Fossil Group Inc (FOSL) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Fossil third-quarter preliminary results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Tuesday, November 14, 2006. I would now like to turn the conference over to Allison Malkin with Integrated Corporate Relations. Please go ahead.

Thank you. Before we begin, you should be aware that during this conference call certain discussions will contain forward-looking information. Actual results could differ materially from those that will be projected during these discussions. Fossil's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in our previously filed Form 10-K and 10-Q reports filed with the SEC. In addition, Fossil undertakes no obligation to publicly update or revised any forward-looking statements, whether as a result of new information, future events, or otherwise.

If any non-GAAP financial measure issue is used on this call, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the non-GAAP financial to GAAP will be provided as supplemental financial information to this release, under the earnings release section of the investor relations heading on Fossil's website.

Please note that this call is being webcast live on Fossil's website. It will be available for replay on the Website under the investor relations heading after the conclusion of this call. Now I would like to turn the call over to Fossil's CFO, Mike Kovar.

Thanks, Allison. Good morning and thank you for joining us to discuss our preliminary third-quarter fiscal 2006 results. Joining me today is President and CEO, Kosta Kartsotis.

Before Kosta begins discussing our preliminary third-quarter results, please note that today's conference call and financial discussion will follow a different format than prior calls. In today's earnings release, we announced that a committee made up of all independent members of our Board of Directors is voluntarily reviewing our historical equity trading practices. This Special Committee has just recently commenced a search for independent legal counsel to assist in this review. We will not be able to comment on any aspect of the review or possible outcomes; and there can be no assurance that we will not have to restate our prior financial statements or adjust certain amounts presented in this release until after the Special Committee completes such review.

We're not republishing or making reference to any financial results issued prior to 2006 with the exception of historical period revenue and gross profit and selected balance sheet information. Any financial disclosures relating to operating expenses, taxes, net income, and net income per share amounts within this release should be considered preliminary.

We do not expect that we will be in a position to file our Form 10-Q for the period ended October 7, 2006, in a timely manner. We do plan to become current on our periodic reports required under the Securities and Exchange Act of 1934, as amended, as soon as practical following the completion of the Special Committee's review. Now, I will turn the call over to Kosta.

Thanks, Mike. I would like to start out this morning by providing an overview of our preliminary third-quarter results and then review with you our performance in each of our businesses, and update you on our most recent initiatives. Mike will then provide details of our preliminary financial results and update our revenue guidance. At the conclusion of our prepared remarks, we will open the call for questions.

Third quarter marked a highly productive period for Fossil. We advanced our key strategic goals and reported earnings slightly better than our initial guidance. In total, net sales approximated $300 million, up 16.4% compared to $257.5 million last year. Diluted earnings per share totaled $0.32, inclusive of $0.01 per diluted share for stock option expense.

Notably, we continued to expand our portfolio globally, as we capitalized on the premier brands we possess and the advantages of our business model. This enabled us to increase our worldwide market share in watches and accessories during the quarter and report positive progress on several of our key strategic initiatives.

Specifically, we improved the trend in our Fossil watch brand sales. Our Fossil watch business reported a 3.4% increase in worldwide sales excluding discontinued product sales. Specifically, Fossil domestic watch sales on a comparative quarter basis were down only 3.3% after excluding sales of discontinued products. This is compared to the last four sequential quarters of double-digit decline.

Our new product positioning and styling is providing us improving results and better sell-throughs at retail in the United States. This was encouraging news, especially as we begin the holiday selling season. We believe we are positioned for continuing improvement. Product innovation and increasing brand presence in our catalogs and on the Web should help push this category along.

We also reduced our inventory levels. Compared to prior-year quarter levels, our inventories increased by only 3%. This reflects a significant improvement compared to the 21% increase in inventory that we reported at the end of the second quarter. We will continue to focus our efforts on inventory reductions, and we believe we are on track to report inventory at year-end equal to or slightly below the prior year.

