Fossil Big Tease Year End Results. Review Fundamentals To Verify Sustainabilty $FOSL

Fossil Inc (Nasdaq:FOSL) experienced some nose bleed price moves as it announced great Q4 and year-end results. The brand is on the march and surprised investors. This all follows a previously announced acquisition of Skagen Designs, Ltd.  Mike Kovar, Executive Vice President and Chief Financial Officer of Fossil, Inc. Also indicated they have an Asia expansion strategy which seems to be de rigueur for any sort of enterprise with two nickels to rub together.

The big trick for a company on the roll is to keep the fundamentals balanced thereby ensuring they have enough gas in the tank. Take a look at some of the fundamentals. Cash and equivalents is down. Debt is up. Accounts receivable are stretching out. inventories are up with this excuse: Lead times stretched out 5 days so some Q1 2012 stuff fell into the Q4 2011 numbers. Lets read the offending quote

“An approximate five day reduction in lead times in watch shipments in December 2011 resulted in approximately $30 million of inventory receipts shifting from the first quarter of fiscal 2012 to the Fourth Quarter.”

A little bit of colour is needed on that one. What is happening to your supply chain? What does it mean for investors? You need to talk about it or you increase volatility and surprise factors.

Oh by the way investors should not miss the huge share buy backs that absorbed a lot of the cash and drove debt levels upward. The fundamentals are not sustainable. You cannot get red-hot with revenues, do big acquisitions and expansions, increase inventories and reduce your float without hitting the wall hard very hard. Add in that this is a fashion business and always sits on a knife’s edge. not surprising there is no dividend and I do not expect one for a long time.

George Gutowski writes from a caveat emptor perspective.