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Article by DailyStocks_admin    (10-31-08 03:04 AM)

The Daily Magic Formula Stock for MM/DD/YYYY is Fossil Inc. According to the Magic Formula Investing Web Site, the ebit yield is 23% and the EBIT ROIC is 25-50 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General



We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our principal offerings include an extensive line of men’s and women’s fashion watches and jewelry sold under proprietary and licensed brands, handbags, small leather goods, belts, sunglasses, and apparel. In the watch and jewelry product category, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed. Our products are distributed globally through various distribution channels including wholesale, export and direct to the consumer at varying price points to service the needs of our customers, whether they are value conscious or luxury oriented. Based on our extensive range of accessory products, brands, distribution channels and price points we are able to target style-conscious consumers across a wide age spectrum on a global basis.



Domestically, we sell our products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores, owned and affiliate internet sites and through our FOSSIL ® catalog. Our broadly based wholesale customer base includes retailers such as Neiman Marcus, Nordstrom, Macy’s, Dillard’s, JCPenney, Kohl’s, Sears, Wal-Mart and Target. We also sell our products in the United States through a network of company-owned stores, which included 96 retail stores located in premier retail sites and 74 outlet stores located in major outlet malls as of January 5, 2008. In addition, we offer an extensive collection of our FOSSIL brand products through our catalog and at our web site, www.fossil.com as well as proprietary and licensed watch and jewelry brands through other managed and affiliate websites.



Internationally, our products are sold to department stores, specialty retail stores, and specialty watch and jewelry stores in over 90 countries worldwide through 23 company-owned foreign sales subsidiaries and through a network of approximately 56 independent distributors. Our products are distributed in Africa, Asia, Australia, Europe, Central and South America, Canada, the Caribbean, Mexico, and the Middle East. Our products are offered on airlines, cruise ships and in international company-owned retail stores, which included 55 accessory retail stores, 13 multi-brand stores and 6 outlet stores in select international markets as of January 5, 2008. Additionally, our products are sold through independently-owned FOSSIL retail stores and kiosks in certain international markets.



We are a Delaware corporation formed in 1991 and are the successor to a Texas corporation formed in 1984. In 1993, we completed an initial public offering of 13,972,500 shares of our common stock, as adjusted for four three-for-two stock splits to date. Domestically, we conduct a majority of our operations through Fossil Partners, L.P., a Texas limited partnership formed in 1994 of which we are the sole general partner. We also conduct operations domestically and in certain international markets through various owned subsidiaries. Our principal executive offices are located at 2280 N. Greenville Avenue, Richardson, Texas 75082, and our telephone number at such address is (972) 234-2525. Our European headquarters is located in Basel, Switzerland. Our common stock is traded on the NASDAQ Global Select Marketplace under the trading symbol FOSL. We make available free of charge through our website at www.fossil.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports. You may also obtain any materials we file with, or furnish to, the SEC on its website at www.sec.gov.



Business Segments



Our operations and financial reporting are primarily divided into four distinct segments that include the United States wholesale segment, the Europe wholesale segment, the other International wholesale segment and our direct to consumer segment, which includes our company-owned retail stores, our catalog and e-commerce activities. Within the wholesale segments of our business we generally sell to retailers in those countries in which we have a physical presence as well as to distributors in countries where we do not have a physical presence. Except to the extent that differences between operating segments are material to an understanding of our business taken as a whole, the description of our business in this report is presented on a consolidated basis. For financial information about our operating segments and geographic areas, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part II, Item 7 and Note 13 — Major Customer, Segment and Geographical Information to our Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report on Form 10-K.



Business Strengths



We believe that we have several business strengths which allow us to differentiate ourselves and execute our key operating and financial goals. These business strengths include:



Brand Strength. We believe a brand’s image, individuality, consistency and connection with its customers is paramount in building and sustaining the brand. We believe that our FOSSIL brand name is recognized on a global basis for vintage-inspired products for the aspirational individual. The FOSSIL brand has scaled from its origin as a watch brand to encompass numerous other accessory categories, including handbags, belts, small leather goods, jewelry and sunglasses to a beginning emergence in apparel. We believe the FOSSIL brand is one of our most valuable assets, serves as a foundational piece of our business and remains very scalable across product lines, geographic areas and distribution channels. Since our inception in 1984, we have continued to develop, acquire or license other nationally or internationally recognized brand names in order to appeal to a wide range of consumers, including ADIDAS ® , BURBERRY ® , DIESEL ® ,DKNY ® , EMPORIO ARMANI ® , MARC BY MARC JACOBS ™ , MICHELE ® , MICHAEL Michael Kors ® , RELIC ® and ZODIAC ® . Our industry is highly competitive and subject to changing preferences in style, taste and price points. The success of our business model depends upon offering a wide range of branded products that appeal to the various tastes and fashion preferences of our customers. We must also maintain the relevance of these products by continually anticipating customer needs and desires as they relate to both the brands and categories of product we offer. We have teams of designers and product specialists assigned to each of the brands we offer. The objectives of these designers and brand specialists are to immerse themselves in their assigned brand and product area, identify their customers’ preferences, interpret global fashion trends and develop style-right offerings to generate volume purchasing. By owning the vast majority of our global distribution we are also able to create and execute both consistent pricing strategies and brand image presentations that protect and enhance our proprietary brands and those of our licensors.



Licensing Strength. Since 1997, we have attracted highly recognized and respected brand names to license within our watch portfolio. We believe we attract such quality brands due to our ability to provide them with access to our global design, production, distribution and marketing infrastructure. As a result of our vertical integration we, unlike many of our competitors, can offer an integrated solution to launch or increase their accessory category presence on a worldwide basis in a consistent, timely and focused manner. Our licensing relationships are exclusive to us and the licensors, which substantially removes certain risks to the licensor associated with dealing with multiple licensees in different geographic regions. Additionally, in order to develop a broader relationship and maintain brand consistency across the accessory categories, we have also broadened our infrastructure allowing us to expand our licensing activities to products beyond the watch category, as evidenced by our EMPORIO ARMANI and DIESEL jewelry product lines.



Breadth of Brands & Price Points. Through the multiple brands we distribute we have developed a broad spectrum of retail price points. Within our watch collections, retail price points vary from approximately $6 for brands sold in the mass market channel up to retail price points of $3,000 in the luxury distribution channel. The breadth of our brands allows us to anchor a brand to a given price point range and distribution channel, thereby maintaining a consistent brand image while focusing on the quality/value relationship important to the customer and not diluting the brand through overlapping distribution channels. The breadth of price points allows us to cater to various age and income groups while continuing to participate in sales consistently, regardless of a shift in income or the price/value preferences of our customers.



International Penetration. Since our initial public offering in 1993, we have continued to extend our reach beyond the United States by forming and acquiring internationally-based subsidiaries, licensing and developing internationally recognized brands and investing in the growth of our business within the major countries of the world. For fiscal year 2007, 61% of our wholesale net sales and 54% of our total net sales were generated outside of the United States.

Breadth of Distribution Channels. Our products are sold through multiple distribution channels including department stores, specialty retail stores, specialty watch and jewelry stores, mass market stores, sport stores, cruise ships, airlines, owned-retail, business to business, the internet and our catalog. As we continue to expand our presence in existing distribution channels and add new distribution channels, as well as develop new product lines and expand our geographic reach, our revenues become less dependent on any one product, brand, distribution channel or geographic region. Our owned-retail, internet and catalog venues allow us to enhance the related brand image by offering a targeted message to the customer, showcasing the array of product availability, influencing the merchandising and presentation of the products and testing new product introductions.



In-house Creative Team . Since our inception, we have developed a talented pool of creative individuals who design our products, packaging, graphics, presentation displays and marketing materials, allowing us to deliver a unique and cohesive style and image for each of our brands. We believe our emphasis on constant innovation and distinctive design has made us a leader in the branded accessory category. The breadth of talent and vertical integration of our design teams allows us to minimize the need for outside creative talent and advertising agencies which results in savings to the Company.



International Sourcing. The vast majority of our products are sourced internationally. Most watch product sourcing from Asia is coordinated through our Hong Kong subsidiary Fossil (East) Limited (“Fossil East”), which we acquired in 1993. During 2007, approximately 55% of our non-Swiss made watch production was assembled through wholly or majority owned factories. This vertical integration of our business allows for better flow of communication, consistent quality, product design protection and improved supply chain speed while still allowing us to utilize non-owned production facilities for their unique capabilities and to cover production needs over internal capacities. Establishing our watch assembly facilities near the component manufacturers also allows us to avoid the capital expenditures involved with manufacturing facilities and operate a more efficient supply chain. We have also been successful in leveraging our jewelry production needs through our watch assembly factory infrastructure. Our other accessory and apparel products are purchased from third party manufacturers with whom we have long-standing relationships and we typically represent a meaningful portion of their businesses.



Operating Cash Flow. The Company has historically experienced strong operating cash flows including $132.0 million in fiscal year 2007, and $315.0 million and $469.8 million over the past three years and five years, respectively. This strong cash flow has allowed us to operate at low debt levels while continually funding capital expenditures, acquisitions and common stock buy back programs.



