Fossil Approves New Buyback Program

Fossil Inc. (FOSL - Analyst Report) has authorized a new share buyback program to repurchase up to $1.0 billion of its outstanding shares, reflecting the company’s strong balance sheet and robust cash flow. The program will expire on December 31, 2016 but can be discontinued at any time on the company’s discretion. The company had repurchased approximately 9 million shares for $693 million on December 4 under its current $750 million share repurchase program. The company expects to complete the $750 million program in the first quarter of 2013.

Fossil recently reported its third quarter 2012 earnings of $1.28 per share, which exceeded the year-ago earnings by 17.4% and the Zacks Consensus Estimate by 9.4%. The results also exceeded management’s guidance range of $1.15–$1.17 per share. The upswing in results was driven by top-line growth, improved margins and prudent expense management.

Fossil’s net sales during the quarter increased 6.4% to $684.2 million, driven by strong global watch sales and improved leather businesses. The acquisition of the Skagen brand also fuelled sales growth. The jewelry and eye-wear businesses partially offset sales growth. Net sales, however, lagged the Zacks Consensus Estimate of $715 million. The company lowered its net sales guidance for the fourth quarter 2012 due to expectation of a decline in European wholesale businesses. Fossil expects sales to increase approximately 12% in contrast to 16% growth forecasted previously. On a constant currency basis, the company expects net sales to increase 13% compared with 18% forecasted previously.

Adjusted earnings (excluding non-recurring costs associated with the acquisition of Skagen as well as certain tax benefits) for the fourth quarter are expected in the range of $2.26 – $2.29 per share. For fiscal 2012, Fossil has raised its adjusted earnings per share guidance to a range of $5.42 to $5.45 compared with the previous range of $5.29 to $5.34.

The Zacks Consensus Estimate is pegged at $2.27 and $5.40 per share for the fourth quarter and fiscal year 2012, respectively.

We have a Neutral recommendation on the stock over the long term. Currently, Fossil carries a Zacks #2 Rank (short-term Buy rating) in contrast to its peer Guess? Inc. (GES - Analyst Report), which carries a Zacks #3 Rank (short-term Hold rating).