Fossil Group(FOSL) - 2025 Q1 - Quarterly Results

Executive Summary & Q1 2025 Highlights Fossil Group reported Q1 2025 progress with narrowed sales declines, significant gross margin expansion, and positive adjusted operating profit, reiterating full-year guidance CEO Commentary CEO Franco Fogliato noted Q1 2025 turnaround progress with narrowed sales declines, increased gross margin, and positive adjusted operating profit, expressing confidence in long-term growth - Turnaround plan showing progress with narrowed sales declines and increased gross margin[2] - Achieved second consecutive quarter of positive adjusted operating profit[2] - Global footprint and mitigation strategies are expected to offset tariff impacts and protect gross margin[2] Key Financial Highlights (Q1 2025) Q1 2025 saw worldwide net sales of $233 million (down 8.5%), significant gross margin expansion to 61.3%, and $10 million in constant currency adjusted operating income Key Financial Highlights | Metric | Q1 2025 Value | Change YoY | | :----- | :------------ | :--------- | | Worldwide Net Sales | $233 million | -8.5% (reported) | | Gross Margin | 61.3% | +890 bps | | Operating Loss | $(7) million | Improved from $(29.2) million loss | | Constant Currency Adjusted Operating Income | $10 million | Improved from $(18.9) million loss | | Constant Currency Adjusted Operating Margin | 4.3% | Improved from (7.5)% | | Total Liquidity | $100 million | | First Quarter 2025 Operating Results Q1 2025 operating results showed an 8.5% net sales decline, significant gross margin expansion to 61.3%, reduced operating expenses, and a narrowed net loss Net Sales Performance Net sales decreased 8.5% (reported) to $233.3 million due to market softness and smartwatch declines, partially offset by a favorable 14-week quarter Net Sales Performance | Metric | Q1 2025 (Reported) | Q1 2025 (Constant Currency) | Q1 2024 | YoY Change (Reported) | YoY Change (Constant Currency) | | :----- | :----------------- | :-------------------------- | :------ | :-------------------- | :----------------------------- | | Net Sales | $233.3 million | $239.1 million | $254.9 million | -8.5% | -6.2% | - Sales decline largely driven by overall category, consumer, and channel softness[3] - Declines in smartwatch sales and store rationalization initiatives comprised approximately 520 basis points of the sales decline[3] - Fiscal 2025 Q1 included 14 weeks, favorably impacting sales by 700 basis points compared to 13 weeks in prior year[3] Geographic Performance (Constant Currency) Constant currency sales declined 9% in Americas and 10% in Asia, while Europe experienced a 1% increase Geographic Performance (Constant Currency) | Region | Q1 2025 Net Sales (Constant Currency) | Q1 2024 Net Sales | YoY Change (Constant Currency) | | :----- | :------------------------------------ | :---------------- | :----------------------------- | | Americas | $100.3 million | $110.0 million | -9% | | Europe | $79.1 million | $78.7 million | +1% | | Asia | $58.8 million | $65.6 million | -10% | Channel Performance (Constant Currency) Wholesale sales grew 6.0% in constant currency, while direct-to-consumer sales fell 24%, with comparable retail sales down 22% - Wholesale sales increased 6.0% in constant currency[3] - Direct-to-consumer sales decreased 24% in constant currency[3] - Comparable retail sales declined 22%[3] Product Category Performance (Constant Currency) Traditional watch sales rose 2% in constant currency, while leathers decreased 37%, jewelry declined 13%, and smartwatch sales fell significantly Product Category Performance (Constant Currency) | Product Category | Q1 2025 Net Sales (Constant Currency) | Q1 2024 Net Sales | YoY Change (Constant Currency) | | :--------------- | :------------------------------------ | :---------------- | :----------------------------- | | Traditional Watches | $189.5 million | $186.5 million | +2% | | Smartwatches | $4.1 million | $8.9 million | -54% | | Leathers | $17.4 million | $27.6 million | -37% | | Jewelry | $22.8 million | $26.3 million | -13% | Brand Performance (Constant Currency) MICHAEL KORS sales increased 12% in constant currency, while FOSSIL brand sales decreased 8% due to leathers and jewelry, partially offset by watch growth - MICHAEL KORS sales increased 12% in constant currency[3] - FOSSIL brand sales decreased 8% in constant currency, driven by leathers and jewelry, partially offset by a 3% increase in watches[4] Gross Profit & Margin Gross profit increased to $143.0 million, with gross margin expanding 890 basis points to 61.3% due to improved product margins and favorable mix Gross Profit & Margin | Metric | Q1 2025 | Q1 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Gross Profit | $143.0 million | $133.5 million | +$9.5 million | | Gross Margin | 61.3% | 52.4% | +890 bps | - Increase primarily reflects improved product margins in core categories, exiting the smartwatch category, favorable product mix, and reduced freight costs[6] Operating Expenses Total operating expenses decreased 8.0% to $149.7 million, with SG&A down 12.1% to $133.8 million due to restructuring efficiencies Operating Expenses | Metric | Q1 2025 | Q1 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Total Operating Expenses | $149.7 million | $162.7 million | -8.0% | | Total Operating Expenses (% of Net Sales) | 64.2% | 63.8% | +0.4 ppt | | SG&A Expenses | $133.8 million | $152.2 million | -12.1% | | SG&A Expenses (% of Net Sales) | 57.4% | 59.7% | -2.3 ppt | | Restructuring Charges | $15.8 million | $10.1 million | +$5.7 million | - SG&A decrease largely driven by cost reductions and efficiencies gained through restructuring programs[6] Operating Income (Loss) Operating loss narrowed to $6.7 million, and constant currency adjusted operating income turned positive at $10.3 million with a 4.3% margin Operating Income (Loss) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Operating Loss | $(6.7) million | $(29.2) million | Improved by $22.5 million | | Operating Margin | (2.9)% | (11.5)% | +8.6 ppt | | Constant Currency Adjusted Operating Income | $10.3 million | $(18.9) million | Improved by $29.2 million | | Constant Currency Adjusted Operating Margin | 4.3% | (7.5)% | +11.8 ppt | Other Income/Expense & Net Loss Net loss narrowed to $17.6 million (or $0.33 per diluted share), with adjusted net loss at $5.0 million, primarily due to improved operating results and currency shifts Other Income/Expense & Net Loss | Metric | Q1 2025 | Q1 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Interest Expense | $4.5 million | $5.1 million | -$0.6 million | | Other Income (Expense) - net | $(3.3) million | $3.9 million | Shift of $7.2 million | | Income (Loss) before Income Taxes | $(14.5) million | $(30.4) million | Improved by $15.9 million | | Net Loss | $(17.6) million | $(24.3) million | Improved by $6.7 million | | Net Loss per Diluted Share | $(0.33) | $(0.46) | Improved by $0.13 | | Adjusted Net Loss | $(5.0) million | $(16.2) million | Improved by $11.2 million | | Adjusted Net Loss per Diluted Share | $(0.10) | $(0.30) | Improved by $0.20 | - Other income (expense) shifted due to net currency losses in Q1 2025 compared to net currency gains in Q1 2024[6] - Currencies unfavorably affected net loss per diluted share by approximately $0.13 in Q1 2025[6] Adjusted EBITDA Adjusted EBITDA for Q1 2025 was $9.1 million (3.9% of net sales), a significant improvement from a $10.7 million loss in the prior year Adjusted EBITDA | Metric | Q1 2025 | Q1 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Adjusted EBITDA | $9.1 million | $(10.7) million | Improved by $19.8 million | | Adjusted EBITDA (% of Net Sales) | 3.9% | (4.2)% | +8.1 ppt | Balance Sheet Summary As of April 5, 2025, total liquidity was $99.5 million, with inventories