FOSL SHOO initiation

Consumer

Industry Research

Footwear and Accessories Industry

Initiating Coverage on Fossil, Inc. and Steven Madden, Ltd:

Multi-Year Growth Opportunities

January 4, 2012

Jane Thorn Leeson(917) 368-2220

[email protected]

Edward J. Yruma(917) 368-2394

[email protected]

For important disclosures and certifications,please refer to page 66 of this document.

KeyBanc Capital Markets Inc.,Member NYSE/FINRA/SIPC

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC Equity Research

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January 4, 2012

Contents SUMMARY AND RECOMMENDATION ....................................................................................................................................................3 INVESTMENT THESIS ..............................................................................................................................................................................3 VALUATION ..............................................................................................................................................................................................4 RISKS ........................................................................................................................................................................................................7 INITIATION CHECKLIST...........................................................................................................................................................................7

Growth ....................................................................................................................................................................................................... 7 Sales Execution......................................................................................................................................................................................... 8 Management.............................................................................................................................................................................................. 8 Market Positioning..................................................................................................................................................................................... 8

FOOTWEAR AND ACCESSORIES REMAIN RESILIENT DURING THE DOWNTURN...........................................................................8 INVESTMENT IN MARKET LEADERS THAT OFFER STRONG VALUE ..............................................................................................10 DEPARTMENT STORES GAINING SHARE AS SPECIALTY RETAILERS LOSE SHARE...................................................................11 COMPARISON OF KEY FINANCIAL METRICS .....................................................................................................................................13 FOSSIL, INC. ...........................................................................................................................................................................................16

Initiating Coverage with a BUY Rating: Timing is Everything................................................................................................................. 16 AT A GLANCE.........................................................................................................................................................................................16 SUMMARY AND RECOMMENDATION ..................................................................................................................................................16 KEY INVESTMENT POINTS....................................................................................................................................................................16 VALUATION ............................................................................................................................................................................................17 SPECIFIC RISKS RELATED TO FOSSIL, INC. ......................................................................................................................................19 EARNINGS OUTLOOK: +21% CAGR OVER THE NEXT FIVE YEARS.................................................................................................19

Key to Earnings ....................................................................................................................................................................................... 20 FAST AND FLEXIBLE SUPPLY CHAIN .................................................................................................................................................23 INVENTORY MANAGEMENT .................................................................................................................................................................24 TOP THREE ITEMS ON OUR WATCH LIST...........................................................................................................................................24

#1: The Impact of a Potential European Slowdown on Fossil’s Earnings.............................................................................................. 24 #2: Asia Expansion Via Concession Growth .......................................................................................................................................... 28 #3: Accelerate New Store Openings....................................................................................................................................................... 31

BALANCE SHEET STILL STRONG AFTER LAUNCHING SHARE BUYBACK PROGRAM ................................................................32 EVOLUTION OF FOSSIL, INC. ...............................................................................................................................................................32 BRAND PORTFOLIO...............................................................................................................................................................................32 STRONG VALUE PROPOSITION WITHIN THE COMPETITIVE LANDSCAPE.....................................................................................35 TENURED AND PROVEN MANAGEMENT TEAM .................................................................................................................................37 STEVEN MADDEN, LTD. ........................................................................................................................................................................42

Initiating Coverage with a HOLD Rating: Waiting for a Better Entry Point ............................................................................................. 42 AT A GLANCE.........................................................................................................................................................................................42 SUMMARY AND RECOMMENDATION ..................................................................................................................................................42 KEY INVESTMENT POINTS....................................................................................................................................................................42 VALUATION ............................................................................................................................................................................................43 SPECIFIC RISKS RELATED TO STEVEN MADDEN, LTD. ...................................................................................................................45 EARNINGS OUTLOOK: 20% LONG-TERM EPS GROWTH ..................................................................................................................45

Key to Earnings ....................................................................................................................................................................................... 46 TEST AND REACT – BASIC CORE COMPETANCY DRIVING SUPERIOR EXECUTION....................................................................48 TOP THREE ITEMS ON OUR WATCH LIST...........................................................................................................................................49

#1: New Direct Sourcing Opportunity...................................................................................................................................................... 49 #2: Outlet Store Growth........................................................................................................................................................................... 50 #3: New Brand Acquisitions .................................................................................................................................................................... 52

EVOLUTION OF THE BRAND ................................................................................................................................................................55 BRAND PORTFOLIO...............................................................................................................................................................................56 STRONG VALUE PROPOSITION WITHIN THE COMPETITIVE LANDSCAPE.....................................................................................59 MANAGEMENT TEAM ............................................................................................................................................................................61


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January 4, 2012

Footwear and Accessories Industry INITIATING COVERAGE ON FOSL AND SHOO: MULTI-YEAR GROWTH OPPORTUNITIES

Jane Thorn Leeson: (917) 368-2220— [email protected] Edward J. Yruma: (917) 368-2394 — [email protected]

SUMMARY AND RECOMMENDATION While maintaining a cautious view on the retail sector, we believe footwear and accessories (a resilient category during economic downturns) will continue to outperform the space for several more years. Though the current macro environment points to a weak near-term outlook (given the ongoing European debt crisis, high unemployment, record low consumer confidence, elevated inventory levels and a very promotional retail environment), we think most of the secular challenges today are manifesting themselves in the specialty apparel space. We think fashion footwear and accessories will remain in strong demand for years, especially given the rapidly rising middle- and upper-class population in the emerging markets. In addition, we believe the competitive set within the footwear and accessories space is limited; with fewer large players and less seasonality in its merchandise, we think the industry has a more benign competitive advantage than apparel. Within this framework, we are launching with a BUY rating on Fossil, Inc. (FOSL-NASDAQ) and a HOLD rating on Steven Madden, Ltd. (SHOO-NASDAQ). By and large, we find both companies to have compelling growth stories over the long term, as they offer strong value propositions relative to key competitors and possess multi-year growth opportunities (via global expansion, improved sourcing capabilities and trend-right product). Moreover, we think the secular challenges that were so prevalent in the department store channel several years ago have shifted to the specialty retailers. This is particularly noteworthy as 77% of FOSL sales and 83% of SHOO sales come from the department stores. With all that said, at current trading levels, we believe SHOO is fairly valued given strong double-digit earnings growth is dependent on continued new brand acquisitions.

INVESTMENT THESIS We think FOSL and SHOO are two of the best operators in the non-apparel space. Given several key competitive advantages (including a fast and flexible supply chain, unique Test & React strategy, and significant distribution opportunities) and strong global demand for fashion accessories and footwear, we expect both companies to grow at a 20% CAGR over the next five years. We estimate 2012 sales to increase 18% at FOSL on accelerated expansion in Asia and retail store growth, and 25% at SHOO, driven by new brand acquisitions and 10% organic growth. Both business models are driven by a fast and flexible supply chain. With the ability to quickly read trends, adjust production plans and deliver to stores faster than the industry average, both FOSL and SHOO enjoy one of the highest inventory turnover rates in the non-apparel space. SHOO can design and produce sample shoes in one day, test and identify new trends in one week, and deliver “winners” to stores in six to eight weeks (vs. industry standard of three to four months). FOSL’s substantial factory ownership and ability to test and identify key trends allow the Company to shift production plans quickly to capture the incremental sale; the Company’s design-to-delivery lead time of three to four months (vs. industry standard of 9-12 months) and reorder lead time of two to three months is unmatched. These key competitive advantages greatly reduce the frequency of fashion misses and the likelihood of markdown risk. Key wholesale customers continue to take share. Department stores have regained lost market share over the last three years, with comps at the higher end (including Nordstrom, Saks, Macy’s and Dillards) up over 1300 bps, on average, since the end of 2008. Gains were largely driven by share losses in the specialty retail channel (primarily missy and teen). We think the better department stores have been outperforming the space as a result of a relatively more stable higher-income customer base (given the challenging macro environment), improved store-level execution, better merchandising and greater full-price pricing. We believe this is an important point, given both SHOO’s and FOSL’s high exposure to the department store channel. Picking compelling stocks among widening valuation spreads. P/E averages have moved from troughs of 9.5x in 2009 to 29.4x for the High-Growth retail group, 7.5x in 2009 to 17.0x for the Footwear group, and 6.4x in 2009 to 20.1x for the Accessories group (see Exhibit 2). Despite this rebound, our channel checks and discussions with management teams point to a highly promotional retail environment with increasing consumer demand at greater discount levels. Though this does not bode well for 4Q margins or earnings, we believe those companies that continue to innovate and deliver product to the consumer quickly should outperform the space. We think 2012 valuations (P/E, EV/EBITDA, EV/Sales) for FOSL look compelling, given our expectations for upward earnings revisions as the year progresses on tailwinds from lower sourcing costs, higher year-over-year retail prices, a recovering global economy and continued growth of the business. At current trading levels, we believe SHOO is fairly valued, given strong double-digit earnings growth is dependent on new brand acquisitions; we would look for a better entry point, given our belief in the Company’s ability to deliver earnings upside over the longer term.


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January 4, 2012

VALUATION

Exhibit 1. Valuation Summary Peer Group Valuation

EV/EBITDA EV/Sales PEG

Company Name TKR RatingStock Price

PriceTarget

2012E P/E on PT

Mkt Cap ($mm)

S/O (mm)

2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

HIGH GROWTH RETAIL

Body Central Corp. BODY - $24.96 - - 399 16.0 20.4x 16.7x 10.0x 8.6x 1.2x 1.0x 1.0x 0.8xCoach, Inc. COH BUY $61.04 $72 19.6x 17,813 291.8 19.1x 16.6x 10.9x 9.9x 3.8x 3.3x 1.2x 1.0x

Fossil, Inc. FOSL BUY $79.36 $105 19.0x 4,968 62.6 17.5x 14.4x 9.0x 7.5x 1.8x 1.5x 0.9x 0.7x

Francesca's Holdings FRAN BUY $17.30 $30 43.2x 753 43.5 32.4x 24.9x 17.0x 12.7x 3.9x 3.0x 1.1x 0.8xMichael Kors Holdings KORS - $27.25 - - 5,199 190.8 49.5x 38.9x 23.8x 20.3x 4.2x 3.4x 1.6x 1.3xLululemon Athletica, Inc. LULU BUY $46.66 $58 38.5x 5,103 109.4 40.4x 31.0x 16.4x 12.2x 4.9x 3.7x 1.3x 1.0xRue21, Inc. RUE - $21.60 - - 528 24.5 14.1x 12.3x 5.4x 4.3x 0.6x 0.5x 0.8x 0.7xSkullcandy, Inc. SKUL BUY $12.52 $21 17.9x 341 27.2 13.4x 10.7x 8.7x 6.8x 1.6x 1.3x 0.6x 0.5xSteve Madden, Ltd. SHOO HOLD $34.50 - - 1,479 42.9 15.3x 12.8x 8.4x 6.7x 1.4x 1.1x 0.6x 0.7x

Under Armour, Inc. UA UW $71.79 $52 23.3x 2,890 40.3 39.9x 32.2x 14.1x 11.3x 1.9x 1.5x 1.8x 1.5xUrban Outfitters, Inc. URBN HOLD $27.56 - - 3,974 144.2 21.0x 17.4x 8.8x 7.5x 1.5x 1.3x 1.2x 0.9xVera Bradley, Inc. VRA BUY $32.25 $44 25.8x 1,306 40.5 23.0x 18.9x 11.8x 9.5x 2.7x 2.3x 1.0x 0.9x

Peer Average excluding KORS 21.6x 18.9x 11.0x 8.8x 2.3x 1.9x 1.1x 0.9x

FOOTWEARBrown Shoe Co., Inc. BWS - $8.90 - - 374 42.0 11.7x 8.3x 5.7x 4.9x 0.3x 0.3x NM 0.2xCollective Brands, Inc. PSS - $14.37 - - 870 60.6 29.5x 14.0x 6.4x 5.0x 0.4x 0.4x NM 0.2xDeckers Outdoor Corp. DECK - $75.57 - - 2,918 38.6 15.0x 12.7x 8.1x 6.6x 1.9x 1.5x 0.8x 0.6xDSW Inc. DSW - $44.21 - - 1,417 32.1 15.0x 13.6x 4.2x 3.8x 0.6x 0.5x 0.7x 1.3xFootlocker Inc. FL - $23.84 - - 3,605 151.2 13.4x 11.8x 5.5x 4.8x 0.5x 0.5x 1.3x 1.1xGenesco, Inc. GCO - $61.74 - - 1,495 24.2 16.6x 14.3x 8.2x 7.0x 0.7x 0.6x 1.0x 0.9xKenneth Cole Productions KCP - $10.59 - - 107 10.1 29.1x 15.0x 3.2x 2.3x 0.1x 0.1x NM 0.3xNike, Inc. NKE - $96.37 - - 36,013 373.7 19.6x 16.5x 12.4x 10.7x 1.8x 1.6x 1.7x 1.5xThe Jones Group, Inc. JNY - $10.55 - - 853 80.9 8.3x 7.9x 4.4x 4.2x 0.4x 0.3x 1.0x 1.0xSkechers USA, Inc. SKX - $12.12 - - 468 38.6 NM 16.3x NM 3.8x 0.2x 0.2x NM NMSteve Madden, Ltd. SHOO HOLD $34.50 - - 1,479 42.9 15.3x 12.8x 8.4x 6.7x 1.4x 1.1x 0.6x 0.7xWolverine World Wide, Inc. WWW BUY $35.64 $44 6.2x 1,721 48.3 14.0x 12.8x 8.0x 7.3x 1.1x 0.9x 1.1x 1.0x

Peer Average 17.1x 13.0x 6.8x 5.6x 0.8x 0.7x 1.0x 0.8x

ACCESSORIESCoach, Inc. COH BUY $61.04 $72 19.6x 17,813 291.8 19.1x 16.6x 10.9x 9.9x 3.8x 3.3x 1.2x 1.0xFossil, Inc. FOSL BUY $79.36 $105 19.0x 4,968 62.6 17.5x 14.4x 9.0x 7.5x 1.8x 1.5x 0.9x 0.7xGuess? Inc. GES - $29.82 - - 2,767 92.8 9.6x 8.9x 4.4x 3.7x 0.8x 0.7x 0.6x 0.6xMichael Kors Holdings KORS - $27.25 - - 5,199 190.8 49.5x 38.9x 23.8x 20.3x 4.2x 3.4x 1.6x 1.3xMovado Group, Inc. MOV - $18.17 - - 332 18.3 27.1x 23.6x 10.2x 10.2x 0.5x 0.4x 0.1x NMRalph Lauren Corp. RL - $138.08 - - 8,464 61.3 19.8x 17.0x 11.1x 9.6x 2.0x 1.8x 1.4x 1.2xSignet Jewelers Ltd. SIG - $43.96 - - 3,820 86.9 11.8x 10.5x 5.8x 5.2x 0.9x 0.9x 0.8x 0.7xSteve Madden, Ltd. SHOO HOLD $34.50 - - 1,479 42.9 15.3x 12.8x 8.4x 6.7x 1.4x 1.1x 0.6x 0.7xTiffany & Co. TIF BUY $66.26 $88 21.2x 8,412 127.0 17.5x 16.0x 9.3x 8.4x 2.3x 2.1x 1.0x 0.9xVera Bradley, Inc. VRA BUY $32.25 $44 25.8x 1,306 40.5 23.0x 18.9x 11.8x 9.5x 2.7x 2.3x 1.0x 0.9x

Peer Average excluding KORS 17.9x 15.4x 9.0x 7.9x 1.8x 1.6x 0.9x 0.8x

P/E

Notes: COH FYE June; Rating system is: BUY, HOLD, UW=UNDERWEIGHT. All averages exclude outliers (i.e., 40+ multiples). Source: Company reports, FactSet and KeyBanc Capital Markets Inc. estimates, as of December 30, 2011. Data as per FactSet for companies not in our coverage universe


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January 4, 2012

Exhibit 2. Spreads to S&P 500 Have Widened

High-Growth P/E Valuation

5x

15x

25x

35x

45x

55x

65x

75x

85x

95x

105x

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

No

v 09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

High-Growth Average S&P 500

12/31/10P/E: 31.6x

12/30/11 P/E: 29.4x

3/6/09 TroughP/E: 9.5x

10/19/07 Peak P/E: 108.8x

Source: FactSet

High-Growth EV/EBITDA Valuation

2.0x

7.0x

12.0x

17.0x

22.0x

27.0x

32.0x

37.0x

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

High-Growth Average S&P 500

12/31/10 EV/EBITDA:

16.4x

12/30/11 EV/EBITDA:

14.1x

3/6/09 TroughEV/EBITDA: 4.0x

10/19/07 PeakEV/EBITDA: 35.8x

Source: FactSet

Footwear P/E Valuation

5x

10x

15x

20x

25x

30x

35x

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

Footwear Average S&P 500

12/31/10 P/E:

12/30/11 P/E:17.0x

3/6/09 Trough P/E: 7.5x

4/23/10Peak P/E:

34.1x

Source: FactSet

Footwear EV/EBITDA Valuation

3.0x

5.0x

7.0x

9.0x

11.0x

13.0x

15.0x

17.0x

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

Footwear Average S&P 500

12/31/10 EV/EBITDA: 8.2x

12/30/11 EV/EBITDA:

9.7x



Source: FactSet

Accessories P/E Valuation

5x

10x

15x

20x

25x

30x

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

Accessories Average S&P 500

12/31/10P/E: 24.0x

12/30/11 P/E20.1x

1/23/09 Trough P/E: 6.4x

4/23/10 Peak P/E: 31.4x

Source: FactSet

Accessories EV/EBITDA Valuation

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Dec

06

May

07

Oct

07

Ma

r 0

8

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

Accessories Average S&P 500

12/31/10 EV/EBITDA: 12.9x

12/30/11 EV/EBITDA:

10.9x



Source: FactSet


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January 4, 2012

Exhibit 3. Trading at the Lower End of the High-Growth Peer Group Valuation

10.7x12.3x 12.8x

24.9x

31.0x 32.2x

17.4x16.7x

18.9x

16.6x14.4x

0x

5x

10x

15x

20x

25x

30x

35x

SKU

L

RU

E

SHO

O

FOSL

CO

H

BOD

Y

UR

BN VRA

FRAN

LULU U

A

2012

E P/

E

High-Growth P/E

Source: Company reports, FactSet and KeyBanc Capital Markets Inc. estimates

4.3x

9.5x 9.9x

11.3x12.2x

12.7x

6.7x 6.8x

8.6x7.5x 7.5x

0x

2x

4x

6x

8x

10x

12x

14x

RU

E

SHO

O

SKU

L

UR

BN

FOSL

BOD

Y

VRA

CO

H UA

LULU

FRAN

2012

E EV

/EBI

TDA

High-Growth EV/EBITDA


0.5x

1.0x 1.1x 1.3x 1.3x

2.3x

3.0x

3.3x

3.7x

1.5x1.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

RU

E

BOD

Y

SHO

O

SKU

L

UR

BN UA

FOSL

VRA

FRAN

CO

H

LULU

2012

E EV

/Sal

es

High-Growth EV/Sales


Exhibit 4. Despite Relatively High Valuation to the S&P 500, Still Have Room to Grow

Historical Relative Valuation - 1YR Historical Relative Valuation - 3YR Historical Relative Valuation - 5YR

FOSL avg: 169% FOSL avg: 128% FOSL avg: 129%

SHOO avg: 129% SHOO avg: 122% SHOO avg: 110%

SHOO FOSL SHOO FOSL SHOO FOSL

50%

70%

90%

110%

130%

150%

170%

190%

210%

230%

Dec

08

May

09

Oct

09

Mar

10

Aug

10

Jan

11

Jun

11

Nov

1195%

115%

135%

155%

175%

195%

215%

235%

Dec

10

Jan

11

Fe

b 11

Mar

11

Ap

r 11

May

11

Jun

11

Jul 1

1

Au

g 11

Se

p 11

Oct

11

No

v 1

1

45%

65%

85%

105%

125%

145%

165%

185%

205%

225%

Dec

06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Dec

11

Source: FactSet


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January 4, 2012

Exhibit 5. Average Monthly Share Price Performance

1Q 2Q 3Q 4Q

SHOO % of sales* 21% 25% 29% 25%

FOSL % of sales* 19% 20% 26% 35%

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

SHOO -0.8% 9.8% 18.5% -1.3% -3.8% 10.6% -5.1% -2.4% 10.0% -6.1% 3.4% -12.9%

FOSL 7.1% 10.6% 9.5% 3.9% 0.6% -0.5% 5.8% 1.3% 2.0% 5.1% 5.3% -11.5%

Average 3.2% 10.2% 14.0% 1.3% -1.6% 5.1% 0.4% -0.6% 6.0% -0.5% 4.4% -12.2% *Percentage of annual sales attributed to each quarter for FY10. Note: Monthly share data is average of the monthly performance from January 2007 to December 2011. Stock price performance may or may not reflect market conditions at the time; results presented cannot and should not be viewed as an indicator of future performance. Source: FactSet

RISKS Volatile macroeconomic conditions are the most significant risks to our thesis, both on the upside and the downside. The primary risks that could impede FOSL, COH, FRAN, LULU, SKUL, VRA, WWW and TIF from reaching our price targets include, but are not limited to: deterioration in the consumer spending environment; a slowdown in comparable store sales growth; and the fashion risk associated with being in a seasonal, cyclical and trend-focused sector. The primary risks that could impede UA from achieving our downside price target include, but are not limited to: a significant positive improvement in the overall economy, which would subsequently impact consumer buying behavior. Macroeconomic conditions remain difficult. With the unemployment rate at 8.6%, the macroeconomic environment remains difficult and could likely depress record-low consumer confidence for an extended period of time, leading to a challenging operating environment for retailers. In addition, rapidly rising labor costs in China’s manufacturing sector and higher raw material prices could lead to further input cost pressures and increased lead times. Should conditions remain difficult for a prolonged period, or deteriorate more, our estimates could be at risk. Fashion risk remains high across the space. Customers are fickle, and a missed fashion trend is a real risk for both FOSL and SHOO. Although we prefer not to opine on the next great fashion, we recognize that both companies’ performances are highly dependent on trends and remain cognizant of shifting fashion and consumer preferences. A misstep in merchandise selection could negatively impact either company, resulting in higher markdowns, closeouts and lower sales. High exposure to the department stores. With wholesale representing 83% of SHOO sales and 77% of FOSL sales, both companies have particularly high exposure to the department store channel. SHOO’s largest wholesale customers include: Macy’s; Nordstrom; Dillard’s; Lord & Taylor; DSW; and Famous Footwear (accounting for 73% of the wholesale business). FOSL’s largest wholesale customers include: Nordstrom; Macy’s; Dillard’s; Belk; Neiman Marcus; Saks Fifth Avenue; JCPenney; Kohl’s; and Sears. Contraction in this channel would adversely impact both SHOO and FOSL.

INITIATION CHECKLIST

Exhibit 6. Initiation Checklist

KBCM Rating Growth Sales Execution Management Market Positioning

SHOO HOLD

FOSL BUY

Source: KeyBanc Capital Markets Inc.

GROWTH We expect 20%+ CAGR for both companies over the next five years. On a year-over-year basis, we estimate 2012 sales to rise 18% at FOSL on accelerated international expansion and retail store openings. FOSL is focused on building infrastructure and concessions in Asia and growing retail stores in Europe and the United States. We estimate sales at SHOO to increase 25% in 2012, driven by continued new brand acquisitions and 10% organic growth (including core footwear and accessory expansion). Given strong global demand for fashion accessories, we expect both companies to drive further market share gains.


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January 4, 2012

SALES EXECUTION Both business models can quickly read trends, adjust production and deliver to stores faster than the industry average. To this end, FOSL and SHOO each have one of the highest inventory turn rates in their respective spaces. SHOO’s ability to design and produce sample shoes in one day, test and identify new trends in one week, and deliver “winners” to stores in six to eight weeks is faster than industry standard of three to four months. FOSL’s substantial factory ownership and ability to test and identify key trends allow the Company to shift production quickly to capture the incremental sale. FOSL’s design-to-delivery lead time of three to four months (vs. industry standard of 9-12 months) and reorder lead time of two to three months are unmatched. These key competitive advantages greatly reduce the frequency of a fashion miss and the likelihood of markdown risk.

MANAGEMENT Both management teams have done a good job of repositioning their businesses. FOSL possesses a highly tenured executive management team, with an aggregate of 59 years of experience at the Company. Though the senior management team at SHOO has an aggregate of 52 years of experience at the Company, CEO Rosenfeld has only been at the helm for four years. Both teams have shifted their strategic focus toward growing their businesses by product platforms and regions (vs. key items and styles previously), which we think makes the long-term growth potential of both companies much more compelling than before.