We also experienced solid sales growth for many of our brands across each of the geographies we sell to. This led to double-digit gains in watch and jewelry sales for the quarter. Our company-owned retail stores delivered a solid quarter driven by store growth and a 4% increase in comp store sales.

Finally, we continued the rollout of new brands and offerings. New this year are ADIDAS, and MARC by MARC JACOBS watches, and DIESEL jewelry.

Our third-quarter performance by business area was as follows. In United States, total watch sales rose by 14.4%, 10.2% excluding the impact of liquidation sales. As I mentioned earlier, we believe our Fossil watch business is moving in the right direction and is positioned for a successful fourth quarter.

We also experienced a solid performance in our mass-market business during the quarter. In fact, sales doubled over the third quarter of last year. We are getting both increases in space and better sell-throughs. We continue to believe that this channel represents a sizable growth opportunity for us.

Domestically, sales from our licensed fashion brands reported double-digit increases. Led by DKNY, DIESEL, and Michael Kors, we believe this category represents a strong growth opportunity for us, considering the support Federated and other department stores are giving these brands.

On the luxury front, new product development in EMPORIO ARMANI and BURBERRY continues to fuel growth of these brands domestically as well as internationally. Further on the domestic front, we launched the MARC by MARC brand during the third quarter and are excited about the opportunity this brand presents to us and our customers.

We also introduced ADIDAS watches to the U.S. market during the latter half of the third quarter. As we discussed before, we believe ADIDAS complements our existing portfolio of watches, by providing us with a strong performance sports brand. Given the late introduction in the United States and certain international markets and the production delays we incurred early on, we are now expecting ADIDAS sales to come in below our initial expectation of $30 million. Nonetheless, we remain excited by the long-term potential of this brand as we continue to expand it globally.

Turning to our accessories business, we achieved sales growth of 6.9% in the quarter. Fossil accessories continues to be strong, whereas eyewear was down and RELIC was flat. Of course we are up against strong double-digit gains in our leather goods categories over the last two years. (indiscernible) product continues to look great; and on the handbag side we are continuing to drive higher [averaging] of retails. This is encouraging considering the market penetration we've been able to achieve in this category over the last two years. Our business continues to be very healthy; and on a comp store basis, we continue to get increases.

Internationally, we experienced strong sales growth during the quarter. Total sales outside the U.S. increased 18.3% or 15% excluding currency. In Europe, sales rose 20%, or 15% ex-currency, reflecting gains from our Fossil and licensed watch brands, as well as the contribution from the ADIDAS watch. Jewelry sales were also a significant growth driver, with strong performances by both Fossil and ARMANI jewelry businesses.

Other international sales, which includes the Asia Pac region, Canada, Mexico, and our U.S. export business rose by 14.8%. The growth in this segment was led by our Asia Pac subsidiaries and the acquisition of our Mexico distributor earlier this year. In the Asia Pac subsidiaries, strong double-digit growth was driven by sales volume in BURBERRY and ARMANI watches. Great luxury brands coupled with innovative products are driving the strong performance of these two brands.

Turning to the jewelry business, we experienced net sales growth of 53% in this category during the third quarter. We continue to be pleased by the progress we're making in the category. Our Fossil jewelry line continues to grow in Germany, its most penetrated market, and we are experiencing solid results in other European markets where we have launched the brand over the last couple of years.

Continuing to expand our presence in this category, we launched the DIESEL jewelry line earlier in the year and are testing a MICHELE offering in select (indiscernible) stores. As we discussed at our last call, we are currently introducing the Fossil jewelry line to the U.S. market in our own company-owned stores and plan to expand this to wholesale in 2007.

