3 Takeaways From Fossil Earnings

Watch and accessory maker Fossil (NASDAQ: FOSL  ) just reported earnings for the fourth quarter, updating investors on its business performance over the holiday season. Here are three key takeaways from the report.

Success at Internet sales
First, Fossil's direct-to-consumer business is booming. Internet sales jumped by 20% in the quarter, and that channel now accounts for 27% of revenue. That boost was enough to make the retail category now bigger than the company's entire wholesale business in Europe.

Growth in direct retailing also helped Fossil log a 2.4% increase in global comparable sales, and a 15% boost in North America. That's no small feat considering Coach (NYSE: COH  ) only managed a 1% rise in sales in that market, and Tiffany (NYSE: TIF  ) saw sales rise by just 2% there. Both luxury goods companies admitted that they were "disappointed" by their holiday results. Fossil CEO Kosta Kartsotis, meanwhile, had good reason to be "pleased" with his company's performance.

Jewelry sparkles again
Second, Fossil's jewelry transition looks to be complete. Or at least it's no longer a big drag on sales. The company has been working on repositioning that category with an overhaul of the product line. The shift had been weighing particularly hard on European sales.

Last quarter, for example, the jewelry business fell by 25% in Europe, knocking down the region's sales by 5%. The good news for Fossil is that there was no repeat of that headwind this quarter. European sales managed to grow by 7.6% over the holiday months.

Solid outlook for 2013
And third, Fossil projected a solid year ahead. The company estimates that sales will increase by 10% to about $3.15 billion. That agrees with analyst estimates, which had pegged the figure at $3.16 billion. Fossil also sees its earnings clocking in between $5.85 and $6.15 per share, roughly the same as the Street expects.

Overall, I think the report answers a few key questions about the retailer's business. Most important, Fossil's growth story seems intact enough to justify its premium valuation. At over 21 times earnings, the company is a bit more expensive than Tiffany's P/E of 20, and well more than Coach's 14. Unlike Fossil, those are both iconic luxury brands. But also unlike Fossil, they aren't growing earnings and sales at such a fast clip.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in our special report. Uncovering these top picks is free today; just click here to read more.