MARKET POSITIONING Both FOSL and SHOO are market leaders that offer strong fashion and value relative to key competitors. Given the merchandise assortment and target market overlap, we believe both FOSL and SHOO offer quality product at prices 30% and 10%, respectively, below their key competitors on the high end. We think this attractive value proposition should drive both trade-down customers and new incremental buyers, given the current secular strength of the fashion accessories category.

FOOTWEAR AND ACCESSORIES REMAIN RESILIENT DURING THE DOWNTURN A resilient category during economic downturns, the apparel and accessories industry has grown over the past 10 years. Sales have rebounded in 2010 with 5% growth and another +6% in 2011 (see Exhibit 7), almost returning to the pre-financial crisis peak growth of +7% in 2006. We expect luxury growth to continue to outpace overall retail sales over the next several years, driven largely by an improving global economy, recovering consumer confidence, favorable demographics and growing demand for luxury goods in emerging markets. Asia is next. Consumer spending in the past was concentrated in North America and Europe. Given the rapidly rising middle class and greater demand from China, we think the next phase of significant growth will come from Asia, particularly as spending declines in North America and Europe (see Exhibit 10).

Exhibit 7. Clothing & Accessory Sales Have Recovered from 2008 Lows U.S. Clothing and Accessory Sales

-15%

-10%

-5%

0%

5%

10%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

YTD

Y/Y

Gro

wth

Source: U.S. Census Bureau, EconStats

EU-15 Retail sales excluding motor vehicles and motorcycles

-2%

-1%

0%

1%

2%

3%

4%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Y/Y

grow

th

Source: European Commission, Eurostat


Page 9 of 66

January 4, 2012

Exhibit 8. FOSL and SHOO Outperform During Tough Macro Periods

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

0

20

40

60

80

100

120

SHOO Comps FOSL Comps Consumer Sentiment

-3.0% Correlation between SHOO's Comps and Consumer Sentiment Index

-3.1% Correlation between FOSL's Comps and Consumer Sentiment Index

Source: University of Michigan, Reuters, Company filings

Exhibit 9. Dow Jones Apparel, Footwear and Accessories Indices Continue to Rise

25

75

125

175

225

275

325

375

425

475

525

Jan

-07

Mar

-07

Jun

-07

Sep

-07

Nov

-07

Feb

-08

May

-08

Aug

-08

Oct

-08

Jan

-09

Apr

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

May

-10

Aug

-10

Nov

-10

Jan

-11

Apr

-11

Jul-1

1

Sep

-11

Dec

-11

US Apparel Retailers Index US Total Market Footwear Index

US Clothing and Accessories Index Source: Dow Jones Indices


Page 10 of 66

January 4, 2012

Exhibit 10. Rapidly Rising Middle Class in Asia

Population and Share of the Global Middle Class(in millions) 2009 2020 2030North America: 338 18% 333 10% 322 7%Europe: 664 36% 703 22% 680 14%Central and South America: 181 10% 251 8% 313 6%Asia Pacific: 525 28% 1,740 54% 3,228 66%Sub-Saharan Africa: 32 2% 57 2% 107 2%Middle East and North Africa: 105 6% 165 5% 234 5%World: 1,845 100% 3,249 100% 4,884 100%

Source: OECD Development Centre, Working Paper No. 285

Spending by the Global Middle Class, 2009-2030(in mm's of 2005 PPP dollars) 2009 2020 2030North America: 5,602 26% 5,863 17% 5,837 10%Europe: 8,138 38% 10,301 29% 11,337 20%Central and South America: 1,534 7% 2,315 7% 3,117 6%Asia Pacific: 4,952 23% 14,798 42% 32,596 59%Sub-Saharan Africa: 256 1% 448 1% 827 1%Middle East and North Africa: 796 4% 1,321 4% 1,966 4%World: 21,278 100% 35,045 100% 55,680 100%


INVESTMENT IN MARKET LEADERS THAT OFFER STRONG VALUE Both SHOO and FOSL are market leaders that offer strong fashion and value relative to key competitors. Given the product offering and target market overlap, we view SHOO’s key competitors to be Cole Haan (on the high end), Kenneth Cole (on the high end), Guess (on the high end), Jessica Simpson, Nine West and Skechers. Key competitors for FOSL include Coach (on the high end), Dooney & Bourke (on the high end), Kate Spade (on the high end), Kenneth Cole, Guess, Vera Bradley and Swatch. Compared to the assortment at these retailers, Steve Madden and Fossil are each priced below those that compete at the higher end. Despite lower price points, both companies provide products similar in quality to those at the higher end. Based on the competitive set mentioned above, we conducted a pricing study across the different categories at each of these retailers. See average price point comparisons by category in Exhibit 11 below.


Page 11 of 66

January 4, 2012

Exhibit 11. Average Price Point Comparisons

Steve Madden Average Price Points vs. Competitive Set

Outerwear

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

Boo

ts

Boo

ties

Fla

ts

Pum

ps

Wed

ges

Clu

tch

Sat

chel

Tot

e

Bel

ts

Sca

rves

Jew

elry

Sun

glas

ses

Coa

ts

Steve Madden Competitive Set

Accessories

HandbagsWomen's Footwear

Source: Company websites and filings

Steve Madden Average Price Points vs. Competitive Set

$0

$50

$100

$150

$200

$250

Boo

ts

Cas

ual

Dre

ss

Sne

aker

s

Boo

ts

Fla

ts

Steve Madden Competitive Set

Men's Footwear

Kid's Footwear

Source: Company websites and filings

Fossil Average Price Points vs. Competitive Set

$0

$50

$100

$150

$200

$250

$300

$350

Wat

ches

*

Han

dbag

s

Wal

lets

Sun

glas

ses

Bel

ts

Sca

rves

Jew

elry

Foo

twea

r

Top

s

Bot

tom

s

Ski

rts

Dre

sses

Tra

vel

Gift

s

Fossil Competitive Set Source: Company websites and filings *Excludes Michele brand watches, which has prices ranging from $295-$3,000.

DEPARTMENT STORES GAINING SHARE AS SPECIALTY RETAILERS LOSE SHARE Department stores have regained lost market share over the last three years. As demonstrated in Exhibit 12, comps at the department stores have risen over 1300 bps, on average, since the end of 2008, largely through share losses in the specialty retail and shoe chain channels. Discounters have also climbed higher, up 500 bps since the end of 2008. Retail sales driven by apparel have decreased by 27% over this same time period. High end and better department store sales have consistently outpaced the non-department stores since the end of 2009, up an average of 555 bps (see Exhibit 13). We think this is noteworthy, given that the better department store channel (Nordstrom, Saks, Neiman Marcus, Macy’s) has been particularly important to both SHOO and FOSL, and will likely remain a key channel of distribution for both going forward. We believe this secular trend should continue to benefit both companies over the next several years.


Page 12 of 66

January 4, 2012

Exhibit 12. Department Store Comps Have Risen From 2008 Lows

-15%

-10%

-5%

0%

5%

10%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

Department stores Shoe Chains

Discounters Specialty Retailers

Source: Company filings. Department Store Index includes: DDS, BONT, JCP, KSS, M, JWN, SKS, Sears (SHLD), Neiman Marcus Discounters Index includes: K-Mart (SHLD), TGT, WMT Shoes Chain Index includes: DSW, PSS, BWS Missy Specialty Retail Index includes: ANF, AEO, URBN, ANN, WTSLA, BEBE, BKE, CHS, CBK, CWTR, ASNA, EXPR, GPS, NWY, TLB, URBN

Key wholesale customers gain share as consumers shift away from specialty retailers. Comps at the better department stores and shoe chains, including Nordstrom, Saks, Macy’s, Dillards, Neiman Marcus and DSW, have outperformed the retail space over the last two years. We think these retailers have been outperforming the space as a result of a relatively more stable higher-income customer base (given the current challenging macro environment), improved store-level execution, better merchandising and greater full-price pricing.

Exhibit 13. Key Wholesale Customers Continue to Take Share from Specialty Retailers

-28%

-18%

-8%

2%

12%

22%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

Dillards Macy's Neiman MarcusNordstrom Saks Fifth Avenue DSWSpecialty Retailers

Source: Company filings


Page 13 of 66

January 4, 2012

Exhibit 14. Department Store Inventory Price Index

Indexes

Sep-10 Sep-11 % Change

Domestics and Draperies 382.3 373.2 -2.4% Women’s and Children’s Shoes 701.9 697.5 -0.6% Men’s Shoes 918.1 971.2 5.8% Infants’ Wear 566.5 573.6 1.3% Women’s Underwear 678.2 713.9 5.3% Women’s Hosiery 406.2 398.1 -2.0% Women’s and Girls’ Accessories 630.8 607.0 -3.8% Women’s Outerwear and Girls’ Wear 360.2 376.9 4.6% Men’s Clothing 525.9 544.7 3.6% Men’s Furnishings 564.5 587.7 4.1% Boys’ Clothing and Furnishings 405.9 427.3 5.3% Jewelry 1025.2 1086.1 5.9%Soft Goods 569.9 586.5 2.9%Store Total* 495.0 505.1 2.0%*The Store Total index covers all departments, with the following exceptions: candy, food, liquor, tobacco, as well as contract departments. Note: National basis, January 1941=100, unless otherwise noted. Indexes for previous periods and a brief description of the methods used in calculating the indexes may be obtained by contacting the Bureau of Labor Statistics at (202) 691-6968. The application of these indexes in the preparation of tax returns is solely within the jurisdiction of the Internal Revenue Service. Treasury Decision No. 5605 accords the use of the elective inventory method by taxpayers employing the retail inventory method. Source: The Bureau of Labor Statistics, as of December 9, 2011.

COMPARISON OF KEY FINANCIAL METRICS Relative to the high-growth and sector-specific peer groups, SHOO and FOSL each possess strong financial positions. Revenue growth rates of 38% for SHOO and 31% for FOSL sit on the high end, while operating margins of 17% for SHOO and 18% for FOSL lie within the top half of the group (see Exhibit 15). Given SHOO’s focus on aggressively growing its accessories platform (17% of sales), acquiring and developing new brands, and expanding its international presence, we believe the Company could reasonably reach its stated high teens operating margin goal. Given FOSL’s focus on aggressively growing its store base, driving healthy comps and expanding its international footprint, we believe the Company could reasonably reach, and likely surpass, its 18.5% peak operating margin level.

Exhibit 15. LTM Financial Comparison to High-Growth Peer Group

BODY COH FRAN LULU RUE SKUL UA URBN VRA KORS FOSL SHOO Revenues ($mm) $283 $4,297 $182 $875 $700 $214 $1,371 $2,412 $436 $1,011 $2,438 $850 % growth y/y - 14% 52% 40% 22% 49% 39% 10% 27% * 31% 38% Gross margin 34% 72% 52% 57% 34% 52% 48% 38% 56% 57% 56% 39% SG&A/sales 24% 41% 31% 30% 26% 32% 38% 23% 37% 35% 38% 25% Operating margin 10% 32% 21% 27% 8% 19% 10% 14% 21% 19% 18% 17% Inventory/COGS 11% 44% 19% 35% 30% 49% 45% 24% 58% 27% 48% 15%

*Historical data not provided. Source: Company reports and KeyBanc Capital Markets Inc. estimates


Page 14 of 66

January 4, 2012

Exhibit 16. LTM Operating Margin Comparison to Accessory Peers

0%

5%

10%

15%

20%

25%

30%

35%

MO

V

SIG RL

GE

S

SH

OO

FO

SL

KO

RS

VR

A

FR

AN

CO

H

oper

atin

g m

argi

n (%

)

FOSL and SHOO operating marginsrelative to the Accessories peer group.

Source: Company reports and KeyBanc Capital Markets Inc. estimates

Exhibit 17. LTM Operating Margin Comparison to Footwear Group

-5%

0%

5%

10%

15%

20%

SK

X

KC

P

PS

S

BW

S

JNY

GC

O FL

DS

W

DE

CK

WW

W

NK

E

SH

OO

oper

atin

g m

argi

n (%

)

SHOO's operating margin is the highest in the Footwear peer group.


Exhibit 18. Revenue Growth

$0

$100

$200

$300

$400

$500

$600

$700

$800

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

SHOO FOSL

Source: Company reports and KeyBanc Capital Markets Inc.

Exhibit 19. Operating Margins

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

SHOO FOSL



Page 15 of 66

January 4, 2012

Exhibit 20. ROIC – FOSL

13.0%

18.6% 18.6%

16.2%

24.5%23.4%

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011E

ROIC (incl cash) ROIC (ex cash)


Exhibit 21. ROIC – SHOO

15.5%

18.4% 19.0%20.2%

22.2% 21.9%

0%

5%

10%

15%

20%

25%

2009 2010 2011E

ROIC (incl cash) ROIC (ex cash)


Exhibit 22. FCF per Share

$1.48

$1.97$2.11

$3.40

$2.40 $2.41

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2009 2010 2011E

SHOO FOSL


Exhibit 23. Return on Equity

13.2%12.6%

10.9%11.4%

19.2% 19.7%

0%

5%

10%

15%

20%

25%

2009 2010 2011E

SHOO FOSL



Page 16 of 66

January 4, 2012

Rating BUY

Price (12/30/11 close) $79.36

12-Mo. Price Target $105.00

Dividend $0.00

Yield 0.0%

52-Wk. Range $66-$135

Trading Volume (000) 1,266

Market Cap. (mm) $4967.9

Shares Out. (mm) 62.60

Book Value/Share $16.78

Fiscal Year End January

2012E $5.53

2011E $4.52

2010A $3.77

2012 P/E 14.4x

2011 P/E 17.5x

First Call 2012E $5.51


Next Quarter January

Estimate $1.78

Vs. $1.46

First Call Estimate $1.77

Price/Book Value 4.9x

Fossil, Inc. INITIATING COVERAGE WITH A BUY RATING: TIMING IS EVERYTHING

AT A GLANCE Fossil, Inc. (FOSL-NASDAQ)designs, markets and distributes fashion accessories for men and women at varying price points to target the value-conscious and the luxury-oriented consumer. The Company distributes men’s and women’s fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, shoes, soft accessories and clothing through company-owned factory outlet and retail stores, franchised and licensed stores, department stores and a proprietary website. Wholesale accounted for 76% of sales in FY10 and the Company’s customer base includes Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy’s, Dillard’s, JCPenney, Kohl’s, Sears, Wal-Mart and Target. Internationally, the Company utilizes a network of 60 independent distributors through 23 company-owned foreign subsidiaries to sell its products in over 120 countries worldwide.

SUMMARY AND RECOMMENDATION We think Fossil is one of the best-managed, long-term growth stories in the footwear and accessories space, with a five-year earnings CAGR of +21% – we initiate with a BUY rating. We expect long-term earnings to be driven by significant sales and margin opportunities, including aggressive expansion into Asia (FOSL’s highest-margin business); accelerated new store openings (320+ opportunity); and a greater margin mix shift toward the International segment. Furthermore, we expect FOSL to continue to gain market share, despite the challenging macro environment, due to the powerful combination of its Test-and-React strategy, flexible supply chain and industry-leading speed-to-market. With one of the fastest inventory turns in its space, we believe FOSL should continue to deliver superior sales productivity and operating margins for the next several years. We establish a $105 price target, implying a 19.0x P/E based on our $5.53 EPS estimate for 2012; this represents 32% upside potential over current trading levels. Primary risks that could impede the shares from achieving our price target include ongoing uncertainty related to the European debt crisis and its impact on the European consumer, further deterioration in the macro-economy, and a miss on key fashion trends.

KEY INVESTMENT POINTS FOSL is well positioned in the secularly attractive handbag and accessory space. Sitting right below luxury and Coach, Inc., FOSL is strategically positioned with minimal competition as an aspirational brand that caters to the rapidly rising middle and upper middle class around the world. To this end, FOSL’s expansion into Asia (25%+ growth)

and the strength of its brand portfolio should drive 20%+ earnings growth over the next several years. With sales growth of +14% from 2005-2010, FOSL has outperformed the clothing & accessory industry’s +MSD 5-year CAGR. We expect FOSL’s sales to continue to outpace the industry at a double-digit pace as international awareness for its product grows over the next five years. Recent KORS transaction points to the continuing demand and importance of fashion accessories. KORS went public on December 15, 2011, at $20, raising $944 million. Assuming a long-term growth rate of 30%, we estimate that Kors watches and jewelry could add about $1 billion in sales to FOSL over the next five years, representing 20% of our 2015 sales estimate. Licensed brands (Armani, Kors, Burberry, Marc Jacobs, DKNY, Adidas and Diesel) drove 39% of FOSL’s sales in 2010, and we believe this will be an important funding vehicle to grow the Fossil brand globally over the next several years. Fast and flexible supply chain should drive further share gains. FOSL’s substantial factory ownership and its ability to test and identify key trends allow the Company to shift production of key items quickly to capture the incremental sale. FOSL’s design-to-delivery lead time of 3-4 months (vs. industry average of 9-12 months) and replenishment lead time of 2-3 months is an unmatched competitive advantage that should allow the Company to continue driving strong market share gains.


Page 17 of 66

January 4, 2012

We believe FOSL will return to opening 80-85 new stores per year for the next several years. This reflects 10%+ annual net square footage growth. We think FOSL’s 700+ store goal is primarily focused on the full-price accessory and Fossil flagship concepts. Notably, many of the underperforming 2008 class stores have improved substantially over last two years and we think there is significant room for further productivity gains at retail as the brand becomes more aspirational and raises AUR.

Exhibit 24. Business Mix Source: Company filings

Revenue mix (LTM as of 3Q11)

DTC23%

Asia PacificWholesale

12%

Europe Wholesale27%

North America Wholesale

38%

Operating Income (LTM as of 3Q11)

Europe Wholesale30%

Asia Pacific Wholesale

18%

DTC13%

North America Wholesale

39%

Sales by Product (LTM as of 3Q11)

Other4%Jewelry

8%

Leathers16%

Watches72%

Total Company - 2010

Other4%

Licensed39% Proprietary

57%

Wholesale - 2010

Other5%

Licensed47%

Proprietary48%

Direct-To-Consumer - 2010

Proprietary84%

Licensed14%

Other2%


VALUATION Based on our 2012 estimates, FOSL trades at a P/E of 14.4x and EV/EBITDA of 7.5x; we find valuation compelling. Though FOSL gained 13% in 2011, vs. the S&P 500 being flat year-over-year over the same time period, the stock currently trades below its historical three-year P/E and EV/EBITDA averages of 17.0x and 8.6x, respectively. Furthermore, when looking at P/E multiples relative to the S&P 500, FOSL trades in line with COH (see Exhibit 27), a best-in-class, high growth company with a similar international growth strategy and earnings expansion prospects over the next several years. An EPS CAGR of 21% will likely drive a premium valuation over the next 12+ months. We establish a $105 price target, which implies a 19.0x P/E based on our $5.53 EPS estimate for 2012; this represents 32% upside potential over current trading levels. We think the 19.0x P/E multiple is fair given the potential for significant earnings upside driven by Asia Pacific expansion, retail store growth, recovery in Europe, and the strength of the brand.

On all metrics – P/E, EV/EBITDA and EV/Sales – FOSL trades at a discount to the high-growth peer group. Based on our 2012 estimates, FOSL currently trades at multiples of 14.4x P/E (24% below the high growth average), 7.5x EV/EBITDA (15% below the high growth average), and 1.5x EV/Sales (18% below the high growth average).


Page 18 of 66

January 4, 2012

Exhibit 25. FOSL Long-Term EPS Potential $7.50+

$3.77

$1.57

$1.53

$2.95

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2010A EPS Asia Pacific DTC Productivity Europe LT EPS

y/y ∆

Source: KeyBanc Capital Markets Inc. estimates

Exhibit 26. FOSL Is Trading Below Its Historical 3-Year Averages

Historical P/E Valuation

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

3-year Avg P/E: 17.0x

Source: FactSet

Historical EV/EBITDA Valuation

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

3-year Avg EV/EBITDA: 8.6x

Source: FactSet

Historical EV/Sales Valuation

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

3-year Avg EV/Sales: 1.6x

Source: FactSet

2011 Stock Performance

$60

$70

$80

$90

$100

$110

$120

$130

$140

Jan

11

Feb

11

Mar

11

Apr

11

May

11

Jun

11

Jul 1

1

Aug

11

Sep

11

Oct

11

Nov

11

Dec

11

Stock up 13%

Source: FactSet


Page 19 of 66

January 4, 2012

Exhibit 27. Relative Valuation to S&P 500: FOSL Spread Comparable to COH


FOSL avg: 169% FOSL avg: 128% FOSL avg: 129%

COH avg: 147% COH avg: 122% COH avg: 129%

FOSL COH FOSL COH FOSL COH

120%

130%

140%

150%

160%

170%

180%

190%

200%

210%

220%

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

May

11

Jun

11

Jul 1

1

Aug

11

Sep

11

Oct

11

Nov

11

Dec

11

50%

70%

90%

110%

130%

150%

170%

190%

210%

230%

Dec

08

May

09

Oct

09

Mar

10

Aug

10

Jan

11

Jun

11

Nov

11

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

240%

Dec

06

May

07

Oct

07

Ma

r 08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

Source: Company reports, FactSet and KBCM estimates

SPECIFIC RISKS RELATED TO FOSSIL, INC. Dependent upon license agreements. The loss of license agreements may negatively impact revenues and net income. Sales of licensed products accounted for 39.4% of net sales in FY10. Certain license agreements require the Company to meet restrictive covenants to produce, market and distribute products utilizing brand names. The Company currently sells products under licensed agreements with Adidas, Burberry, Diesel, DKNY, Emporio Armani, Marc by Marc Jacobs and Michael Kors. These agreements have various expiration dates, ranging from 2012 to 2015. High exposure to department stores and specialty retail stores. With wholesale representing 76% of total sales in FY10, the Company has particularly high exposure to: Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy’s, Dillard’s, JCPenney, Kohl’s, Sears, Wal-Mart and Target. Contraction in this channel would adversely impact FOSL. The Company also distributes to licensed and franchised specialty retail stores. FOSL does not maintain long-term contracts with its customers. Therefore, the loss of customers may have an adverse effect on operational performance. Global store growth carries inherent risk. The Company intends to further expand its store base. Our estimates could be at risk if the Company is unable to identify suitable locations to open new stores, obtain favorable lease terms, hire and train personnel, manage inventory effectively at new and existing stores and generate operational cash flow. Dependent upon third-party sourcing and manufacturing. FOSL relies on independent manufacturers for clothing, shoes, sunglasses, handbags, small leather goods, belts, soft accessories and certain watch and jewelry products. Additionally, FOSL does not have any long-term contracts with any manufacturer, and therefore, relationships may be terminated at any time. Manufacturers’ inability to ship goods in a timely manner could cause FOSL to miss its own delivery date requirements to customers, which, in turn, could result in shortages of inventory or insufficient quality control.

EARNINGS OUTLOOK: +21% CAGR OVER THE NEXT FIVE YEARS We are modeling EPS of $4.52 for 2011 (a penny above the $4.51 consensus view and in line with guidance) and $5.53 for 2012 (ahead of the $5.51 consensus view). We think FOSL can drive +21% EPS CAGR over the next five years through 19% top-line growth and steady gross margin expansion as FOSL accelerates new store openings and entry into Asia. We expect SG&A as a percent of sales to remain flat for the next few years, given expectations for ongoing infrastructure investments. We believe shifting the focus from opportunistic key item growth to strategic expansion of the business by region has made FOSL’s long-term growth potential much greater than the Company ever conceived it could be a few years ago. Having surpassed its five-year operating margin goal of 17% (given in 2007) in 2010, the Company is focused on sustaining margins at the 17% level while driving double-digit top-line growth. We expect operating margins to remain flat year-over-year at 18.5% in 2011 and be up 14 bps to 18.6% in 2012. Over the longer term, we expect a greater rate of margin improvement as the international and retail store segments become a greater proportion of the overall business.


