Fossil Group
Annual Report 2014

Plain-text annual report

LETTER TO STOCKHOLDERS DEAR STOCKHOLDERS, Looking back on 2014, Fossil Group delivered another year of solid sales and earnings per share growth driven by the strength of our diversified business model, our team’s disciplined execution of our strategies and our strong financial position. We accomplished this while continuing leathers business. We improved an environment that reflects the to invest in the business to fuel future our performance in the category, differentiated and unique aesthetic of growth. We also drove efficiencies in particularly women’s handbags, where the brand. Additionally, we enhanced our operations that we believe position we concentrated efforts to add to our our customers’ digital experience us to generate solid returns for our design team and bolstered our product through the launch of a redesigned shareholders well into the future. offerings to gain broader consumer SKAGEN website, which includes During the year, we drove an 8% increase in sales to $3.5 billion and we delivered $7.10 in earnings per share, an 8% increase over 2013. We begin 2015 intensely focused on taking advantage of the many opportunities available to us to accelerate our sales momentum. We are investing in strategic initiatives to further grow our owned brands and developing new categories, while appeal. Our elevated assortment is improved functionality for the resonating with customers, particularly customer and incorporates rich brand in our retail stores where we offer content designed to bring greater the entire brand experience, and in awareness to the brand. improved presentations through shop- in-shops within U.S. department stores. PORTFOLIO In jewelry, we spent 2014 repositioning our U.S. distribution and believe we In our multi-brand portfolio, we continued to leverage our are well positioned to capitalize on the competitive strengths in branding, synergies that jewelry shares with watches. continuing to optimize our multi-brand Unlocking the value of the FOSSIL portfolio to take advantage of the brand is a key priority for us as we significant opportunities that exist to believe considerable growth lies expand these brands around the world. ahead for this powerful brand. To We believe our portfolio of highly desirable brands, our continuous innovation, disciplined execution and considerable white space opportunity by brand, category and geography, have us well positioned to continue our successful growth for many years in the future. achieve this objective, we turned our attention towards brand awareness and demand creation activities that can yield dividends for the brand in the future. We increased investments in our customer relationship management capabilities to allow us to deepen our connection with our customers and add more consumers to our fold. In 2014, we made solid progress on many key objectives that we will build upon SKAGEN in 2015. FOSSIL The FOSSIL brand experienced growth across all of our regions. We leveraged our position as a leader in lifestyle brand watches and saw strong growth in the watch category for the brand. Geographically, the brand’s strongest gains were in Asia. We made solid progress advancing SKAGEN during the year as evidenced by a strong double digit top-line increase, with all product categories posting strong gains. In addition to increases in watches, we saw solid growth in jewelry, successfully launched handbags and opened two new high-profile store locations in Frankfurt and New York. These stores, along with our remodeled stores in Outside of watches, the year included London, allow us to showcase the the successful repositioning of our full array of SKAGEN products in design, sourcing and distribution to gain increased market share in the growing watch industry. Our multi-brand watch portfolio grew 9% for the year with the strongest gains internationally. We advanced our Swiss watch initiative with introductions of Emporio Armani Swiss Made and our Tory Burch watch collection. The Swiss opportunity represents one of the important white space opportunities we see available for fashion lifestyle brands. Given our sourcing and production capabilities, we are well positioned to take advantage of this long-term opportunity with our licensed brands, as well as the continued execution of FOSSIL Swiss Made. The strength of our capabilities was further demonstrated through our renewal of two of our longstanding licenses, Emporio Armani and Michael Kors, each for ten years. These renewals clearly solidify our position as the natural partner for the best global fashion brands. Following our successful launch of the Tory Burch collection in 2014, we look forward to leveraging our competitive strengths to assist Kate Spade & Company in Outside North America, we saw balanced 2015, our priorities will be very focused growing their watch business under the growth in Europe and Asia. As the world on the most important initiatives to drive kate spade new york label and expanding becomes increasingly globally branded, growth. We will invest to ignite our owned their brand around the globe in 2015. our watch portfolio continues to be a brands—FOSSIL and SKAGEN—to increase CONNECTED ACCESSORIES global watch market. As an innovative accelerate their growth. We will invest in our powerful tool to gain share in the growing brand awareness, increase demand and category leader with a world-class supply digital capabilities to improve the customer chain and a global distribution network of experience online and increase our omni- more than 30,000 doors, we are uniquely channel capabilities, and