Information Systems. Operating and managing a global public company requires sophisticated and reliable management information systems to assist in the planning, order processing, production, accounting and distribution functions of each relevant business. In 2003, we implemented a SAP Enterprise Resource Planning system and are continuing to roll this system out to our larger international subsidiaries. For many of our subsidiaries which do not currently demand the complexity of the SAP solution, we have implemented Microsoft’s Dynamics Navision Enterprise Resource Planning System (Navision). Additionally, we have recently upgraded our e-commerce platform to an IBM mainframe system which will allow us to leverage the success of our U.S.-based web business across many of the countries wherein we currently distribute. We also recently implemented SAP’s Retail Merchandise Planning to improve our ability to manage our growing owned-retail environment globally. We believe the implementation of these systems will allow us to gain better insight into our businesses in real-time on a global basis, assist us in meeting the needs of our customers in a professional and timely manner and provide a scalable infrastructure to accommodate further growth. Our company’s products are principally distributed from two primary warehouses, one located in Texas, near our headquarters, and the other located in southern Germany. Both of these facilities utilize sophisticated automated material handling equipment and software designed to improve accuracy, speed and quality in our warehousing operations.

Growth Strategy



In order to expand our global market share in a profitable manner, we continually establish and implement business initiatives that we believe will build brand equity, increase revenues and improve profitability. Our key operating and financial goals are as follows:



Extend product categories of existing brands . We continually introduce new accessory product categories within our existing proprietary and licensed brands to further leverage our branded portfolio. A recent example of this is our jewelry collections offered under the EMPORIO ARMANI, DIESEL and FOSSIL brands which were introduced after first establishing a market for the brands in watches. Additionally, during the fall of 2007, we leveraged the FOSSIL brand name with the introduction of cold weather accessories such as hats, gloves and scarves.



Introduce new brands. We continually introduce new brands through the development or acquisition of proprietary brands and licensing agreements related to recognizable global fashion brands to attract a wide range of consumers with differing tastes and lifestyles. For example, our current portfolio of proprietary and licensed watch brands allows us to compete for market share from the luxury branded market to the mass market level. In 2006, we licensed the ADIDAS brand to gain a greater market share of watches sold through sporting goods channels and to sports-minded consumers.



Expand international business. Since our initial public offering in 1993, international expansion has been a key driver in our long term growth strategy. We have continued to increase our penetration of the international market by building brand name recognition, broadening the selection of merchandise through existing distribution channels by introducing new products or brands, extending product categories under our existing portfolio of brands, purchasing former distributors to gain increased control over international businesses, establishing owned or licensed retail stores and entering new geographic markets through owned subsidiary or distributor relationships. For example, in 2005, we acquired our distributors in Taiwan and Sweden, and in 2006, we acquired the assets of our distributor in Mexico and formed a distribution subsidiary in Shanghai, China. In 2007, we also formed distribution subsidiaries in India and Korea.



Leverage infrastructure. We are building our design, marketing, assembly and distribution infrastructure to allow us to manage and grow our businesses. As we continue to develop additional products and brands and seek additional businesses and products to complement our existing product lines, we believe we will be able to leverage our infrastructure and continue to increase the efficiency of our operations.



Expand retail locations. Historically, we have expanded our company-owned retail and outlet locations. Distribution through our company-owned retail stores has allowed us to raise awareness of the FOSSIL brand and showcase a broad assortment of FOSSIL branded products in a warm and inviting atmosphere. Our FOSSIL retail stores, combined with the FOSSIL branded catalog distribution and the website, have continued to build brand equity, present a consistent brand image, influence the merchandising and presentation of our products at other retailers and allowed us to test new product categories and designs. With the level of awareness we have achieved for the FOSSIL brand worldwide and the expansion of product categories offered under the brand, we believe our FOSSIL retail store growth can now be accelerated. Of the 244 company-owned retail stores open as of January 5, 2008, 225 of these stores are FOSSIL branded stores. We plan to open 80 to 85 additional FOSSIL branded stores in 2008 depending upon available retail locations and lease terms that meet our requirements. The majority of these new store openings will be for our full price accessory concept in the U.S. and Europe, and to a lesser extent, the Asia Pacific region.



Operating strategy



Fashion orientation and design innovation. We are able to market our products to consumers with differing tastes and lifestyles by offering a wide range of brands and product categories at a variety of price points. We attempt to stay abreast of emerging fashion and lifestyle trends affecting accessories and apparel and we respond to these trends by making adjustments in our product lines several times each year. We differentiate our products from those of our competitors principally through innovations in fashion details, including variations in the treatment of dials, crystals, cases, straps and bracelets for our watches, and innovative treatments and details in our other accessories.



Coordinated product promotion. We coordinate in-house product design, packaging, advertising, our website and catalog and in-store presentations to more effectively and cohesively communicate to our target markets the themes and images associated with our brands. For example, many of our watch products and certain of our accessory products are packaged in metal tins decorated with designs consistent with our marketing strategy and product image. In certain parts of the world, we generally market our fashion accessory lines through the same distribution channels as our watch lines, using similar in-store presentations, graphics and packaging.





Captive suppliers. The two entities that assemble or source the majority of our Asia watch production volume are majority-owned by us. In addition, although we do not have long-term contracts with our unrelated accessory manufacturers in the Far East, we maintain long-term relationships with several manufacturers. These relationships have developed due to the number of years that we have been conducting business with and visiting the same manufacturers and because of the small amount of turnover in the employees of our manufacturers. We believe that we are able to exert significant operational control with regard to our principal watch assemblers because of our level of ownership. We believe that the relative size of our business with non-owned watch manufacturers and our accessory manufacturers gives us priority within their production schedules. Further, the manufacturers understand our quality standards, thereby allowing us to produce quality products, reduce the delivery time to market and improve overall operating margins.



Actively manage retail sales. We manage the retail sales process with our wholesale customers by monitoring consumer purchases and retail inventory levels by product category and style, primarily through electronic data interchange, and by assisting our wholesale customers in the conception, development and implementation of their marketing programs. Through our merchandising unit we work with retailers to ensure that our products are properly stocked and displayed in accordance with our visual standards. As a result, we believe we enjoy close relationships with our principal wholesale customers, often allowing us to influence the mix, quantity and timing of their purchasing decisions.



Centralized distribution. We distribute substantially all of our products sold domestically and certain of our products sold in international markets from our warehouse and distribution centers located in Texas. Internationally, we distribute our products primarily through our warehouse and distribution center located in Germany and supplement that distribution from other in-country warehouses located in other international locations. We believe our centralized distribution capabilities enable us to reduce inventory risk, increase flexibility in meeting the delivery requirements of our customers and maintain cost advantages as compared to our competitors.



Industry overview



Watch products



We believe that the current market for watches generally can be divided into four segments. One segment of the market consists of fine watches characterized by internationally known brand names such as Audemars Piguet, Cartier, Omega, Patek Philippe, Piaget and Rolex. Watches offered in this segment are usually made of precious metals or stainless steel and may be set with precious gems. These watches are almost exclusively manufactured in Switzerland and are sold by trade jewelers and in the fine jewelry departments of better department stores and other purveyors of luxury goods at retail prices ranging from $1,500 to in excess of $20,000. A portion of our MICHELE line competes in this market. A second segment of the market consists of fine premium branded and designer watches produced in Switzerland and the Far East such as Gucci, Movado, Raymond Weil, Seiko, Tag Heuer and Tissot. These watches are sold at retail prices generally ranging from $150 to $1,500. Our BURBERRY, EMPORIO ARMANI, MARC BY MARC JACOBS, MICHELE and ZODIAC lines generally compete in this market segment. A third segment of the market consists of watches sold by mass marketers, which typically consist of digital and analog watches manufactured in the Far East. Well known brands in this segment include Armitron, Casio and Timex. Retail prices in this segment range from $5 to $60. We compete in this segment through our Allude, Christian Benet and Trophy lines as well through the design and production of private label watch products for Wal-Mart and Target.



The fourth segment of the market consists of moderately priced watches characterized by contemporary fashion and well known fashion brand names. Moderately priced watches are typically produced in Japan, China or Hong Kong and are sold by department stores and specialty stores at retail prices ranging from $40 to $150. This market segment is targeted by us with our FOSSIL and RELIC lines and by our principal competitors, including the companies that market watches under the Anne Klein II, Guess?, Kenneth Cole and Swatch brand names, whose products attempt to reflect emerging fashion trends in accessories and apparel.

Our DKNY, DIESEL, MARC BY MARC JACOBS and MICHAEL Michael Kors lines generally compete in this segment as well. With the addition of our ADIDAS line of women’s, men’s and children’s sport timepieces in January 2006, we also compete in the sports specialty area of this segment. We believe that consumers have increasingly come to regard branded fashion watches not only as time pieces but also as fashion accessories. This trend has historically resulted in consumers owning multiple watches that may differ significantly in terms of style, features and cost.



Watches typically utilize either a mechanical or quartz-analog movement to maintain their time keeping function. Mechanical watches utilize intricate arrangements of wheels, jewels and winding and regulating mechanisms to keep time, while quartz-analog watches are precisely calibrated to the regular frequency of the vibration of a quartz crystal powered by a battery. Although, quartz-analog movements typically maintain their time keeping functions more precisely than mechanical movements, mechanical movements are generally associated with high-end luxury timepieces.



Fashion accessories



We believe that the fashion accessories market includes an array of products such as small leather goods, handbags, belts, eyewear, neckwear, underwear, lounge wear, jewelry, gloves, hats, hosiery and socks. We believe that consumers are becoming more aware of accessories as fashion statements, and as a result, are purchasing brand name, quality items that complement other fashion items. These fashion accessory products are generally marketed through mass merchandisers, department stores and specialty shops, depending upon price and quality. Higher price point items include products offered by such fashion names as Louis Vuitton and Prada.