Page 20 of 66

January 4, 2012

Exhibit 28. FOSL Summary Income Statement and KBCM Estimates FOSL Quarterly Summary($mm except per share data)

Year Year 1Q 2Q 3Q 4Q Year 1QA 2QA 3QA 4QE Year 1QE 2QE 3QE 4QE YearTotal sales 1,583 1,548 393 413 524 701 2,031 537 557 643 832 2,569 623 652 767 997 3,039Cost of sales 732 703 174 176 225 301 876 235 245 283 336 1,099 271 287 333 395 1,286Gross profit 851 845 219 237 299 400 1,155 302 312 360 496 1,469 352 365 433 602 1,753Selling and distribution 490 476 125 129 138 191 584 158 165 172 244 739 184 194 207 296 881General and administrative 156 157 43 43 49 59 195 51 61 69 74 255 62 72 82 89 305Operating profit 206 212 51 64 111 150 376 93 86 119 178 475 106 99 145 217 567Interest expense 1 0 0 0 0 1 1 0 1 0 0 2 0 0 0 0 2Other income (expense), net (16) 2 3 0 0 2 5 (3) (4) (7) (4) (17) (4) (4) (4) (4) (14)Earnings before income taxes 189 214 54 65 111 151 380 89 82 112 174 456 102 95 140 213 550Income tax expense 51 75 16 8 40 54 119 31 28 39 61 159 36 32 49 74 192Earnings attributable to noncontrolling 0 0 2 2 3 0 7 2 3 3 0 8 2 3 3 0 8Net earnings 138 139 36 54 68 97 255 56 51 70 113 290 64 60 88 138 351Shares outstanding (mm) 68 67 68 68 68 66 68 65 64 64 64 64 64 64 64 64 64EPS $2.02 $2.07 $0.53 $0.80 $1.00 $1.46 $3.77 $0.86 $0.80 $1.09 $1.78 $4.52 $1.01 $0.95 $1.39 $2.18 $5.53EBITDA 243 253 61 74 121 160 417 104 100 131 190 525 118 114 158 229 619

Comparable store sales 2.3% 7.8% 19.4% 15.5% 19.9% 20.3% 19.0% 21.3% 22.0% 14.1% 10.0% 15.7% 10.0% 10.0% 10.0% 10.0% 10.0%2-year comparable store sales 4.6% 10.1% 24.5% 20.4% 26.3% 32.4% 26.8% 40.7% 37.5% 34.0% 30.3% 34.7% 31.3% 32.0% 24.1% 20.0% 25.7%Store Count 324 354 355 354 358 364 364 362 367 379 399 399 404 415 436 458 458

Gross Margin 54% 55% 56% 57% 57% 57% 57% 56% 56% 56% 60% 57% 57% 56% 57% 60% 58%Operating Margin 13% 14% 13% 16% 21% 21% 19% 17% 15% 18% 21% 19% 17% 15% 19% 22% 19%EBITDA Margin 15% 16% 16% 18% 23% 23% 21% 19% 18% 20% 23% 20% 19% 18% 21% 23% 20%Y/Y Inventory Growth 18% -16% -12% 19% 39% 51% 51% 61% 52% 32% 20% 20% 17% 19% 19% 19% 19%

2012E2008 2009 2010A 2011E


KEY TO EARNINGS 20% long-term revenue growth looks sustainable. With sales currently running at +31% (LTM basis) and +23% (3Q11), the +20% five-year CAGR looks sustainable given significant growth opportunities. We expect growth to be driven by aggressive expansion into Asia (primarily through concessions), the direct-to-consumer channel (via accelerated new store openings, improved productivity and additional website launches), and a mix shift toward the International wholesale segment (Europe and Asia). We are currently modeling sales increases of 19% in 4Q11, 27% in FY11 and 18% in 2012. We believe our sales estimates could prove conservative, particularly as the international and retail store segments become a larger part of the total sales mix.

Exhibit 29. Sales Growth Y/Y

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11E

Y/Y

∆ in

rev

enue


Exhibit 30. Comp Store Sales Growth Y/Y

6.4%

12.1%

19.4%

15.5%

19.9%

20.3%

21.3%22.0%

14.1%

0%

5%

10%

15%

20%

25%

30%

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

com

ps

320

330

340

350

360

370

380

perio

d en

d st

ores

Period end storesTotal Company Comps

Source: Company reports and KeyBanc Capital Markets Inc. Gross margins expected to grow steadily. We expect gross margins in 2011 to improve by 32 bps to 57.2% (from a 56.9% peak in 2010). Margins in 2Q11 and 3Q11 contracted significantly year-over-year due to higher than anticipated production cost increases (including labor, materials and movement costs). The 137 bps decline in 2Q11 was driven by 180 bps of product cost increases and, to a lesser extent, a larger percentage of lower-margin product sales (U.S. wholesale, third-party distributor, off-price) during the quarter. Both labor and material costs are running higher than management’s original expectations for 2011. Year-to-date, FOSL has experienced a 32% increase in labor rates at its China-based watch factories (including appreciation in the RMB). Movement costs are up 9% year-over-year (much higher than expected), given factory constraints and production challenges resulting from the Japanese tsunami in 1Q11. Movement cost increases should moderate over time as Japanese factories ramp back up to speed; FOSL is even in discussions about building additional factories. Finally, FOSL purposely did not raise pricing on core watch styles; higher prices were


Page 21 of 66

January 4, 2012

engineered on newness to mitigate production cost increases on core product – this was not enough to compensate for the higher input costs. Given the greater than expected rise in costs, FOSL began to revisit its pricing strategies in 2Q11. Gross margins in 3Q11 deteriorated 111 bps year-over-year to 55.9%, which was better than guidance of slightly above 55%. The margin decline was largely driven by production cost increases; a slight mix shift to higher-margin international wholesale sales alleviated some of the decline. For 4Q11, we expect gross margins to be up 255 bps year-over-year (vs. guidance for a slight reduction to last year). While FOSL expects production cost increases to remain stable, the strengthening of the U.S. dollar during the 3Q is expected to negatively impact the 4Q; as a result, currency is now expected to add 30 bps of benefit (vs. 80 bps previously). Our forecast assumes that the much greater mix of Direct-to-Consumer and Asia Pacific sales (driven by more aggressive store growth in the 4Q, which represents a much wider spread compared to 3Q/4Q last year) in conjunction with select price increases will more than offset ongoing labor and material cost increases. We estimate margins in 2012 will expand by 48 bps year-over-year to 57.7%. Despite expectations for continued labor cost increases (up another 20% year-over-year by March 2012), we think FOSL will see some leverage as production capacity increases and more assembly functions become automated at the Chinese factories (a process FOSL began five years ago). In addition, movement costs in Japan should stabilize over time. Lastly, we expect AUR to climb higher in 2012 (following a +10% increase in 2011), as FOSL continues to raise prices in its owned retail stores and Asia concessions through greater innovation and retirement of lower-priced items.

Exhibit 31. Gross Margin Has Risen with Sales

$0

$500

$1,000

$1,500

$2,000

$2,500

2005

2006

2007

2008

2009

2010

2011

E

Rev

enue

($m

m)

45%

50%

55%

60%

Gro

ss m

argi

n

Revenue Gross Margin (%)


Exhibit 32. Facing Easier Comparisons Ahead

-300

-200

-100

0

100

200

300

400

5004Q

07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

Y/Y

∆ in

gro

ss m

argi

n (b

ps)


SG&A to remain flat as a percentage of sales. After setting a new baseline for expenses with steep, broad-based cost cuts in 4Q09, FOSL brought payroll and marketing (currently 6.1% of sales) back up to normalized levels in 2H10 while increasing catalog distribution (up 99% year-over-year to 19.9 million catalogs) and infrastructure investments. In 2011, the Company began to invest heavily back into the business. Investments were largely centered on accelerating the global rollout of e-commerce capable websites; implementing a robust CRM system to enhance communication with consumers; increasing the distribution of the branded watch business (via concessions, Watch Station stores and website); increasing resources in product development and the supply chain to handle long-term growth; and a corporate headquarters move to garner more space for future growth. Much of the focus in 2011 was on building out the infrastructure in Asia, given significant opportunities in Korea, China and Japan. Of the $25 million-$35 million strategic spend in 2011, over half was for Asia. Furthermore, over the next few years, a greater proportion of investment spend will likely be earmarked for Asia to support: 1) additions to the management team; 2) back office infrastructure in Hong Kong; 3) expansion of concessions and retail stores; 4) additional resources in visual presentation, environmental design, real estate and construction; 5) inventory planning; and 6) associate training. Given expectations for continued investment spending, we expect SG&A dollars to grow in line with sales growth. We are modeling 253 bps of deleverage in 4Q11, 35 bps of deleverage for FY11 and 34 bps of deleverage in FY12. We believe SG&A as a percent of sales should remain flat at 39% for the next several years.


Page 22 of 66

January 4, 2012

Exhibit 33. SG&A vs. Sales Growth

$0

$50

$100

$150

$200

$250

$300

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

SG

&A

($

mm

)

-20%

-10%

0%

10%

20%

30%

40%

50%

Rev

enue

y/y

∆

SG&A expense Y/Y ∆ in Revenue


Exhibit 34. SG&A to Remain Flat as % of Sales

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2005 2006 2007 2008 2009 2010 2011E

SG

&A

exp

ense

($m

m)

34%

36%

38%

40%

42%

SG

&A

/sal

es %

SG&A Expense $mm SG&A/Sales %


Long-term operating margin potential 20%+. Operating margins of 18.5% in 2010 surpassed FOSL’s five-year stated goal of 17% (given in 2007) on 231 bps of gross margin expansion and 255 bps of SG&A leverage. Gross margin gains were driven primarily by very easy comparisons to last year as well as lower markdown rates in the outlet channel and a greater mix of higher-margin watch sales vs. leather. Expense leverage was driven by the substantial cost containment initiatives implemented in 2009. We expect operating margins in 2011 to remain flat at 18.5% and are modeling small improvements in 2012 (+14 bps year-over-year) and 2013 (+26 bps year-over-year), as the Company begins to scale its growing DTC and Asia Pacific platforms. Over the longer term, we think FOSL could drive another 200+ bps of gross margin expansion, yielding 20%+ operating margins (assuming SG&A rate remains flat) as it moves production away from China, automates more functions, and grows Asia, Europe and DTC to more than half of the business. Though FOSL owns its assembly process for fashion watches and jewelry in China, the Company has been moving production of its lower-margin, mass market watches as well as leather goods outside of China. Over the next five years, we think FOSL could likely partner with someone like Titan Industries in India (the world’s fifth largest wrist watch manufacturer) and recreate the infrastructure it has today in China to produce watches; Titan Industries currently has its own ecosystem of component part suppliers, but is likely five years behind China in productivity. Additionally, with growth of its handbag business, FOSL has been moving more production of leather goods to India and Vietnam.

Exhibit 35. Operating Margin

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2005 2006 2007 2008 2009 2010 2011E

Rev

enue

s in

mill

ions

8%

10%

12%

14%

16%

18%

20%

Ope

ratin

g m

argi

n

Revenue ($mm) Operating Margin (%)

Source: Company reports

Exhibit 36. EPS Beats Summary

Qtr Consensus EPS Reported EPS DeltaStock Price

CloseStock

Reaction

3Q11 $1.16 $1.09 ($0.07) $94.81 -2.5%

2Q11 $0.76 $0.80 $0.04 $82.15 -12.5%

1Q11 $0.64 $0.86 $0.22 $105.97 12.7%

4Q10 $1.25 $1.46 $0.21 $78.77 -5.7%

3Q10 $0.68 $1.00 $0.32 $67.85 6.1%

2Q10 $0.29 $0.80 $0.51 $45.84 7.9%

1Q10 $0.30 $0.53 $0.23 $41.06 8.5%

4Q09 $0.86 $1.03 $0.17 $36.58 6.9%

3Q09 $0.46 $0.52 $0.06 $31.52 9.0%

2Q09 $0.16 $0.25 $0.09 $25.07 -9.6%

1Q09 $0.19 $0.26 $0.07 $21.55 9.2%

4Q08 $0.73 $0.84 $0.11 $12.55 3.8%

3Q08 $0.52 $0.54 $0.02 $15.82 5.6%

2Q08 $0.30 $0.36 $0.06 $31.94 10.7%

1Q08 $0.38 $0.43 $0.05 $34.22 -8.1% Note: Stock price reaction compares stock price close on day prior to earnings release with close on day of earnings release and may or may not reflect an impact from overall market conditions. Results presented cannot and should not be viewed as an indicator of future performance. Source: Company reports and FactSet, as of October 2011


Page 23 of 66

January 4, 2012

Exhibit 37. 2011 Guidance

Guidance 4Q11 Fiscal 2011Sales up 20% y/yGross margin slightly less than LYSG&A $ additional $8mmSG&A % fairly consistent with LYOperating margin -- slightly below 18.6% LYEPS $1.75 to $1.78 $4.50 to $4.53Shares outstanding 63.0 - 63.5mmOther income/exp $3.6mm hedge lossTax rate 35.0%Inventory -- in-line with salesStores open 24; close 4Capex -- $125mm


Exhibit 38. Long-Term Assumptions

Long term AssumptionsSales growth North America: +HSD-LDD

Europe: +Mid-teensAsia: 25%+; $1bn target

Asia strategy Grow concessions significantly (205 in 3Q11)Gross margin Labor: up 20% by March 2012Planned launches Early 2013: Karl Lagerfeld watch launch


FAST AND FLEXIBLE SUPPLY CHAIN FOSL’s fast and flexible supply chain is the key to driving superior sales execution. We believe FOSL’s powerful supply chain capabilities, which allow the Company to flex inventory up or down based on current needs, and continuous review of selling trends in the retail channel are key competitive advantages that we believe is unmatched across the space. FOSL’s inventory turns of 4x per year vs. 1x per year for luxury watches are a direct result of the Company’s fast supply chain – with lead times for replenishment of 2-3 months (60-75 days) and overall lead times (from design to in-store delivery) of 3-4 months (90-100 days) vs. Footwear-Accessory peers whose lead times are typically closer to 9-12 months. FOSL reviews sell-throughs on a daily basis at its owned retail stores and, on a weekly basis, at major wholesale accounts, which together provide the Company with timely sales information. Sales plans are calculated based on 13 weeks of supply by style, and then constantly tweaked to incorporate up-to-date readings. Once key trends have been identified, mass production begins quickly. Vertical integration is critical to the operating model. Approximately 71% of FOSL’s non-Swiss made watches were assembled by two majority-owned factories in Hong Kong during 2010. We believe substantial ownership of the assembly factories that produce FOSL’s fashion watches and jewelry and their nearby location to the component manufacturers is critical to the Company’s operating model, as it allows for: better flow of communication, consistent quality, product design protection, and control of the production run size. Factory ownership gives FOSL the ability to move up production of the best-selling items in order to replenish quickly, then return to assembling the product being worked on previously. Conversely, FOSL can slow production down quickly and move “wrong” picks to the outlets, if necessary, during an economic downturn; it took the Company two quarters to right-size its inventory during 2009 before being able to buy into newness again. This flexibility is the key to driving fast inventory turns and capturing incremental market share (as competitors often run out early of best-selling styles and cannot replenish as quickly). FOSL uses third-party factories to cover production of mass market watches and needs that go beyond internal capacities. The remaining 29% of watches sourced in Asia were assembled by 45 unrelated factories in Hong Kong and China; this includes most of the assembly of digital and mass market watches. For jewelry, 56% of production is done through FOSL’s owned factories (leveraging the Company’s watch assembly infrastructure); the remaining 44% is produced by 20 factories in China. All of FOSL’s handbags, small leather goods, belts, sunglasses, shoes and clothing are outsourced. Swiss-made watches are assembled in three third-party factories in Switzerland. In-house design team. Since its inception, FOSL has developed a talented pool of creative individuals who design the Company’s retail stores, websites, products, packaging, graphics, presentation displays and marketing materials, allowing FOSL to deliver a unique and cohesive image for each of its brands. FOSL uses 3-D computer-based programs to drive the quality and design of its watch products; once a prototype has been approved, a wax copy is made and sent for mass production. Lead times for completely new watch designs are typically about seven months (200 days) from conception to the warehouse.


Page 24 of 66

January 4, 2012

INVENTORY MANAGEMENT Smoothing inventory production to keep up with robust sales trends offers upside to growth. Ever since the business began its explosive growth in early 2010, FOSL has had challenges in producing the kind of quantities necessary to meet market demand. Consequently, FOSL implemented a smoothing effort in 2Q10 to remove part of the ups and downs associated with the timing of production needs while still supplying enough inventory to service sales growth; this strategy resulted in slightly longer lead times and higher inventory levels in advance of those expected sales. The smoothing process typically increases inventory during the 1H, when sales are seasonally lower than the 2H. By 1Q11, FOSL developed a scientific process to minimize the impact of having longer lead times: during a slow month in the factory that normally would not be up to capacity, FOSL now produces quick response styles (styles known to sell for a long period of time). Additionally, factory space is now reserved during peak times (August/September) for new, fast-selling items that need to be produced for replenishment. As a result of these changes, FOSL has been able to minimize capacity restraints and reduce the gap between inventory and sales growth (see Exhibit 39). We expect inventory increases to slow over the remainder of 2011. In 2012, focus will be on improving turns and growing inventory at or below the rate of sales growth, as FOSL refocuses the assortment toward more iconic and deeper platforms, eliminating some of the fringe that has been carried for some time. Over the longer term, FOSL should return to having additional capacity and shorter lead times.

Exhibit 39. Gap Between Inventory and Sales Growth Abating

-2,500

-1,500

-500

500

1,500

2,500

3,500

4,500

5,500

6,500

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

Y/Y ∆, in Inventory (bps) Y/Y ∆, in Sales (bps)


Exhibit 40. Inventory Turns Consistently High

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

2005 2006 2007 2008 2009 2010

Inve

ntor

y tu

rns

-5%0%5%10%15%20%25%30%35%

Rev

enue

y/y

∆

Inventory turns y/y ∆, revenue Source: Company reports and KeyBanc Capital Markets Inc.

TOP THREE ITEMS ON OUR WATCH LIST We believe that the investment community overcomplicates companies; we introduce our “Top Three” watch list. We think there are three key items that one should consider to effectively understand the suitability of Fossil as a medium and long-term investment. To this end, we examined each of the issues and offer our take on the potential impact from each of these issues.

#1: THE IMPACT OF A POTENTIAL EUROPEAN SLOWDOWN ON FOSSIL’S EARNINGS Likelihood: Moderate Risks: Reduces growth profile of the business over the short to medium term Where we will see success/failure on the P&L: Revenue growth and EPS

One of the most significant near-term risk factors is the ongoing European sovereign debt crisis and its impact on the European consumer. Concerns over a widespread slowdown in Europe from the impact of potential austerity measures on the European consumer intensified in the spring 2011, as the S&P downgraded Greece’s government debt rating to CCC (the lowest in the world) on the likelihood of a debt default in mid-July. The combination of policy makers’ inability to quickly contain the crisis and fears of a Greek default shocked the European and American banking systems and caused major stock markets to record significant losses in August and September. Despite an eventual agreement to lower the interest rates of EU loans to Greece and banks’ acceptance of a 50% Greek debt write-off, the crisis had reduced confidence in other European economies with seemingly high default risk, such as Ireland (with a government deficit in 2010 of 32.4% of GDP), Spain (with 9.2%) and Portugal (with 9.1%).


Page 25 of 66

January 4, 2012

While rising government debt levels have been most pronounced in only a few European countries, it has become a perceived problem for the Eurozone area as a whole. Nevertheless, the Euro has remained stable, trading at $1.31 to the USD compared to $1.45 at the beginning of the crisis in late 2009. Fossil’s exposure to high risk regions is limited. With 27% of the wholesale business coming from Europe, we recognize that deterioration in Continental Europe could have a negative impact on revenue and earnings growth. That said, approximately 80% of FOSL’s distribution lies in northwestern Europe (Germany, the U.K., France, Austria, Denmark, the Netherlands, Norway, Sweden and Switzerland), while the remaining 20% is in southern Europe (Italy, Spain and distributor markets). To date, FOSL is seeing the best performance in its larger markets (Germany and the U.K.) across both the wholesale and retail channels, which is what drove Europe’s 3Q comp of +5.1% (vs. +10% in 3Q10 and +11% in 3Q09). FOSL’s more challenging markets are in southern Europe, particularly Greece, Spain and Italy. It is worth noting that most of the southern region is operated through third-party distributors, and thus does not require much capital nor flows through the P&L; foreign distributors generally purchase products from FOSL at uniform prices set by the Company for all international sales; payment is received in U.S. dollars (for the most part). Based on the first six weeks of 4Q11, FOSL expects Europe to see strong double-digit growth at wholesale, driven by the strength of the entire assortment (nearly all watch brands were up double-digits in 3Q, and higher price points are selling very well). This strong level of performance has been consistent with what FOSL has seen over the last 12-15 months. Drivers behind European performance in 2011. We think FOSL’s strong European performance this past year was driven by three factors: 1) Europe was a year behind the United States in accepting newer, more innovative watch styles; 2) Europe entered the 2008/2009 recession in 3Q08, about 1.5 quarters later than the United States, and thus recovered later than the United States; and 3) FOSL’s significantly higher penetration in Germany (we believe second to the United States) and Germany’s relatively strong economy vs. other European markets (see Exhibits 41 and 42) were key factors in keeping sales trends positive.

Exhibit 41. German Economy Holding Up Better Than Europe as a Whole Germany Unemployment rate

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Jan

93

Jul 9

4

Jan

96

Jul 9

7

Jan

99

Jul 0

0

Jan

02

Jul 0

3

Jan

05

Jul 0

6

Jan

08

Jul 0

9

Jan

11

Une

mpl

oym

ent R

ate

October 2011: 5.5%

Source: Bloomberg

Germany Consumer Confidence

60

70

80

90

100

110

120M

ay 0

4

Feb

05

Nov

05

Aug

06

May

07

Feb

08

Nov

08

Aug

09

May

10

Feb

11

Nov

11

Sent

imen

t Lev

el

November 2011: 97

Source: Bloomberg

Exhibit 42. European Unemployment Rising; Consumer Sentiment Falling EU-15 Unemployment rate

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

Jan

93

Jul 9

4

Jan

96

Jul 9

7

Jan

99

Jul 0

0

Jan

02

Jul 0

3

Jan

05

Jul 0

6

Jan

08

Jul 0

9

Jan

11

Une

mpl

oym

ent R

ate October 2011: 9.8%

Source: Bloomberg

European Consumer Sentiment

60

70

80

90

100

110

120

Dec

05

Jun

06

Dec

06

Jun

07

Dec

07

Jun

08

Dec

08

Jun

09

Dec

09

Jun

10

Dec

10

Jun

11

Sent

imen

t Lev

el

November 2011: 93.7

Source: Bloomberg


Page 26 of 66

January 4, 2012

Some background. In early 2010, U.S. department stores began to pay more attention to the watch category – giving it more floor space, inventory dollars and sales people, as awareness for the category started to rise rapidly. FOSL used this phenomenon as a platform to offer a lot of new ideas (new materials and designs, bigger statements) to the market, all of which were well-received by the department stores (FOSL’s main distribution channel in the United States). It took FOSL much longer to roll out newer assortments in Europe, given a highly fragmented customer base consisting of many independent shops. Due to the nature of this kind of distribution model, FOSL was not able to scale the business as quickly as in the United States. Additionally, European independents tend to be slightly more conservative than U.S. department store buyers, and typically hold onto their classic best-selling styles; they would not buy into the newer categories (plastics, ceramics, colors) aggressively. FOSL tested its latest collections in Europe through its owned retail stores, which performed extremely well (evidenced by +HSD comp in 2010 following +LDD comp in 2009). Even so, it was difficult to convince the independents to buy into the newness until FOSL completed the rollout of its SAP POS system to its European stores; this allowed the Company to read SKU performance on a global basis to find the best selling brands. European wholesalers only began to accept the newer product lines in early 2011. FOSL tested this strategy out two years ago in the U.K. by bringing the more globally assorted product into its 43 House of Fraser (HOF) concessions. Notably, performance in the U.K. has been positive since this change despite the overall challenging economic and consumer spending environment (see Exhibits 43-44); sales are up double-digits to date.

Exhibit 43. U.K. Unemployment High; Consumer Sentiment Very Low

UK Unemployment rate

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Sep

94

Sep

95

Sep

96

Sep

97

Sep

98

Sep

99

Sep

00

Sep

01

Sep

02

Sep

03

Sep

04

Sep

05

Sep

06

Sep

07

Sep

08

Sep

09

Sep

10

Sep

11

Une

mpl

oym

ent R

ate

September 2011: 8.3%

Source: Bloomberg

UK Consumer Confidence

30

40

50

60

70

80

90

100

110

120

May

04

Feb

05

Nov

05

Aug

06

May

07

Feb

08

Nov

08

Aug

09

May

10

Feb

11

Nov

11

Sent

imen

t Lev

elOctober 2011: 41

Source: Bloomberg


Page 27 of 66

January 4, 2012

Exhibit 44. Overall Retail Spending in the U.K. on the Decline

Textiles, clothing, footwear, leather goods in specialized stores

-5%

0%

5%

10%

15%

20%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Y/Y

grow

th

Source: Bloomberg

Retail sales excluding motor vehicles and motorcycles

0%

1%

2%

3%

4%

5%

6%

7%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Y/Y

grow

th

Source: Bloomberg Fossil's HOF Sales Rise Despite Tough UK Environment

$2

$4

$6

$8

$10

$12

$14

2006 2007 2008 2009 2010

Sa

les

($m

m)


Number of Fossil HOF Concessions

0

10

20

30

40

50

60

2006 2007 2008 2009 2010


Though FOSL is highly penetrated in Germany and the U.K., it has significant growth opportunities in other European markets, including Italy, France and Spain. During the latter part of 2011, FOSL opened a number of stores in France and Italy, and is now seeing those markets really start to grow; relative to Germany, these markets have significant upside potential given a very small base from which to work off of. We expect FOSL to expand in these markets through both owned stores and third-party distributors, which over time will likely get bought out. Thus, over the longer term, we think Europe can likely grow in the mid-teens percentage.

