Fossil Group
Annual Report 2013

Plain-text annual report

LETTER TO STOCKHOLDERS D E A R S T O C K H O L D E R S, Fossil Group’s 2013 represented another excellent year of growth and one with many noteworthy accomplishments towards achieving our long-term goals. We achieved record results, delivering a 14% increase in net sales to $3.26 billion and a 17% increase in earnings per share to $6.56. Through focused execution of our core growth strategies for the FOSSIL® and SKAGEN® lifestyle brands and our multi-brand watch portfolio, we increased our share in the growing watch industry by leveraging our competitive strengths in branding, design, manufacturing, sourcing and distribution. our long-term growth strategy, and we made significant progress in 2013. We delivered a solid topline increase and look to continue this trend into 2014 as we fully influence the brand with our design processes and instill a strong point of view on a Danish inspired lifestyle brand. We enhanced our operational capabilities and capitalized on our powerful portfolio of global brands to expand our geographic reach and we leveraged the strength of our balance sheet and solid financial position to further enhance returns to our shareholders. We launched a new store format in select stores with very positive results. We are evaluating select flagship store locations in strategic markets in addition to exploring ways to improve the digital experience for consumers. F O S S I L Our FOSSIL brand experienced growth across all of our regions, fueled by strong innovation that drove market share gains and the expan- sion of our global footprint. During the year, we focused on delivering exciting product while implementing marketing activities to enhance our connection with consumers. We were particularly pleased with the brand’s double-digit sales growth for the year in Asia where we have been investing in building brand awareness and increasing distribution. Watches, our largest category, saw business increase in all of our regions. We continued to post solid growth in jewelry, a category that is becoming increasingly branded and a trend that has propelled our watch growth for many years. Our goal is to continue our positive momentum in 2014 as we evolve our watch and jewelry designs, improve our leathers assortment and focus on increasing global awareness of our FOSSIL brand. Realizing the full potential of this vintage American lifestyle brand is a key element of our long-term growth strategy. Our goal is to continue to grow the brand in the Americas, where we already enjoy significant share, and to deliver outsized growth internationally as the brand gains share in growing markets. S K A G E N Growing SKAGEN into a multi-category lifestyle brand is another important element of We continue to believe SKAGEN has a bright future with significant growth potential. We have aligned some of our best resources around the multi-category vision for this brand and expect to continue the brand’s momentum as we leverage the Fossil Group infrastructure, provide a unique brand experience for consumers and deliver great Danish-inspired product. P O R T F O L I O In our multi-brand watch portfolio, we continued to gain share and delivered a 17% increase in sales for the year. The growth was balanced and included double-digit increases in all regions and with the majority of our brands posting gains. As the world becomes increasingly globally branded, our watch portfolio, which includes some of the most iconic lifestyle brands in the world, continues to be a powerful asset in gaining share in the growing global watch market. As an innovative category leader with a world-class supply chain and a global distribution network of more than 30,000 doors, we are uniquely positioned to work with the best lifestyle brands around the world. In 2014, we look forward to launching Emporio Armani Swiss Made in the spring and Tory Burch in the fall. We have the advantage of positioning brands across a broad spectrum of market segments to maximize our share of the global watch industry. Our goal is to employ all of our strategic advantages to realize the full potential of all of our brands. I N T E R N A T I O N A L M A R K E T S In 2013, we made significant progress in developing our worldwide operating platform and building our business across all of our regions. Europe posted outstanding results and achieved a huge milestone of $1 billion in sales for the year. Our growth was broadly based, as we grew both watches and jewelry for the year. We expanded our business in most countries in Europe and we continue to be pleased with the trends we are seeing in our retail stores. In Asia, we also reached an important milestone, achieving half a billion in sales for the year. Our priority in Asia is China, where we increased sales this year by more than 50%. Our focus now is on continuing to develop distribution and creating awareness for our brands in this very important market. O R G A N I Z A T I O N A L S T R U C T U R E In 2013, we made significant progress in developing both the management team and the operating platform that we will need to drive our growth and profitability in the future. We have assembled what we believe is one of the best management teams in the industry, with seasoned talent and key additions from some of the best companies in the world. We have redefined the way we operate and established a clear regional structure, where brand direction is