Moderately priced fashion accessories are typically marketed in department stores and are characterized by contemporary fashion and well known brand names at reasonable price points, such as FOSSIL and RELIC. We currently offer small leather goods, handbags, belts, eyewear and cold weather apparel accessories for both men and women through department stores and specialty retailers in the moderate to upper-moderate price ranges. Our competitors in this market include companies such as Guess?, Nine West, Kenneth Cole and Liz Claiborne. In addition, we currently offer fashion jewelry sold under the DIESEL, EMPORIO ARMANI and FOSSIL brands.



Apparel



In 2000, we introduced a line of FOSSIL apparel that is distributed exclusively through company-owned retail stores, our FOSSIL website and through our FOSSIL catalog distribution. Selling through company-owned distribution channels allows us to more effectively manage visual presentation, information feedback, inventory levels and operating returns. The apparel line is focused on the casual lifestyle of the savvy consumer who is youthful in their approach to life and is not tied to any one demographic or age. The apparel line consists primarily of jeans, tee shirts, and vintage-inspired fashion apparel. The suggested retail selling price of the apparel line is comparable to that of major competitors like American Eagle Outfitters and J. Crew. We have leveraged our existing graphic and store design infrastructure to create a unique, inviting and welcoming environment rich in details of design, product and merchandising to appeal to the consumers’ sense of discovery.



Products



We design, develop, market and distribute fashion accessories, including apparel, belts, handbags, jewelry, small leather goods, sunglasses and watches under proprietary and licensed brand names. The following table sets forth certain information with respect to the breakdown of our net sales and percentage of growth between proprietary, licensed and other brands within our wholesale and direct to consumer distribution channels for the fiscal years indicated. Other brands include private label brands as well as branded product we purchase for resale.


CEO BACKGROUND

Kenneth W. Anderson has been a director of the Company since April 1993. Mr. Anderson is currently the Chairman of the Company's Audit Committee and a member of the Company's Nominating and Corporate Governance Committee. Before his retirement, Mr. Anderson was a co-founder of Blockbuster Entertainment Corporation, a video rental company, and served as its President from 1985 until 1987. From 1987 to 1991, Mr. Anderson served in various positions with Amtech Corporation, a remote electronic identification technology company, which he co-founded, including the position of Chairman of its Executive Committee.

Michael W. Barnes has served as President and Chief Operating Officer of the Company since January 1, 2007. Mr. Barnes served as President, International and Special Markets Division from October 2000 to December 2006. Mr. Barnes served as Executive Vice President from 1995 until October 2000 and has been a director of the Company since February 1993.

Jeffrey N. Boyer was appointed to the Board of Directors effective December 20, 2007. Mr. Boyer is currently a member of the Company's Audit Committee. He also serves as Executive Vice President and Chief Financial Officer of 24 Hour Fitness Worldwide, the world's largest privately owned and operated fitness center chain. Mr. Boyer previously served as President and Chief Financial Officer of Michaels Stores, Inc. until March 2008. Mr. Boyer also held the positions of Executive Vice President and Co-President of Michaels Stores, Inc. since 2003. Prior to joining Michaels, he served as the Executive Vice President and Chief Financial Officer of the Kmart Corporation. From 1996 until 2001, he held multiple positions with Sears, Roebuck & Company, advancing to the post of Senior Vice President and Chief Financial Officer.

Elysia Holt Ragusa was appointed to the Board of Directors effective December 20, 2007. Ms. Ragusa is currently a member of the Compensation Committee. She also currently serves as President, Corporate Services-East Staubach Holdings, Inc., overseeing all Staubach North American Corporate Services Operations from Phoenix to Boston. She is a member of both the Executive Committee and The Staubach Company's Board of Directors. Ms. Ragusa served as President and Chief Operating Officer of The Staubach Company from July of 2001 until June of 2007. The Staubach Company is a global commercial real estate strategy and services firm.

James E. Skinner was appointed to the Board of Directors effective December 20, 2007. Mr. Skinner is currently a member of the Company's Audit Committee. He serves as Executive Vice President and Chief Financial Officer of The Neiman Marcus Group, Inc. From 2001 until October 2007, he held the position of Senior Vice President and Chief Financial Officer of The Neiman Marcus Group, Inc. Mr. Skinner served as Senior Vice President and Chief Financial Officer of CapRock Communications Corp. in 2000.

James M. Zimmerman was appointed to the Board of Directors on August 29, 2007, effective September 5, 2007. Mr. Zimmerman is currently a member of the Company's Nominating and Corporate Governance Committee. Mr. Zimmerman retired from Federated Department Stores in February 2004 after serving for the previous six years as Chairman and Chief Executive Officer, and prior to that as President and Chief Operating Officer beginning in May 1988. He is a former member of the Board of Directors of The Convergys Corporation, The Goodyear Tire and Rubber Company, Chubb Corporation and the H.J. Heinz Company.

Alan J. Gold has been a director of the Company since April 1993. Mr. Gold is currently a member of the Company's Audit Committee and Compensation Committee. Mr. Gold was the founder of Accessory Lady, a women's fashion accessory retail chain, and served as its President until 1992. Mr. Gold is currently President of Goldcor Investments.

Kosta N. Kartsotis has served as Chief Executive Officer since October 2000. Mr. Kartsotis also served as President of the Company from December 1991 to December 2006 and as Chief Operating Officer from December 1991 until October 2000. Mr. Kosta Kartsotis joined the Company in 1988. He has been a director of the Company since 1990.

Michael Steinberg has been a director of the Company since March 2000. Mr. Steinberg is currently a member of the Company's Compensation Committee and Nominating and Corporate Governance Committee. Mr. Steinberg served as Chairman and Chief Executive Officer of Macy's West, a Division of Federated Department Stores, Inc., from which he retired in January 2000.

Elaine Agather was appointed to the Board of Directors on February 8, 2007, effective February 12, 2007. Ms. Agather is currently a member of the Company's Audit Committee and Chairperson of the Compensation Committee. Since 1999, Ms. Agather has served as Chairperson and

Chief Executive Officer of Chase-Dallas. She also has served as South Region Head and Managing Director of JPMorgan Private Bank since 2001. From 1992 until 1999, she served as Chairperson of Texas Commerce Bank in Fort Worth, Texas.

Tom Kartsotis has served as Chairman of the Board since December 1991. Mr. Tom Kartsotis founded the Company in 1984 and served as its President until December 1991 and as Chief Executive Officer until October 2000. He has been a director of the Company since 1984.

Jal S. Shroff has served as Managing Director of Fossil (East) Limited since January 1991 and has been a director of the Company since April 1993.

Donald J. Stone has been a director of the Company since April 1993. Mr. Stone is currently the Chairman of the Company's Nominating and Corporate Governance Committee. Mr. Stone is also currently the Lead Independent Director, effective May 2007. Mr. Stone served as Vice Chairman of Federated Department Stores until February 1988, at which time he retired.

Mr. Tom Kartsotis and Mr. Kosta N. Kartsotis are brothers. There are no other family relationships among any of the directors, Director Nominees or executive officers of the Company.

MANAGEMENT DISCUSSION FROM LATEST 10K

Results of Operations

Fiscal 2007 Compared to Fiscal 2006

European Wholesale Net Sales. The following discussion excludes the impact on sales growth attributable to foreign currency rate changes as noted in the above table. European wholesale sales growth was led by a 22.9% increase in licensed brand watches as a result of sales volume growth from our EMPORIO ARMANI, DKNY, DIESEL and MICHAEL KORS lines, partially offset by a decrease in sales volume growth from our ADIDAS line. The decrease in Adidas sales volume was due to the anniversarying of the launch of the line in 2006. Consistent growth of these licensed brands, many of which have been distributed in the European market for eight to ten years, exemplifies the Company’s ability to continually provide innovative styling and build consumer awareness and acceptance of these recognizable fashion brands. Our FOSSIL watch and jewelry businesses also experienced significant growth, increasing approximately 16.9% and 17.0%, respectively. We believe the performance of our FOSSIL watch business in Europe is the result of the consumers’ positive response to the repositioning of the brand, including its unique modern vintage styling and aspirational viewpoint. The FOSSIL jewelry performance is primarily related to the sales volume growth of the line within Germany, where it was initially launched in 2001, and the continued roll-out of the line to other European countries. We further believe the FOSSIL brand performance in the wholesale channel is attributable to the growth in our retail store base during the year which is furthering the awareness of the brand throughout the marketplace.



Other International Wholesale Net Sales. The following discussion excludes the impact on sales growth attributable to foreign currency rate changes and acquisitions as noted in the above table. Other international wholesale sales include sales from our Asia Pacific, Mexico and Canada subsidiaries and export sales from the United States. Our other international segment is growing rapidly as we expand into new markets and increase penetration of our brands in existing markets. Sales volume increases from licensed brands and FOSSIL watches in addition to our recent expansion of our owned presence in China were the primary drivers of growth. Sales of licensed watches increased 35.3% and was principally driven by our ARMANI, DKNY, DIESEL and BURBERRY brands. We also experienced significant growth in our FOSSIL watch line and our jewelry businesses, which grew 30.2% and 41.0%, respectively. Our shop-in-shop concepts in the Asia-Pacific region continue to build awareness for our brands and are allowing us to gain market share within the department store environment. With very low penetration rates in many of the countries within this segment and our recent expansion of our owned presence in China, Korea and India, we expect the segment to continue to deliver the highest percentage sales growth amongst our wholesale businesses. We also believe that significant retail developments occurring in many of these newer markets today will allow many of our businesses the opportunity to increase in size.