Exhibit 45. European Retail Spending on the Upswing

Textiles, clothing, footwear, leather goods in specialized stores

-2%

-1%

0%

1%

2%

3%

4%

5%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Y/Y

grow

th

Source: Bloomberg

Retail sales excluding motor vehicles and motorcycles

-2%

-1%

0%

1%

2%

3%

4%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Y/Y

grow

th

Source: Bloomberg


Page 28 of 66

January 4, 2012

Exhibit 46. Earnings Accretion Potential from Europe Wholesale

$550 $616 $690 $773 $865 $969 $1,086 $1,216 $1,362

20.0% $1.12 $1.25 $1.40 $1.57 $1.76 $1.97 $2.21 $2.47 $2.7720.5% $1.15 $1.28 $1.44 $1.61 $1.81 $2.02 $2.26 $2.54 $2.8421.0% $1.18 $1.32 $1.47 $1.65 $1.85 $2.07 $2.32 $2.60 $2.9121.5% $1.20 $1.35 $1.51 $1.69 $1.89 $2.12 $2.38 $2.66 $2.9822.0% $1.23 $1.38 $1.54 $1.73 $1.94 $2.17 $2.43 $2.72 $3.0522.5% $1.26 $1.41 $1.58 $1.77 $1.98 $2.22 $2.49 $2.78 $3.1223.0% $1.29 $1.44 $1.61 $1.81 $2.03 $2.27 $2.54 $2.85 $3.1923.5% $1.32 $1.47 $1.65 $1.85 $2.07 $2.32 $2.60 $2.91 $3.2624.0% $1.34 $1.50 $1.68 $1.89 $2.11 $2.37 $2.65 $2.97 $3.3324.5% $1.37 $1.54 $1.72 $1.93 $2.16 $2.42 $2.71 $3.03 $3.3925.0% $1.40 $1.57 $1.76 $1.97 $2.20 $2.47 $2.76 $3.09 $3.46

Annual Revenues ($mm)

Op

erat

ing

Mar

gin


#2: ASIA EXPANSION VIA CONCESSION GROWTH Likelihood: High Risks: China has a more difficult distribution model than the United States or Europe; infrastructure Where we will see success/failure on the P&L: Revenue growth and gross margin expansion

Asia is a key growth catalyst – expected to drive $1.0 billion in revenues over the next 5+ years. Given a strong global accessories trend, declining unemployment and favorable demographics (with a rapidly rising Chinese middle class), we believe FOSL’s expansion in Asia is timely, particularly as it fills the whitespace for a leading aspirational brand (positioned under luxury and Coach). With 12% of total revenues already derived from Asia Pacific wholesale, FOSL is not new to this region; in fact the Company has been doing business in Asia for the last 10 years. Given the segment’s naturally higher margins and sales growth opportunity (due to a small base), we estimate Asia could grow at a 25% rate per year and add $3.00+ in earnings upside (see Exhibits 47-52).

Exhibit 47. Population and Share of the Middle Class in Asia Pacific

0.5mm

1.7mm

3.2mm

28%

54%

66%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2009 2020 2030

Num

ber

of M

iddl

e C

lass

(m

m)

0%

10%

20%

30%

40%

50%

60%

70%

% o

f Glo

bal M

iddl

e C

lass


Exhibit 48. Spending by the Asia Pacific Middle Class Expected to Rise Rapidly

$5.0

$14.8

$32.6

59%42%

23%

$0

$5

$10

$15

$20

$25

$30

$35

2009 2020 2030

Spe

ndin

g by

Mid

dle

Cla

ss (

mm

)

0%

10%

20%

30%

40%

50%

60%

70%

% o

f Glo

bal M

iddl

e C

lass



Page 29 of 66

January 4, 2012

Exhibit 49. Highest Gross Margin Segment

25%

35%

45%

55%

65%

75%

85%

95%

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11E

North America Europe Asia DTC

Source: Company reports and KeyBanc Capital Markets Inc. *Note: Asia reflects all other international countries prior to FY08.

Exhibit 50. Highest Operating Margin Segment

-10%

0%

10%

20%

30%

40%

50%

60%

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11E



Exhibit 51. Greatest Sales Growth Opportunity

$50

$150

$250

$350

$450

$550

$650

$750

$850

$950

$1,050

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11E



Exhibit 52. EPS Accretion Potential from Asia

$330 $413 $516 $645 $806 $1,007 $1,259 $1,574 $1,967

35.0% $1.18 $1.47 $1.84 $2.30 $2.87 $3.59 $4.48 $5.60 $7.0135.5% $1.19 $1.49 $1.86 $2.33 $2.91 $3.64 $4.55 $5.68 $7.1136.0% $1.21 $1.51 $1.89 $2.36 $2.95 $3.69 $4.61 $5.76 $7.2136.5% $1.23 $1.53 $1.92 $2.39 $2.99 $3.74 $4.68 $5.84 $7.3137.0% $1.24 $1.55 $1.94 $2.43 $3.03 $3.79 $4.74 $5.92 $7.4137.5% $1.26 $1.57 $1.97 $2.46 $3.07 $3.84 $4.80 $6.00 $7.5138.0% $1.28 $1.60 $1.99 $2.49 $3.12 $3.89 $4.87 $6.08 $7.6138.5% $1.29 $1.62 $2.02 $2.53 $3.16 $3.95 $4.93 $6.16 $7.7139.0% $1.31 $1.64 $2.05 $2.56 $3.20 $4.00 $5.00 $6.24 $7.8139.5% $1.33 $1.66 $2.07 $2.59 $3.24 $4.05 $5.06 $6.32 $7.9140.0% $1.34 $1.68 $2.10 $2.62 $3.28 $4.10 $5.12 $6.40 $8.01


Op

era

tin

g M

arg

in

Source: KeyBanc Capital Markets Inc. estimates.

FOSL plans to expand distribution in Asia (China, Korea, Japan and India) primarily through concessions, which allow FOSL to capture the full retail on a sale as well as control the entire distribution (sales associates, visual presentation, and inventory). With 205 today (up 40% year-over-year), management believes it can open a few hundred concessions over the next two years and thousands over the next 5-6 years. The Company will sprinkle in Fossil flagship stores in the major cities to drive awareness for the brand. Similar to the way Europe was grown in the late 1990s, FOSL will enter Asia with its licensed brands via the Watch Station concept – a highly profitable business from day 1. FOSL will leverage brands such as Michael Kors, Armani, Burberry, Marc Jacobs (the fastest growing brand in Japan) and Diesel prior to introducing the Fossil brand. The Company will use the cash generated from Watch Station to fund the Fossil brand concessions. We believe overall productivity should grow significantly as the concession base grows, given one-year depreciation carry of the fixtures (due to much shorter lease lives than a typical retail store).

As mentioned earlier, FOSL spent the better part of 2011 building infrastructure in Asia from the ground up, including: additions to the management team; back office infrastructure in Hong Kong; additional resources for visual presentation, environmental design, real estate and construction; inventory planning and allocation; and associate training. We believe the only big hole left to fill is on the local merchandising side – the Company lacks a regional planning and allocation team on the ground. Currently, U.S. teams are in Asia “teaching” the Company’s processes and best practices. Over time, the local teams should be able to run operations on their own.

Economics of the concession store. FOSL pays rent expense of 17-25% of sales (depending on country and concession partner) and sales associate salaries, but captures the full revenue and gross margin of the sale, which yields pre-tax four-wall operating margins of 35-45%. Concessions are typically situated in center core locations. FOSL just began its multi-year program of building up infrastructure in Asia in 2011.


Page 30 of 66

January 4, 2012

Korea is currently the furthest along, with 70+ concessions. FOSL gained full ownership of distribution in Korea after buying back concession in 58 better department stores over the last two years. Under FOSL’s direct control, the business went from $10 million in sales to $80 million over a two-year period, largely through better inventory management, better case presentation and associate training. These concessions now generate well over $1 billion in annual sales (Korea is priced 30% above the United States). To date, the Company has added 14 new concessions since the acquisition and is building a Fossil brand flagship store in Seoul. Flagships are being built to drive consumer awareness for the Fossil brand quickly, which should then allow the brand access to more concession space in the department stores; concessions today are mostly multi-brand Watch Station shops. If successful with Fossil brand shops, FOSL could also add mono-brand concessions sometime in the future.

Japan…now building greater presence. FOSL has been doing business in Japan for 18 many years, primarily through its wholesale business for licensed brand watches and 20 owned stores. The Company is now aggressively opening a slew of multi-brand watch concessions and Fossil brand accessory concessions throughout the country, as well as a few Fossil brand flagship stores to communicate the brand to Japanese consumers.

China growth will take some time. Due to the nature of its very fragmented markets, China will be slower to grow than Korea and Japan. Because there are no big conglomerates that own the majority of department stores in China, we believe building a distribution network here will be more difficult than it was in Europe. After exploring many potential partners to team up with, FOSL decided to send its own representatives to Tier 1 to Tier 3 cities in China and build on its own; this way the Company does not have to forfeit any part of the distribution, employees, or how to POS the concession space. We believe China represents the greatest opportunity in Asia (see Exhibit 53).

Exhibit 53. China Opportunity

TIERED CITIES PROVINCESTIER 1 Northern China: BeijingBeijing TianjinGuangzhou, Guangdong HebeiShanghai ShanxiTIER 2 Inner MongoliaChengdu, Sichuan Northeast China: LiaoningDalian, Liaoning JilinDongguan, Guangdong HeilongjiangNanjing, Jiangsu Eastern China: ShanghaiQingdao, Shandong JiangsuSuzhou, Jiangsu ZhejiangTianjin AnhuiZhongshan, Guangdong FujianTIER 3 JiangxiChangshu, Jiangsu ShandongDandong, Liaoning Central & HenanDatong, Shanxi Southern China: HubeiFoshan, Guangdong HunanJinzhou, Liaoning GuangdongShantou, Guangdong GuangxiWuxi, Jiangsu HainanYantai, Shandong Southwest China: ChongqingYichang, Hubei Sichuan

GuizhouYunnanTibet

1st Tier Northwest China: Shanxi2nd Tier Gansu2nd/3rd Tier Qinghai3rd Tier Ningxia

Source: China Briefing.com; China Review on starmass.com; Wikipedia.org


Page 31 of 66

January 4, 2012

#3: ACCELERATE NEW STORE OPENINGS Likelihood: High Risks: Executing real estate strategy, infrastructure Where we will see success/failure on the P&L: Comp store growth, revenue growth and gross margin expansion

We believe FOSL will return to opening 80-85 new stores per year for the next several years. This reflects 10%+ square footage growth per year (assuming 25+ closures). We believe FOSL’s 700+ store goal (500 full-price accessory and 200 outlet and apparel stores; 50/50 U.S./international) given in 2007 still holds true today. The Company is currently focused on looking for more flagship locations around the world; importantly, FOSL has been getting better looks at better locations. 2011 was the first year that the Company really ramped growth back up in the United States; previously FOSL was only focused on improving productivity of existing stores given that many in the 2008 class were not delivering pro forma objectives; these stores have improved substantially over the last two years. Moreover, we think there is still a significant amount of room for further productivity gains in the accessory stores as FOSL continues to become more aspirational and raises AUR.

Exhibit 54. New Store Opening Potential

0

100

200

300

400

500

600

700

800

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

2011

E

2012

E

LT g

oal


Exhibit 55. Earnings Accretion Potential from Direct-to-Consumer Growth

$500 $590 $696 $822 $969 $1,144 $1,350 $1,593 $1,879

14.0% $0.71 $0.84 $0.99 $1.17 $1.38 $1.63 $1.92 $2.27 $2.6814.5% $0.74 $0.87 $1.03 $1.21 $1.43 $1.69 $1.99 $2.35 $2.7715.0% $0.76 $0.90 $1.06 $1.25 $1.48 $1.75 $2.06 $2.43 $2.8715.5% $0.79 $0.93 $1.10 $1.30 $1.53 $1.80 $2.13 $2.51 $2.9616.0% $0.81 $0.96 $1.13 $1.34 $1.58 $1.86 $2.20 $2.59 $3.0616.5% $0.84 $0.99 $1.17 $1.38 $1.63 $1.92 $2.27 $2.67 $3.1617.0% $0.86 $1.02 $1.20 $1.42 $1.68 $1.98 $2.33 $2.76 $3.2517.5% $0.89 $1.05 $1.24 $1.46 $1.73 $2.04 $2.40 $2.84 $3.3518.0% $0.92 $1.08 $1.28 $1.50 $1.78 $2.10 $2.47 $2.92 $3.4418.5% $0.94 $1.11 $1.31 $1.55 $1.82 $2.15 $2.54 $3.00 $3.5419.0% $0.97 $1.14 $1.35 $1.59 $1.87 $2.21 $2.61 $3.08 $3.63


Op

era

tin

g M

arg

in


Exhibit 56. Accessory Store

North America,

45%Europe,

40%

Asia, 15%

Avg Size-SF Avg Sales-PSF Avg BuildoutNorth America 1,500 $715 $440,000Europe 1,300 $859 $460,000Asia 1,000 $860 $190,000

Source: Company presentation

Exhibit 57. Outlet Store

North America,

82%

Europe, 13%

Asia, 5%

Avg Size-SF Avg Sales-PSF Avg BuildoutNorth America 2,600 $943 $400,000Europe 1,400 $1,221 $410,000Asia 1,400 $929 $160,000



Page 32 of 66

January 4, 2012

BALANCE SHEET STILL STRONG AFTER LAUNCHING SHARE BUYBACK PROGRAM Liquidity remains strong. In FY10, FOSL announced two share repurchase programs, whereby up to $30 million and $750 million, respectively, could be used to repurchase outstanding shares. The $750 million repurchase program has a termination date of December 2013 and the $30 million repurchase program has no termination date. During 2010, FOSL repurchased 3.1 million shares under the $750 million program at a cost of $179.2 million. Year-to-date, FOSL repurchased 2.3 million shares under the $750 million program at a cost of $204.4 million. The Company did not make any repurchases under the $30 million plan in 2010 or the year-to-date period. At the end of 3Q11, working capital totaled $788.1 million compared to $816.6 million in the prior-year period. Additionally, FOSL had $10.6 million of outstanding short-term borrowings and $4.3 million in long-term debt. We believe FOSL has one of the best-managed balance sheets in our coverage universe, with still-high net cash per share levels after accounting for share repurchases. We think the company can generate upward of $150 million in free cash flow going forward.

EVOLUTION OF FOSSIL, INC.

Exhibit 58. Licenses and Acquisitions – Evolution of FOSL

Year Action Event Oct 2011 License Partnered with Karl Lagerfeld to design, develop and distribute men’s & women’s watches in spring 2013. Dec 2010 License Partnered with Michael Kors to produce fashion and fine jewelry. 2010 License Renewed license with Michael Kors to design, manufacture and market watches. 2010 License Renewed license with Diesel to design, manufacture and market watches and jewelry. 2010 License Renewed license with Marc by Marc Jacobs to distribute watches. 2010 License Renewed license with DKNY to design, manufacture and market watches and jewelry. 2008 License Renewed license with Emporio Armani to design, manufacture and market watches and jewelry. 2008 License Partnered with DKNY to distribute fashion jewelry. 2007 License Renewed license with Burberry to design, manufacture and market watches. 2005 License Partnered with Diesel to distribute fashion jewelry by March 2006. April 2004 License Partnered with Michael Kors to produce watches. April 2004 Acquisition Acquired Tempus International Corp. which does business with Michele Watches. 2004 License Partnered with Marc by Marc Jacobs to distribute watches by Fall 2005 and 2006. 2004 License Partnered with Adidas to design, develop and distribute watches by first quarter 2006. 2004 License Renewed license with Diesel to design, manufacture and market watches. Aug 2001 Acquisition Acquired Zodiac brand for $4.7 million. 2001 License Partnered with Burberry to distribute watches. 2001 License Partnered with Emporio Armani to distribute jewelry. 2000 License Partnered with Diesel to design, manufacture and distribute watches. 2000 License Partnered with DKNY to design, manufacture and distribute watches. 1997 License Partnered with Giorgio Armani to manufacture and distribute Emporio Armani watches.


BRAND PORTFOLIO Brand strength. Given a highly competitive industry subject to constantly changing preferences in style, taste and price points, FOSL continually develops, acquires or licenses other internationally recognized names in order to appeal to a wide range of consumers. These include: Michael Kors, Marc Jacobs, Emporio Armani, DKNY, Diesel, Burberry, Adidas, Michele, Relic, Zodiac and Karl Lagerfeld. There is a different team of designers for each brand who identify their specific consumers’ preferences, interpret global fashion trends and develop style-right offerings to generate volume purchasing. Within watches, retail price points range from $7 in the mass market channel (Relic) to $2400+ in the luxury channel (Michele), with the majority of collections ranging from $50-$600.


Page 33 of 66

January 4, 2012

Exhibit 59. Brand Portfolio

Wholesale Watches Wholesale Jewelry/Accessories

Owned Brands Owned Brands

Fossil Men's Fossil Men’s

Fossil Women’s Fossil Women’s

Relic Men’s Relic Men’s

Relic Women’s Relic Women’s

Zodiac

Michele

Licensed Brands Licensed Brands

Adidas Emporio Armani

Burberry Diesel

Diesel DKNY

DKNY Michael Kors

Emporio Armani

Marc by Marc Jacobs

Michael Kors Source: Company filings

Licensing strength. FOSL has been carrying licensed brands since 1997, when it partnered with Giorgio Armani to manufacture and distribute Emporio Armani watches. Since then, FOSL has added a few new brands to its watch and jewelry portfolio every 2-3 years. FOSL’s unique vertical integration offers third-party brands a complete solution (including design, production, distribution and marketing) to launch or increase presence globally in a consistent, timely and focused manner. All major licenses are exclusive to FOSL and the licensors. Licenses typically last for five years with five-year renewals and have royalties ranging from 8% to 20% of sales. Licensed watches have a higher gross margin than the Fossil brand, even after the royalty payment, because they are typically higher-priced compared to Fossil, with similar costs. In addition, most of this business is outside of the United States, which carries a higher gross margin than the Untied States. In 2010, licensed brands were 39.4% of sales (or $800 million), with certain brands driving a significant portion of total company revenues. Licensed brand watch sales were led by increases in Michael Kors (+218% in North America wholesale; +101% in Europe wholesale), Diesel (+61% in North America; +27% in Europe), Marc Jacobs (+61% in North America; +128% in Asia Pacific) and Emporio Armani (+49% in North America; +24% in Europe; +43% in Asia Pacific).

Exhibits 60. Key License Agreements

License Expiration Date

Watch Licenses Adidas 12/31/2012

Burberry 12/31/2012

Diesel 12/31/2015

DKNY 12/31/2014

Emporio Armani 12/31/2013

Marc by Marc Jacobs 12/31/2015

Michael Kors 12/31/2015 Accessories Licenses

Emporio Armani 12/31/2013

Diesel 12/31/2015

DKNY 12/31/2014

Michael Kors 12/31/2015 Source: Company filings


Page 34 of 66

January 4, 2012

Exhibit 61. Well-Diversified Product Offering and Distribution

Luxury Retailers

Mass Merchants

National Chains

Watch Station

Better Department Stores


Exhibit 62. Fossil Brand Sales Mix

332 377

527 561618

702788 782

954

1,150

$0

$200

$400

$600

$800

$1,000

$1,200

2002

2003

2004

2005

2006

2007

2008

2009

2010

201

1E

Asia9%

Europe38%

North America53%

Source: Company presentation on November 15, 2011.

Exhibit 63. Strong Portfolio

<$75 mm

$75+ mm

$100+ mm

$200+ mm

$600+ mm

Source: Company presentation on November 15, 2011.


Page 35 of 66

January 4, 2012

Exhibit 64. Brands Distributed to Higher End Stores

Michele Tahitian Zodiac Black Dial Emporio Armani Marc by Marc Jacobs Burberry Ceramic Watch Chronograph Watch Ceramic Watch Marci Mirror Dial Watch Round Dial Bracelet Watch $1,195.00 $795.00 $545.00 $175.00 $495.00 Neiman Marcus Nordstrom Neiman Marcus Nordstrom Neiman Marcus Source: Neiman Marcus and Nordstrom’s Websites

Exhibit 65. Brands Distributed to the Mid-Tier and Shoe Chains

Relic Stainless Steel & Fossil Maddox Michael Kors Horn Black Aluminum Watch Satchel Chronograph Watch $95.00 $228.00 $295.00 Kohl’s Fossil Michael Kors

Source: Kohl’s, Fossil and Michael Kors Websites

STRONG VALUE PROPOSITION WITHIN THE COMPETITIVE LANDSCAPE FOSL offers strong fashion and value relative to its competitors. Given the product and target market overlap, we view Coach (on the high end), Dooney & Bourke (on the high end), Kate Spade (on the high end), Kenneth Cole, Guess, Vera Bradley and Swatch as key competitors. Compared to the products offered at these retailers, FOSL, on average, is priced well below those that compete at the high end. Despite lower price points, FOSL provides product similar in quality to those at the higher end. Based on the competitive set mentioned above, we conducted a pricing study across each of the different categories and price points offered at each of these retailers. See average price point comparisons by category in Exhibit 66 below.


Page 36 of 66

January 4, 2012

Exhibit 66. Fossil Offers Strong Fashion and Value Relative to Its Competitors .