managed carefully from the center, with regional teams responsible for local execution. In 2013, we invested in technology, both in our supply chain and in our support structures, to gain operational efficiencies and quick insight into our performance. We are also investing in enhanced web and marketing capabilities so we can better understand who our consumers are, how 1 to communicate with them and to better identify our opportunities. Our goal as a company is to build a world- class entity of excellence, where creativity and entrepreneurship are carefully balanced with operational discipline so we can deliver solid returns for our shareholders in the near and long-term. S H A R E R E P U R C H A S E As a company, we are focused on using all of our resources to drive shareholder value. Growth and efficiency are key components of that and we are very focused on those drivers. We are also committed to leveraging our strong financial position. Last year, we invested $575 million to repurchase $5.3 million shares of common stock. We know this is an important program for our shareholders and we are fully committed to it, as we now operate with a share base that is almost 20% lower than it was just three years ago. As we reflect on 2013, we are very pleased with the performance of the company and are excited about the possibilities in the future. We are well positioned as a leader in a growing industry with a strong global footprint and significant competitive advantages. Our diversification gives us access to multiple sources of growth and supports our goal of predictable earnings and cash flows. Our operating model gives us opportunities for leverage and efficiencies to drive greater profitability and our strong financial position gives us access to the fuel that we need to drive our business and deliver returns for shareholders. We look forward to a successful 2014 and thank you for your support. Sincerely, K O S T A N . K A R T S O T I S Chief Executive Officer 2 FINANCIAL HIGHLIGHTS FISCAL YE AR (in thousands, except per share data) Net sales Gross profit Operating income Income before taxes attributable to Fossil Group, Inc. Net income attributable to Fossil Group, Inc. Earnings per share: Basic Diluted Weighted average common shares and common equivalent shares outstanding: 2013 2012 2011 2010 2009 $3,259,971 $2,857,508 $2,567,302 $2,030,690 $1,548,093 1,861,686 1,606,543 1,439,186 1,155,164 844,850 561,596 549,468 378,152 488,840 478,726 343,4011 471,991 438,860 294,702 376,414 372,448 255,205 211,627 213,776 139,188 6.59 6.56 5.631 5.591 4.66 4.61 3.83 3.77 2.09 2.07 Basic Diluted Working capital Total assets 57,401 57,676 60,959 61,400 63,298 63,965 66,701 67,687 66,684 67,153 $987,556 $737,334 $844,124 $801,329 $701,193 2,230,414 1,841,989 1,642,922 1,467,573 1,276,483 Total long-term liabilities 663,141 194,747 134,798 76,377 Stockholders’ equity attributable to Fossil Group, Inc. 1,068,677 1,233,535 1,105,929 1,044,118 62,791 962,781 Return on average stockholders’ equity attributable to Fossil Group, Inc. 33.1% 2 29.9% 2 28.0% 2 25.0% 2 16.2% 2 1 Includes a $10.8 million benefit in income tax expense in connection with the completion of income tax audits. 2 Calculated by dividing net income attributable to Fossil Group, Inc. by five quarter average stockholders’ equity attributable to Fossil Group, Inc. 3300 3150 3000 2850 2700 2550 2400 2250 2000 1850 1700 1550 0 560 530 500 470 440 410 380 350 320 290 260 230 200 0 400 375 350 325 300 275 250 225 200 175 150 125 0 1250 1200 1150 1100 1050 1000 950 900 850 800 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 N E T S A L E S (in thousands of dollars) O P E R AT I N G I N C O M E (in thousands of dollars) N E T I N C O M E (in thousands of dollars) S T O C K H O L D E R S ’ E Q U I T Y (in thousands of dollars) 3 CORPORATE INFORMATION E X E C U T I V E O F F I C E R S & D I R E C T O R S KOSTA N. KARTSOTIS Chairman of the Board and Chief Executive Officer DARREN E. HART Executive Vice President, HR THOMAS M. KENNEDY Executive Vice President, Fossil Brand JENNIFER PRITCHARD President, Skagen Brand DENNIS R. SECOR Executive Vice President, Chief Financial Officer and Treasurer JOHN A. WHITE Executive Vice President and Chief Operating Officer ELAINE B. AGATHER Director JEFFREY N. BOYER Director WILLIAM B. CHIASSON Director DIANE L. NEAL Director THOMAS M. NEALON Director MARK D. QUICK Director ELYSIA HOLT RAGUSA Director JAL S. SHROFF Director JAMES E. SKINNER Director JAMES M. ZIMMERMAN Director C O R P O R A T E I N F O R M A T I O N TRANSFER AGENT AND REGISTRAR Computershare P. O. Box 30170 College Station, Texas 77842-3170 PRINCIPAL INDEPENDENT AUDITORS Deloitte & Touche LLP 2200 Ross Avenue Dallas, Texas 75201 CORPORATE COUNSEL Akin Gump Strauss Hauer & Feld LLP 1700 Pacific Avenue | Suite 4100 Dallas, Texas 75201 O U R W E B S I T E The Company maintains a website at www.fossilgroup.com. Certain event and investor relations information concerning the Company are available at the site. A N N U A L M E E T I N G The Annual Meeting of Stockholders will be held on Wednesday, May 21, 2014, at 9:00am CST at the Company’s headquarters, 901 S. Central Expressway, Richardson, Texas 75080. C O M P A N Y I N F O R M A T I O N 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 Group, Investor Relations, 901 S. Central Expressway, Richardson, Texas 75080-7302, or online at www.fossilgroup.com. 4 

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