Our international wholesale businesses have grown to represent 50% of our total sales and almost two-thirds of our global wholesale activities. We believe our distinctive business model of owning the distribution in key markets and offering a globally recognized portfolio of proprietary and licensed brands, allows for many competitive advantages over smaller, regional or local competitors. This “ownership of the market” allows us to bypass the local distributor’s cost structure resulting in more competitively priced products while also generating higher product and operating margins. Additionally, we believe that the global recognition of our branded portfolio of watches and jewelry positions us as a significant resource to retailers throughout the international marketplace. Our strategy is not to force any one brand into a specific market, but rather allow the market to dictate which brands are important based upon consumer preference. We believe our global distribution network and our design and marketing capabilities will allow us to continue to take shelf space from lesser known local and regional brands. Additionally, we believe our global infrastructure and proven success in both launching and building brands favorably positions us to continue to attract globally recognized brands as potential licensors or aquire additional brands that will position us for further penetration internationally.



United States Wholesale Net Sales. United States wholesale watch sales increased 5.2% primarily due to sales volume growth from licensed brand watches and to a lesser extent RELIC and mass market watches, partially offset by decreases in FOSSIL brand watch sales. Licensed watch sales increased by 28.9% and were primarily attributable to the continued roll-out of MICHAEL KORS and MARC BY MARC to additional department store doors and increased penetration of BURBERRY and DIESEL watches. The merger of Federated Department Stores and May Company has resulted in additional shelf space for our licensed brands, primarily due to Macy’s expanding the presence of these brands beyond levels experienced in the former May Company stores. RELIC brand watch sales increased 14.0% , and we believe this growth was attributable to new styles introduced during 2007 that are gaining market share at both JCPenney and Kohl’s. In 2007, we experienced an 8% gain in wholesale shipments of private label products to the mass distribution channel. Based upon the current penetration levels of our offerings, we feel we have the opportunity to continue to experience growth in this category considering the overall size of the mass market channel. We attribute our growth in the mass distribution channel to further penetration of the private label products we support. FOSSIL watch sales decreased approximately 6.8% in 2007, however, excluding sales to the off-price channel during 2007 and 2006, FOSSIL watch sales were flat between 2007 and 2006. However, we have seen sequential quarterly improvement in wholesale shipments of FOSSIL watches during the year and the brand performed well within the department store environment during the difficult holiday period. We believe the repositioning of the brand over the last 18 months, including its unique modern vintage styling and aspirational viewpoint, is resonating well with consumers. We believe the performance of FOSSIL watches was negatively impacted during the fourth quarter of 2007 as a result of production delays and disruptions caused by the launch of our new e-commerce platform.



Net sales in our other United States products category, that primarily include handbags, small leather goods, belts, sunglasses, jewelry and cold weather accessories, increased 2.7%. This increase included $3.6 million and $1.6 million from the launch of our FOSSIL accessories jewelry line and cold weather category, respectively, during the second half of 2007. Additionally, we experienced sales volume growth in FOSSIL handbags, RELIC leather goods and our sunglass business. These increases were partially offset by sales declines in our small leather goods and belt categories of 15.9% and 39.9%, respectively. We believe the decrease in our small leather goods and belt categories are attributable to reduced consumer interest in these categories during 2007. Our FOSSIL handbag business growth of 5.3% for the year was primarily related to a solid holiday performance resulting in a 13.5% increase during our fourth quarter. We began shipping new styles in the FOSSIL handbag line during the second half of 2007, including a revamped core leather group geared towards the brand’s new modern vintage styling and aspiration viewpoint. In addition, our handbag results were positively impacted by the launch of FIFTY-FOUR FOSSIL handbags, a premium line priced from $250 to $450, that we launched during the third quarter to 50 Macy’s and Dillard’s doors. RELIC leather good sales increased 8.1% and was primarily attributable to sales volume growth in our handbag line with JCPenney and Kohl’s. Sales from our sunglass business rose 10.6% with solid results in both the FOSSIL and RELIC brand.

Direct to Consumer Net Sales. Net sales from our retail stores worldwide increased 15.6% during the year as a result of a 20.4% increase in the average number of stores opened during the year and comparable store sales increases of 2.3%. Net sales from our e-commerce businesses increased 1.5% which is principally attributable to the September launch of our first commercial website outside the U.S., in Germany, which generated sales of $1.0 million, partially offset by a 3.3% decrease in our U.S. based e-commerce business. The 2.3% increase in comparable store sales was negatively impacted by a 3.4% comparable store sales decrease during the fourth quarter. Factors that we believe negatively impacted our fourth quarter retail store results and e-commerce based business included production delays of several key advertised styles, disruptions caused by the launch of our new e-commerce platform and a generally weak U.S. retail environment resulting in decreased mall foot traffic. We experienced comparable store sales increases of 5.2% in our 70 full price accessory concept stores during 2007. Since 2006, our new accessory stores reflect a redesign of our historical presentation to a more modern vintage image that focuses on a more aspirational lifestyle customer. Our retail strategy is to position our FOSSIL stores as the destination within the mall for customers to shop for accessories.



At the end of 2007, we operated 244 stores, including 113 full price accessory stores, 55 of which are outside the U.S., 80 outlet locations, including 6 outside the U.S.; 33 apparel stores; and 18 multi-brand stores. This compares to 198 stores at the end of fiscal 2006, which included 73 full price accessory stores, 31 located outside the U.S.; 78 outlet locations, including 4 outside the U.S.; 32 apparel stores; and 15 multi-branded stores. We opened 53 new stores and closed 7 stores during the year. For 2008, our plans are to open 80 to 85 stores, concentrating on the full price accessory concept with equal distribution between U.S. and international locations.



A store is included in comparable store sales in the thirteenth month of operation. Stores that experience a gross square footage increase of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.



Gross Profit. Gross profit increased by 21.9% to $742.0 million with gross profit margin expanding by 160 basis points to 51.8% compared to 50.2% in the prior year. The improvement in margin included an approximate 140 basis point benefit related to the impact of a weaker U.S. dollar. Additionally, gross profit margin was favorably impacted by an increased sales mix of higher margin international sales, an increase in the outlet store margins and positive results from our internal initiative to improve our gross profit margin. A reduction in the level of discontinued styles and excess inventory encountered in 2007 in comparison to 2006 allowed us to establish higher average prices in our outlet stores, leading to improved gross profit margins. Additionally, focus on improving our product costs and retail pricing on new styles began to positively impact our gross margin late in 2007. These favorable increases in gross profit margin were partially offset by increased levels of lower margin sales to distributors, a slight increase in wholesale markdowns and slightly higher duty costs.



Our consolidated gross product margin is impacted by our diversified business model that includes but is not limited to: (i) a significant number of product categories we distribute, (ii) the multiple brands we offer within many of these categories, (iii) the geographical presence of our businesses, and (iv) the different distribution channels we sell to or through. The components of this diversified business model produce varying ranges of gross profit margin. Generally, on a historical basis, our fashion branded watch, jewelry and sunglass offerings produce higher gross profit margins than our leather goods categories. In addition, in most product categories that we offer, brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands. From a segment standpoint, our direct to consumer business generally produces the highest gross profit margin as a result of these sales being direct to the ultimate consumer. Gross profit margins related to sales in our international wholesale segment are historically lower than our retail segment, but historically higher than our United States wholesale segment primarily due to the following factors: (i) overall retail prices for comparable product sold in the United States are generally higher in our international businesses as a result of less competitive fashion and designer brands being offered in these markets; (ii) the product sales mix in our international wholesale segment, in comparison to our United States wholesale segment, is comprised more predominantly of watches; and (iii) the watch sales mix in our international wholesale segment, in comparison to our United States wholesale segment, is comprised more predominantly of higher priced licensed brands.

Operating Expenses. Total operating expenses increased $70.0 million to $555.5 million and included $13.1 million of one-time charges relating to our voluntary evaluation of our accounting for equity-based compensation, including the appropriateness of accounting measurement dates used to determine the amounts of compensation charges and related tax effects which have been previously disclosed in filings with the U.S. Securities and Exchange Commission in 2007 (the “Grant Review”). As a percent of sales, operating expenses decreased 120 basis points to 38.8% compared to 40.0% in 2006. Excluding the impact of expenses related to the Grant Review, the increase in operating expenses was primarily driven by $16.1 million of expenses related to the translation impact of foreign-based expenses as a result of a weakening U.S. dollar and increased payroll, rent and facilities expenses, primarily associated with our retail store growth. Payroll expense increases were further impacted by increased costs attributable to our incentive cash and equity compensation plans and increased back office headcount to support our retail store growth. To a lesser extent, operating expense increased as a result of new category launches and increases in certain variable expenses as a result of higher levels of sales. In 2008, although we expect to leverage the infrastructure associated with our wholesale business activities, as sales increase, we believe the leverage gains will be generally offset as a result of our anticipated retail store expansion initiative. Operating expense levels, as a percentage of sales, are substantially higher in our retail stores when compared to that of our wholesale activities.