Category

Item Price Item Price Item Price Item Price Item Price Item Price Item Price Item Price

Watches Boyfriend Plastic Bracelet Watch

$228.00 Active Shine Watch $125.00 Crystal Classic Watch

$135.00 - - Watch in Suzani

$65.00 Big Round Grey Link

$125.00 Full Blooded Silver

$160.00 Fossil $125.00

Studio Round Etched Bangle

$398.00 Feminine Contemporary Watch

$135.00 Chronograph Watch

$155.00 - - - - Champagne Round Chronograph

$175.00 Cold Hour White $235.00 Michele $1,645.00

Boyfriend Rubber Strap Watch

$158.00 Stainless Steel Bracelet Watch

$85.00 Crystal Sport Watch

$95.00 - - - - Round Slim Watch $95.00 Blue Decency $120.00 Relic $60.00

Andee Bracelet Watch

$258.00 Status In-The-Round Watch

$115.00 Mariner Watch Medium

$165.00 - - - - Big Round Chrono $150.00 Ciel Clair Violet $120.00 Zodiac $750.00

Totes Flagship Leather Tote $798.00 Lina Tote $135.00 Venus North/South Lee

$195.00 Barrow Street Bon Shopper

$275.00 East West Tote

$52.00 Tote of the Town $199.00 NA - Emory $248.00

Satchels Madison Leather Lindsey Satchel

$398.00 Super Sleek Small Satchel

$118.00 Nylon Juliette Bag $185.00 Irving Place Carmela

$445.00 Grand Traveler

$118.00 Bolt Around Satchel $298.00 NA - Maddox $198.00

Minis Chelsea Patent Clutch $188.00 Lina Slim Clutch $38.00 Venus Continental $125.00 Pastiche Brynn $325.00 Clutch Wallet $38.50 Tote of the Town Clutch

$99.00 NA - Vintage Re-Issue Clutch

$128.00

Crossbody Chelsea Signature Flap

$278.00 Larchmonte Crossbody

$108.00 Calf Letter Carrier $165.00 Essex Small Scout $295.00 Crossbody $58.00 Set The Bar Crossbody Bag

$138.00 NA - Emilia Flat $178.00

Workbag Poppy Metallic Sateen Backpack

$228.00 - - Quilted Spicy Backpack

$238.00 Nylon Raimy $345.00 Large Backpack

$128.00 NA - NA - Emory N/S Flap $218.00

Hobo Chelsea Signature Ashlyn Hobo

$278.00 Super Sleek Hobo Bag

$128.00 Pepper Grain Large Hobo

$275.00 Daycation Bon Shopper

$145.00 Petite Hobo $70.00 Set The Bar Hobo $278.00 NA - Relic Bleeker Hobo

$68.00

Wallets Madison Leather Accordion Zip

$218.00 Lorraine Multi Clutch

$38.00 Portofino Large Zip Around Wallet

$185.00 Fanfare Lacey $195.00 Turn Lock Wallet

$46.00 Eel Travel Wallet $98.00 NA - Vintage Re-Issue Flap Multifunction

$55.00

Sunglasses Madeline Sunglasses $198.00 Olivia $120.00 - - Cila $148.00 Elizabeth $70.00 Double Bar Round Sunglasses

$60.00 NA - Cece Oversized Wrap

$60.00

Belts Bleecker Jeans Belt $128.00 Rhinestone and Studded Belt

$60.00 Braided Belts $25.00 Bow Belt $95.00 NA - Double Buckle Belt $50.00 NA - Two Tone Tabs Belt

$38.00

Scarves Madison Ocelot Scarf $148.00 Blue Printed Scarf $58.00 Shell Stitched Infinity Scarf

$98.00 Spade Scarf $145.00 Knitted Scarf $46.00 Basic Ribbed Scarf $98.00 NA - Carol Scarf $38.00

Jewelry Large Rondell Pendant

$158.00 Twisted Necklace $90.00 Circle Link Bracelet $85.00 Jewel Blocks Bib Necklace

$398.00 NA - Brown Jewel Pendant Necklace

$125.00 Secret Code $60.00 Coastal Butterfly Drama

$65.00

Footwear Delilah Bootie $248.00 Namya $159.00 Paraboot Boat Shoe

$145.00 Leigh $498.00 Flipflops $18.00 Bike 2 Work Boot $198.00 NA - Sadie High Heel Bootie

$128.00

Tops Poppy Pop C Logo Tee

$78.00 Riviera Top - Stripe $79.00 - - Ciara Silk Top $245.00 - - Winter Floral Printed Top

$99.50 NA - Gayle Top $58.00

Denim/Bottoms

- - Britney Zipper CRX3 Wash Jeans

$108.00 - - Broome Street Jeans

$195.00 - - Rubberized Denim Jean

$99.50 NA - Super Skiny Denim

$88.00

Skirts - - Sophia Skirt $59.00 - - Fallon Skirt $325.00 - - Pleated Skirt $79.00 NA - Skye Skirt $228.00

Dresses - - Short-sleeve Edie Dress

$138.00 - - Wedding Belles Kay Dress

$425.00 - - Ruffle Front Dress $199.50 NA - Sarah Dress $108.00

Travel Varick Nylon Travel Kit

$78.00 Tryst Double Pouch Cosmetic

$45.00 Wine Bottle Picnic Tote

$295.00 Airline Cosmetic $50.00 Hatbox Cosmetic

$46.00 Mottled Tucson Travel Wallet

$98.00 NA - Relic 3 Piece Cosmetic Set

$40.00

Gifts Poppy Flower Fragrance

$65.00 Tryst Laptop Case $98.00 Case For The iPad $65.00 Twirl Holiday Gift Set

$90.00 Laptop Sleeve

$36.75 Black Fragrance Gift Set

$72.00 NA - Relic Laptop Sleeve

$50.00

Kenneth Cole Fossil, Inc.Swatch GroupVera BradleyCoach, Inc. Guess? Inc Dooney & Bourke Kate Spade



Page 37 of 66

January 4, 2012

Exhibit 67. Pricing Range within FOSL Wholesale

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Rel

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Wo

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Mic

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Ko

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iac

Bur

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Mic

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Low High

Wholesale Watches


$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Fos

sil

Die

sel

DK

NY

Em

porio

Arm

ani

Low High

Wholesale Jewelry


Exhibit 68. Pricing Range within FOSL Retail

$0

$50

$100

$150

$200

$250

$300

$350

$400

Rel

ic S

mal

l Lea

ther

Fos

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mal

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Re

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andb

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Fo

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Jew

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Rel

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es

Sho

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Fos

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and

bags

App

arel

Ave

rage

Low High

Retail Stores

Source: KeyBanc Capital Markets Inc. estimates and Company reports

TENURED AND PROVEN MANAGEMENT TEAM Kartsotis ownership. Of the 16.3% inside ownership of FOSL, Kosta Kartsotis (CEO) and Tom Kartsotis (founder) together own 14.7% of the Company. Tom Kartsotis founded the Company in 1984 and served as President until December 1991 and CEO until October 2000. He also served as a Director since 1984 and as Chairman of the Board from December 1991 to April 2010. Kosta Kartsotis, Tom’s older brother, joined the Company in 1988 and has been a Director since 1990. He succeeded his brother as Chairman of the Board in May 2010. Shortly after Tom Kartsotis stepped down as President in December 1991, Kosta Kartsotis took on the role of President from December 1991 to December 2006 while also acting as COO from December 1991 to October 2000. Kosta Kartsotis has served as the CEO of the Company since October 2000. Tenured and proven management team. Mike Kovar has served as CFO and Treasurer of the Company since October 2000. He joined the Company in March 2000 and had served as SVP of Finance until October 2000. Mark Quick currently serves as Vice Chairman of the Company and has been in this position since January 2007. Having joined the Company in November 1995, he previously served as President of Fashion Accessories from 2000 to 2006 and President of the Stores Division from 2003 to 2006. Livio Galanti was appointed EVP in August 2007, previously serving as SVP of Luxury Brands from 2006 to 2007 and SVP of the Sports Division from 2004 to 2006. Prior to joining FOSL, Mr. Galanti served as General Manager and joint venture partner in Timex Group Italia, a watch distribution, design and development company, for three years. Jennifer Pritchard has served as President of the Retail Division since 2006. Previously, she served at Wet Seal Inc. as President of Arden B from 2004 to 2006 and as President of Zutopia (another division of Wet Seal) from 2002 to 2004. Directors and Executive Officers together hold 16.00% of ownership within the Company.


Page 38 of 66

January 4, 2012

Exhibit 69. Management Overview

Name Age Position Officer since

2010 Compensation

Ownership (% of Total)

Ownership Position

Background

Kosta Kartsotis 58 Chairman and CEO 1991 * 10.183% 6,425,539 President of FOSL (December 1991-December 2006).COO of FOSL (December 1991-October 2000).Served as CEO since October 2000, Chairman of the Board of FOSL since May 2010.Joined FOSL in 1988 and has been Director of FOSL since 1990.

Mike Kovar 49 EVP CFO & Treasurer

2000 $1,186,151 0.040% 25,315 EVP, CFO and Treasurer of FOSL since March 2008.SVP, CFO and Treasurer of FOSL since October 2000.SVP, Finance of FOSL (March-October 2000).Previously: VP and CFO of BearCom Group, Inc. (November 1997-March 2000);Controller (July 1996-November 1997).

Livio Galanti 43 Executive Vice President

2007 $1,601,874 0.025% 15,544 SVP of Luxury Brands (December 2006-July 2007);SVP of the Sports Division (November 2004-November 2006).Prreviously served for three years as General Manager and JV partner in Timex Group Italia, a watch distribution, design and development company.

Jennifer Pritchard 52 President of Retail Division

2006 $1,690,614 0.037% 23,245 Previously: President of Arden B (WTSLA) (January 2004-March 2006);President of Zutopia, another division of Wet Seal, Inc. (October 2002-January 2004);EVP Product Development and Marketing of Tex 38, a Hong-Kong based design and production company (April 2001-October 2002).

Mark Quick 62 Vice Chairman 2000 $2,181,085 0.069% 43,592 Vice Chairman of FOSL since January 2007.President, Fashion Accessories of FOSL (October 2000-December 2006).President, Stores Division of FOSL (March 2003-September 2006).EVP of FOSL (March 1997-October 2000).SVP of FOSL (November 1995-March 1997). Source: Company reports

*Mr. Kartsotis refused all forms of compensation; he is one of the initial investors in the company and believes that his primary compensation is met by continuing to drive stock price growth.

Exhibit 70. Board Overview

Name Age Director since 2010

CompensationOwnership (%

of Total)Ownership

PositionBackground

Kosta Kartsotis 58 1988 - 10.183% 6,425,539Elaine Agather 55 2007 $169,356 0.006% 3,578 Member of Audit Committee and Chairperson of Compensation Committee.

Chairperson of JP Morgan Chase, Dallas Region since 1999.South Region Head and Managing Director of JP Morgan Private Bank since 2001.Previously: Chairperson of Texas Commerce Bank in Fort Worth, Texas (1992-1999).

Jeffrey N. Boyer 53 2007 $166,119 0.004% 2,478 Member of Audit Committee and Chairman of Finance Committee.Served as EVP and CFO of 24 Hour Fitness Worldwide since April 2008.Previously: President and CFO of Michaels Stores, Inc. (March 2006-March 2008).EVP and CFO of Michaels Stores, Inc. (January 2003-March 2006).

Elysia Holt Ragusa 60 2007 $158,252 0.006% 3,578 Member of Compensation Committee; Chairperson of Nominating & Corporate Governance Committee. Lead Independent Director since 2010. Director of Texas Capital Bancshares Inc. Senior Managing Director and International Director for Jones Lang LaSalle since July 2008.

Jal S. Shroff 74 1993 - 0.965% 609,020 Employee of Fossil (East) Limited.Managing Director of Fossil (East) Limited (January 1991-July 2009).

James E. Skinner 57 2007 $175,419 0.016% 10,278 Chairman of Audit Committee and Member of Finance Committee.EVP and CFO of The Neiman Marcus Group, Inc. since October 2007. Previously: SVP and CFO of The Neiman Marcus Group, Inc. (2001-October 2007).

Michael Steinberg 82 2000 $153,941 0.008% 4,987 Member of Compensation Committee and Nominating and Corporate Governance Committee. Previously: Chairman and CEO of Macy's West, a Division of Federated Department Stores, Inc. until 2000.

Donald J. Stone 82 1993 $150,259 0.065% 41,034 Member of Nominating and Corporate Governance Committee.Lead Independent Director (May 2007-May 2010). Previously: Vice Chairman of Federated Department Stores until February 1988.

James M. Zimmerman

67 2007 $153,029 0.012% 7,578 Member of Finance Committee and Nominating and Corporate Governance Committee. Director of The Chubb Corporation and Furniture Brands International. Previously: Chairman and CEO of Federated Department Stores (1999-February 2004).President and COO of Federated Department Stores (May 1998-1999).

Gary Kusin 59 2011 - 0.010% 6,151 Senior Advisor to TPG, a private equity firm.Director at Petco, Sabre Holdings, American Tire Distributors and Republic.Previously: President and CEO of FedEx Kinko's in the beginning of 2001.CEO of HQ Global Workplaces, prior to joining Kinko's.

Tom Kartsotis 51 1984 - 4.553% 2,873,079 Founder of FOSL in 1984 and former Officer and Director until 2010. Source: Company reports


Page 39 of 66

January 4, 2012

Exhibit 71. Summary Quarterly Income Statement ($ in millions, except per share items)

Year Year 1Q 2Q 3Q 4Q Year 1QA 2QA 3QA 4QE Year 1QE 2QE 3QE 4QE YearNet revenue 1,583.2 1,548.1 393.2 412.6 523.8 701.1 2,030.7 537.0 556.7 642.9 832.0 2,568.5 623.2 652.0 766.5 996.9 3,038.7Cost of goods sold 732.1 703.2 173.8 175.7 225.1 301.0 875.5 235.2 244.7 283.4 335.9 1,099.1 270.9 286.5 333.1 395.2 1,285.7

Gross profit 851.2 844.9 219.4 236.9 298.7 400.1 1,155.2 301.8 312.0 359.5 496.1 1,469.4 352.3 365.4 433.5 601.7 1,752.9Selling and distribution 489.6 476.3 124.9 129.2 138.4 191.4 583.9 158.4 164.6 172.2 244.0 739.2 184.1 193.8 207.2 295.9 881.1General and administrative 155.8 156.9 43.3 43.3 49.0 59.2 194.9 50.9 61.1 68.5 74.4 254.9 62.2 72.2 81.7 89.2 305.2

Total operating expenses 645.4 633.2 168.2 172.5 187.5 250.6 778.8 209.3 225.7 240.7 318.4 994.1 246.2 266.1 288.9 385.1 1,186.3Operating profit 205.8 211.6 51.3 64.3 111.3 149.5 376.4 92.6 86.3 118.8 177.7 475.3 106.1 99.4 144.5 216.6 566.6

Interest expense 0.6 0.2 0.1 0.1 0.0 1.0 1.1 0.2 0.6 0.4 0.4 1.8 0.4 0.4 0.4 0.4 1.8Other income (expense), net (15.8) 2.4 2.5 0.2 0.0 2.3 5.1 (3.1) (3.9) (6.6) (3.6) (17.1) (3.6) (3.6) (3.6) (3.6) (14.4)

Earnings before income taxes 189.4 213.8 53.7 64.5 111.3 150.9 380.4 89.3 81.7 111.8 173.6 456.4 102.0 95.3 140.5 212.6 550.4Income tax expense 51.3 74.6 16.0 8.0 40.4 54.3 118.6 31.2 27.7 39.3 60.7 158.8 35.7 32.3 49.4 74.3 191.6Net income attributable to noncontrolling interest 0.0 0.0 1.8 2.1 2.7 0.0 6.6 2.2 2.7 2.9 0.0 7.8 2.2 2.7 2.9 0.0 7.8

Net income attributable to Fossil, Inc. 138.1 139.2 35.9 54.5 68.2 96.7 255.2 55.8 51.4 69.6 112.9 289.7 64.1 60.4 88.2 138.3 351.0S/O - diluted 68.3 67.2 68.0 68.3 68.0 66.3 67.7 64.8 64.1 63.8 63.5 64.1 63.5 63.5 63.5 63.5 63.5EPS - diluted $2.02 $2.07 $0.53 $0.80 $1.00 $1.46 $3.77 $0.86 $0.80 $1.09 $1.78 $4.52 $1.01 $0.95 $1.39 $2.18 $5.53

EBITDA 243.4 253.0 61.4 74.3 121.4 159.9 417.0 103.5 100.3 131.5 189.7 525.0 117.6 114.2 157.9 229.2 618.8Comps 2% 8% 19% 16% 20% 20% 19% 21% 22% 14% 10% 16% 10% 10% 10% 10% 10%Margin analysisCOGS/ revenue 46.2% 45.4% 44.2% 42.6% 43.0% 42.9% 43.1% 43.8% 44.0% 44.1% 40.4% 42.8% 43.5% 44.0% 43.5% 39.6% 42.3%Gross margin 53.8% 54.6% 55.8% 57.4% 57.0% 57.1% 56.9% 56.2% 56.0% 55.9% 59.6% 57.2% 56.5% 56.0% 56.5% 60.4% 57.7%Selling & distribution expense/sales 30.9% 30.8% 31.8% 31.3% 26.4% 27.3% 28.8% 29.5% 29.6% 26.8% 29.3% 28.8% 29.5% 29.7% 27.0% 29.7% 29.0%General & administrative expense/sales 9.8% 10.1% 11.0% 10.5% 9.4% 8.4% 9.6% 9.5% 11.0% 10.7% 8.9% 9.9% 10.0% 11.1% 10.7% 8.9% 10.0%Total operating expenses 40.8% 40.9% 42.8% 41.8% 35.8% 35.7% 38.3% 39.0% 40.5% 37.4% 38.3% 38.7% 39.5% 40.8% 37.7% 38.6% 39.0%

Operating margin 13.0% 13.7% 13.0% 15.6% 21.2% 21.3% 18.5% 17.2% 15.5% 18.5% 21.4% 18.5% 17.0% 15.2% 18.9% 21.7% 18.6%EBITDA margin 15.4% 16.3% 15.6% 18.0% 23.2% 22.8% 20.5% 19.3% 18.0% 20.5% 22.8% 20.4% 18.9% 17.5% 20.6% 23.0% 20.4%Net income margin 8.7% 9.0% 9.1% 13.2% 13.0% 13.8% 12.6% 10.4% 9.2% 10.8% 13.6% 11.3% 10.3% 9.3% 11.5% 13.9% 11.6%Effective tax rate 27.1% 34.9% 29.9% 12.3% 36.3% 36.0% 31.2% 34.9% 33.9% 35.2% 35.0% 34.8% 34.9% 33.9% 35.2% 35.0% 34.8%Y/Y growthNet revenue 10.5% -2.2% 21.7% 30.6% 37.4% 32.8% 31.2% 36.6% 34.9% 22.7% 18.7% 26.5% 16.1% 17.1% 19.2% 19.8% 18.3%Cost of goods sold 6.0% -3.9% 13.1% 18.2% 31.9% 30.7% 24.5% 35.3% 39.3% 25.9% 11.6% 25.5% 15.2% 17.1% 17.5% 17.7% 17.0%Gross profit 14.7% -0.7% 29.5% 41.7% 41.8% 34.5% 36.7% 37.6% 31.7% 20.3% 24.0% 27.2% 16.7% 17.1% 20.6% 21.3% 19.3%Selling & distribution expense 22.8% -2.7% 15.5% 20.2% 20.1% 31.6% 22.6% 26.9% 27.4% 24.4% 27.5% 26.6% 16.2% 17.8% 20.3% 21.3% 19.2%General & administrative expense -0.7% 0.7% 15.5% 16.6% 28.7% 34.1% 24.2% 17.5% 41.0% 39.7% 25.7% 30.8% 22.2% 18.2% 19.2% 19.8% 19.7%Total operating expenses 16.2% -1.9% 15.5% 19.2% 22.2% 32.2% 23.0% 24.4% 30.8% 28.4% 27.1% 27.7% 17.7% 17.9% 20.0% 20.9% 19.3%Operating profit 10.3% 2.8% 115.4% 186.3% 94.0% 38.5% 77.9% 80.6% 34.1% 6.8% 18.8% 26.3% 14.6% 15.2% 21.7% 21.9% 19.2%Pretax profit 1.0% 12.9% 101.8% 145.9% 105.6% 41.3% 78.0% 66.1% 26.6% 0.5% 15.0% 20.0% 14.3% 16.7% 25.7% 22.4% 20.6%Net earnings 12.0% 0.8% 107.3% 227.8% 93.2% 38.1% 83.4% 55.5% -5.7% 2.1% 16.8% 13.5% 14.9% 17.6% 26.7% 22.4% 21.1%EPS 15.3% 2.5% 103.6% 222.2% 91.6% 41.1% 81.9% 62.9% 0.4% 8.8% 21.9% 19.9% 17.3% 18.7% 27.3% 22.4% 22.2%EBITDA 11.0% 3.9% 81.2% 126.0% 80.7% 34.3% 64.8% 68.7% 35.1% 8.3% 18.6% 25.9% 13.6% 13.8% 20.1% 20.9% 17.9%

2011A/E 2012E20102008 2009



Page 40 of 66

January 4, 2012

Exhibit 72. Annual Balance Sheet ($ in millions)

Year Year Year Year Year YearCurrent assets:

Cash and cash equivalents 255.2 172.0 405.2 392.8 371.3 436.1Securities available for sale 12.6 6.4 8.0 8.9 10.5 12.6Accounts receivable 227.5 206.0 209.8 263.2 312.4 374.3Inventories 248.4 292.0 245.7 371.9 447.3 531.7Deferred income tax assets 24.2 27.0 28.9 41.8 49.6 59.5Prepaid expenses and other current assets 56.8 60.1 48.9 62.2 73.8 88.4

Total current assets 824.8 763.5 946.5 1,140.8 1,264.8 1,502.6

Property and equipment, net 186.0 207.3 212.4 217.4 307.5 380.3Goodwill 45.5 43.2 44.3 44.6 44.4 44.4Investments 13.9 13.0 13.7 9.0 7.3 7.3Intangible and other non-current assets 52.4 60.3 59.6 55.7 66.1 79.3Total assets 1,122.6 1,087.3 1,276.5 1,467.6 1,690.2 2,013.8

Current liabilities:Accounts payable 111.0 91.0 103.6 122.3 147.0 174.8Short-term debt 10.0 5.3 3.6 5.3 10.6 10.6Accrued expenses - compensation 44.2 34.1 39.8 51.4 61.0 73.1Accrued expenses - royalties 22.5 17.1 16.8 39.7 47.1 56.5Accrued expenses - co-op advertising 17.8 21.9 18.5 23.1 27.4 32.8Accrued expenses - transaction taxes 18.9 22.4 26.9Accrued expenses - other 32.8 30.3 29.6 50.8 60.3 72.2Income taxes payable 40.0 7.3 33.4 28.0 33.3 39.9

Total current liabilities 278.4 207.0 245.3 339.5 409.1 486.7

Long term liabilitiesLong-term debt 3.5 4.7 4.5 4.5 4.3 4.3Long-term income taxes payable 38.5 38.8 18.8 9.1 10.8 12.9Other LT liabilities 8.4 8.6 12.4 14.9 17.7 21.2Deferred income taxes 16.2 22.9 27.0 47.9 56.8 68.1

Total liabilities 344.8 281.9 308.1 415.9 498.7 593.2

Shareholders' equity 777.8 805.4 968.4 1,051.7 1,191.6 1,420.6

Total liabilities and shareholders' equity 1,122.6 1,087.3 1,276.5 1,467.6 1,690.2 2,013.8

2011E 2012E2007 2008 2009 2010



Page 41 of 66

January 4, 2012

Exhibit 73. Annual Cash Flow Statement ($ in millions)

Year Year Year Year Year YearOPERATIONSNet earnings 123.3 141.9 144.3 264.9 297.5 351.0Impact of other operating activities on cash flows:

Depreciation and amortization 32.8 37.6 41.3 40.6 49.7 52.2Share based compensation 6.1 7.3 6.8 10.6 15.1 18.5(Decr) incr in allowance for returns - net of inventory in transit 3.5 2.4 (0.6) 15.6 (0.7) 0.0(Gain) loss on disposal of fixed assets (0.1) 0.2 0.6 0.7 1.1 0.0Impairment losses 0.2 10.6 5.2 7.4 0.0 0.0Equity in income of & Distribution from JV 2.8 (0.6) (0.4) 3.7 2.2 0.0Provision for doubtful accounts 0.1 3.4 2.6 3.9 4.2 0.0Excess tax benefits from stock-based compensation (17.7) (0.6) (1.2) (12.0) (9.7) 0.0Deferred income taxes & other (4.0) 1.1 3.2 11.2 14.8 0.0

Changes in operating assets and liabilities:Accounts receivable (76.0) 17.7 (4.2) (85.9) (49.9) (61.9)Inventories (20.1) (45.6) 44.6 (115.9) (79.1) (84.4)Prepaid expenses & other current assets (19.9) (1.5) 8.5 (14.3) (0.7) (14.6)Accounts payable 27.7 (18.8) 6.1 18.2 (7.3) 27.8Accrued expenses 34.9 (13.4) 1.8 63.3 40.8 43.3Income taxes payable 38.4 (32.8) 7.3 (2.8) 1.7 10.2

Net change in working capital (15.0) (94.3) 64.1 (137.4) (94.5) (79.8)Net cash from operations 132.0 109.0 266.0 209.2 279.7 341.9

Free Cash Flow 91.7 45.0 228.3 162.6 154.7 216.9

INVESTINGPurchase of property and equipment (40.2) (63.9) (37.7) (46.5) (125.0) (125.0)Business acquisitions, net of cash acquired 0.0 0.0 0.0 0.0 0.0Increase in intangible and other assets (6.8) (23.7) (0.4) (0.3) (13.9) 0.0Purchase of securities available for sale, net of sales (5.9) 5.3 (0.3) (0.3) (2.2) (2.1)Proceeds from the sale of PP&E 2.0 0.8 0.1 0.4 21.3 0.0Purchase of noncontrolling interest shares 0.0 0.0 0.0 (0.9) 0.0 0.0Net Change in Restricted Cash 0.0 0.0 0.0 0.0 (7.3) 0.0Net cash from investing (51.0) (81.5) (38.3) (47.5) (127.1) (127.1)

FINANCINGPayments on notes payable 1.4 (120.2) (7.1) (0.4) (7.1) 0.0Borrowings on note payable 0.0 114.5 5.1 1.2 12.9 0.0Excess tax benefits from stock-based compensation 17.7 0.6 1.2 12.0 9.7 0.0Proceeds from exercise of stock options 29.1 4.9 3.8 23.4 8.2 0.0Acquisition of common stock (16.2) (105.9) 0.0 (199.2) (204.4) (150.0)Distribution of noncontrolling interest earnings (2.2) (6.7) (2.7) (7.6) (3.8) 0.0Common stock issued upon legal settlement 0.0 0.0 0.0 0.0 7.8 0.0Net cash for financing 29.7 (112.8) 0.3 (170.6) (176.6) (150.0)

Effect of exchange rate changes on cash and cash equivalents 12.8 2.1 5.2 (3.4) 2.5Net increase (decrease) in cash 123.5 (83.2) 233.2 (12.4) (21.5) 64.8Cash at the beginning of period 133.3 255.2 172.0 405.2 392.8 371.3Cash at the end of period 255.2 172.0 405.2 392.8 371.3 436.1

2011E 2012E2007 2008 2009 2010



Page 42 of 66

January 4, 2012

Rating HOLD

Price (12/30/11 close) $34.50

12-Mo. Price Target NA

Dividend $0.00

Yield 0.0%

52-Wk. Range $25-$41

Trading Volume (000) 409

Market Cap. (mm) $1,479.0

Shares Out. (mm) 42.87

Book Value/Share $10.43

Fiscal Year End December

2012E $2.69

2011E $2.25

2010A $1.78

2012 P/E 12.8x

2011 P/E 15.3x



Next Quarter December

Estimate $0.54

Vs. $0.41

First Call Estimate $0.54

Price/Book Value 3.3x

Steven Madden, Ltd. INITIATING COVERAGE WITH A HOLD RATING: WAITING FOR A BETTER ENTRY POINT

AT A GLANCE Steven Madden, Ltd. (SHOO-NASDAQ) designs, sources and sells fashion-forward, moderately priced footwear for women, men and children, as well as branded and private label handbags and accessories through the wholesale (83% of sales), retail store (17% of sales) and e-commerce channels. With more than 20 owned and licensed brands, the Company distributes its products through a broad range of retailers, including DSW, Macy’s, Nordstrom, Dillard’s, Famous Footwear, Lord & Taylor, Neiman Marcus and Saks at a variety of price points. The Company has grown the business through a spate of small acquisitions over the past decade, with the most recent purchases adding new competencies, including direct sourcing (via Topline Corp.) and expansion of the accessories platform with the Company’s existing brands (via Cejon). The Company also serves as a buying agent to source shoes for large retailers, including Kohl’s, J.C. Penney and Sears.

