Digging Fossil

Fossil (Nasdaq: FOSL  ) has weathered its share of setbacks. Its many worries last year included an SEC investigation into its stock option practices, and the possibility that Nasdaq might suspend its securities from trading.

But things are now looking up for the bony beast, and its most recent quarter might leave investors wondering if it's time to invest in the watchmaker.

Fourth-quarter net income increased an impressive 51.4% to $53.1 million, or $0.75 per share. Net sales increased 18.5% to $463.1 million. In even more heartening news, gross margin surged, increasing to 53.6% from 51.4% in the year-ago quarter.

Also on the plus side, revenue benefited from currency translation, and the weak dollar boosted gross margin. As with many other companies, Fossil also got a lift from international sales. Wal-Mart (NYSE: WMT  ) , McDonald's (NYSE: MCD  ) , and VF (NYSE: VFC  ) all spring to mind as recent examples of foreign exposure's ability to offset slower domestic consumer spending.

Fossil's balance sheet looks fine, too. It's got $267.9 million in cash and equivalents, and just $3.5 million in long-term debt. The company's been working to tightly manage inventory, which increased just 8.9% in the quarter.  

Fossil provides watches, handbags, and other accessories through its own stores and an array of department stores, from Nordstrom (NYSE: JWN  ) to Macy's (NYSE: M  ) to J.C. Penney (NYSE: JCP  ) . In its conference call, the company told analysts that it's repositioning its Fossil brand to be more aspirational, with a "modern vintage" appeal for older customers. It's also testing a premium-priced leather brand called Fossil Fifty-Four.

In addition, the company owns proprietary luxury watch brands like Michele and Zodiac, and a licensing business to provide watches under such luminary brands as Armani and Burberry. In other words, Fossil's on a lot more wrists than you might have expected.

I'm a big fan of Fossil's handbags and watches, but I never considered the company as a stock idea. Its shares aren't too shabby at the moment, trading at just 13 times forward earnings after a 15% drop in the last three months. After all, analysts expect the company to deliver 19% growth over the next five years, giving it an appealing PEG ratio of 0.88. It looks like a great time for investors to dig into this Fossil.  

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