Operating Income. Operating income increased 51.2% to $186.5 compared to $123.3 million in 2006. Operating income margin increased to 13.0% compared to 10.2% in 2006. The increase in our operating income margin was favorably impacted by increased gross profit margin, operating expense leverage and $29.0 million of net currency gains related to the translation of foreign-based sales and expenses into U.S. dollars.



Interest Expense. Interest expense decreased by approximately $2.7 million to $0.9 million compared to $3.6 million in 2006. This decrease is principally due to the payment of previously outstanding borrowings on our U.S.-based revolving line of credit at the end of 2006. These borrowings were primarily used for common stock repurchases in late 2005 and early 2006 as well as capital expenditures.



Other Income (Expense) - Net. Other income (expense) - net primarily reflects interest income from cash investments, foreign currency transaction gains or losses, minority interest expense of our majority-owned consolidated subsidiaries and equity in the earnings of our non-consolidated joint venture in Spain. During 2007, other income (expense) - net increased favorably by approximately $2.9 million as a result of increased interest income resulting from higher levels of invested cash balances and increases in equity in the earnings of our non-consolidated joint venture. These favorable increases were partially offset by foreign currency transaction losses and increased minority interest expense. Foreign currency transaction losses are primarily related to the settlement of inventory purchases through established forward contracts at rates below the prevailing spot rate at the time of settlement.



Income Taxes. Our effective income tax rate was 34.3% during 2007 compared to 34.7% in the prior year. The lower effective tax rate in 2007 is primarily attributable to higher foreign income taxed at lower effective rates.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

General



We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our principal offerings include an extensive line of men’s and women’s fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, and apparel. In the watch and jewelry product category, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed. Our products are distributed globally through various distribution channels including wholesale, export and direct to the consumer at varying price points to service the needs of our customers, whether they are value conscious or luxury oriented. Based on our extensive range of accessory products, brands, distribution channels and price points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.



Domestically, we sell our products through a diversified distribution network that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores and through our FOSSIL® catalog. Our wholesale customer base includes Neiman Marcus, Nordstrom, Macy’s, Dillard’s, JCPenney, Kohl’s, Sears, Wal-Mart and Target. We also sell our products in the United States through a network of company-owned stores that included 101 retail stores located in premier retail sites and 76 outlet stores located in major outlet malls as of July 5, 2008. In addition, we offer an extensive collection of our FOSSIL brand products through our catalog and on our website, www.fossil.com, as well as proprietary and licensed watch and jewelry brands through other managed and affiliated websites.



Internationally, our products are sold to department stores, specialty retail stores and specialty watch and jewelry stores in over 90 countries worldwide through 23 company-owned foreign sales subsidiaries and through a network of 58 independent distributors. Our products are distributed in Africa, Asia, Australia, Europe, Central and South America, Canada, the Caribbean, Mexico, and the Middle East. Our products are offered on airlines, cruise ships and in international company-owned retail stores, which included 66 accessory retail stores, 13 multi-brand stores and 7 outlet stores in select international markets as of July 5, 2008. Our products are also sold through independently-owned FOSSIL retail stores and kiosks in certain international markets. In addition, we offer an extensive collection of our FOSSIL brand products on our Germany website, www.fossil.de and maintain static websites in many other countries in which we have subsidiaries.



Significant Accounting Policies and Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to product returns, bad debts, inventories, long-lived asset impairment, impairment of goodwill and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes to the significant accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed for the fiscal year ended January 5, 2008.



New Accounting Standards



In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The issuance of SFAS No. 162 is not expected to have a material impact on our condensed consolidated financial statements.



In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement 133 (“SFAS 161”). SFAS 161 expands the current disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, such that entities must now provide enhanced disclosures on a quarterly basis regarding how and why the entity uses derivatives, how derivatives and related hedged items are accounted for under SFAS 133 and how derivatives and related hedged items affect the entity’s financial position, performance and cash flow. Pursuant to the transition provisions of SFAS 161, we will adopt SFAS 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. SFAS 161 will not impact the consolidated results of operations or financial condition as it is disclosure-only in nature.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement 115 (“SFAS 159”). SFAS 159 introduces the fair value option, which permits entities to choose to measure eligible financial instruments at fair value at specified election dates. An entity must report unrealized gains and losses on the items on which it has elected the fair value option in earnings at each subsequent reporting date. SFAS 159 was effective January 6, 2008. The adoption of SFAS 159 did not have an impact on our consolidated results of operations or financial condition as we did not elect to adopt the fair value option for any of our financial assets or liabilities.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard primarily applies to those assets or liabilities that do not have a quoted market price. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, the FASB provided a one year deferral for implementation of the standard for non-recurring, non-financial assets and liabilities. We adopted SFAS 157 effective January 6, 2008, for all financial assets and liabilities as required. Refer to Footnote 1 to the unaudited condensed consolidated financial statements, Fair Value Measurements, for additional information. We do not expect the standard to have a material impact on our consolidated financial statements when we fully adopt the standard in 2009.



Results of Operations



European Wholesale Net Sales. The following discussion excludes the impact on sales growth attributable to foreign currency rate changes as noted in the above table. European wholesale net sales increased 2.9% in the Second Quarter, as compared to the Prior Year Quarter, primarily driven by sales volume growth in FOSSIL and licensed brand watches and FOSSIL jewelry. FOSSIL and licensed brand watches net sales volume increased 7.9% and 3.5%, respectively. These increases were partially offset by sales volume declines in EMPORIO ARMANI® jewelry and FOSSIL eyewear. We believe the FOSSIL sales volume growth is attributable to consumers continuing to respond favorably to our repositioning of the brand towards a unique modern vintage styling and aspirational viewpoint as well as increased brand awareness generated by the accelerated growth in our European retail store base. Licensed watch sales were led by sales volume growth from EMPORIO ARMANI, MICHAEL KORS® and DIESEL®, partially offset by a sales volume decline in DKNY® watches. We believe the sales volume growth in our licensed brands is the result of innovative styling that differentiates us from our competitors as well as the increased consumer awareness and acceptance of these recognizable fashion brands over more regional or local brands that we compete against. FOSSIL jewelry sales increased 8.0% as a result of the continued penetration outside of the German market, primarily in Italy and France. During the Second Quarter, we experienced a moderation of growth in our more penetrated markets in Europe while still delivering strong double-digit sales growth in markets where our offerings are still gaining shelf-space. In comparison to the Second Quarter, we believe our European wholesale segment will deliver improved results during the second half of fiscal 2008, similar to the organic growth increase demonstrated during the Year To Date Period. This expectation is based upon customer response to new styles we previewed during the Basel Watch Fair, which took place earlier in the Second Quarter and that we expect to begin shipping to our wholesale customers and distribution partners during the second half of fiscal 2008. We expect European wholesale growth to also be favorably impacted by the launch of DKNY jewelry business into approximately 1,300 stores.



Other International Wholesale Net Sales. The following discussion excludes the impact on sales growth attributable to foreign currency rate changes as noted in the above table. Other international wholesale sales include sales from our Asia Pacific, Mexico and Canada subsidiaries and export sales from the United States. Other international wholesale net sales rose 21.4% in the Second Quarter, as compared to the Prior Year Quarter, led by sales volume growth from licensed and FOSSIL watches and increased penetration of our jewelry businesses. Licensed brand watch sales rose 23.1% as a result of a further penetration of our EMPORIO ARMANI and DIESEL brands. FOSSIL watch sales volume grew 22.2% during the Second

Quarter driven by increased brand awareness developed through our shop-in-shop concept and retail store growth in the region. Increased sales from our jewelry businesses are primarily related to market share gains in existing markets as well as introductions into new markets. We believe our other international wholesale segment will continue to grow at rates in excess of our other wholesale segments as we further penetrate established markets and expand our watch and jewelry businesses into newly penetrated regions in China, Korea and India.



Total international wholesale net sales increases for the Year to Date Period were consistent from a brand and category perspective as those experienced in the Second Quarter. Our international wholesale businesses have grown to represent more than 50% of our total sales and almost two-thirds of our global wholesale activities and represent our largest opportunity for continued wholesale expansion.



United States Wholesale Net Sales. Net sales from our U.S. wholesale watch businesses increased 2.3% in the Second Quarter, as compared to the Prior Year Quarter, primarily driven by sales volume increases in MICHELE®, MICHAEL KORS® and EMPORIO ARMANI® watches, partially offset by sales volume declines in mass market and to a lesser extent FOSSIL brand watches. MICHELE watches experienced solid increases in wholesale shipments and were further benefited by a significant reduction in returns compared to the Prior Year Quarter. Net sales volume growth in EMPORIO ARMANI watches was a result of solid increases across the department store channel while MICHAEL KORS sales volume growth is related to further penetration in existing doors and additional retail door growth. The decrease in mass market sales volume was principally driven by a shift in wholesale shipments of a Walmart promotion program into the first quarter this year in comparison to the Prior Year Quarter. FOSSIL watch brand sales decreased 4.0% which we believe is reflective of a weakening retail environment which has resulted in the tightening of inventory levels at our retail customers. Wholesale sales volume of licensed brand watches increased 1.2% during the Second Quarter as sales volume growth in MICHAEL KORS and EMPORIO ARMANI were partially offset by declines in BURBERRY and DKNY. U.S wholesale watch net sales for the Year To Date Period increased 4.3% as compared to the Prior Year YTD Period, principally attributable to sales volume growth in MICHELE and licensed brand watch sales partially offset by a decrease in FOSSIL and RELIC watch sales.