SUMMARY AND RECOMMENDATION We believe Steve Madden is a well-known fashion brand with a highly diversified distribution model and +20% CAGR growth profile. That said, acquisitions drive a large part of the earnings, given +MSD-HSD long-term organic growth. As such, we believe valuation looks fair at 12.8x 2012 P/E and 6.7x 2012 EV/EBITDA – we are initiating coverage with a HOLD rating. We think SHOO’s key competitive advantages should drive long-term earnings via significant sales and margin opportunities. Moreover, we expect SHOO to continue to gain market share, given the ongoing strength of the footwear and accessories cycle. SHOO’s powerful “Test and React” strategy and short lead times allow the Company to work closer in-season, mitigating fashion risk. Nevertheless, with the stock up 24% in 2011 vs. the S&P 500 flat year-over-year over the same time period, we believe valuation is full and wait for a better entry point. SHOO possesses one of the highest operating margins in its space and should be able to expand this as it gains economies of scale in merchandising and sourcing over time. Primary risks that could impede the shares include a significant deterioration in the macro economy, a slow down in frequency of acquisitions and miss on the fashion trend.

KEY INVESTMENT POINTS Execution remains strong. In our view, SHOO has done a good job of integrating a number of new brands to its portfolio, particularly over the last two years, as evidenced by +33% CAGR (2009-2011) vs. +8% CAGR from 2003-2009. We believe key drivers for the Company’s superior sales execution include its unique “Test and React” strategy, short lead times and tendency to acquire small brands with growth prospects higher than its own. “Test & React” strategy reduces fashion risk, protects pricing and margins. We think SHOO’s ability to design and produce sample shoes in one day, test and identify new trends in one week, and deliver “winners” to stores in six to eight weeks leads the industry, whose standard is three to four months. This unique process greatly reduces the frequency of a fashion miss and the likelihood of markdown risk. Further growth opportunities. We think the Company could generate $725 million in incremental revenues over the next several years from the development of new brands, additional acquisitions, outlet store growth, international expansion and the further build-out of the accessories platform.


Page 43 of 66

January 4, 2012

New supply chain opportunities to add $0.50 in earnings. Topline provides SHOO with a well-established direct-to-factory sourcing platform in Northern China. SHOO was previously 100% sourced through agents. The Company has already begun to place direct orders through Topline for its private label business and lower-cost brands. By mid-2012, 10-15% of the business should be direct sourced (driving 40 bps of margin improvement), and over the longer term, 50-60% of the business should be direct sourced (driving a total of 200 bps of margin improvement, or $0.50 in earnings upside). International expansion. Currently just under $50 million in LTM sales (5-6% of the business), we believe this segment could grow to $100 million over the next thee to four years. Despite lower contribution margins, given a third-party distribution model, we believe the international business is a positive for the Company over the longer term, as it contributes nicely to sales volume and gross profit dollars. Also, SHOO has very little exposure to Europe today; the Company recently entered the Western European market via Benelux earlier this year, which has been holding up better than most of the other European markets. Most of SHOO’s international business has been in Asia, Canada, Mexico, South America and the Middle East.

Exhibit 74. 2010 Revenue Mix by Category

Wholesale Accessory

16%

Wholesale Footwear

63%

Retail21%


Exhibit 75. 2010 Operating Profit by Segment Licensing

4%

Retail8%

Wholesale Footwear

62%Wholesale Accessory

12%

First Cost14%


VALUATION With SHOO up 24% in 2011 vs. the S&P 500 flat year-over-year over the same time period, we believe the stock is fairly valued. Despite trading at 12.8x our 2012 P/E and 6.7x our 2012 EV/EBITDA, which is below historical three-year averages of 15.1x and 7.8x, respectively, we think the stock is fairly priced given long-term organic growth of +MSD-HSD. Furthermore, when looking at P/E multiples relative to the S&P 500, SHOO trades 18 points above Ascena Retail Group, Inc. (ASNA-NASDAQ), a shrewdly acquisitive best-in-class operator, and 72 points above Perry Ellis International, Inc. (PERY-NASDAQ), another highly acquisitive retailer – both with 10%+ earnings growth prospects over the next several years. As such, we are initiating with a HOLD rating and wait for a better entry point. We think over the longer term, SHOO will generate significant earnings growth driven by new brand acquisition and development, product category extensions, outlet store openings, international expansion and brand strength.

Exhibit 76. SHOO Long-Term EPS Potential

$4.00+

$1.78

$1.47

$0.75

$0.49

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2010A EPS Direct Sourcing Outlets/ RetailProductivity

New Brands/Businesses

LT EPS

y/y ∆



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January 4, 2012

Exhibit 77. Current Trading Levels vs. Historical 3-Year Averages

Historical P/E Valuation

9.0x

11.0x

13.0x

15.0x

17.0x

19.0x

21.0x

23.0x

De

c 08

Mar

09

Jun

09

Se

p 09

De

c 09

Mar

10

Jun

10

Se

p 10

De

c 10

Mar

11

Jun

11

Se

p 11

De

c 11

3-year Avg P/E: 15.1x

Source: FactSet

Historical EV/EBITDA Valuation

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

3-year Avg EV/EBITDA: 7.8x

Source: FactSet

Historical EV/Sales Valuation

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

3-year Avg EV/Sales: 1.4x

Source: FactSet

2011 Stock Performance

$23$25$27$29$31$33$35$37$39$41$43

Jan

11

Feb

11

Mar

11

Apr

11

May

11

Jun

11

Jul 1

1

Aug

11

Sep

11

Oct

11

Nov

11

Dec

11

Stock up 24%

Source: FactSet

Exhibit 78. Relative Valuation to S&P 500 – SHOO Spread to ASNA and PERY Have Widened


SHOO Avg: 129% SHOO Avg: 122% SHOO Avg: 110%

ASNA Avg: 99% ASNA Avg: 106% ASNA Avg: 95%

PERY Avg: 96% PERY Avg: 95% PERY Avg: 95%

40%

60%

80%

100%

120%

140%

160%

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

Ma

y 11

Jun

11

Jul 1

1

Aug

11

Sep

11

Oct

11

Nov

11

Dec

11

10%

30%

50%

70%

90%

110%

130%

150%

170%

190%

Dec

08

May

09

Oct

09

Mar

10

Aug

10

Jan

11

Jun

11

Nov

11

10%

30%

50%

70%

90%

110%

130%

150%

170%

190%

De

c 06

May

07

Oct

07

Mar

08

Aug

08

Jan

09

Jun

09

Nov

09

Apr

10

Sep

10

Feb

11

Jul 1

1

De

c 11

Source: FactSet and KeyBanc Capital Markets Inc. estimates


Page 45 of 66

January 4, 2012

SPECIFIC RISKS RELATED TO STEVEN MADDEN, LTD. High exposure to department stores, better specialty and family shoe chains. With wholesale representing 83% of total sales, the Company has particularly high exposure to: DSW; Macy’s; Nordstrom; Dillard’s; Famous Footwear; and Lord & Taylor (which, together, account for 73% of the wholesale business). Contraction in this channel would adversely impact SHOO.

Outlet store growth carries inherent risk. Included in the Company’s growth strategy is the opening of stores in new geographic markets. New markets have in the past presented, and will likely continue to present, competitive and merchandising challenges. Our estimates could be at risk if the Company is unable to identify suitable locations to open new stores, obtain favorable lease terms, attract customers, hire and retain personnel, and maintain sufficient levels of cash flow to support expansion. Dependent upon third-party sourcing and manufacturing. Before acquiring Topline Corp. in May 2011, sourcing and manufacturing was done entirely through agents and primarily out of Southern China. With the exception of Topline, SHOO does not own or operate any manufacturing facilities. Furthermore, SHOO does not have any long-term contracts with any manufacturer, and therefore, relationships may be terminated at any time. Manufacturers’ inability to ship goods in a timely manner and meet quality standards could cause SHOO to miss its own delivery date requirements to customers, which, in turn, could result in order cancellation, refusal to accept deliveries, a reduction in purchase prices and termination of a customer relationship. Dependence on Steve Madden as Design Chief. Having founded the Company in 1990, served as CEO from 1990-2002, and currently leading the creative and design effort, Steve Madden remains a crucial element of SHOO’s growth. In June 2000, Steve Madden was indicted of securities fraud and pled guilty in 2001; he was sentenced to 41 months in prison and forced to resign as CEO in 2002. During this time period, SHOO stock lost as much as 75% of its value from peak to trough. The potential sudden departure of Steve Madden would likely impact the stock price in a significant manner, in our opinion.

EARNINGS OUTLOOK: 20% LONG-TERM EPS GROWTH We are modeling EPS of $2.25 for 2011 (ahead of the $2.24 consensus view and at the high end of guidance) and $2.69 for 2012 (ahead of the $2.66 consensus view). We believe earnings could grow 20% per year for the next several years, driven by continued growth of the brand portfolio (via acquisitions and product extensions), growth in direct-to-consumer (outlet stores), international expansion and new supply chain capabilities. Given a significant mix shift toward lower gross margin businesses in 2011 (due to the acquisition of Topline Corp. and Cejon and moving mass channel businesses to the wholesale model), we expect operating margins in 2011 to contract 325 bps year-over-year to 15.9%. Over the longer term, we expect operating margins to improve; we are modeling slight margin expansion in 2012 (+14 bps). Topline Corp. and Cejon (both acquired in May 2011) are key additions to the Company, as they not only add new brands to the business, but more importantly add new capabilities that will allow the Company to meaningfully leverage its existing portfolio (via direct sourcing and expansion of the accessories platform). Though the business likely will not return to all-time peak levels of 43.4% gross margin and 19.1% operating margin achieved in 2010, the Company should continue to grow sales volume and gross profit dollars at a robust rate and should ultimately deliver operating margins in the high teens. Our estimates could prove conservative if strong top-line trends continue.

Exhibit 79. SHOO Summary Income Statement and KBCM Estimates SHOO Quarterly Summary($mm except per share data) 2008

Year Year 1Q 2Q 3Q 4Q Year 1QA 2QA 3QA 4QE Year 1QE 2QE 3QE 4QE YearTotal sales 457 504 132 159 184 161 635 166 209 314 266 955 258 296 348 289 1,190Cost of sales 270 287 72 90 107 91 360 97 125 204 164 591 161 189 225 174 750Gross profit 187 216 60 69 78 70 276 69 84 109 102 365 97 107 122 114 440Commission/licensing fee, net 14 20 6 5 7 5 23 5 4 6 6 21 5 5 6 8 24Operating expenses 151 157 41 42 47 47 177 46 51 65 71 234 64 66 68 75 274Operating profit 50 79 25 32 37 27 122 27 37 51 37 152 37 46 60 47 191Other income (expense), net 1 2 1 1 1 1 4 2 2 2 2 7 0 0 0 0 0Earnings before income taxes 51 81 26 33 39 29 126 29 39 52 38 158 37 46 60 47 191Income tax expense 20 31 10 13 16 11 50 11 15 20 15 61 14 18 24 18 74Net earnings 31 50 15 20 23 18 76 18 24 32 24 97 23 28 37 29 117Shares outstanding (mm) 42 41 42 42 42 43 42 43 43 43 43 43 43 43 43 43 43EPS $0.74 $1.22 $0.36 $0.47 $0.54 $0.41 $1.78 $0.42 $0.55 $0.74 $0.54 $2.25 $0.53 $0.65 $0.85 $0.66 $2.69EBITDA 59 89 27 35 40 30 132 30 40 54 40 163 40 49 64 50 203

Store Count 97 89 85 84 82 84 84 83 83 82 83 83 83 86 89 92 92Comps 0% 1% 14% 7% 16% 14% 13% 12% 12% 13% 15% 13% 10% 10% 10% 10% 10%

Gross Margin 40.9% 42.9% 45.5% 43.4% 42.1% 43.2% 43.4% 41.7% 40.2% 34.9% 38.3% 38.2% 37.5% 36.2% 35.2% 39.6% 37.0%Operating Margin 10.9% 15.7% 18.9% 20.2% 20.3% 17.0% 19.1% 16.6% 17.8% 16.1% 13.8% 15.9% 14.5% 15.6% 17.4% 16.2% 16.0%EBITDA Margin 12.9% 17.6% 20.7% 21.8% 21.6% 18.6% 20.7% 17.9% 19.0% 17.1% 14.9% 17.0% 15.4% 16.6% 18.3% 17.3% 17.0%Y/Y Inventory Growth 16.2% -3.6% -14.8% 53.2% 49.9% 29.9% 29.9% 41.4% 52.3% 73.2% 90.9% 90.9% 81.0% 13.1% 3.6% 6.1% 6.1%

2012E2009 2010A 2011E



Page 46 of 66

January 4, 2012

KEY TO EARNINGS 20%+ long-term revenue growth looks sustainable on continued brand acquisitions, new business integration, outlet store growth, international expansion and build-out of the accessories platform. With sales currently running at +38% (LTM basis) and +71% (3Q11), 20% revenue growth over the long term looks sustainable given significant growth opportunities. We are currently modeling a 65% sales increase in 4Q11, 50% increase for full-year 2011 and 25% increase in 2012. We believe our sales estimates could prove conservative, particularly as the international segment and outlet stores become a larger part of the total sales mix. Organic sales growth is expected to be up mid to high single digits over the long term.

Exhibit 80. Sales Growth Y/Y

0%

10%

20%

30%

40%

50%

60%

70%

80%

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11E

Y/Y

∆ in

rev

enue



0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

com

ps

78

80

82

84

86

88

90

perio

d en

d st

ores

Period end stores Comps

Source: Company reports and KeyBanc Capital Markets Inc. Gross margins expected to decline in 2011, bottom in 2012 and expand in 2013. We expect gross margins to decline by 524 bps to 38.2% in 2011 (vs. 43.4% peak in 2010), and by 116 bps to 37.0% in 2012 before expanding in 2013. Margins in 3Q11 contracted 723 bps due to the significant mix shift towards lower gross margin businesses in 2011. We are modeling another 493 bps of deterioration in 4Q11 and 821 bps in 1H12 due to the negative impact of this mix shift. Lower gross margin businesses include Topline Corp. and Cejon (together, driving 400 bps of contraction in 2011); Target Corp. private label and J.C. Penney’s Olsenboye footwear businesses (now under the wholesale model vs. buying agency model; worth 190-200 bps of contraction in 2011); international expansion (30 bps of contraction in 2011); and growth of Wal-Mart private label accessories (20-30 bps of contraction in 2011). We expect margins in 2H12 to expand (+164 bps) as the Company begins to anniversary the drag from its Topline and Cejon acquisitions. Over the next five years, we see room for steady improvement from this new lower-margin baseline, as direct sourcing (via Topline) and direct-to-consumer (outlet stores) become a larger part of the total business. We are modeling gross margin expansion of 26 bps in 2013.

Exhibit 82. Gross Margin Declines Gross margins begin to decline with sharp sales

increase

$0

$200

$400

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$800

$1,000

2005 2006 2007 2008 2009 2010 2011E

Rev

enue

$m

m

30%

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45%

Gro

ss M

argi

n %

Revenue ($mm) Gross Margin (%)


Exhibit 83. 3Q11 Forms a New Baseline

-800

-600

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-200

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2Q11

3Q11

Y/Y

∆ in

Gro

ss M

argi

n (b

ps)



Page 47 of 66

January 4, 2012

SG&A will continue to leverage on sales gains. SHOO has leveraged SG&A expense as a percent of sales for the last 13 quarters by roughly 260 bps on average per quarter, largely due to sales gains (see Exhibit 84). We expect SG&A leverage to continue as sales volumes grow and comps remain positive (at least +LSD). We are modeling 232 bps of leverage year-over-year in 4Q11, 338 bps of leverage for full year 2011 and 145 bps of leverage in 2012 on strong double-digit sales gains and 10% comps. Marketing expense as a percent of sales has been stable at 1% for the last four years, mainly due to the brand’s strong recognition and well diversified distribution model (which has been skewing increasing more toward the better department stores). We believe the Company will likely keep marketing costs at the 1% level going forward, despite its acquisitive nature. Expense leverage should drive the greater part of SHOO’s operating margin expansion over the near term.

Exhibit 84. Leveraged SG&A for Last 13 Quarters

-600

-500

-400

-300

-200

-100

0

3Q0

8

4Q0

8

1Q0

9

2Q0

9

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Y/Y

∆ in

SG

&A

(bp

s)


Exhibit 85. SG&A vs. Sales Growth

$0

$10

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$70

3Q08

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$mm

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y/y ∆

SG&A expense Y/Y ∆ in Revenue

Source: Company reports and KeyBanc Capital Markets Inc. Long-term operating margins should return to the high teens. We expect operating margins in 2011 to contract 325 bps to 15.9% before expanding in 2H12 with the anniversary of the Company’s Topline and Cejon acquisitions. We are modeling a slight operating margin improvement in 2012 (+14 bps year-over-year), supported by expense leverage; margins should begin to expand materially beginning in 2013 as the Company begins to realize greater sourcing benefits (via Topline) and greater sales volume (outlet growth, better retail store productivity, expanded accessories platform via Cejon, greater licensing business), which should return the Company to a high teens operating margin over the longer term.

Exhibit 86. 2011 Guidance

Fiscal 2011 Guidance

Sales: 49-50%4Q: organic > 10%

International sales: 50%4Q: launch in South Africa

Gross margin: down 540-590 bpsDirect-source: 10-15%Cost increases: up 5-8%: largest variable is currencySG&A: leverage on sales gains EPS: $2.20 - $2.25

Store openings: 1 outlet by year-end Source: Company reports

Exhibit 87. 2012/Long-Term Assumptions

Longer Term Assumptions2012 drivers: 1) New brands & acquisitions

2) International growth3) Continued improvement in retail

Sales potential: Grow Topline - $200mm in sales todayGrow Cejon - $70mm in sales todaySuperga $15mm long-term

Licensing income: > $1mm in 2012 Launch:Superga Spring'12Betsey watches 3Q11

Betsey fragrance 4Q11

Betsey luggage Fall'12Steve Madden intimate apparel BTS 2012

Gross margin: 1H12 down; 2H12 opportunity to be upOperating margin: High-teens

Target direct-source: 50-60% Source: Company reports


Page 48 of 66

January 4, 2012

Exhibit 88. EPS Beats Summary

QTR

Consensus EPS

Reported EPS Delta Stock Price

Stock Reaction

3Q11 $0.70 $0.74 $0.04 $37.09 0.5%

2Q11 $0.53 $0.55 $0.02 $37.23 -5.6%

1Q11 $0.39 $0.42 $0.03 $35.06 1.7%

4Q10 $0.38 $0.41 $0.03 $28.76 -3.2%

3Q10 $0.52 $0.54 $0.02 $27.00 -4.3%

2Q10 $0.39 $0.47 $0.08 $25.65 6.2%

1Q10 $0.21 $0.36 $0.15 $24.71 -7.5%

4Q09 $0.29 $0.32 $0.03 $18.66 1.0%

3Q09 $0.43 $0.43 $0.00 $17.30 -4.4%

2Q09 $0.22 $0.30 $0.08 $14.13 11.2%

1Q09 $0.16 $0.16 $0.00 $13.04 -2.7%

4Q08 $0.18 $0.18 $0.00 $7.97 5.1%

3Q08 $0.23 $0.27 $0.04 $9.18 6.7% Note: Stock price reaction compares stock price close on day prior to earnings release with close on day of earnings release and may or may not reflect an impact from overall market conditions. Results presented cannot and should not be viewed as an indicator of future performance. Source: Company reports and FactSet

TEST AND REACT – BASIC CORE COMPETANCY DRIVING SUPERIOR EXECUTION Powerful “Test & React” strategy is the basis for Steve Madden’s superior sales execution and inventory management. We believe the Company’s ability to design and produce a sample in one day, test and identify trends on a new idea within one week, make adjustments to finalize the shoe in one day, and mass produce for in-store delivery in six to eight weeks leads the industry, whose standard is three to four months. The Company can produce sample cases of a new idea in two to three days, given an in-house production factory located within the corporate headquarters in Long Island City. The shoes are then shipped overnight to a select group of directly owned retail stores, where it is tested immediately. Within one week, the Company can determine whether or not the new shoe is a winner or a loser. The Company tests new shoes every week and uses its flexible sourcing model (of independently owned manufacturers in China, Mexico, Brazil, India, The Netherlands, Korea and Italy) to mass produce the “proven winners”. SHOO then distributes the final products from three third-party distribution warehouses (two in California; one in New Jersey) to its wholesale channel. This unique process greatly reduces the frequency of a fashion miss, close-outs and likelihood of markdown risk. Inventory turns, one of the highest in the space, continue to grind higher. SHOO has one of the highest inventory turns in the space at 11x (as of the end of 3Q11), up from 10x in 2010 and 9x in 2009 (see Exhibit 90), demonstrating the Company’s ability to consistently pick and deliver the right product for its trend-right, fashion-forward customers. With regard to seasonality, inventory levels typically hit peak levels in the 2Q and 3Q to support the Company’s highest selling periods. Inventories at the end of 3Q11 were up 73% year-over-year to $77 million. Of the $32.6 million increase, $25.8 million was Topline and Cejon inventory, and $2.2 million was associated with new businesses (including Betsey Johnson, Olsenboye and Superga). Excluding the acquisitions and new businesses, inventory was up 10.1% vs. the prior year, which compares favorably to organic sales growth of +11.7%. Heading into holiday, inventory (excluding acquisitions) should remain up in line with sales growth. Management expects promotional levels in the 4Q to be similar to last year, with boot sales expected to be a similar proportion of the sales mix as last year (over 64% of 4Q sales for women’s).


Page 49 of 66

January 4, 2012

Exhibit 89. Inventory vs. Sales Growth Realigns

-2,000

-1,000

0

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4Q09

1Q10

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Y/Y ∆, in Inventory (bps) Y/Y ∆, in Sales (bps)


Exhibit 90. SHOO Has One of the Highest Inventory Turns in Its Space

9.3x9.2x7.5x

10.3x

8.9x 8.5x

0.0x

2.0x

4.0x

6.0x

8.0x

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2005 2006 2007 2008 2009 2010

Inve

ntor

y tu

rns

-15%-10%-5%0%5%10%15%20%25%30%

y/y ∆

Inventory turns Y/Y ∆, revenue


TOP THREE ITEMS ON OUR WATCH LIST We believe that the investment community overcomplicates companies; we introduce our “Top Three” watch list. We think there are three key items that one should consider to effectively understand the suitability of SHOO as a medium- and long-term investment. To this end, we examined each of the issues and offer our take on the potential impact from each of these issues.

