Texas-based company, Fossil, Watches its Way to the Top

April 25, 2011 by · Comments Off 

By Maggie Ashworth
mashworth@smu.edu

Fossil Inc., a company that specializes in the manufacturing, distribution and sale of watches, accessories and apparel, has had a successful year during 2010. From 2009 to 2010, during the fourth quarter, Fossil has seen its net sales increase 32.8 percent, from $527.8 million to $701.1 million.

Fossil originated as a watch company in 1984, and while it sells and distributes additional merchandise, its watches continue to be the main source of sales. During the fourth quarter of 2010 all watch brands under the Fossil name have led to a 41.7 percent increase in global watch sales. These sales were primarily led by the brands of Michael Kors Inc., Fossil Inc., and Michele Watch. However, watches haven’t been the only source of booming business for Fossil. The company’s line of accessories saw a 10.4 percent increase in net sales, which was mostly due to the growth of sales amongst leather products for men and women.

The Asia Pacific region of Fossil’s sales was a primary area of growth last year. The wholesale shipments of merchandise to the Asia Pacific areas increased by $22.9 during the fourth quarter. According to the press release announcing its fourth quarter earnings for the fiscal year of 2010, this increase is due in part to the company’s decision to remove Fossil’s third-party distributor in Korea, and use a “company-owned subsidiary” instead, thus making the business more profitable.

Fossil ‘s headquarters are located in Richardson, TX, but the company operates stores across the world. According to Fossil’s reports record fourth quarter and fiscal year net sales and earnings, the most recent business summary, there are Fossil stores in over 120 countries, with over 360 company-owned and operated retail stores worldwide.

In a May 11, 2010 conference call, Kosta Kartsotis, chief executive officer of Fossil described the company’s recent progress, as well as plans for the future. “The Fossil brand also continues to reap rewards with strong sales growth and increased margins across our total stores platform. Combined with our e-commerce and catalog initiatives, our retail store growth is continuing to boost awareness of the Fossil brand… resulting in increased sales through both our retail and wholesale channel,” Kartsotis said.

Fossil’s recent success can be attributed to the company’s continued effort to bring something new to its stores and merchandise, as well as the distribution of products through other licensed brands. However, Fossil’s recent earnings release shows that most of the company’s sales, 76.2 percent, are wholesale. This figure means that Fossil’s largest source of income stems from manufacturing watches that are sold to other retail companies and only 23.8 percent of the company’s sales are made directly to the consumer, or through its own retail stores and website.

By distributing products under the name of several brands, Fossil appeals to the masses, regardless of their style and budget. Bryce May, a sales associate at a Dallas Fossil store says that “some people don’t really know that we manufacture that many [watches]” but then the customers will come into the store and say “I saw this at Michael Kors, and then I saw it at Fossil and it looks the same. But some people just have to have the name.” Fossil distributes watches to brands such as Michele, known as a luxury timepiece retailer, and Michael Kors, a brand that is known for having fashionable statement pieces.

Aside from distributing products to other retail companies, Fossil has also been revamping its own company image. Fossil has recently launched a new type of Fossil store, a pop-up store. “First one of its kind for us, it’s in SoHo. It’s cool, it’s completely different from anything we do. We sell things we find at garage sales, we sell everything in there,” said Kevin Stephens, manager of a Fossil store in Dallas, TX. Fossil is exploring a whole new aspect of retail by not only selling its own brand, but also exploring the sales of vintage items and random finds, mixed in with the company’s own merchandise.

Overall, the company’s addition of retail stores, continued sales of proprietary brands, and launch of a pop-up store is bringing significant increases of sales and income.

PROFILE: Dr Pepper Snapple Group

October 28, 2010 by · Comments Off 

By Lesley Isaacs
lisaacs@smu.edu

Things are looking up for the Dr Pepper Snapple Group as consumer spending improves. The impact was apparent in the second quarter, when sales rose 2.6 percent helping to drive net income up 15.8 percent.

Dr Pepper is in somewhat of an industry sweet spot. It was the only one of the top three soft-drink companies to see sales volume grow in 2009. Coca-Cola was the largest seller but had a 3.9 percent decrease in volume, Pepsi was second with a 5.0 percent decrease in volume, and Dr Pepper Snapple was third with a 4.8 percent increase in volume.

Although DPS is seeing improvement in the second quarter, the company is taking steps to strengthen its distribution system.

On Feb. 26, DPS licensed certain brands to PepsiCo, Inc. after PepsiCo acquired The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS). The new licensing agreements allow PepsiCo to distribute Dr Pepper, Crush and Schweppes in the U.S. where PBG and PAS have previously distributed. DPS received a one-time cash payment of $900 million from the deal.

On Oct. 4, DPS announced that it had completed the licensing of certain brands to Coca-Cola. This is after Coca-Cola acquired Coca-Cola Enterprises’ North American Bottling Business. Coca-Cola will now offer Dr Pepper and Diet Dr Pepper in local fountain accounts. DPS received a one-time cash payment of $715 million from the deal.

In the second quarter conference call Larry Young, president and chief executive officer of Dr Pepper Snapple, said they view these agreements with Coke as yet another positive step for our company and our brands.

“We are already seeing the benefits from our new agreements with PepsiCo,” Young said. “In Q2, this business was up 6 percent driven by increased distribution, and flawless execution of both Dr Pepper and Crush.”

Besides expanding distribution, the deals gave DPS a total of $1.165 billion in one-time cash payments. The company said it would use most of this cash to purchase its own stock. It plans to buy back one billion or 1/8th of the total value of its stock.

Since buybacks reduce the supply of shares, this will tend to drive up stock prices. DPS is using still more of its cash to reward shareholders with increased dividends. On May 9, dividends increased 67 percent to $0.25 per share.

Shareholders seem to be applauding the moves. Year-to-date DPS stock has risen 21 percent, while the Standard & Poor’s 500 stock index has seen only a 2.3 percent increase.

After learning about the deal between Dr Pepper Snapple and Coca-Cola, a former shareholder of Coca-Cola stock stated that, “Historical Coca-Cola performance was better than Dr Pepper Snapple which is why I had stock in it. Therefore the Coke transaction could be an improvement to Dr Pepper performance which would interest me as a stockholder.”

Still, company management worries that the economy remains weak, and that cash-strapped consumers could slow its growth.

“As we highlighted on our second quarter earnings call, consumer spending in the U.S. remains weak. The lack of job and income growth is weighing heavily on consumer purchasing behavior. The result is a back half of the fiscal year that is much weaker than we had expected, and this is resulting in trends that remain below our long term net sales growth rate,” said Marty Ellen, chief financial officer
of DPS, in the Barclays Back-to-School Consumer Conference.

DPS is hoping that the deals with PepsiCo and Coca-Cola can help even out the slow growth rate it is seeing and point toward an improvement in the future for the company.

Interested in Working Abroad?

March 25, 2010 by · Comments Off 

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