Fossil : Announces First Quarter 2016 Results

1. Includes impacts from currency.
2. Eliminates the effect of the stronger U.S. dollar in fiscal 2016 to give investors a better understanding of the underlying trends within the business.

1. The Company reported net income for the first quarter of fiscal 2016 of $5.8 million compared to $38.1 million for the first quarter of fiscal 2015. Diluted earnings per share were $0.12, compared to $0.75 for the first quarter of fiscal 2015.Kosta Kartsotis, Chief Executive Officer, commented on the results. "During the quarter, we maintained our intense focus on our strategic priorities to leverage our leadership position in our core business and invest in innovation and technology. While our financial results were in line with our expectations, they were below last year given the persistent headwinds pressuring the traditional watch category and the challenging retail environment, particularly in our wholesale channel. We are disappointed that those headwinds have intensified, which will impact this year's expectations, despite our further expense management. We are working hard to drive future growth with our focus on wearables, our commitment to brand building and our strength in innovation. Our performance in Fossil and Skagen, particularly in our international markets, continues to give us confidence in our long-term strategy to grow our owned brands and leverage our competitive and strategic advantages to restore growth to our portfolio."Mr. Kartsotis concluded, "We continue to advance our digital and omni-channel initiatives and enhance our CRM capabilities; efforts we believe will position us to drive future growth as our customer continues to evolve and change the way they shop and engage with brands. Our team is making great progress toward integrating the Misfit technology and platform across our portfolio of brands and we anticipate launching new wearable products in eight brands later this year. We remain confident in our strategies and continue to believe the advantages of our global operating platform with distribution in 150 countries,powerful brands and now, the technology and resources to lead in wearables, will enable us to improve our long-term sales growth and profitability."Operating ResultsDuring the first quarter of fiscal 2016, the translation impact of a stronger U.S. dollar decreased the Company's reported net sales by $16.4 million, operating income by $12.9 million and diluted earnings per share by $0.08. The following discussion of the Company's net sales is calculated in constant dollars and reflects regional performance based on sales in all channels within the geographic location.First quarter fiscal 2016 worldwide net sales decreased 7% or $48.9 million compared to the first quarter of fiscal 2015, with growth in SKAGEN® offset by a decline in the licensed portfolio. Sales for FOSSIL® were flat compared to the prior fiscal year. Across product categories, a modest increase in leathers was offset by a decline in watches and jewelry compared to last fiscal year.Net sales in the Americas decreased 7% or $26.0 million compared to the first quarter of fiscal 2015, with declines in watches, jewelry and leathers compared to last fiscal year. Modest sales growth in Canada and Mexico was offset by a decline in the U.S.Net sales in Europe decreased 8% or $18.1 million compared to the first quarter of fiscal 2015, with an increase in leathers offset by declines in watches and jewelry compared to last fiscal year. Within the region, modest growth in France and Germany was offset by a decline in distributor markets and the U.K.Net sales in Asia decreased 4% or $4.8 million compared to the first quarter of fiscal 2015, with an increase in leathers offset by declines in watches and jewelry compared to last fiscal year. Within the region, an increase in India was offset by declines in most markets, including Hong Kong and China.Global retail comps for the first quarter of fiscal 2016 decreased 3% compared to the first quarter of fiscal 2015. A strong comparable sales increase in Europe was offset by a decline in the Americas and Asia. A comparable sales increase in leathers and jewelry was offset by a decline in watches.During the first quarter of fiscal 2016, gross margin decreased 250 basis points to 52.8%. The favorable impact of the Company's price initiatives was offset by the negative impact of changes in foreign currencies, higher markdowns and promotional activity, primarily in the outlet stores, and a mix towards lower margin product categories.The Company's operating expenses decreased during the first quarter of fiscal 2016 driven by restructuring expenses that occurred in the prior year, the favorable impact of changes in foreign currency and lower infrastructure and store expenses. Those benefits were partially offset by expenses associated with Misfit, including purchase accounting costs, and increased investments in strategic marketing initiatives. As a percentage of net sales, operating expense increased 310 basis points to 50.6% given the impact of fixed expenses on lower sales.Operating income for the first quarter of fiscal 2016 decreased to $14.4 million driven by lower sales and gross margin, the unfavorable impact of currencies and increased investment in marketing and strategic initiatives including expenses associated with Misfit, partially offset by the benefit of lower infrastructure and store expenses. Operating margin decreased to 2.2% compared to 7.7% in the prior fiscal year, driven by the impact of the previously listed items.During the fiscal first quarter, interest expense increased $1.8 million to $6.0 million and other income decreased $4.9 million to $2.3 million due to lower gains on foreign currency contracts and account balances compared to the prior year.The Company's effective income tax rate in the first quarter of fiscal 2016 was 30.7% compared to 31.3% for the first quarter of fiscal 2015.Share RepurchaseDuring the first quarter of fiscal 2016, the Company invested $4.4 million to repurchase 0.1 million shares of its common stock at an average price of $47 per share. As of April 2, 2016, the Company had $825.0 million remaining on its existing share repurchase authorizations.Sales and Earnings GuidanceThe Company expects that the comparison of its fiscal 2016 results to its fiscal 2015 results will be affected by several factors listed in the chart below. The Company also continues to expect that the operations of Misfit will be dilutive to its 2016 results of operations.Full Year 2016Second Quarter 2016Negati ve I mp act o n Net Sales Gr o wt hForeign Currency Translation 100 basis points 160 basis pointsNegati ve I mp act o n Op er ati ng Margin

1. Negati ve I mp act o n Di luted E ar nin gs P er Shar e Co mp ar i so n

1. P o sitive I mp act o n Dil uted Ea rnin gs P er Shar e Co mp ar i so n

1. GAAP GuidanceFor fiscal 2016, the Company now expects the following:
   • Net sales to decrease in the range of 5.0% to 1.5%
   • Operating margin in a range of 5.0% to 7.0%
   • Diluted earnings per share in a range of $1.80 to $2.80
   • For the second quarter of fiscal 2016, the Company expects the following:
   • Net sales to decrease in the range of 10.0% to 8.0%
   • Operating margin in a range of 1.5% to 3.0%
   • Diluted earnings per share in a range of $0.00 to $0.15

The Company's guidance assumes that foreign currency exchange rates that affect the Company's financial results remain at prevailing levels.

management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. Readers of this release should consider these factors in evaluating, and are cautioned not to place undue reliance on, the forward-looking statements contained herein. The Company assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.