Turning to retail, as I mentioned earlier, we experienced solid contributions from our worldwide retail operations during the quarter. Sales rose 24.9% as a result of a 23.8% increase in door growth and a 4% increase in comp store sales. As we mentioned in our previous call, our new accessories store concept is more contemporary yet still true to our vintage roots. It is also more aspirational and lifestyle oriented, and has a larger presence of accessories and less in watches. The results of these new stores are meeting and in some cases surpassing our original expectations. We have recently completed the remodels of both our Dallas and Houston Galleria stores, and we will be expanding our remodel initiative into 2007.

As we mentioned before, our retail strategy is to position our Fossil stores as the destination within the mall for customers to shop for accessories. We ended the quarter with 193 stores, including 118 full price stores, 41 of which were outside the United States, and 75 outlet locations. This compares to 157 stores at the end of the prior-year quarter, that included 91 full price stores, including 28 outside the U.S., and 66 outlet locations. We anticipate by year end we will have approximately 200 stores worldwide.

Our objective is to continue to open accessory stores at a pretty good clip again next year, both inside the United States and outside. We feel this is a very big long-term opportunity in sales and profitability, as well as in the expansion of the Fossil brand globally.

As mentioned earlier, we continue to move forward with our catalog initiative. We're planning to mail approximate 2.5 million catalogs during the fourth quarter versus 1.5 million last year. We believe the catalog is an ideal way to convey our Fossil image and provide the Company a better ROI than some of our traditional marketing programs we focused on in the past. We also have an expanded presence on the Web this year, which has shown to be very impactful and profitable.

We believe the trio strategy of increasing catalogs, increasing Web activity, and increasing store growth will continue to propel the Fossil brand. Now, I will turn it over to Mike Kovar.

Thanks, Kosta. Before summarizing the results of our third quarter, I would like to once again remind you that certain information disclosed within these financial results should be viewed as preliminary pending the completion of a review of our equity granting practices by the Special Committee. We don't expect completion of this review will impact our reported net sales and gross profit results. However, amounts associated with operating expenses, operating income, net income and diluted earnings per share should be considered preliminary and subject to restatement pending the results of the Special Committee's review.

Now, I will go on with the preliminary third-quarter results. Net sales increased 16.4% to $299.7 million compared to $257.5 million in the prior-year quarter. Gross profit grew 9.9% to $148.1 million or 49.4% of net sales compared to $134.8 million or 52.3% of net sales last year. Operating income totaled $33.3 million, representing 11.1% of net sales. Net income totaled $21.9 million or $0.32 per diluted share on 68.6 million shares outstanding.

The third-quarter sales mix breakdown with comparison to the prior-year quarter was as follows. 21.8% versus 22.2% from domestic wholesale watch sales; 16.6% versus 18.1% from domestic wholesale accessories sales; 16.4% versus the prior-year 15.3% from Fossil owned retail store locations; and 45.2% versus 44.4% from sales generated in over 90 countries outside of the United States.

The 16.4% sales growth in the quarter consisted of the following increases by category and geographic region. Domestic watched sales increased 14.4% to $65.3 million compared to $57.1 million in the prior-year quarter. Other domestic sales, which include our accessory and sunglass businesses, grew 6.9% to $49.9 million compared to $46.7 million last year. Sales generated from European based wholesale operations increased by 20%, 15.1% excluding currency, to $94.2 million compared to $78.5 million in the prior-year quarter.

Other international sales, as Kosta mentioned, which consist of export sales to distributors and sales from our Canada and Mexico and Asia Pac wholesale operations, increased 14.8% to $41.2 million compared to $35.9 million last year. Finally, sales from our own retail stores grew 24.6% to $49.1 million compared to $39.3 million in the prior-year quarter, as a result of 23.8% growth in the average number of doors open during the quarter and comp store sales increases of 4%.

Gross profit of $148.1 million represents again a 9.9% increase over the prior-year quarter amount of $134.8 million. Gross profit margin decreased by 290 basis points to 49.4% in the third quarter compared to 52.3% in the prior-year quarter.