Net sales from our domestic accessories businesses rose 0.5% during the Second Quarter primarily, a result of sales volume growth in RELIC® handbags, small leather goods and from the continued roll-out of FOSSIL accessories jewelry and the FOSSIL Fifty-Four handbag line, both launched during the second half of fiscal year 2007. These increases were partially offset by sales volume declines in RELIC eyewear and FOSSIL women’s handbags. Net sales from our RELIC women’s accessories business rose 15.0% principally due to sales volume growth in our handbag line at JCPenney and Kohl’s. RELIC eyewear sales volume decreased 25.1% primarily due to a reduction in the number of RELIC product towers on display in 2008 compared to 2007. The sales volume declines in women’s handbags are primarily related to a difficult department store environment and elevated levels of discontinued product sales in the Prior Year Quarter. Domestic accessory net sales for the Year To Date Period decreased 4.6% primarily driven by declines in net sales in our FOSSIL men’s leathers and RELIC eyewear businesses partially offset by sales volume increases in RELIC leather handbags and new product launches.



With new product launches and expansion of our jewelry program in U.S. department stores, we expect low to mid single-digit growth in our U.S. wholesale segment for the second half of fiscal 2008.



Worldwide Direct to Consumer Net Sales. The following discussion excludes the impact on sales growth attributable to foreign currency rate changes as noted in the above table. Net sales from our worldwide direct to consumer segment increased 22.5% in the Second Quarter, as compared to the Prior Year Quarter, primarily as a result of a 27.9% increase in the average number of company-owned stores open during the Second Quarter and comparable store sales gains of 4.2%. Our e-commerce business increased 13.8% as a result of increased sales from our Germany website launched late in the third quarter of fiscal 2007, partially offset by a slight decrease in our U.S. based e-commerce business. For the Year To Date Period, net sales from our worldwide direct to consumer segment increased 19.0% primarily as the result of a 21.4% increase in the average number of stores opened and comparable store sales increases of 1.3%. Net sales from our e-commerce businesses increased 11.7% for the Year To Date Period. Comparable store sales related to our global full price accessory concept increased by 2.7% and 1.2% for the Second Quarter and Year To Date Period, respectively. We ended the Second Quarter with 263 stores, including 129 full price accessory stores, 66 of which are outside the U.S., 83 outlet locations, including 7 outside the U.S., 33 apparel stores, and 18 multi-brand stores, including 13 outside the U.S. This compares to 202 stores at the end of the Prior Year Quarter, which included 78 full price accessory stores, 35 located outside the U.S., 76 outlet locations, including four outside the U.S., 33 apparel stores, and 15 multi-brand stores. During the Second Quarter, we opened 13 new stores and had no store closings. Our plans are to open between 80 to 85 stores during fiscal year 2008 of which we expect approximately 80% to open between July and Thanksgiving. This growth will be almost exclusively related to our FOSSIL full price accessory concept with slightly more stores to be opened in international markets as compared to the U.S. market.

A store is included in comparable store sales in the thirteenth month of operation. Stores that experience a gross square footage increase of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.



Gross Profit . Gross profit margin increased by 480 basis points to 53.9% in the Second Quarter compared to 49.1% in the Prior Year Quarter. For the Second Quarter, our gross profit margin was favorably affected by a weaker U.S. Dollar, our ongoing cost reduction initiatives and an increase in the sales mix of higher gross margin international and direct to consumer sales. To a lesser extent, gross profit margin was favorably impacted by higher outlet store margins, due to a reduction in year-over-year discontinued inventory balances and lower levels of markdowns. Partially offsetting these increases in gross profit margin during the Second Quarter was an increase in sales mix of lower gross margin distributor sales. For both the Second Quarter and Year To Date Period, the favorable impact on gross profit margin relating to the weaker U.S. Dollar contributed approximately 200 basis points of improvement in gross profit margin in comparison to the Prior Year Quarter and Prior Year YTD Period.



Operating Expenses. Operating expenses as a percentage of net sales increased 240 basis points in the Second Quarter to 44.0% compared to 41.6% in the Prior Year Quarter. Total operating expenses increased by $28.0 million to $155.4 million in comparison to the Prior Year Quarter and included approximately $7.5 million related to the translation of foreign-based expenses as a result of the weaker U.S. Dollar. Operating expenses in the Prior Year Quarter included approximately $4.4 million related to expenses associated with our equity grant review. Excluding expenses related to foreign translation and the prior year equity grant review expenses, the increase in operating expenses was principally driven by increased expenses associated with our retail store growth, increased bad debt reserves due to the deteriorating financial condition of several of our domestic wholesale customers, costs associated with transitioning our Italian subsidiary to the SAP platform and increases to support higher levels of sales. Worldwide direct to consumer operating expenses as a percentage of worldwide direct to consumer net sales increased to 59.4% in the Second Quarter compared to 50.7% in the Prior Year Quarter, resulting in approximately $6.0 million in additional operating expenses. This growth is principally related to retail store growth and related infrastructure additions, including payroll costs relating to headcount increases in our sales management and construction departments and expansion of our international retail infrastructure. For the Year To Date Period, operating expenses as a percentage of net sales increased to 42.4% compared to 41.1% and included approximately $14.3 million related to the translation impact of foreign-based expenses due to a weaker U.S. Dollar and approximately $13.6 million related to our investment in retail store growth and infrastructure. The Prior Year YTD Period included approximately $10.0 million of expenses related to our equity grant review. For fiscal year 2008, although we expect to leverage the infrastructure associated with our wholesale business activities as sales increase, we believe the leverage gains will be generally offset by our anticipated retail store expansion initiatives. We expect that retail expenses will continue to increase as a percentage of retail net sales during the third quarter but normalize during the fourth quarter of this year. We expect the third quarter impact to represent an additional expense equal to approximately $0.03 per diluted share.

Operating Income. Operating income increased by 51.2% during the Second Quarter to 9.9% of net sales compared to 7.6% of net sales in the Prior Year Quarter as a result of increased gross profit margin partially offset by decreased operating expense leverage. Operating income was favorably impacted by approximately $9.2 million as a result of the translation of foreign-based sales and expenses into U.S. Dollars. During the Year To Date Period, operating profit margin increased to 11.9% compared to 9.1% in the Prior Year YTD Period. Our operating income for the Year To Date Period included approximately $20.0 million of net currency gains related to the translation of foreign-based sales and expenses into U.S. Dollars.



Other (Expense) Income - Net. Other (expense) income increased unfavorably by $3.2 million and $6.2 million during the Second Quarter and the Year To Date Period, respectively, in comparison to the Prior Year Quarter and Prior Year YTD Period. These increases were primarily driven by increased foreign currency transaction losses related to forward contracts previously entered into by us at forward rates below the relative quarter-end foreign currency exchange rate.



Provision For Income Taxes . Our income tax expense for the Second Quarter and Prior Year Quarter was $6.9 million and $8.6 million, respectively, resulting in an effective income tax rate of 21.4% and 36.9%, respectively. The lower effective rate for the Second Quarter was the result of a reduction in reserves related to certain foreign income tax liabilities. Income tax expense was $24.1 million for the Year To Date Period resulting in an effective rate of 30.3%. For the comparable Prior Year YTD Period, income tax expense was $17.4 million, resulting in an effective rate of 30.4%. We estimate our fiscal year 2008 effective tax rate will approximate 37%, excluding any additional discrete events.



Net Income. Second Quarter net income increased by 71.3% to $25.1 million, or $0.36 per diluted share, compared to $14.7 million, or $0.21 per diluted share, in the Prior Year Quarter. Second Quarter net income was favorably impacted by a lower effective tax rate and net pretax foreign currency gains of $6.3 million, or $0.06 per diluted share. Net income of $55.4 million, or $0.80 per diluted share, for the Year To Date Period represents a 39.4% increase compared to the $39.7 million, $0.57 per diluted share, earned during the Prior Year YTD Period. Net income for the Year To Date Period includes net foreign currency gains of $0.14 per diluted share.



2008 Net Sales and Earnings Estimates. As we continue to grow our retail store base, sales from our worldwide direct to consumer segment increase as a percentage of our total sales mix, benefiting our profitability in the fourth quarter, generally at the expense of the first and second quarter when, due to seasonality, it is more difficult to leverage retail expenses against retail store sales. In addition, our current guidance takes into account the most recent strengthening of the U.S. Dollar. As a result, we are currently estimating net sales for the second half of fiscal 2008 to increase in the mid-teens range. We estimate third quarter diluted earnings per share of $0.53 in comparison to 2007 third quarter diluted earnings per share of $0.43. For the full fiscal year 2008, we currently estimate diluted earnings per share in the range of $2.27 to $2.30, as compared to $1.75 in diluted earnings per share for fiscal 2007.

CONF CALL

Allison Malkin

Thank you. Good morning. 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 on our Form 10-K and 10-Q reports filed with the SEC. In addition, Fossil undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the non-GAAP financial measure 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 the call.

And now, I would like to turn the call over to Fossil's CEO, Kosta Kartsotis. Go ahead.

Kosta N. Kartsotis

Thanks, Allison. Good morning, everyone and thanks for joining us. Also here today are Mike Barnes, our President and COO, and our CFO, Mike Kovar. This morning, we will provide you with an overview of our second quarter results, as well as our outlook for the balance of the year. At the conclusion of our prepared remarks, we will open for questions.

