2 0
0
8 A N N U A L R E P O R T
NET SALES
(in millions of dollars)
04 05 06 07 08
OPERATING INCOME
(in millions of dollars)
04 05 06 07 08
NET INCOME
(in millions of dollars)
04 05 06 07 08
STOCKHOLDERS’ EQUITY
(in millions of dollars)
04 05 06 07 08
1600
1500
1400
1300
1200
1100
1000
900
800
700
0
200
190
180
170
160
150
140
130
120
110
140
130
120
110
100
90
80
70
60
50
0
800
750
700
650
600
550
500
450
400
350
0
FINANCIAL HIGHLIGHTS
Fiscal Year
IN THOUSANDS, EXCEPT PER SHARE DATA
2008
2007
2006
2005
2004
Net sales ......................................................................
$ 1,583,242
$ 1,432,984
$ 1,2 1 3,965
$ 1,043,120
$
957,309
Gross profit .................................................................
Operating income ....................................................
Income before taxes ...............................................
Net income .................................................................
Earnings per share: (5)
851, 1 5 1
205,770
1 89,429
1 38,097 (1)
742,031
6 08,919
1 86,485
1 87,526
123,261 (2)
1 23,325
1 1 8,795
77,582
535,140
108,988
102,948
502,6 1 0
130,744
136,208
75,670 (3)
89,545 (4)
Basic ......................................................................
Diluted ..................................................................
2.05 (1)
2.02 (1)
1
1.81 (2)
1.15
.75 (2)
1.1 3
1.07 (3)
1.04 (3)
1.27 (4)
1.23 (4)
Weighted average common shares and
common equivalent shares outstanding: (5)
Basic ......................................................................
Diluted ..................................................................
67,525
68,323
68,213
70,333
67, 177
68,81 7
70,476
72,424
70,367
72,998
Working capital .........................................................
$ 556,497
$ 546,410
$ 357,608
$ 326,502
$ 369,864
Total assets .................................................................
1,087,296
1,1 22,628
852,597
Total long-term liabilities.......................................
74,964
66,432
22,9 14
Stockholders’ equity ...............................................
802,144
77 1,662
602,201
745,1 42
35,628
526,3 1 7
783,423
43,539
524,426
Return on average stockholders’ equity .........
17.8 %
18.3 %
14.2 %
14.0 %
19.2 %
(1) Includes $7.3 million in expenses, net of tax, related to the write-down of certain other than temporary investment, fixed asset and intangible asset impairments and
a $20.8 million benefit in income tax expense related to the reduction of certain current and long-term tax liabilities in connection with completion of prior year
income tax audits.
(2) 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.
(3) Includes a 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.
(4) Includes net of tax charges related to cumulative rent expense adjustments and settlement of a supplier claim of $2.0 million and $550,000 respectively.
(5) All share and per share price data have been adjusted to reflect a three-for-two stock split effected in the form of a stock dividend paid on April 8, 2004.
LETTER TO STOCKHOLDERS
Dear Stockholders,
Fiscal 2008 represented a year of significant progress for Fossil.
Despite a weakening global economy and the negative impact
from a strengthening U.S. dollar, we achieved record revenues and
earnings while advancing each of our long-term goals. Net sales
grew 11% to $1.6 billion, reflecting growth in nearly all operating
segments and major product categories and net income increased
12% to $138 million. Double-digit sales growth coupled with gross
margin expansion resulted in operating margin of 13% and a 15%
rise in diluted earnings per share to $2.02. Our advantageous
business model, which is based on the global distribution of
compelling, branded, high-margin accessories with relatively
high inventory turns and short lead times, continued to drive our
positive performance.
During 2008, we advanced each of our key strategic initiatives
which included:
» Increasing global demand for the FOSSIL® brand;
» Growing our international presence; and
» Significantly expanding our direct to consumer business.
Growing Global Demand for the FOSSIL Brand.
During fiscal 2008, we generated double-digit sales growth in
our FOSSIL brand globally as we continued to gain market share
in our core watch and jewelry categories while expanding the
presence of our leather businesses outside the U.S. The brand’s
modern vintage design and aspirational viewpoint, coupled with
our foundational value proposition, has led to increasing consumer
demand for FOSSIL in both new and existing geographies. In fiscal
2008, we expanded the brand outside of its core watch and leather
categories with continued domestic roll-outs of our accessory
jewelry and cold weather lines while also introducing a FOSSIL
men’s footwear line late in the year. Additionally, the significant
growth of our retail store base globally has been instrumental in
advancing the awareness and breadth of the FOSSIL brand.