The decline in gross profit margin is mainly attributable to a sales mix shift toward lower margin product sales in our international segment; the impact of discontinued product sales through both nontraditional channels and our outlet stores at lower than historical margins; and to a lesser extent, gross margin further declined as a result of increased sales mix of lower margin mass-market watches and higher markdown levels. Markdowns primarily were associated with our domestic accessories business, due to the transition of May Company stores to Federated.

Partially offsetting these declines in gross profit margin was a 70 basis point increase as a result of a weaker U.S. dollar in comparison to the prior-year quarter.

Operating expenses as a percentage of net sales were 38.3% in the third quarter. Total operating expenses of $114.8 million includes approximately $1.5 million and $1.2 million of expenses related to a weaker U.S. dollar and the implementation of FAS 123(R), respectively.

For the third quarter, we reported operating income of $33.3 million. The increase in net sales and leverage in operating expenses was more than offset by the decline in gross profit margin. As a result, operating profit margin was 11.1% of net sales. Operating income included approximately $2.6 million of net currency gains related to the translation of foreign sales and expenses into U.S. dollars.

Income before income taxes of $32.3 million represents operating income of $33.3 million less interest expense of $1 million. Interest expense relates primarily to borrowings from our short-term revolving credit facility, principally to fund common stock repurchases made in the fourth quarter of 2005 and the first quarter of 2006. Our provision for income taxes of $10.4 million resulted in an effective income tax rate of 32.2% for the quarter.

Finally, we reported third-quarter net income of $21.9 million or $0.32 per fully diluted share on approximately 68.6 million shares outstanding. Diluted earnings per share for the third quarter included a $0.01 per diluted share charge for compensation expense related to FAS 123(R).

Now turning our attention to the balance sheet. At the end of the quarter, we had cash, cash equivalents, and short-term investments of $77.1 million with no long-term debt and $54.7 million of short-term bank debt.

As Kosta mentioned earlier, we continued to make progress in slowing the pace of inventory growth, reporting $269.9 million of inventory at the end of the quarter, a 3.4% increase over the prior-year quarter amount of $261.1 million. We expect to report fiscal-year 2006 year-end inventory balances near or slightly below that level reported at the end of fiscal-year 2005.

Accounts receivable at the end of the third quarter increased by 11.1% to $168.7 million compared to $151.8 million at the end of the prior-year quarter. Days Sales Outstanding decreased to 51 days compared to 54 days for the prior-year quarter.

To date, capital expenditures totaled approximately $40 million; and we are expecting fourth-quarter 2006 capital expenditures of an additional $5 million. This includes additional implementation costs related to the installation of an SAP merchandising system for our retail organization as well as normal maintenance capital expenditures and retail store growth.

Amortization and depreciation expense for the nine months of 2006 was approximately $24 million; and we are estimating full-year 2006 depreciation and amortization expense slightly over $30 million.

As it relates to 2006 guidance, we estimate net sales growth in the low double-digit range for the fourth quarter of fiscal-year 2006. We estimate 2006 fourth-quarter gross profit margin will be slightly higher than that reported in the prior-year fourth quarter. Both the net sales guidance and the gross profit margin guidance for the fourth quarter exclude the impact of further discontinued product sales. We expect to give guidance related to earnings for future periods once the Special Committee completes its review of the Company's equity granting practices.

As we move ahead, we look forward -- or we look to capitalize on the positive momentum in our domestic and international Fossil watch business while maintaining our inventory discipline. Our focus remains intense and our objectives are clear. We will continue to emphasize product innovation and differentiation that we believe separates us from our competition.

Throughout our global operations, we rely on our dedicated employees to consistently grow our businesses and build relationships that will further advance our product offerings. We look forward to a successful fourth quarter and 2007, and we appreciate the patience and support of our shareholders.

Before I turn the call over to the operator to begin the question and answer portion of the call, I would like to remind you that due to the Special Committee's pending review of our historical equity granting practices we will not be able to comment on any aspect of the review or possible outcome. Heidi?

