Fossil's Fine

Shares of fashion products maker and marketer Fossil (Nasdaq: FOSL  ) fell yesterday on news that founder and Chairman Tom Kartsotis and CEO Kosta Kartsotis filed to sell 4.35 million shares of company stock on the open market. The sales, which won't net the company any new cash, will reduce Tom's share of Fossil stock to just over 18%, while Kosta's ownership will sit at 12.4%. (They currently own 25.6% and 14.7%, respectively.)

The shares have recovered a bit today at last check, perhaps because investors realize that trying to draw conclusions from insider selling is particularly difficult and generally not a reason for panic. Selling based on insider information is illegal, but there are plenty of other reasons to sell. It could be anything from valuation to a sudden compunction to take me out for a fantastically expensive dinner.

Fossil investors, meanwhile, have reason to relax. That investors might want to sell given the company's recent run -- it has significantly outpaced the S&P 500 over the last 12 months -- is no surprise. Earlier this month, the company announced an attempt to relax investors with some psychological manipulation: a 3-for-2 stock split, set to pay out early next month.

The shares' rise has clearly been powered by corporate-level performance. For the fiscal year ended Jan. 3, Fossil reported gross margin expansion, sales growth of nearly 18%, net income growth of 16%, and similar earnings-per-share (EPS) growth, even as the company's share count rose slightly. Operating margins fell somewhat, but Fossil expects them to recover this year, mostly in the second half. EPS growth is seen accelerating this year to 21%.

Not all is perfect at Fossil. There are questions about cash flow and working capital management, as Matt Thurmond discussed in a January column. Fossil did manage free cash flow in fiscal 2004, but the figure fell from year-ago levels -- in large part due to software and plant investments. However, nothing about the company's current position indicates a need for panic just because of some insider selling.

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Fool contributor Dave Marino-Nachison doesn't own Fossil.


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