#1: NEW DIRECT SOURCING OPPORTUNITY Likelihood: High Risks: Infrastructure Where we will see success/failure on the P&L: Gross margin expansion

Before the Topline acquisition, sourcing was done entirely through agents and out of Southern China. Though SHOO has seen the cost of labor (18% of COGS) and raw materials (50% of COGS) go up by 5-8% in 2011, the Company has been able to offset this pressure by moving some production out of Southern China to lower-cost Northern China and Mexico (consequently reducing product cost inflation to +1-5%). Though quality has not been sacrificed by the move to Mexico, we believe production in Northern China has not been as consistent – to get the right quality out of Northern China, we believe one needs to have much bigger order quantities than SHOO was likely doing. In addition to reducing Southern China exposure, SHOO has been able to successfully pass through higher pricing in the better department store and specialty retail channels. To this end, the Company recently implemented another set of price increases (in the mid single digits) for 2H11. In total, product cost increases are expected to have a net neutral impact to margins in 2011. Topline provides SHOO with a well-established direct-to-factory sourcing platform in Northern China and gross margin savings. SHOO has already begun to place direct orders through Topline for its private label business and lower-cost brands, including Material Girl (at Macy’s), Olsenboye (at J.C. Penney), Madden Girl (at Macy’s) and Stevies for kids. By mid-2012, 10-15% of SHOO’s legacy businesses should be direct sourced through Topline, driving 40 bps of gross margin improvement, or $0.07 in earnings upside. Longer term, 50-60% of the business should be direct sourced – driving a total of 200+ bps of margin improvement, or $0.50+ in earnings upside (see Exhibit 91). We expect that during this transition period, the Company should see increasingly better pricing, better quality and a more consistent flow of deliveries as it leverages Topline’s strong factory relationships. Importantly, the Company should reduce its cost of goods sold by roughly 10% (agent fees) on 50-60% of its portfolio.


Page 50 of 66

January 4, 2012

Exhibit 91. Earnings Accretion Potential from Direct Sourcing

Annual Revenues ($mm)FY11 FY12 FY13 FY14 FY15$955 $1,204 $1,397 $1,589 $1,768

15 $0.02 $0.03 $0.03 $0.03 $0.0420 $0.03 $0.03 $0.04 $0.04 $0.0525 $0.03 $0.04 $0.05 $0.06 $0.0630 $0.04 $0.05 $0.06 $0.07 $0.0735 $0.05 $0.06 $0.07 $0.08 $0.0940 $0.05 $0.07 $0.08 $0.09 $0.1045 $0.06 $0.08 $0.09 $0.10 $0.1150 $0.07 $0.08 $0.10 $0.11 $0.1255 $0.07 $0.09 $0.11 $0.12 $0.1460 $0.08 $0.10 $0.12 $0.13 $0.1565 $0.09 $0.11 $0.13 $0.15 $0.16

Gro

ss M

arg

in c

hg

y/y

(b

ps)


Leaving Topline’s wholesale and retail businesses (75%/25%) intact. As part of the acquisition, SHOO acquired Topline’s private label wholesale business with Payless (part of Collective Brands, Inc.), as well as the Report retail store and its family of brands (including Report, Report Signature and R2 by Report). With this, SHOO now has the opportunity to offer its own merchandise at Payless’ 4,500+ stores. Over the longer term, Topline's private label business should benefit from having access to all of SHOO's proprietary merchandising information (including styling, reads on the consumer and best practices across SHOO's various brands). On the retail front, Report will continue to operate as a standalone store and brand; during the 3Q, Report contributed more than $13 million in sales (the first full quarter under SHOO).

#2: OUTLET STORE GROWTH Likelihood: High Risks: Executing real estate strategy, infrastructure Where we will see success/failure on the P&L: Comp store growth, top-line growth

Outlet stores…a longer-term margin driver. We believe growth of the outlet store concept (tested in November 2010) will help drive margin expansion as the Company gains economies of scale in merchandising for this channel. With the recent turnaround in the retail segment (now in year three), owned retail stores currently generate gross margins north of 61% on an LTM basis (up 180 bps year-over-year), compared to wholesale gross margins of 34.5%, representing a 2,600+ bps differential (see Exhibit 92). We think that this spread could widen further as outlets become a bigger proportion of the business; operating margins are likely higher than full-price stores given less expensive leases and less than 10-point gross margin spread to full-price stores. Currently operating five outlet stores with the existing merchandise assortment (i.e., no “made-for” outlet product), SHOO plans to open another 5-10 locations in 2012, and 20-25 total stores over the next few years, in the top 15 outlet centers across the country. Longer term, management believes the ultimate number of outlet stores can be much higher, with mostly “made-for” product for sale. We believe merchandising specifically for the outlets should begin sometime in late 2012/early 2013, given a 15-store minimum to begin this type of production. Once this takes place, we think sales volume opportunity derived from the retail segment could likely drive $0.75 in EPS (see Exhibit 93).


Page 51 of 66

January 4, 2012

Exhibit 92. Retail Store Margins Significantly Higher Than Wholesale

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

Retail Total Wholesale


Exhibit 93. Earnings Accretion Potential from Retail Store Productivity

$155 $180 $205 $230 $255 $280 $305 $330 $355

7% $0.15 $0.18 $0.20 $0.23 $0.25 $0.28 $0.30 $0.33 $0.359% $0.20 $0.23 $0.26 $0.29 $0.33 $0.36 $0.39 $0.42 $0.45

11% $0.24 $0.28 $0.32 $0.36 $0.40 $0.44 $0.48 $0.51 $0.5513% $0.29 $0.33 $0.38 $0.42 $0.47 $0.52 $0.56 $0.61 $0.6515% $0.33 $0.38 $0.44 $0.49 $0.54 $0.60 $0.65 $0.70 $0.7517% $0.37 $0.43 $0.49 $0.55 $0.61 $0.67 $0.73 $0.80 $0.8619% $0.42 $0.48 $0.55 $0.62 $0.69 $0.75 $0.82 $0.89 $0.9621% $0.46 $0.54 $0.61 $0.68 $0.76 $0.83 $0.91 $0.98 $1.0623% $0.51 $0.59 $0.67 $0.75 $0.83 $0.91 $0.99 $1.08 $1.1625% $0.55 $0.64 $0.73 $0.81 $0.90 $0.99 $1.08 $1.17 $1.2627% $0.59 $0.69 $0.78 $0.88 $0.98 $1.07 $1.17 $1.26 $1.36

Op

erat

ing

Mar

gin

Retail Store Annual Revenues ($mm)


Full price store growth saturated; however, productivity should continue to improve. Already operating in all of the top full-price shopping centers across the country, SHOO has no plans to expand the full price store base beyond a few (about five to six) new store openings and closings per year. Management noted that it will not return to opening eight net new stores per year, like it did in the past. In fact, the Company is still in the process of closing underperforming locations as it focuses on improving four-wall productivity.


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

com

ps

78

80

82

84

86

88

90

perio

d en

d st

ores

Period end stores Comps


Exhibit 95. Sales Productivity

$640$672 $690 $710

$742 $766$796 $792

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

Sal

es P

SF

(LT

M b

asis

)



Page 52 of 66

January 4, 2012

#3: NEW BRAND ACQUISITIONS Likelihood: High Risks: Finding the next acquisition; Integrating and developing new brands Where we will see success/failure on the P&L: Comp store growth, top-line growth, gross margin New brand acquisitions likely necessary for long-term growth. Through a variety of acquisitions and licenses, SHOO has built itself into an $850 million business. Since 1996, SHOO has completed 34 deals, including seven acquisitions ranging in size from $1 million-$56 million, and 27 licenses (see Exhibit 98). The deals have proven to be well-timed and well-executed, with SHOO typically acquiring small or distressed brands that represent a strategic fit at favorable pricing (4-5x EBITDA plus earn-out provisions). Despite the significant number of new brand additions, management has been able to quickly integrate the businesses and realize earnings accretion within the first full year. With long-term organic sales growth of mid to high single digits, we think new brand acquisitions are necessary for 20% CAGR growth over the next several years. Incremental revenues over the next three years based on acquisitions and platform growth. Since 2009, SHOO has added eight new brands to its portfolio and two new capabilities. These brands contributed $50 million in sales in 2010, and we believe will likely add another $200+ million in sales over the next three years (see Exhibit 96). Though we think SHOO is one of the best executors in the fashion footwear space (evidenced by its #1 ranking among non-athletic brands in the junior space at department stores) and should continue to gain share as it leverages trends from the core Steve Madden line and translates them for each of the newer brands, we believe acquisitions are necessary to drive double-digit earnings growth. We estimate that new business platforms should provide the Company with an additional $575 million in sales over the next several years.

Exhibit 96. Incremental Revenue from New Brands and Platforms Acquired/ Annual Sales ($mm)Launched Brand Type 2010A 2011E 2013E EPS AccretionSep-11 Superga License $0 $1 $12Oct-10 Betsey Johnson Acquisition $0 $10 $25 $0.10 in 2011Jul-10 Material Girl Joint Venture $5 $7 $13Feb-10 Big Buddha Acquisition $16 $20 $25 $0.05 in 2010Dec-09 Madden Men's Organic $12 $22 $43Nov-09 Olsenboye License $10 $15 $20Jun-09 Elizabeth and James License $7* $9 $12New Brands - total incremental revenue: $50 $84 $150

New PlatformsMay-11 Cejon (accessories) Acquisition - - $105 $0.07-$0.09 in first full yearMay-11 Topline/Report Footwear Acquisition - - $270 $0.05-$0.07 in first full year

Accessories Private Label (TGT, WMT) $100International segment $100

New Platforms - total incremental revenue: $575

Total Incremental Revenue from new businesses: $725 *KeyBanc Capital Markets Inc. estimate. Source: Company reports and KeyBanc Capital Markets Inc.

New brands. We believe SHOO’s recent brand acquisitions have largely met and in some cases exceeded management’s expectations to date; consequently, we expect positive momentum to continue.

Betsey Johnson. SHOO acquired the Betsey Johnson brand in October 2010 out of bankruptcy for $29 million (or about 5.5x EBTIDA). This brand has always had a high level of consumer awareness; however, under the former owner, prices got too expensive ($500+ apparel; $200+ shoes) and styles became outdated for its 20-year-old customer. Since taking it over, SHOO has updated the assortment significantly and reduced pricing (AUR now $90-$150). Nordstrom and Dillard’s have become the brand’s two largest wholesale customers (Betsey Johnson is sold in all doors that sell core Steve Madden shoes). Footwear sales were running about $10 million in the first 9-10 months (ahead of plan), and are expected to generate $30+ million over the next few years. That said, we believe the Betsey Johnson licensing business (accessories) is the bigger opportunity – it is already trending $5 million in annual sales to date; management believes sales could double over the next few years.


Page 53 of 66

January 4, 2012

Big Buddha. SHOO acquired Big Buddha in February 2010 for $11 million (or about 4.5x EBTIDA). Under the former owner, the California handbag brand was sold mainly in specialty boutiques and generated $13 million of sales in 2009. Since taking it over, SHOO has grown the brand significantly, generating sales of $20 million in 2011 and expanding distribution to the better department stores (Nordstrom, Macy’s, Dillard’s). Due to the success of handbags, SHOO launched Big Buddha footwear (AUR: $50-$60 shoes; $80 boots), which began shipping in 3Q10 to department and specialty stores. Similar to handbags, this is a very casual non-leather line, made out of synthetics. Shoes and handbags together total $30 million in sales. Looking ahead, we believe shoes represent a bigger growth opportunity, as it targets the 15-year girl (vs. 25-year-old core Steve Madden customer); its biggest competitors are Rocket Dog and Blowfish.

Material Girl (Macy’s exclusive). A new junior’s brand created with Madonna and Iconix, Material Girl launched in 200

Macy’s doors in July 2010; SHOO is the vendor for shoes, handbags and belts. There is no long-term contract, and management believes this business could move to a first-cost model, which implies lower up-front margins but no markdown money risk. Targeting a 16-year old girl, AUR on shoes is $20-$40, boots are $60. The brand generated $4 million-$5 million in 2010 sales and is expected to deliver $7 million-$8 million in sales in 2011.

Olsenboye (J.C. Penney exclusive). A junior’s brand license for footwear and accessories (owned by Mary Kate and Ashley

Olsen’s Dualstar Entertainment Group), the product was launched in November 2009 in 600 J.C. Penney doors. SHOO has a three-year contract with a three-year renewal. Targeting a 16-year old girl, AUR ranges from $45-$55. Due to the success of the brand, J.C. Penney placed more reorders than planned in 2011 and rolled out key items to all doors this past fall. Between shoes and handbags, the brand is on track to deliver $15 million in sales in 2011 (double management’s original plan), and $20 million over the next year.

Elizabeth and James. A luxury brand license for footwear (owned by Mary Kate and Ashley Olsen’s Dualstar Entertainment

Group), the collection was launched in June 2009 into select high-end retailers, including Neiman Marcus, Saks and Intermix. Targeting women 25-36 years old, AUR ranges from $200-$350 for shoes and $350-$500 for boots. Given the brand’s high price points, Elizabeth and James will likely remain a small, luxury business. Sales currently track less than $10 million.

Madden Men’s (7-8% of sales). Steve Madden Men’s offers a full collection of dress, casual and fashion-forward athletic

shoes to men ages 20-40 years old. The brand is sold in major department and better specialty stores at AURs ranging from $70-$100. In December 2009, SHOO launched a new men’s line, Madden, targeting a younger customer, with more moderate price points; this product is sold in Macy’s (at the high end) and family footwear chains (Famous Footwear and Shoe Carnival). Sales have climbed from $11.5 million in 2010 to $22 million in 2011. Given the early success, management believes this brand could generate $40 million-$50 million of sales over the next few years.

Superga. In September 2011, SHOO became the exclusive North America licensee for Superga, an extremely popular and

well-known Italian sneaker brand in Europe; it is unknown in the United States. SHOO will launch Superga in select premium retail doors this spring. The $65 canvas sneaker has already been sold into select independents and tastemakers. In addition, SHOO will co-brand Superga with Mary Kate and Ashley Olsen’s much more expensive line, The Row, using higher-end materials (including cashmere and Italian linen); the spring line has already been bought by Barney's, Neiman Marcus and Bergdorf Goodman. Superga is expected to generate $12 million in sales in the first 18 months. We believe this strategic addition fills in the white space for fashion athletics, as the Company has its hands in every fashion shoe except for sneakers. Notably, the brand was very well-received during the FFANY Shoe Show in December.

Expanding the accessories platform. Currently 17% of total sales, we estimate that accessories could generate more than $200 million of incremental revenues over the next few years, based on organic growth and the acquisition of Cejon. The recent purchases of Big Buddha and Betsey Johnson have helped SHOO gain incremental footing in the handbag and belt businesses, especially in the better department store channel. The biggest near-term growth opportunities include Betsey Johnson handbags (now back in Macy’s as a gifting program), watches (3Q launch at Macy's and DDS), fragrance (4Q launch Too Too, a Sephora exclusive), luggage (launching in fall 2012); and Steve Madden intimate apparel (launching for Back-To-School 2012). In addition, the strategic acquisition of Cejon, a leading designer and marketer of cold weather and fashion accessories, not only complements SHOO’s existing handbag and belt business, but should enable the Company to expand its accessories platform in a much broader manner than the Company was capable of doing before. We think this was a timely purchase, particularly as more and more retailers like Macy’s and J.C. Penney are now allocating greater amounts of open-to-buy dollars for main-floor trend accessories. As such, we believe significant opportunities exist to develop cold weather accessory and trend collections for brands like Betsey Johnson, Big Buddha, Steve Madden, Olsenboye and Material Girl. SHOO acquired Cejon in May 2011 for $29 million (or about 3.5x EBTIDA). Prior to the acquisition, Cejon had been a licensee of SHOO for cold weather accessories since September 2006.


Page 54 of 66

January 4, 2012

Exhibit 97. Expect Wholesale Accessories Growth Continue to Rise

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

Wholesale Footwear Wholesale Accessories

Wholesale Accessories 2-year stacked growth have more than doubled

Source: KeyBanc Capital Markets Inc. estimates International expansion. Currently just 5-6% of total sales, we believe that the international segment could grow to $100 million over the next three to four years. We estimate international sales to be $50 million-$60 million, or 6% of sales by year-end, reflecting year-over-year growth of 60%, following 58% growth in 2010. This business is currently done entirely through distribution agreements with partners in the local countries; a low-risk model for SHOO, partners assume all of the financial risk as they build out and own the stores as well as the inventory. SHOO simply sells product to the distributors on a direct-from-factory basis and earns a royalty for each pair of shoes sold in stores. Despite higher average retail prices in international markets, gross margins for this business typically run 1,000-1,200 bps lower than domestic wholesale, given the fees paid to distribution agents who act as middlemen between SHOO and the end retailer. Even with lower contribution margins, we believe SHOO’s international business is a positive for the Company, as this segment contributes to sales volume and gross profit dollars. Operating margins run only slightly below the domestic wholesale business, given the capital-light business model. Though in the early stages of growth today, we believe SHOO will eventually buy out the third-party distributors over time (5+ years). SHOO currently does business in China, Canada, Mexico, Israel, Turkey, Korea, India, Australia, Saudi Arabia, Russia, South America (Brazil), Central America, Benelux and UAE. New partners will launch in South Africa and the United Kingdom in 2012. We expect SHOO to continue to be acquisitive in the near to medium term. We believe management will continue to use acquisitions to expand its product lines and offerings. After having acquired two new capabilities (via Topline and Cejon), we think SHOO will return to looking at more true brands in the $50 million-$75 million range that can be accretive in its first full year. We expect the Company will continue to pay low multiples (about 5x range) for brands with growth prospects higher than SHOO itself. We think SHOO will likely continue to discover young designers and pair up with them to create exciting new lines.


Page 55 of 66

January 4, 2012

EVOLUTION OF THE BRAND

Exhibit 98. Acquisition-Led Growth – Evolution of SHOO

Year Action Event Price Capital Source Sept 2011 License Became exclusive licensee for Superga in N.A. -- -- May 2011

Acquisition

Acquired privately held Cejon, Inc., Cejon Accessories, Inc. and New East Designs, LLC (together, "Cejon").

$29.1mm plus earn-out

Cash

May 2011 Acquisition Acquired privately held The Topline Corporation. $56.1mm plus earn-out Cash Oct 2010 Acquisition Entered restructuring agreement with Betsey Johnson. $29.2mm Term Loan July 2010 Material Girl Feb 2010 Acquisition Acquired privately held Big Buddha $11.1mm plus earn-out Cash Nov 2009 License Exclusive licensing agreement for Olsenboye brand (JCP). -- -- Oct 2009 License Entered licensing agreement with L’Koral Industries. -- -- July 2009

Acquisition

Acquired substantially all of the assets of Zone 88 and Shakedown Street lines of SML Brands, LLC

--

--

Nov 2008

License

Entered license agreement giving Revman International Inc. the exclusive right to design, manufacture, market and distribute bedding and bath products under Steve Madden.

--

--

Sept 2008 License Entered license agreement for Elizabeth and James shoes. -- -- Aug 2008

License

Entered exclusive licensing agreement with Kimora Lee Simmons’ KLSI and Phat Fashions, a Kellwood Company.

--

--

July 2008

License

Entered exclusive license agreement with Jones Apparel Group for l.e.i (Wal-Mart exclusive).

--

--

Nov 2007 License Entered license agreement with Gina Group. -- -- Nov 2006 License Entered license agreement with Cejon Accessories. -- -- Sept 2006

License

Entered licensing agreement with Tracy Reese for the exclusive right to manufacture and distribute handbags, belts and related accessories under Tracy Reese and Plenty.

--

--

June 2006

License

Entered two license agreements for watches under the Steve Madden and Steven by Steve Madden brands and girls apparel under the Stevies brand.

--

--

Feb 2006 Acquisition Acquired privately held Daniel M. Friedman & Associates. $18mm plus earn-out Cash Dec 2004

License

Amended license agreement with Candie's to reflect Candie's decision to name Kohl's Corporation the exclusive provider of a new line of Candie's apparel.

--

--

May 2003

License

Entered license agreement with Paul Lavitt Mills, Inc. to manufacture and distribute Steve Madden branded socks in the United States.

--

--

May 2003 License Entered license agreement with Candie's, Inc. -- -- Jan 2003

License

Entered license agreement with Seattle Pacific Industries, Inc. for the UNIONBAY brand.

--

--

Sept 2000 License Entered two licensing agreements for Stevies brand. -- -- April 2000 License Entered three licensing agreements in 5 product categories. -- -- June 1999 License Entered license agreement with La Rue International. -- -- Dec 1998 License Entered license agreement with Jordache. -- -- April 1998

License

Entered license agreement with R.S.V. Sportswear; sold under the l.e.i. brand.

--

--

April 1998 License Entered license agreement with Van Mar Inc. -- --

Nov 1997 License Entered license agreement with Mirage Apparel Group -- -- June 1997 License Entered license agreement with Winer Industries Inc. -- -- June 1997

License

Entered licensing agreement with CO International Inc. for fashion jewelry.

--

--

May 1997

License

Entered license agreement for socks and tights with Hosiery Sales Inc.

--

--

Mar 1997 License Entered licensing agreement with Magnum Fashions Inc. -- -- Feb 1997 License Entered licensing agreement with Colors In Optics Ltd. -- -- Apr 1996 Acquisition Acquired Diva International, Inc. $1mm + 186,666 shs Cash Source: Company filings


Page 56 of 66

January 4, 2012

BRAND PORTFOLIO

Exhibit 99. SHOO Brand Portfolio

Wholesale Footwear Wholesale Accessories

Owned Brands Owned Brands

Steve Madden Women's Big Buddha

Madden Girl Betsey Johnson

Steve Madden Men's Betseyville

Steven Steve Madden

Stevies Steven by Steve Madden

Big Buddha Shoes Cejon

Madden

Betsey Johnson

Report (Topline Corp.)

Licensed Brands Licensed Brands

l.e.i. Daisy Fuentes

GLO Jeans Olsenboye

Elizabeth and James

Candie's

Superga Source: Company filings

Exhibit 100. Key License Agreements

License Date Current Term Ends Date Potential Renewal Term Ends

Footwear Licenses

l.e.i. December 31, 2011 Renewable for additional terms of two years each

GLO Jeans December 31, 2012

Elizabeth and James March 31, 2012 One 3-year renewal period if certain provisions are met

Candie's December 31, 2009 Four 3-year renewal terms, the last of which expires on December 31, 2021

Superga NA NA Accessories Licenses

Daisy Fuentes December 31, 2012

Olsenboye December 31, 2011 One 2-year renewal period if certain provisions are met Source: Company filings


Page 57 of 66

January 4, 2012

Exhibit 101. Well-Diversified Product Offering and Distribution

Luxury Retailers

Mass Merchants

National Chains

Shoe Chains

Better Department Stores


Exhibit 102. Channel Distribution Mix – 2010 Sales

Department Stores 19%

Shoe Stores 16%

Off-Price 15%Mass

Merchants 12%

Shoe Chains 11%

National Chains 8%

Specialty Apparel 3%

Internet 7%

International 6%

Independents & Other 3%



Page 58 of 66

January 4, 2012

Exhibit 103. Brands Distributed to Higher End Stores

$169.95 $229.95 $99.95 $169.95 $99.95 $49.95 SM Fierse Pump SM Platform Boot SM Whisttle Pump SM Wedge Boot BJ “Caseyy” Pump SM Kid’s Boot Nordstrom Nordstrom Nordstrom Nordstrom Nordstrom Nordstrom Source: Nordstrom website

$38.00 $95.00 $298.00 $125 $169.95 SM Metallic Scarf Big Buddha Tote SM Crinkled Leather Jacket Men’s Bristole Chukka Boot BJ Maybill Boot Nordstrom Nordstrom Nordstrom Nordstrom Nordstrom Source: Nordstrom website

$149.99 $159.99 $59.99 $59.00 $89.00 $90.00 Steven Intyce Steven Rosale Men’s Jaredd Slip-on Madden Girl Wedge M Girl Boots Big Buddha Tote Dillard’s Dillard’s Dillard’s Macy’s Macy’s Macy’s

Source: Dillard’s and Macy’s websites


Page 59 of 66

January 4, 2012

Exhibit 104. Brands Distributed to the Mid-Tier and Shoe Chains

$99.95 $89.94 $99.95 $59.95 $59.95 Raissa Pump Turino Bootie Alva Wedge Men’s Buff Oxford Men’s Leather Driving Moc DSW DSW DSW DSW DSW

$89.95 $79.95 $39.95 $22.95 $24.95 Maya Leopard Tote Tiffani Satchel Leopard Clutch Wristlet Quilted Tablet Case DSW DSW DSW DSW DSW

Source: DSW website

$149.99 $99.99 $99.99 $89.99 $79.99 Wicked-L Leopard P-Cole Taupe Suede P-Desii Black P-Rossi Snake Men’s Rumba Famous Footwear Famous Footwear Famous Footwear Famous Footwear Famous Footwear Source: Famous Footwear website

STRONG VALUE PROPOSITION WITHIN THE COMPETITIVE LANDSCAPE Steve Madden offers strong fashion and value relative to its competitors. Given the product and target market overlap, we view Cole Haan (on the high end), Kenneth Cole (on the high end), Guess (on the high end), Jessica Simpson, Nine West and Skechers as key competitors. Compared to the products offered at these retailers, Steve Madden, on average, is priced well below those that compete at the higher end. Despite SHOO’s lower price points, the Company’s products are similar in quality.