(OPERATOR INSTRUCTIONS) Barbara Wyckoff with Buckingham Research.

I guess a couple questions. First of all, Mike, you gave some guidance sort of on fourth quarter. How should we be looking at the SG&A? Third-quarter SG&A came in lower than we had expected. I presume because there may be some ad dollars shifted from -- that we had planned because ad dollars were not used. Should we be planning those ad dollars to go out into fourth quarter?

Then second question is about inventory. Can you talk about the aging of the inventory this year versus the end of second quarter? How much excess goods do you still have to move through? I'm presuming this includes some accessories at this point. Thanks.

Barbara, as we indicated on the call, we are not giving any guidance beyond the gross profit level for future periods. However, I do feel comfortable answering that our advertising expenses will be somewhat consistent with what we saw with the fourth quarter last year. As Kosta mentioned, we are expanding our catalog initiative in the fourth quarter. But obviously, we will be cutting back in some other areas of some of the traditional stuff we have been doing to make room for that.

As it relates to our inventory composition, our inventory composition is in a much better position than we were last year at this time. Our discontinued product styles are down comparatively speaking to this year, last year -- or to this point, last year. However, we will continue to look opportunistically at any opportunity to continue to advance sales of discontinued products to work our inventory levels down lower.

Okay, thanks. Good luck.

Neely Tamminga with Piper Jaffray.

Mike, if you could help us just misunderstand, maybe longer-term in terms of the gross margin. Clearly, mix has been playing a factor into a lower gross margin as well as some of the discontinued product. But kind of longer term, do you have a sense of where the gross margin rate can be for you guys, given the mix of your business?

The other just kind of question I have related to Adidas. It looks like Adidas showed up in other international; but it doesn't look like it contributed to Europe, looking on that new little table you gave us in the release. Can you walk us through why it didn't really have an impact on Europe versus international?

I will take the last question first as it relates to Adidas. I think we did say in the call that our European sales were advanced by the continued rollout of the Adidas, or ADIDAS, brand.

Is that what the acquisition column means, then?

No, acquisitions will be related to companies that we have acquired. Any new brand initiative would fall within the organic growth.

Got it, that's clear. So then in terms of the structural gross margin rate?

I think we think, obviously as we move away from having to move discontinued product sales through the system, that will allow us to recapture some of the gross margin we have been reporting in the past and take the margins up to a more traditional level.

Again, there are so many moving parts to our business, Neely; and because we have not given any specific guidance for 2007 at this point in time, I would basically say that the opportunity is for us to increase our gross margins, based upon some of the pressure we have had on them this year. However, take that with a grain of salt, considering that currency plays a part in the future gross profit results, as well as the overall mix of the many businesses and geographies that we operate in around the world.

Okay, great. Thanks.

Brad Stephens with Morgan Keegan.

A couple of questions for you. Kosta, you mentioned really rolling out the accessories stores for next year. Can you give us kind of your updated view on where retail growth should be the next few years on a store basis?

Well, as you know, we been doing quite a bit of things in our retail business, especially focused on the accessories stores. Changing the look of it, making it more contemporary, making it more of an accessories store. People don't necessarily look for watches year-round, but they do for accessories. So we changed the profile of the stores, and it has been very successful.

It's also not only been successful in the U.S. but around the world. We are opening a number of stores in Europe this year, and we're starting a new retail organization over there that is preparing to ramp up a more significant growth. We could potentially open as many as 15 to 20 stores next year just in Europe.

So to take a guess right now is somewhat problematic; but I would guess we're going to open about 40 to 44 stores this year; next year will be more than that, could be 50 to 60. We are trying to get ourselves in a position to open them even faster than that.