Increasing our Global Wholesale Distribution Presence.
Our international wholesale business recorded sales growth of 9%
for the year in constant currency, with sales in Europe increasing
by approximately 7% and other international markets advancing
14%. Almost two-thirds of our wholesale net sales were generated
outside the U.S. during fiscal 2008. This growth was achieved
through opening new points of distribution, expanding shop-in-
shop and concession programs and maximizing sales growth for
our owned and licensed watch and jewelry brands in both existing
and new markets. With owned distribution in 23 countries around
the world, we continue to advance the diversity of our business
model thereby increasing opportunities for expansion while
mitigating concentration risk.
Significantly Expanding our Direct to Consumer Business.
We made solid progress in growing our direct to consumer
business in fiscal 2008 including opening 84 new stores, 79 of
which were our FOSSIL full-price accessory concept, and by
expanding our e-commerce and catalog businesses. Total direct
to consumer sales increased by 21% for the year and grew to
represent approximately 20% of our total net sales, up from 18%
in fiscal 2007. We experienced comparable store sales growth of
2.3% across all stores and a 2.1% comparable store sales increase
in our FOSSIL full-price accessory store format. We ended the
year with 191 accessory stores, 104 of which are outside the U.S.,
82 outlet stores, 33 apparel stores and 18 multi-brand stores. The
growth of our FOSSIL accessory concept continues to be an
important initiative for the company. Our accessory stores are a
profitable expansion opportunity with strong gross margins.
These stores allow us to control all aspects of the brand, from
design, to assortments, to in-store presentation. However, in
light of the current economic environment, we have scaled back
plans for new store openings during 2009. We have targeted
the vast majority of new store openings outside the U.S. given
the continued favorable performance overseas and have begun
steps to strengthen the four-wall contribution of newly opened
stores in the U.S., where we see a big opportunity to drive greater
profitability. Currently, we plan to open between 40 to 50 new
stores in fiscal 2009, with only four to five of these stores opening
in the U.S. Our e-commerce business performed exceptionally
during fiscal 2008 with net sales increasing 23%. During the year
we updated our U.S.-based site and launched new sites in the U.K,
Singapore and Australia. Our German website, launched late in
2007, contributed more than $4 million in sales during fiscal 2008.
We believe the combination of stores, websites and catalogs form
a measurable means of increasing the awareness and acceptance
of the FOSSIL brand globally.
Looking Forward.
Importantly, we began fiscal 2009 in a position of strength. While
advancing our market share during fiscal 2008, we have further
strengthened relationships with our retail partners around the
world. Our financial strength, portfolio of globally recognized watch
and jewelry brands and expanding leather businesses position us
as a significant and valuable resource to our retail partners given
the profitability and consumer awareness our products generate
within their environment.
We also have significant financial flexibility with $178 million in
cash, modest debt of $10 million and no outstanding borrowings
under our $140 revolving credit facility at fiscal year end 2008. In
an effort to increase shareholder value, during fiscal 2008 we also
utilized $106 million of our cash to repurchase 3.6 million shares
of common stock. We believe the benefits of our business model
combined with the strength of our balance sheet and positive cash
flow generation leaves us well positioned to navigate through
difficult economic conditions in 2009.
Finally, we would like to thank our more than 7,000 employees
worldwide and our customers, suppliers and 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
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
Director
Mike L. Kovar
Executive Vice President,
Chief Financial Officer
and Treasurer
Jennifer Pritchard
President,
Retail Division
Mark D. Quick
Vice Chairman
Elaine Agather
Director
Alan J. Gold
Director
Elysia Holt Ragusa
Director
James E. Skinner
Director
Michael Steinberg
Director
Donald J. Stone
Director
Livio Galanti
Executive Vice President
Kenneth W. Anderson
Director
James M. Zimmerman
Director
Jeffrey N. Boyer
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
2323 Victory Avenue
Suite 700
Dallas, TX 75219
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 20, 2009, 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.