We are pleased to report record second quarter results. This performance clearly demonstrates the strength of our business model. Our diversified global distribution of high margin accessories gives us a significant long-term opportunity. The combination of great brands and innovative product development, executed with cost and inventory discipline, puts us in a position to perform reasonably well despite difficult economic conditions in several markets worldwide.

Specific highlights of the quarter included net sales of $353 million, a gross profit margin of 53.9%, and earnings per share of $0.36, reflecting a 71% increase from $0.21 last year.

Our performance was driven by key growth initiatives, including our direct-to-consumer and international businesses. Our direct-to-consumer segment enjoyed a terrific performance, recording sales growth of 25% in the quarter, with total comp store sales rising 4.2% ex currency.

Our global accessory store comps were 2.7%, which included a 5.1% increase in the United States, which is on top of a 5.6% increase in Q2 last year. The momentum we are experiencing in this segment indicates that the innovative styling in our watch and accessory lines is resonating with consumers around the world and that the infrastructure we’ve been building to support this initiative is paying nice derivatives.

We are also seeing that these trends are continuing into the early part of Q3. As a result, we are maintaining our pace to open between 80 to 85 stores this year, with more than half of these outside of the United States.

On the international front, we experienced net sales growth of 9.5% ex currency, fueled by a 21.4% increase in our other international segment. We are making excellent progress in advancing our wholesale business in the Asia-Pacific region and are experiencing solid growth with our distribution partners around the world.

While our European wholesale business reflected a slower growth rate of 2.9%, we are confident that we will see some improvement during the second half of the year.

One factor that will help us internationally is that our accessory business continues to gain momentum outside the United States. The opening of our retail stores overseas is introducing more customers to our leather products and this is giving us additional wholesale opportunities.

For example, we have established a successful men’s leather business in our U.K. department store and they are now testing women’s leather. We are also doing leather test in both Australia and Japan. We also have a solid and growing business in Germany in leather goods.

Another bright spot is the fact that the Fossil brand increased in sales 13% ex currency during the quarter with all categories combined. In addition, our Fossil watch comps within our own retail stores were in the plus 15% range during Q2. These results are very promising as we enter the more seasonal second half of the year with an improved assortment and more focused branding efforts. The brand is continuing to gain momentum worldwide and this is again a significant long-term opportunity.

We also have a number of new initiatives that we believe will further advance our long-term growth opportunities, including we are very excited to announce today that we have signed a licensing agreement with DKNY for jewelry that will launch in Europe in Q3 of this year. As you know, our jewelry business is very strong in Europe and there is an appetite there for branded jewelry. We also have a very successful DKNY watch business in Europe, so we expect the jewelry to be very successful relatively quickly.

Most of this product will go to the same specialty and department stores where we sell DKNY watches and participate in our extensive shop-in-shop programs that we have in Europe.

We also have unveiled our Fossil men’s footwear line at the recent footwear show and got a strong response and will be shipping to a relatively small number of doors in the United States and Germany in the spring of next year. A women’s line is also in the works, with an anticipated launch date of fall 2009.

We have assembled several world-class footwear professionals that have done a great job in delivering an assortment that further promotes the image of the Fossil brand. We believe this is a natural extension to our leather goods categories and will benefit from the strength of the brand in the United States and Germany.

We also recently launched to the trade another new business category, which is Michelle handbags. The line was very well-received, the product is terrific, and we will be shipping also in the first quarter of 2009. The distribution will be in luxury department stores in the United States plus some unique specialty stores across the country. This should be a strong business for us and complements the Michelle watch business, as well as the sunglass line that was launched earlier this year.

From a balance sheet perspective, we ended the quarter with cash balances of $212 million and minimal debt. The inventory growth was slightly higher than sales growth during the quarter but included 61 new retail stores opened over the last year.

Now I would like to turn the call over to Mike Barnes to review our sales highlights in more detail.

Michael W. Barnes

Thanks, Kosta. Good morning, everyone. I will start the review of our domestic business, where we saw sales rise 1.5% for the quarter, with watches up 2.3% and non-watch categories up 0.5%.

Domestic wholesale watch growth was driven by our licensed watches and Michele brands and was partially offset by a modest sales decline in Fossil watches. Mass market watch sales were also down but as we noted last quarter, some shipments moved into Q1 this year versus Q2 last year.

Growth from our licensed watch category was led by a strong Emporio Armani business as well as continued success with the rollout of Michael Kors.

Given the softness in the U.S. economy and the fact that department stores are holding down inventories to increase turns, we are pleased with the results of our domestic watch business. We’ve maintained a leadership position in this category and we are continuing to outperform others in the space. We believe the second half of this year could result in an improved performance as department stores flow inventory for the holiday season, given the health of our stock to sales ratios at the end of this quarter.

As mentioned on previous calls, we are continuing to experience great sponsorship from our department store customers. We believe the newness coming in the second half of the year, combined with improvements in our inventory flow, especially compared to last year, will also help drive our second half performance.

As previously noted, our proprietary luxury watch brand, Michelle, experienced a solid increase in wholesale shipments for the quarter. This sales strength, combined with a lower rate of returns compared to the prior year quarter, helped to deliver a strong net sales performance for the brand and Michelle remains the best-selling watch in the fashion, luxury tier of distribution.

We also launched Michelle sunglasses in late March and we are currently reacting to selling information to improve the overall assortment as we move this business forward. And as Kosta mentioned a moment ago, we plan to introduce Michelle handbags in the spring of 2009, which we expect will further build awareness for this brand. We have previewed the Michelle handbag line with key customers during the market last week and the reception was very positive.

Our domestic accessory business experienced a 0.5% increase in wholesale shipments during the second quarter, driven by growth in Relic handbags, Relic small leather goods, and the continued rollouts of the Fossil accessory jewelry and our Fossil 54 handbag line. These increases offset declines in Relic eyewear, primarily due to a reduction in towers at a key retailer in comparison to the prior year, and Fossil women’s accessories. Relic handbags and small leather goods had a great quarter, with wholesale shipments increasing 15% and retail selling increases even higher.

We’re in a great inventory position and we look for this trend to continue into the second half of the year.

Our Fossil accessories jewelry line is outperforming the broader category and we expect to increase our door penetration from about 500 doors at the end of Q2 to approximately 900 doors for holiday. As to the Fossil 54 handbag line, we ended the quarter with 71 doors and expect this to grow to just over 100 doors by holiday.

We experienced a 3.2% decline in Fossil women’s leather shipments during the quarter but had we not been up significant close-outs from the prior year quarter, would have seen increases of about 2% for the line.

Our stock to sales ratios are healthy and with newness starting to hit the stores, we are expecting a stronger performance during the second half of the year.

As to our international wholesale business segment, we had a solid performance for the quarter, with net sales increased by 20.4%, or 9.5% excluding currency. In Europe, wholesale shipments rose by 16.8% or 2.9% ex currency. Ex currency, we posted high-single-digit increases across our Fossil watch and jewelry lines and our Emporio Armani business. The Diesel watch business also performed very well, with wholesale shipments increasing 11% during the quarter and the expansion of our Michael Kors business added additional growth as well.

These increases were partially offset by declines in our DKNY watch, Emporio Armani jewelry, and our Fossil eyewear business. We have been refreshing the DKNY watch line and we expect this to improve in performance during the back half of the year. We believe the performance in our eyewear business is really reflective of the weakness within this category. Long-term, including the back half of the year, we expect our Europe segment to perform at a much better pace than we experienced during the second quarter. We feel that the 90% growth we saw over the first six months is more indicative to what we should expect in the back half.

We will benefit from an approximately 1300 door launch of DKNY jewelry as Kosta mentioned earlier and continued growth in our core watch and jewelry lines; in addition, future expansion into other categories, such as small leather goods and handbags.

In our other international segment, wholesale shipments rose by 27.1%, or 21.4% ex currency. This strong performance continues to show the benefit of our globally diversified business model. We experienced strong double-digit growth across our Fossil and licensed watch brands with most of our significant operating subsidiaries, providing double-digit sales growth as well.

Our increasing presence of shop-in-shops and concessions in the Asia-Pacific region continued to provide an excellent opportunity for us to build awareness for our brands and gain market share in the department store environment.

Our distribution partners in Asia and South America continued to provide solid growth for our watch businesses and we are looking to further penetrate these markets with our jewelry and accessory offerings. We remain extremely enthusiastic about our long-term opportunities from our newer businesses in China, India, and Korea as well.

Our direct-to-consumer segment had a terrific quarter, with sales rising 24.8%, or 22.5% excluding currency. This was primarily the result of a 27.9% increase from retail store growth and comparable store sales increases of 4.2% ex currency.

Our growth engine in this segment, which is the Fossil accessory store concept, delivered global comp increases of 2.7% in 71 comp stores that were opened during the quarter. If not for a very difficult quarter in our Australian stores, comps would have increased nearly 5% in our global full price accessory stores. Regardless, we experienced solid growth in the U.S. accessory stores with comps rising 5.1% against a prior year comp of 5.6%, and our Europe stores were up 5.4% ex currency. On a positive note, during the third quarter to date, we’ve even seen improving trend in the Australian comp store numbers as well.

The exciting part about our Fossil stores is that we are experiencing strength across most markets and stores continue to further our Fossil brand awareness and our wholesale channels internationally. As Kosta mentioned earlier, we are seeing opportunities to broaden our category presence in many markets as a result of the increased exposure provided by our retail stores.