So we do have quite a bit of opportunity both in U.S., in Europe, and in Asia, for retail. Obviously, it does great things for us, because it penetrates those markets with our brand; it gives us the ability to test products; we can see what is selling in the market. It also happens to be one of the most profitable parts of our business. So we think it is a great business model for us. It also is a great use of capital, because the return on investment is very high. So long term, we think it is a great way to penetrate our business.

So is that 50 to 60 stores in the U.S. next year, plus 15 to 20 in Europe? Or was that 50 to 60 a total number?

50 to 60 total.

Okay. Second, can you talk a little bit more about the ADIDAS launch; and maybe where some of the bumps in the road have come; and then kind of your outlook for next year for how much growth potential there is in year two of this?

Well, as you know, we got kind of a late start due to some production and technology problems; and are just now shipping in the U.S. So it is really kind of a work-in-process. It is just from the nature of it one of the most difficult launches we have had. Because it is going from zero to what was supposed to be 30 in the first year. Typically we start off with smaller number of stores; get it right; and then expand it.

So it is a huge problem to do something like that. We're doing pretty well, but I think it is still early to tell what the results are going to be and how it's going to come out next year.

But long-term, this brand is very powerful, very strong all over the world. It is going to help us to continue to penetrate Asia and China and other places too. So we are very excited about the long-term nature of it.

Okay. Then my last question and I will jump back in the queue. You and made some comments about markdowns at the May Company stores. In a prior call you have talked about opportunities at Marshall Field's, etc. Can you just update us on your Federated business, and how that has evolved, and any surprises you have encountered along the way?

Actually, our combined Federated business compared to last year's combination of May and Federated is actually pretty good. As you can imagine, there is a lot of disruption going on. There was store closings and additional doors rolling out. The net result is we are having sales increases, but there were some things that involved some cleanup at May Company stores as they changed their assortments. So I would say that the way to describe it is we are in somewhat of a state of disruption, still getting sales increases.

The long-term net effect of this is going to be we are going to have more space in stores. As you mentioned, the Macy's North, which used to be Marshall Field's, is going to be a big growth area for us. We are going to get more space in accessories as well as in some of these other watch brands that weren't in May Company. So the long-term effect of the combination of May and Federated is very positive for us. We are kind of in a state of change right now, but long-term it is a good impact for us.

So what do you --? You'd say both your watch and accessory businesses are growing at Federated? Or is it more the accessory business at this point?

Both are growing. On the accessory side obviously, it is possible because of getting more space. On the watch side, it tends to be more the other brands, because May Company was not carrying as many of our brands as Federated was. Now we are penetrating those stores.

All right, thanks, guys.

John Rouleau with Wachovia Securities.

A couple of questions. Kosta, looking at the inventory in the channel right now, I know this time of year there is always a little bit of a [flex] as to when, how much, and when wholesalers or the department stores or retailers order some of the inventory. Is it fairly clean out there right now; therefore, sales kind of accelerate in the fourth quarter? Is it a reorder business that will drive the fourth quarter? Maybe you can just talk about inventories in the channel right now at wholesale.

As has been going on pretty much this whole year, our sales performance at retail on a comp basis is better than our inventory growth. In other words, we're getting better sales increases at retail than the inventory is growing. So we are in a pretty clean position. Inventory is turning faster at retail.

We do have a much better situation in terms of predictability. We have, I think right now, our quick response business is about 40% of the business; whereas I think a year ago, it was maybe 30% or so. So we do have more predictability.

We do have some styles that are selling at a better rate. Many styles across the board are selling at a better rate than last year. So the position of the inventory and the inventory turn and the predictability of it looks better to us for the fourth quarter. We think that we are in a pretty good position in that regard.

Then maybe a different way to look at it, but fourth quarter, I mean how dependent is fourth quarter on reorders? How much of the business, just roughly, is done on a reorder basis versus kind of an initial sell-in type basis? Is it primarily a reorder business?

