand
to a slightly older core customer. We grew our market share, increasing
FOSSIL sales by 14% globally, in part because we were able to attract a
broader base of customers with innovative and desirable styles. In the
fall, we launched FOSSIL FIFTY FOUR, a collection of handbags ranging
in price from $250 to $450. We believe the success of the FOSSIL FIFTY
FOUR launch demonstrated the appeal of the FOSSIL brand at higher price
points. In addition, we expanded FOSSIL into other product categories
by launching cold weather gear and a jewelry line tailored to the U.S.
consumer during the second half of the year.
Increasing our Global Footprint
Our focus on global growth resulted in a significant milestone for our
company, with more than 50% of our net sales being generated outside
the U.S. during fiscal 2007. We accomplished this by opening new points
of distribution and maximizing sales growth for our owned and licensed
watch and jewelry brands in both existing and new markets. Our ability to
offer a full range of brands, price points and styles to watch and jewelry
stores internationally is paying strong dividends. In late 2006, we added a
distribution office in China and in 2007 we opened distribution offices in
Korea and India. We expect these developing markets to be meaningful
to our future growth plans. With very low penetration rates in many of
the countries within this segment, our recent expansion of our direct
to consumer model in some of these markets and the significant retail
development occurring in these regions, our growth expectations for this
area continue to be high.
Accelerating Growth in our Direct to Consumer Segment
During fiscal 2007 we grew our direct to consumer segment by opening
46 new doors (net of closings) and by expanding our e-commerce
businesses internationally. This segment of our business allows us to
showcase our brand and heighten demand in new geographies, paving
the way for sales growth in our wholesale channel. Total direct to
consumer sales increased by 16% for the year, and we ended the year
with 244 stores. We experienced comparable store sales growth of 6% in
our FOSSIL accessory store format, which we have identified as a major
initiative going forward. At year end, we operated 113 accessory stores,
55 of which are outside the U.S. These stores are a highly profitable
opportunity given our initial product mark-up, and we are able to control
all aspects of the brand from design to in-store presentation and client
service. Our goal is to open between 80 to 85 accessory stores in 2008,
approximately half of which are expected to be in international markets.
CORpORATE INFORmATION
EXECUTIVE OFFICERS AND DIRECTORS
Tom Kartsotis
Chairman of the Board
Kosta N. Kartsotis
Chief Executive Officer
and Director
Michael W. Barnes
President,
Chief Operating
Officer and Director
Jal S. Shroff
Managing Director –
Fossil East and Director
Livio Galanti
Executive Vice President
Mike L. Kovar
Executive Vice President,
Chief Financial Officer
and Treasurer
Jennifer Pritchard
President,
Retail Division
Mark D. Quick
Vice Chairman
Elaine Agather
Director
Kenneth W. Anderson
Director
Jeffrey N. Boyer
Director
Alan J. Gold
Director
Elysia Holt Ragusa
Director
James E. Skinner
Director
Michael Steinberg
Director
Donald J. Stone
Director
James M. Zimmerman
Director
CORpORATE INFORmATION
Transfer Agent and Registrar:
Mellon Investor Services LLC
P O Box 358015
Pittsburgh, PA 15252-8015
Principal Independent Auditors:
Deloitte & Touche LLP
2200 Ross Avenue
Dallas, TX 75201
Corporate Counsel:
Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, TX 75202
OUR WEBSITE
The Company maintains a website at the worldwide internet address of www.fossil.com. Certain product, event,
and investor relations information concerning the Company is available at the site.
ANNUAL mEETING
The Annual Meeting of Stockholders will be held on Wednesday, May 21, 2008, at 9:00 am at the Company’s
headquarters, 2280 N. Greenville Ave., Richardson, Texas.
COmpANy INFORmATION
A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, and
the Annual Report to Stockholders, in addition to other Company information, is available to stockholders without
charge upon written request to Fossil, Investor Relations, 2280 N. Greenville Ave., Richardson, Texas 75082-4412,
or online at www.fossil.com.
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A N N U A L R E P O R T