we will leverage our positioned to work with the best lifestyle new partnerships to advance our position in brands around the world. the wearable technology space. We advanced our position in wearable technology as well, another white space opportunity for fashion lifestyle brands, announcing two very important partnerships with Google and Intel. We are partnering with the best in technology, leveraging their knowledge LOOKING FORWARD and expertise to develop fashionable Our goal as a company is to build a world- connected accessories for our portfolio class entity of excellence where creativity of desirable lifestyle brands. We believe and entrepreneurship are carefully our expertise in design and creativity balanced with operational discipline to coupled with our partners’ expertise in enable us to deliver solid returns for our technology and innovation will enable shareholders in the near and long term. As us to introduce wearable technology in a company, we are focused on using all of a fashionable and scalable way. As we our resources to drive shareholder value. look forward to introducing our first connected accessories in 2015, we are working towards a larger objective of leveraging our strengths and leadership position in fashion lifestyle watches to the point where fashion, design and technology converge. INTERNATIONAL MARKETS We leveraged our diversified business model, broad operational capabilities and significant strategic advantages to deliver growth in all three regions in 2014. In our international markets, as lifestyle brands take share from traditional watch brands, our goal is to replicate the success that we have experienced in the United States. We are also committed to leveraging our strong financial position. In 2014, we invested $435 million to repurchase 4.1 million shares of common stock. This is an important program for our shareholders, and we’re fully committed to it, operating with a share base that is more than 25% lower than it was just three years ago. We would like to thank all of our associates for their inspired contributions in 2014 as well as our partners and investors for their continued support. As we reflect on the past year, we are pleased with our results, but excited about our ability to improve on the company’s performance. As we move ahead to We are well positioned as a leader in a growing industry with a strong global footprint and significant competitive advantages. Our diversification gives us access to multiple sources of growth and supports our goal of predictable earnings and cash flows. The leverage we believe our operating model can generate, along with our strong financial position, give us access to the fuel that we need to drive our business and to deliver solid returns for shareholders. We look forward to building on our success in 2015 and thank you for your support. Sincerely, KOSTA N. KARTSOTIS Chairman and Chief Executive Officer FINANCIAL HIGHLIGHTS FI SCA L YEAR (in thousands, except per share data) Net sales ($) Gross profit ($) 2014 2013 2012 2011 2010 3,509,691 3,259,971 2,857,508 2,567,302 2,030,690 2,001,172 1,861,686 1,606,543 1,439,186 1,155,164 Operating income ($) 566,536 561,596 488,840 471,991 376,414 Net income attributable to Fossil Group, Inc. ($) 376,707 378,152 343,401 294,702 255,205 Earnings per share: Basic ($) Diluted ($) Weighted average common shares and common equivalent shares outstanding: 7.12 7.10 6.59 6.56 5.63 5.59 4.66 4.61 3.83 3.77 Basic Diluted 52,882 53,080 57,401 57,676 60,959 61,400 63,298 63,965 66,701 67,687 Working capital 1,043,025 987,556 737,334 844,124 801,329 Total assets ($) 2,207,552 2,230,414 1,841,989 1,642,922 1,467,573 Total long-term liabilities ($) 776,922 663,141 194,747 134,798 76,377 Stockholders’ equity attributable to Fossil Group, Inc. ($) Return on average stockholders’ equity attributable to Fossil Group, Inc. 1 977,860 1,068,677 1,233,535 1,105,929 1,044,118 37.5% 33.1% 29.9% 28.0% 25.0% 1 Calculated by dividing net income attributable to Fossil Group, Inc. by five quarter average stockholders’ equity attributable to Fossil Group, Inc. 3600 3450 3300 3150 3000 2850 2700 2550 2400 2250 2000 1850 1700 1550 0 590 560 530 500 470 440 410 380 350 320 290 260 230 200 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 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 NET SALES (in thousands of dollars) OPERATING INCOME (in thousands of dollars) NET INCOME (in thousands of dollars) 10 11 12 13 14 STOCKHOLDERS’ EQUITY (in thousands of dollars) CORPORATE INFORMATION EXECUTIVE OFFICERS & DIRECTORS Kosta N. Kartsotis Chairman of the Board and Chief Executive Officer Darren E. Hart Executive Vice President, HR 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 Elysia Holt Ragusa Director Jeffrey N. Boyer Director Jal S. Shroff Director William B. Chiasson Director James E. Skinner Director Diane L. Neal Director James M. Zimmerman Director Thomas M. Nealon Director Mark D. Quick Director OUR WEBSITE The company maintains a website at www.fossilgroup.com. Certain event and investor relations information concerning the company are available at the site. ANNUAL MEETING The Annual Meeting of Stockholders will be held on Wednesday, May 20, 2015, at 9:00am CDT at the company’s headquarters, 901 S. Central Expressway, Richardson, Texas 75080. 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 Group, Investor Relations, 901 S. Central Expressway, Richardson, Texas 75080-7302, or online at www.fossilgroup.com. CORPORATE INFORMATION Transfer Agent & 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 

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