As I mentioned, 40% of it is quick response. But basically, what we're doing is as long as we make sales plan we have a certain receipt plan; and if we beat the sales plan, the receipts will be increased. We do ship most of these stores every two weeks; in some cases, every week. So the quick response part of it automatically ships when it sells through at a faster rate.

So the holiday season happen so fast, in some cases you don't fully get the benefit if you have a sales increase. But we will get some benefit.

Got it, okay. Then just turning the attention to gross margin again, the commentary made around gross margins for the fourth quarter, it sounds like from the commentary that certainly sales to the off-price channel are going to decline or decelerate, or there is going to be a lot less of it in the fourth quarter.

Can we kind of presume from your gross margin commentary that most of your excess inventory is going to go to your own outlet stores, as opposed to kind of liquidation off-price channel? Or should we still be expecting some off-price sales in the fourth quarter?

John, this is Mike. Our approach there will continue to be an opportunistic one. If we can reduce the receipt plans in our outlet stores that drive higher margin levels there by being able to move a significant unit through a non-traditional channel, that is something we will look into. So I would say more of an opportunistic view for the fourth quarter.

Okay, but at least your inventory puts you in a position that you don't have to do that any longer. It sounds like if you make sales plan, the inventory is in line; and you can kind of walk away from some of that off-price stuff.

Yes, I would say that in comparison to where we were last year and in comparison to where we were in previous quarters this year, the composition of the inventory is much healthier.

Right, okay. If I kind of look at the comp store sales split between full price and outlet stores -- and I know you don't break it out. But is it a dramatic difference? Where the outlet stores comped high double digits or something, where full price wasn't nearly as robust? Or can you just comment on the full price comps?

And then maybe on the product category basis as well. If you look at kind of accessories and handbags versus watches, how the comps kind of broke down.

Well, we don't really see any big difference between those; and they change month-to-month in that regard.

As far as categories go, there is one interesting thing. We mentioned over the last 18 months or so somewhat of a headwind in watches, and it was difficult. We have seen pretty good increases in watches in our stores the last couple months. And we are seeing, obviously, increases or better performance in the Fossil watch business in the U.S. in department stores. So we do somewhat feel that headwind is lifting a bit.

I presume that is in some of the newer watch designs, some of the higher price point products. Any commentary that you could provide there in terms of kind of which styles and what prices are selling better than what is not?

Actually, our strategy of going slightly higher in price, more detail, more aspirational type watches, is really working. Some of our best-selling styles are 105. In fact it would be real interesting to see what our average unit retail is in December versus a year ago. Because potentially it could be 10% or more higher than a year ago, which is obviously a very good thing for us.

So the customer is definitely responding to the differentiation. The fact that the watches look different than they have in the past, and that they have more detail, and they are more unique and special. That is really I think what is driving those sales.

Got it. Then lastly, anything kind of going on in RELIC that might cause that business to be down in the quarter?

Well, that was RELIC accessories; and I think it was flat. We have year-to-date a pretty good increase, double-digit increase in RELIC accessories. Continuing to do very well especially in sunglasses. We just kind of had a flat quarter. I don't really think it means anything.

Okay, great. Thanks, guys.

Thank you. At this time, I would like to turn the conference back to management for closing remarks. Please go ahead.

Thanks, Heidi. Should you want to replay this conference call, it has been recorded and will be available today from 10 AM Central Time until 5 PM Central Time tomorrow by calling 303-590-3000 and entering reservation number 1107-1082. (OPERATOR INSTRUCTIONS)

The conference call has also been recorded by Street Events and may be accessed through Street Events' website at www.streetevents.com; or directly through our website, Fossil.com, by clicking on investor relations on our homepage and then on webcasts.

Finally, should you have any questions that did not get addressed today, please give Kosta or myself a call. Thanks again for joining us today. Our next scheduled conference call will be in February for the release of our fourth-quarter and full-year operating results.

Thank you. Ladies and gentlemen, this concludes the Fossil third-quarter preliminary results conference call. Thank you for your participation. You may now disconnect.