Globally, we ended the quarter with 263 stores. This includes 129 full priced accessory stores, 66 of which were outside the U.S., and 82 outlet locations, including six outside the U.S. Additionally, 33 apparel stores and 19 multi-brand stores. This compares to 202 stores at the end of the prior year quarter, including 78 full priced accessory stores that had 35 outside the U.S. and 76 outlet stores with four outside the U.S., 33 apparel stores and 15 multi-brand stores.

During the second quarter, we opened 13 new doors, including 11 full priced stores and two outlet stores. For the full year 2008, we still expect to open between 80 and 85 total stores. As previously stated, we will concentrate on the full price accessory concept with slightly more stores begin opened internationally than domestically.

As a final note on stores, you might note that we have purchased the Watch Station name and global web domain and have opened our first multi-brand outlet store in Florida under this brand. We view this as a future growth opportunity as well.

At this time, I will turn the call over to Mike Kovar to discuss our financial results.

Mike Kovar

Thanks, Mike and good morning to everyone. First I’ll summarize our second quarter results from this morning’s press release -- net sales increased 15.2% to $353.2 million compared to $306.5 million last year. Gross profit grew 26.4% to $190.3 million, or 53.9% of net sales, compared to $150.5 million, or 49.1% of net sales.

Operating income increased 51.2% to $35 million, or 9.9% of net sales, compared to $23.1 million or 7.6% of net sales. Reported net income rose 71.3% to $25.1 million compared to net income of $14.7 million last year. The second quarter effective tax rate of 21% was well below last year’s rate. Normalizing this quarter’s effective tax rate to our structural rate would have resulted in net income increasing 37.7% over the prior year.

Diluted weighted average common shares decreased to 69 million shares compared to 69.7 million shares, resulting in reported diluted earnings per share increasing 71.4% to $0.36 per share compared to $0.21 per diluted share last year. Again, normalizing the effective tax rate to our structural rate would have resulted in second quarter diluted EPS growth of about 39.1%.

Our sales mix breakdown for the second quarter in comparison to last year continues to shift toward a higher percentage of internationally based wholesale and direct-to-consumer sales, with an offsetting reduction in our domestic wholesale sales percentages. Specifically, the 2008 second quarter sales mix was as follows: 16.1% from domestic wholesale watch sales; 11.8% from domestic other activities; 19.5% from worldwide direct-to-consumer businesses; 33% from European wholesale sales; and 19.6% from wholesale sales in other international locations.

The 15.2% sales growth for the quarter consisted of the following increases by category and geographic region -- domestic watch sales increased 2.3% to $56.8 million, compared to $55.5 million in the prior year quarter. Other domestic sales, which include our leather, sunglass, and jewelry businesses increased 0.5% to $41.6 million compared to $41.4 million in the prior year quarter.

Sales generated from European based wholesale operations increased 16.8% to $116.4 million, compared to $99.7 million in the prior year quarter.

Other international sales, which consists of export sales from distributors and sales from our Canada, Mexico, and Asia-Pacific wholesale operations, increased 27.1% to $69.4 million compared to $54.6 million in the prior year quarter.

And finally, sales from our worldwide direct-to-consumer businesses grew 24.8% to $69 million compared to $55.3 million in the prior year quarter.

Second quarter gross profit margin increased by 480 basis points to 53.9% compared to 49.1% in the prior year quarter. For the second quarter, our gross profit margin was favorably affected by a weaker U.S. dollar, which contributed approximately 200 basis points to overall margin improvement. Additionally, our ongoing margin improvement initiative and an increase in the sales mix of higher gross margin international and direct-to-consumer sales further drove margin improvement.

To a less extent, gross profit margin was favorably impacted by higher outlet store margins due to a reduction in year-over-year discontinued inventory balances and lower levels of markdowns. An increase in sales mix of our lower gross margin distributor sales partially offset these increases in gross profit margin.

Operating expenses as a percentage of net sales increased 240 basis points in the second quarter to 44% compared to 41.6% in the prior year quarter. Total operating expenses increased by $28 million to $155.4 million in comparison to the prior year quarter and included approximately $7.5 million related to the translation of foreign base expenses as a result of the weaker U.S. dollar. Operating expenses in the prior year quarter included approximately $4.4 million related to expenses associated with our equity grant review.

Excluding expenses related to foreign currency translation, and the prior year equity grant review expenses, the increase in operating expenses was principally driven by increased expenses associated with our retail store growth, increased bad debt reserves due to the deteriorating financial condition of several of our domestic wholesale customers, costs associated with transitioning our Italian subsidiary to our centralized FAC platform in Europe, and increases to support higher levels of sales.

Direct-to-consumer operating expenses as a percentage of direct-to-consumer net sales increased to 59.4% in the second quarter compared to 50.7% in the prior year quarter, resulting in approximately $6 million, or $0.05 per diluted share in additional operating expenses. This growth is principally related to retail store growth and infrastructure additions, including payroll costs related to headcount increases in our sales management and construction departments and expansion of our international retail infrastructure. We believe this trend will continue into the third quarter, to the effect of approximately $0.03 per diluted share, but should normalize during the fourth quarter of this year.

Operating income increased by 51.2% during the second quarter to 9.9% of net sales compared to 7.6% of net sales in the prior year quarter as a result of increased gross profit margin partially offset by decreased operating expense leverage. Operating income was favorably impacted by approximately $9.2 million as a result of a translation of foreign-based sales and expenses into U.S. dollars.

Other income and expense increased unfavorably by $3.2 million, primarily driven by increased foreign currency transaction losses. These losses are a result of four contracts previously entered into at rates below the relative quarter in foreign currency exchange rates.

Our income tax expense for the second quarter was $6.9 million, resulting in an effective income tax rate of 21.4%. The lower effective tax rate for the second quarter was a result of a reduction in reserves for certain income tax liabilities. Barring any additional discrete events, we estimate our effective tax rate for the second half of this year will approximate 37%.

Second quarter net income increased by 71.3% to $25.1 million, or $0.36 per diluted share, compared to $14.7 million or $0.21 per diluted share in the prior year quarter. Second quarter net income was favorably impacted by the lower effective tax rate and also by net pretax foreign currency gains of $6.3 million, which added about $0.06 per diluted share. Prior year second quarter net income included approximately $0.04 a share of stock option review related costs.

Turning to the balance sheet, our cash, cash equivalents, and securities available for sale as of the end of the second quarter totaled $212 million, in comparison to $178 million at the end of the prior year quarter and $268 million at the end of fiscal year 2007. We have repurchased approximately 2.3 million shares of our common stock since the end of the prior year quarter for approximately $78 million. This includes approximately 300,000 shares under the 2 million share buy-back we announced several months ago. We expect to complete this buy-back by early December.

Accounts receivable increased by 16.2% to $175.8 million at the end of the second quarter, compared to $151.3 million at the end of the prior year quarter. DSO in comparison to the same quarter last year remained unchanged at 45 days. DSO over the last several quarters has been increasing on a year-over-year basis as a result of our international wholesale businesses growing faster than our U.S. wholesale businesses. And although this trend continued somewhat during the second quarter, the effect of it increasing our consolidated DSO was offset by an increase in sales mix from our direct-to-consumer segment and increasing bad debt allowances.

Inventory at quarter end was $285.4 million, representing an increase of 20% from the prior year quarter inventory of $237.8 million, and included inventory related to an additional 61 retail stores being opened since the end of the prior year quarter.

Additionally, in-transit inventories from our factories at the end of the second quarter more than doubled in comparison to last year as our inventory flow has improved. And as a result, we should be in a much better position to meet demand than we were this time last year.

Capital additions for the first six months of the year totaled $28 million and we are expecting full year 2008 CapEx of approximately $75 million to $80 million, of which a significant portion of this relates to new retail store openings and costs associated with the implementation of a new SAP point of sale system for the stores.

Depreciation and amortization expense for the first half of 2008 was $17.9 million and we are estimating full-year 2008 depreciation and amortization expense of just over $40 million, with the increase over 2007 levels primarily related to our direct-to-consumer businesses.

As it relates to guidance for the remainder of the year, as we have mentioned before, as we continue to grow our retail store base and web based businesses, sales from our direct-to-consumer segment increased as a percentage of our total sales mix, benefiting our profitability in the fourth quarter generally at the expense of the first and second quarter when due to seasonality, it’s more difficult to leverage expenses against sales.

In addition, our current guidance includes the most recent strengthening of the U.S. dollar and increased slightly ahead of where we were projecting it during our May earnings call. As a result, we are currently estimating second half of fiscal 2008 net sales to increase in the mid-teens range. We expect third quarter diluted earnings per share to approximate $0.53, a 23% increase over the prior year third quarter diluted earnings per share of $0.43 that included about $0.03 of stock option review related expenses.

For the full fiscal year 2008, we currently estimate net diluted earnings per share in the range of $2.27 to $2.30, as compared to $1.75 in diluted EPS for fiscal 2007.

In conclusion, we are pleased to begin the second half of the year in a solid position. Our brands are performing well across the globe, our direct-to-consumer initiative is fueling nice increases, and we have identified several new opportunities to advance our growth. We will continue to plan our expenses and inventory appropriately, given the environment and are confident in our abilities to achieve our annual goals.

With that, I would like to turn the call back over to the Operator to begin the question-and-answer portion of the call.

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