Source: Fossil

Many fashion companies have reported lackluster results this earnings season due to weak consumer spending and a highly promotional environment for the industry. Fossil (FOSL 9.03%), on the other hand, is delivering strong performance and benefiting from booming demand for successful brands like Michael Kors (CPRI 1.85%). This fashion company looks well positioned to continue outperforming.

Trendy performance
Sales during the fourth quarter of 2013 increased by 12%, to $1.062 billion, and performance was strong across the board. Sales in the North America wholesale segment increased 13.1% during the quarter. Wholesale sales in Europe grew by 13.8%, and the Asia Pacific region delivered a growth rate of 12.7% in wholesale revenues versus the fourth quarter in the previous year.

Direct-to-consumer sales increased 8.8% year over year. This was driven by the expansion of the global retail store base, as the company ended the year with 543 global stores versus 473 stores at the end of 2012.

Store-base expansion was partially offset by a decrease of 1.3% in same-store sales, which was caused by falling traffic in North America. Considering the harsh weather conditions and lackluster traffic figures reported by many other retailers in North America during the quarter, this shouldn't come as an unexpected or worrisome factor.

Diluted earnings per share grew 7%, to $2.68, compared to $2.51 for the prior fiscal year's fourth quarter. This was above analyst`s expectations of $2.44, on average, for the period.

For 2014, management is expecting net sales to increase between 8% and 10%, and earnings per share to be in the range of $6.9 to $7.3, an increase of 5.2% to 11.3% versus 2013. For the first quarter of the year, the company is forecasting sales to grow between 12.5% and 14%.

Management highlighted the company's brand value and opportunities for global expansion in the earnings press conference.

Our outstanding portfolio of lifestyle brands includes some of the best brands in the market today and we are focused on maximizing their full potential. We continue to enhance our jewelry line and are well positioned to take advantage of the consumer's growing affinity for branded jewelry. We have strong momentum internationally especially in Europe, although there is still work to be done we have made significant investments in our management team and operations to drive future growth.

In Asia, our greatest opportunity is China. Even with sales up over 50% in 2013, we still have the opportunity to expand distribution.

Benefitting from Michael Kors
The company does not disclose financial figures for its specific brands, but the affordable-luxury segment of the pricing spectrum has been holding up relatively well in comparison to lower-priced products in the fashion business, lately. Fossil seems to be materially benefiting from booming demand for Michael Kors products during the last quarters.

Michael Kors has been one the most explosive growth stories in the fashion industry during the last few years, and the company continues firing on all cylinders as of the last quarter. Michael Kors delivered a spectacular increase of 59% in sales for the quarter ended on Dec. 28, and licensing sales increased by the same percentage, to $47.4 million during the period.

It's hard to estimate with precision what percentage of sales Michael Kors represents for Fossil, but it sounds like a reasonable idea to assume that the brand is becoming a bigger part of the company´s portfolio over time, as it's most likely outgrowing the rest of the brands.

As long as Michael Kors continues booming, it should remain a substantial growth driver for Fossil in the future.

Bottom line
Fashion companies are facing a challenging environment lately, but that doesn't mean that investors should necessarily stay away from the sector. On the contrary, these kinds of conditions can be very useful to identify those companies which are strong enough to thrive in spite of industry headwinds. Fossil is doing remarkably well, and the company is positioned to continue delivering fashionable growth for investors in the coming years.