Fossil Group, Inc. Annual Report 2013

FY2013 Annual Report · Fossil Group, Inc.

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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

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

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

Includes a $10.8 million benefit in income tax expense in connection with the completion of income tax audits.

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

560

530

500

470

440

410

380

350

320

290

260

230

200

400

375

350

325

300

275

250

225

200

175

150

125

1250

1200

1150

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1050

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800

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)

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.