Page 60 of 66

January 4, 2012

Exhibit 105. Steve Madden Offers Strong Fashion and Value Relative to Key Competitors . Category

Item Price Item Price Item Price Item Price Item Price Item Price Item Price

Women's: Boots Balere $199.00 VANITIYA DARK BR

$179.00 Vermillion Vintage Amer

$159.00 Lots Of Ava $298.00 Air Autumn $498.00 Women's Hard Wear -Complicate

$81.00 SONNYA $199.95

Booties Graciale $149.00 FRANCIS ACORN

$129.00 NA NA Osanna Gentle Souls

$250.00 Air Alexis $278.00 Women's Clash - Auburn

$91.00 SAMBBAA $59.98

Flats Bracelet $69.00 LEX $69.00 Birella $69.00 How Glassy $79.00 Air Bacara $148.00 Women's Urban Glam

$39.00 KOOOL $69.95

Pumps Fedran $110.00 KRISTALIN $110.00 Glowing $89.00 Proto Graph $79.00 Violet Air Pump 90

$248.00 NA NA DANITTY $89.95

Wedges Darlisha $99.00 MARIS $89.00 Polly Giles Deacon

$129.00 Kiss or Dare $89.00 Air Haven OT $198.00 NA NA WYLIEE $89.95

Handbags: Clutch Dynamite Leo Slim

$38.00 Chained Up $68.00 Mojave Pleated $69.00 No Slouch $128.00 Infinity Bella $298.00 NA NA BJERSEY $68.00

Satchel Cool Disco $98.00 HAVEN $98.00 Desi $89.00 Tote Of The Town

$168.00 Ludlow Street Addison

$368.00 NA NA BLATICE $98.00

Tote Thayer $128.00 Lafayette Small Flap

$98.00 Aiden Leather Convertible

$199.00 Tote of the Town

$199.00 Ludlow Street Kendra E/W

$348.00 NA NA BHARVARD $98.00

Accessories: Belts Stretch Belt with Turn

$36.00 Patent Belt With Bow

$34.00 NA NA Four Seasons $29.98 Tantivy Skinny $48.00 NA NA W-SLITHR $28.00

Fashion Scarves

Scent City Logo

$58.00 Chunky Knit Poncho

$68.00 NA NA Printed Cotton $38.00 Ombre Check $98.00 NA NA N-BLOOM $38.00

Jewelry Plaque Chain

$28.00 Turquoise Encrusted

$125.00 Toggle $38.00 Brown Jewel $98.00 NA NA NA NA XR-TURQ $28.00

Legwear Black Opaque

$16.00 NA NA Over The Knee $12.00 NA NA Parisian Stripe $12.00 NA NA S-SLOUCH $10.00

Sunglasses Lynn $82.00 Skinny Rim $55.00 Small Round $38.00 Metal Wrap Clean Temple

$55.00 Glamour Oval Logo

$75.00 NA NA S1086 $36.00

Outerwear: Coats Alyssa Toggle

$178.00 Belted Trench

$150.00 NA NA Memory Anorak

$149.00 Travel City $455.00 NA NA 1117SM $178.00

Men's: Boots Arch $150.00 NA NA NA NA Take A Stand $248.00 Air Canton Chelsea

$228.00 Men's Verstal - Villous

$110.00 SALLOONN $179.95

Casual Feno $90.00 NA NA NA NA Next Wave $128.00 Air Canton 2 Gore

$198.00 Men's Shape-ups XWear-Haywood

$89.00 GRAB $79.95

Dress Nolo $98.00 NA NA NA NA Mister Man $225.00 Harrison Bal Cap Toe

$335.00 Men's Shape-ups Salerno-Controne

$89.00 BUFF $89.95

Sneakers Jocino $70.00 NA NA NA NA Iron Bound $80.00 Air Quincy Lace

$168.00 Men's Talus - Ultimatum

$62.00 REHAB $89.95

Kid's: Boots NA NA NA NA NA NA Perfect Catch $29.98 NA NA Girls' Truffles - Girlz Rocker

$55.00 RINGEER $69.95

Flats NA NA NA NA NA NA Point The Bay $35.00 NA NA Twinkle Toes:Tini - Butterfly Cutie

$33.00 KEEKE $69.95

Sandals Fashion Plate

$45.00 NA NA NA NA Keep In Touch $30.00 NA NA NA NA SPLENDIT $59.95

Guess? Nike (Cole Haan)Kenneth Cole Steven MaddenSkechersJessica Simpson Jones Group (Nine West)

Source: Company websites


Page 61 of 66

January 4, 2012

Exhibit 106. Pricing Range within SHOO Wholesale

$0

$50

$100

$150

$200

$250

$300

$350

$400

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Wholesale Footwear

$0

$20

$40

$60

$80

$100

$120

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Wholesale Accessories

Source: KeyBanc Capital Markets Inc. estimates and Company reports Source: KeyBanc Capital Markets Inc. estimates and Company reports

Exhibit 107. Pricing Range within SHOO Retail

$0

$50

$100

$150

$200

$250

$300

$350

$400

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Source: KeyBanc Capital Markets Inc. estimates and Company reports

MANAGEMENT TEAM Steve Madden, founder and Design Chief. Founded in 1990 by Steve Madden and taken public in 1993, the designer grew the business from $5 million in 1993 to $205 million in 2000. In 2001, Steve Madden pled guilty to helping two securities firms (Monroe Parker Securities and Stratton Oakmont) commit stock manipulation, fraud and money laundering in more than 20 IPO offerings, including his own, resulting in almost $100 million of losses to investors. In 2002, he was sentenced to 41 months in prison, ordered to pay $3.1 million in restitution and an $80,000 fine, and forced to resign as CEO and from the Board of Directors. Shortly after resigning as CEO, Mr. Madden set himself up as a creative consultant with Steve Madden Ltd., for which he received $700,000 while in prison. Steve Madden currently still serves as Design Chief. New CEO with an M&A background. In 2008, Edward Rosenfield served as interim CEO and later that year was appointed Chairman of the Board and CEO. Mr. Rosenfeld, formerly EVP of Strategic Planning and Finance, has been a member of the executive management team since joining the Company in May 2005. Prior to joining the Company, Mr. Rosenfeld was a Vice President with Peter J. Solomon Company, an investment banking boutique, where he specialized in mergers and acquisitions in the retail, apparel and footwear industries; Steve Madden was a client of his.


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January 4, 2012

Arvind Dharia has been CFO of the Company since 1992 and was a Director of the Company from December 1993 through May 2004. Awadhesh Sinha joined Steve Madden in 2005 with 7+ years of operations experience, to serve as COO. Robert Schmertz was appointed Brand Director in 2006, after serving as President of SHOO’s Women’s Wholesale division (since 2001) and President of Shoe Biz (Steve Madden’s Retail division) from 1998-2001. Amelia Newton Varela has been an integral part of the Company as EVP of Wholesale, given her prior experience within Steve Madden’s Women’s Wholesale division. Directors and Executive Officers together hold 2.53% of ownership within the Company.

Exhibit 108. Management Overview

Name Age Position Officer since

2010 Compensation


Ownership Position

Background

Edward Rosenfeld 35 CEO and Chairman of the Board

2008 $622,350 0.365% 156,375 interim CEO (March-August 2008).EVP of Strategic Planning and Finance of SHOO (2005-2008).Previously: VP at Peter J. Solomon Company (retail investment banking).

Arvind Dharia 61 CFO and Secretary 1992 $1,036,959 0.247% 105,769 Director of the Company (Dec 1993 - May 2004).Secretary of the Company since 1993.Previously: Assistant Controller of Millennium III Real Estate Corp.

Awadhesh Sinha 65 Chief Operating Officer

2005 $3,354,597 0.202% 86,250 Director of the Company (Oct 2002 - July 2005).Previously: COO & CFO of WEAR ME Apparel Inc. (2003-2005); andCOO & CFO of Salant Corporation (1998-2003).

Robert Schmertz 47 Brand Director 2006 $1,032,350 0.581% 248,625 President, Steve Madden Women's Wholesale/Brand Manager (Sep 2001-Jan 2006).President of Shoe Biz (Steve Madden Retail) (1998-2001);President of Daniel Scott Inc. (1995-1998).

Amelia Newton Varela

39 EVP of Wholesale 2000 $1,663,474 0.200% 78,749 EVP of Wholesale Sales (Nov 2004 - April 2008).VP of Sales, Steve Madden Women’s Wholesale (2000-2004);Account Executive for Steve Madden Women’s Wholesale (1998-2000).Joined SHOO in Wholesale Division's customer service.

Steve Madden Founder and Design Chief

6.780% 2,900,775 Previously CEO.


Exhibit 109. Board Overview

Name Age Director Since 2010 Compensation


Ownership Position

Background

Edward Rosenfeld 35 2008 - 0.365% 156,375 Chairman of the Board and CEO of Steve Madden, Ltd.

John Madden 64 1990 $1,205,281 0.093% 39,750 Owner of JLM Consultants; Consultant to SHOO regarding international sales. Director since inception in 1990; Chair of Investment Committee (April 2008).

Peter Migliorini 62 1996 $211,190 0.005% 2,250 Sales Manager for Greschlers. Director since October 1996; served on Audit Committee since Oct 1996; Chair of Nominating/Corp Governance Committee since July 2004; and Chair of Compensation Committee since July 2004.

Richard Randall 73 2006 $211,190 0.032% 13,875 Retired EVP and CFO, Direct Holdings Worldwide, LLC. Director since April 2006; Chair of Audit Committee since 2006; on Nominating/Corp Governance Committee since Sept 2008; and on Investment Committee since April 2008.

Ravi Sachdev 34 2008 $186,190 0.029% 12,375 Managing Director, JP Morgan. Director of SHOO since Sept 2008; served on the Company’s Audit Committee since Sept 2008.

Thomas Schwartz 63 2004 $186,190 0.028% 12,150 Owner and CEO, Sumner and Forge Investors LLC. Director of SHOO since May 2004; served on the Company’s Compensation Committee since July 2004. Source: Company reports


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January 4, 2012

Exhibit 110. Summary Quarterly Income Statement ($ in millions, except per share items)

Year Year 1Q 2Q 3Q 4Q Year 1QA 2QA 3QA 4QE Year 1QE 2QE 3QE 4QE YearNet revenue 457.0 503.6 131.6 158.7 184.1 161.0 635.4 165.8 209.2 313.9 266.3 955.1 257.8 295.8 347.7 288.7 1,190.1Cost of goods sold 270.2 287.4 71.7 89.8 106.6 91.5 359.6 96.6 125.1 204.4 164.4 590.5 161.3 188.6 225.4 174.4 749.6

Gross profit 186.8 216.2 59.9 68.8 77.5 69.6 275.9 69.1 84.1 109.5 101.9 364.6 96.6 107.2 122.4 114.3 440.5Commission and licensing fee income, net 14.3 19.9 6.2 5.2 6.6 4.6 22.6 4.6 4.4 5.6 6.1 20.7 5.1 4.9 6.3 7.6 24.0Operating expenses 151.3 157.1 41.3 42.0 46.7 46.9 176.9 46.2 51.3 64.6 71.3 233.5 64.3 65.9 68.2 75.2 273.7

Operating profit 49.8 79.0 24.9 32.1 37.4 27.3 121.6 27.5 37.2 50.5 36.6 151.8 37.3 46.3 60.4 46.7 190.7Other income (expense), net 1.4 1.8 0.8 0.9 1.2 1.3 4.2 1.5 1.7 1.7 1.7 6.6 0.0 0.0 0.0 0.0 0.0

Earnings before income taxes 51.2 80.8 25.6 33.0 38.6 28.6 125.9 29.0 38.8 52.2 38.4 158.4 37.3 46.3 60.4 46.7 190.7Income tax expense 20.2 30.7 10.3 13.2 15.7 11.0 50.1 11.1 15.1 20.4 14.7 61.4 14.3 18.1 23.6 17.9 73.9Net loss attributable to noncontrolling interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.2 0.0

Net income attributable to Steven Madden 31.0 50.1 15.4 19.8 22.9 17.6 75.7 17.9 23.8 31.9 23.7 97.2 23.0 28.2 36.9 28.7 116.9S/O - diluted 41.7 41.2 42.2 42.5 42.4 42.7 42.4 42.8 43.3 43.4 43.4 43.2 43.4 43.4 43.4 43.4 43.4EPS - diluted $0.74 $1.22 $0.36 $0.47 $0.54 $0.41 $1.78 $0.42 $0.55 $0.74 $0.54 $2.25 $0.53 $0.65 $0.85 $0.66 $2.69

EBITDA 58.9 88.5 27.3 34.6 39.7 30.0 131.6 29.7 39.8 53.6 39.7 162.7 39.7 49.1 63.8 50.0 202.5Comps 0% 1% 14% 7% 16% 14% 13% 12% 12% 13% 15% 13% 10% 10% 10% 10% 10%Margin analysisCOGS/ revenue 59.1% 57.1% 54.5% 56.6% 57.9% 56.8% 56.6% 58.3% 59.8% 65.1% 61.7% 61.8% 62.5% 63.8% 64.8% 60.4% 63.0%Gross margin 40.9% 42.9% 45.5% 43.4% 42.1% 43.2% 43.4% 41.7% 40.2% 34.9% 38.3% 38.2% 37.5% 36.2% 35.2% 39.6% 37.0%SG&A expenses/sales 33.1% 31.2% 31.4% 26.5% 25.4% 29.1% 27.8% 27.9% 24.5% 20.6% 26.8% 24.4% 25.0% 22.3% 19.6% 26.1% 23.0%Operating margin 10.9% 15.7% 18.9% 20.2% 20.3% 17.0% 19.1% 16.6% 17.8% 16.1% 13.8% 15.9% 14.5% 15.6% 17.4% 16.2% 16.0%EBITDA margin 12.9% 17.6% 20.7% 21.8% 21.6% 18.6% 20.7% 17.9% 19.0% 17.1% 14.9% 17.0% 15.4% 16.6% 18.3% 17.3% 17.0%Net income margin 6.8% 10.0% 11.7% 12.5% 12.4% 10.9% 11.9% 10.8% 11.4% 10.2% 8.9% 10.2% 8.9% 9.5% 10.6% 10.0% 9.8%Effective tax rate 39.5% 38.0% 40.0% 40.0% 40.6% 38.4% 39.8% 38.4% 39.0% 39.0% 38.4% 38.7% 38.4% 39.0% 39.0% 38.4% 38.7%

Y/Y growthNet revenue 6.0% 10.2% 22.5% 36.2% 31.4% 15.4% 26.2% 25.9% 31.8% 70.5% 65.4% 50.3% 55.6% 41.4% 10.8% 8.4% 24.6%Inventory 16.2% -3.6% -14.8% 53.2% 49.9% 29.9% 29.9% 41.4% 52.3% 73.2% 90.9% 90.9% 81.0% 13.1% 3.6% 6.1% 6.1%Cost of goods sold 4.9% 6.3% 12.1% 34.2% 35.9% 17.2% 25.1% 34.8% 39.2% 91.8% 79.8% 64.2% 66.9% 50.8% 10.2% 6.1% 26.9%Gross profit 7.7% 15.7% 37.8% 38.9% 25.7% 13.2% 27.6% 15.3% 22.1% 41.2% 46.5% 32.2% 39.7% 27.5% 11.8% 12.1% 20.8%SG&A expenses 9.9% 3.9% 14.3% 11.9% 19.5% 5.5% 12.5% 12.1% 22.2% 38.3% 52.2% 32.0% 39.1% 28.3% 5.7% 5.4% 17.2%Operating profit -8.0% 58.6% 141.3% 65.5% 32.0% 30.3% 54.0% 10.4% 16.0% 35.1% 34.0% 24.8% 36.0% 24.5% 19.7% 27.4% 25.7%Pretax profit -10.7% 57.8% 139.7% 67.1% 34.0% 32.9% 55.8% 13.0% 17.7% 35.4% 34.0% 25.9% 28.9% 19.2% 15.7% 21.7% 20.4%Net earnings -7.7% 61.7% 133.9% 63.0% 28.5% 30.0% 51.1% 16.0% 20.1% 39.3% 34.2% 28.4% 28.9% 18.7% 15.5% 21.5% 20.2%EPS 6.2% 63.5% 124.0% 58.1% 26.0% 27.2% 46.8% 14.5% 17.9% 35.9% 32.0% 26.1% 27.1% 18.3% 15.5% 21.5% 19.7%EBITDA -5.8% 50.3% 114.7% 58.9% 29.8% 27.9% 48.7% 8.7% 14.8% 34.9% 32.5% 23.6% 33.9% 23.4% 19.0% 25.9% 24.5%

2011A/E 2012E20102008 2009



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Exhibit 111. Annual Balance Sheet ($ in millions)

Year Year Year Year Year YearCurrent assets:

Cash and cash equivalents 29.4 89.6 69.3 66.2 71.4 179.8Marketable securities – available for sale 51.0 14.6 18.0 13.3 3.5 3.8Accounts receivable 41.2 39.9 58.6 70.9 117.3 127.2Inventories 27.2 31.6 30.5 39.6 75.5 80.1Prepaid expenses and other current assets 5.8 5.6 6.3 11.0 18.3 19.8Deferred taxes 14.2 10.0 8.8 9.1 8.0 8.7

Total current assets 168.9 191.4 191.4 210.1 294.1 419.4

Notes receivable - 3.4 - 7.0 7.3 7.3Note receivable – related party 3.1 - 3.6 3.8 4.0 4.0Property and equipment, net 28.7 28.2 23.8 20.8 36.3 36.5Goodwill and intangible assets, net 26.1 31.8 31.0 81.3 170.8 170.8Deferred taxes 7.2 7.1 7.5 7.8 4.0 4.3Marketable securities – available for sale 29.4 20.6 67.7 114.3 133.2 144.3Deposits & Other non-current assets 3.2 2.3 1.8 2.5 4.2 4.5Total assets 266.5 284.7 326.9 447.7 653.8 791.2

Current liabilities:Accounts payable 24.8 48.2 24.5 37.1 85.2 90.4Accrued expenses 16.8 16.4 15.3 18.4 30.5 33.0Contingent payment liability – current portion - - - - 3.8 3.8Accrued incentive compensation 6.1 7.9 12.3 15.9 26.3 28.5Income taxes payable - - 0.2 - 2.7 2.9

Total current liabilities 47.7 72.5 52.4 71.4 148.4 158.6

Long term liabilitiesContingent payment liability - - - 12.4 36.2 36.2Deferred rent 3.5 4.8 5.0 5.5 9.0 9.8Other LT liabilities - 1.2 1.7 1.1 1.9 2.0

Total liabilities 51.2 78.5 59.1 90.4 195.6 206.7

Shareholders' equity 215.3 206.2 267.8 357.3 458.2 584.5

Total liabilities and shareholders' equity 266.5 284.7 326.9 447.7 653.8 791.2

2011E 2012E2007 2008 2009 2010



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January 4, 2012

Exhibit 112. Annual Cash Flow Statement ($ in millions)

Year Year Year Year Year YearOPERATIONSNet earnings 35.7 28.0 50.1 75.7 97.1 116.9Impact of other operating activities on cash flows:

Depreciation and amortization 8.4 9.1 9.6 10.0 10.9 11.8Tax benefit from exercise of options (7.2) 0.3 (0.5) (4.7) (4.5) (4.5)Loss on disposal of fixed assets 0.8 1.6 1.2 0.5 0.6 0.6Provision for doubtful accounts/chargebacks 2.9 (4.1) 2.4 1.6 9.4 9.4Deferred rent expense & taxes (1.8) 3.8 (1.7) (0.4) (15.4) (0.0)Non-cash/stock-based compensation 4.4 5.7 5.9 8.3 11.1 0.0Realized gain on marketable securities 0.6 1.0 0.2 (0.0) (1.3) 0.0

Changes in operating assets and liabilities:Accounts receivable (includes factor) 3.4 5.4 (21.1) (13.3) 8.6 (9.9)Inventories 6.5 (4.4) 1.1 (8.8) (23.8) (4.6)Note receivable – related party (3.1) (0.2) (0.2) (0.3) (0.2) 0.0Prepaid expenses, deposits & other assets 3.2 3.9 1.7 (4.4) (8.3) (1.9)Accounts payable & other accrued expense 6.1 (9.2) 15.0 23.2 28.6 10.2Other 0.0 1.0 0.6 (0.5) (0.4) 0.2

Net change in working capital 16.0 (3.5) (2.8) (4.1) 4.5 (6.0)Net cash from operations 59.9 41.8 64.3 86.9 112.5 128.2

Free Cash Flow 46.9 33.5 60.9 83.4 91.2 116.2

INVESTINGPurchase of property and equipment (13.0) (8.3) (3.4) (3.4) (21.2) (12.0)Purchase/(sale) of marketable securities, net 9.7 43.8 (49.7) (51.2) (9.8) (11.2)Acquisitions, net of cash acquired (9.1) (4.9) (5.8) (40.6) (85.2) 0.0Net cash from investing (12.4) 30.6 (58.9) (95.2) (116.2) (23.2)

FINANCINGAdvances/(repayment) from factor - net 0.0 30.2 (30.2) 0.0Proceeds from exercise of stock options 5.6 2.1 3.9 5.1 4.5 2.1Cash dividend paidCommon stock purchased for treasury (50.1) (44.2) 0.0 (4.6) 0.0 0.0Tax benefit from exercise of options 7.2 (0.3) 0.5 4.7 4.5 1.3Net cash for financing (37.3) (12.2) (25.8) 5.2 9.0 3.4

Net increase (decrease) in cash 10.2 60.1 (20.3) (3.1) 5.3 108.4Cash and cash equivalents at the beginning of period 19.2 29.4 89.6 69.3 66.2 71.4Cash and cash equivalents at the end of period 29.4 89.6 69.3 66.2 71.4 179.8

2011E 2012E2007 2008 2009 2010



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January 4, 2012

KeyBanc Capital Markets Inc. Disclosures and Certifications Fossil, Inc. (FOSL) We expect to receive or intend to seek compensation for investment banking services from Fossil, Inc. within the next three months. As of the date of this report, we make a market in Fossil, Inc. Steven Madden, Ltd. (SHOO) We expect to receive or intend to seek compensation for investment banking services from Steven Madden, Ltd. within the next three months. As of the date of this report, we make a market in Steven Madden, Ltd.

Reg A/C Certification The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this research report.

Rating Disclosures Distribution of Ratings/IB Services Firmwide and by Sector

KeyBanc Capital Markets

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY] 233 46.60 47 20.17

HOLD [HOLD] 265 53.00 55 20.75

SELL [UND] 2 0.40 0 0.00

CONSUMER

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY] 58 46.00 8 13.79

HOLD [HOLD] 66 52.40 0 0.00

SELL [UND] 2 1.60 0 0.00

Rating System BUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding the security to their holdings opportunistically, subject to their overall diversification requirements. HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sell action is recommended at this time. UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors should reduce their holdings opportunistically.

The information contained in this report is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. The opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Our company policy prohibits research analysts and members of their families from owning securities of any company followed by that analyst, unless otherwise disclosed. Our officers, directors, shareholders and other employees, and members of their families may have positions in these securities and may, as principal or agent, buy and sell such securities before, after or concurrently with the publication of this report. In some instances, such investments may be inconsistent with the opinions expressed herein. One or more of our employees, other than the research analyst responsible for the preparation of this report, may be a member of the Board of Directors of any company referred to in this report. The research analyst responsible for the preparation of this report is compensated based on various factors, including the analyst's productivity, the quality of the analyst's research and stock recommendations, ratings from investor clients, competitive factors and overall Firm revenues, which include revenues derived from, among other business activities, the Firm's performance of investment banking services. In accordance with industry practices, our analysts are prohibited from soliciting investment banking business for our Firm.

Investors should assume that we are seeking or will seek investment banking or other business relationships with the company described in this report.

Documents

FOSL SHOO initiation