decreasing 19% and total debt at $180 million Liquidity and Cash Position Total liquidity as of April 5, 2025, was $99.5 million, including $78.3 million in cash and $21.2 million from the credit facility Liquidity and Cash Position | Metric | As of April 5, 2025 | As of March 30, 2024 | YoY Change | | :----- | :------------------ | :------------------- | :--------- | | Total Liquidity | $99.5 million | N/A | N/A | | Cash and Cash Equivalents | $78.3 million | $112.9 million | -$34.6 million | | Revolving Credit Facility Availability | $21.2 million | N/A | N/A | Inventories and Debt Inventories decreased 19% year-over-year to $182.1 million, with total debt recorded at $180 million Inventories and Debt | Metric | As of April 5, 2025 | As of March 30, 2024 | YoY Change | | :----- | :------------------ | :------------------- | :--------- | | Inventories | $182.1 million | $224.1 million | -19% | | Total Debt | $180 million | $203.4 million | -$23.4 million | Full Year 2025 Outlook The company reiterated its full-year 2025 guidance, projecting mid to high teens net sales decline and negative low single-digit adjusted operating income margin Financial Guidance Full-year 2025 guidance projects worldwide net sales decline in the mid to high teens and a negative low single-digit adjusted operating income margin - Reiterates full year 2025 guidance, assuming no material change in macroeconomic environment or consumer demand[7] - Worldwide net sales guidance includes an expected impact of approximately $45 million related to retail store closures and excludes potential asset sales[7] Full Year 2025 Guidance | Metric | Full Year 2025 Guidance | | :----- | :---------------------- | | Worldwide Net Sales Decline | Mid to high teens | | Adjusted Operating Income Margin | Negative low single digits | Company Overview Fossil Group, Inc. is a global company specializing in lifestyle accessories, offering watches, jewelry, and leather goods under owned and licensed brands Business Description Fossil Group is a global design and distribution company specializing in lifestyle accessories, including watches, jewelry, and leather goods, under owned and licensed brands - Global design, marketing, distribution, and innovation company specializing in lifestyle accessories[9] - Offerings include watches, jewelry, handbags, small leather goods, belts, and sunglasses[9] - Operates under a diverse portfolio of owned brands (Fossil, Michele, Relic, Skagen, Zodiac) and licensed brands (Armani Exchange, Diesel, Emporio Armani, kate spade new york, Michael Kors, Tory Burch)[9] Detailed Financial Statements (GAAP) This section presents the GAAP consolidated income statement and balance sheet, detailing Q1 2025 financial performance and position Consolidated Income Statement Q1 2025 consolidated income statement shows $233.3 million net sales, $143.0 million gross profit, and a $17.6 million net loss Consolidated Income Statement | Metric | Q1 2025 (14 Weeks) | Q1 2024 (13 Weeks) | | :----- | :----------------- | :----------------- | | Net Sales | $233.3 million | $254.9 million | | Cost of Sales | $90.3 million | $121.4 million | | Gross Profit | $143.0 million | $133.5 million | | Gross Margin | 61.3% | 52.4% | | Total Operating Expenses | $149.7 million | $162.7 million | | Operating Income (Loss) | $(6.7) million | $(29.2) million | | Income (Loss) before Income Taxes | $(14.5) million | $(30.4) million | | Net Income (Loss) attributable to Fossil Group, Inc. | $(17.6) million | $(24.3) million | | Diluted EPS | $(0.33) | $(0.46) | Consolidated Balance Sheet As of April 5, 2025, total assets were $686.0 million, total liabilities $561.6 million, and stockholders' equity $124.4 million Consolidated Balance Sheet | Metric | As of April 5, 2025 | As of March 30, 2024 | | :----- | :------------------ | :------------------- | | Cash and Cash Equivalents | $78.3 million | $112.9 million | | Accounts Receivable - net | $124.6 million | $134.4 million | | Inventories | $182.1 million | $224.1 million | | Total Current Assets | $482.5 million | $637.3 million | | Total Assets | $686.0 million | $891.0 million | | Total Current Liabilities | $262.6 million | $295.4 million | | Long-term Debt | $167.2 million | $202.9 million | | Total Liabilities | $561.6 million | $664.4 million | | Stockholders' Equity | $124.4 million | $226.6 million | Non-GAAP Financial Measures & Reconciliations This section defines and reconciles non-GAAP measures like constant currency, adjusted EBITDA, and adjusted operating income for clearer performance evaluation Explanation of Non-GAAP Measures This section defines non-GAAP measures like constant currency, adjusted EBITDA, and adjusted operating income, used to evaluate underlying business performance by excluding specific items - Constant currency measures translate current fiscal year period net sales and SG&A for non-USD reporting entities into USD at prior fiscal year average rates to exclude foreign currency exchange rate fluctuations[14] - Adjusted EBITDA excludes income tax, interest, amortization, depreciation, impairment, non-cash charges, stock-based compensation, restructuring, and unamortized debt issuance costs[16] - Adjusted operating income (loss) excludes impairment and restructuring expense[16] - Adjusted net income (loss) and EPS exclude impairment expense, restructuring expense, and unamortized debt issuance costs[16] Constant Currency Net Sales & SG&A Q1 2025 constant currency net sales were $239.1 million, with a $5.8 million favorable currency impact, and SG&A expenses were $135.7 million Constant Currency Net Sales & SG&A | Metric | Q1 2025 (As Reported) | Impact of Foreign Currency Exchange Rates | Q1 2025 (Constant Currency) | Q1 2024 (As Reported) | | :----- | :-------------------- | :---------------------------------------- | :-------------------------- | :-------------------- | | Total Net Sales | $233.3 million | $5.8 million | $239.1 million | $254.9 million | | Selling, General and Administrative Expenses | $133.8 million | $1.9 million | $135.7 million | $152.2 million | Adjusted EBITDA Reconciliation Q1 2025 Adjusted EBITDA was $9.1 million, derived by adjusting income loss before taxes for various non-operating and non-cash items Adjusted EBITDA Reconciliation | Metric | Q1 2025 | Q1 2024 | | :----- | :------ | :------ | | Income (Loss) before Income Taxes | $(14.5) million | $(30.4) million | | Plus: Interest expense | $4.5 million | $5.1 million | | Plus: Amortization and depreciation | $3.4 million | $4.5 million | | Plus: Impairment expense | $0.1 million | $0.4 million | | Plus: Other non-cash charges | $0.2 million | $(0.1) million | | Plus: Stock-based compensation | $0.6 million | $1.0 million | | Plus: Restructuring expense | $15.8 million | $10.1 million | | Less: Interest Income | $1.0 million | $1.1 million | | Adjusted EBITDA | $9.1 million | $(10.7) million | Adjusted Operating Income & Net Loss Reconciliation Q1 2025 reported operating loss of $(6.7) million was adjusted to $9.2 million operating income, and net loss of $(17.6) million was adjusted to $(5.0) million Adjusted Operating Income & Net Loss Reconciliation (Q1 2025) | Metric | Q1 2025 (As Reported) | Adjustments | Q1 2025 (As Adjusted) | Q1 2025 (Constant Currency Adjusted) | | :----- | :-------------------- | :---------- | :-------------------- | :----------------------------------- | | Operating Income (Loss) | $(6.7) million | $15.9 million | $9.2 million | $10.3 million | | Operating Margin (% of net sales) | (2.9)% | | 3.9% | 4.3% | | Net Income (Loss) attributable to Fossil Group, Inc. | $(17.6) million | $12.6 million | $(5.0) million | N/A | | Diluted EPS | $(0.33) | $0.23 | $(0.10) | N/A | Adjusted Operating Income & Net Loss Reconciliation (Q1 2024) | Metric | Q1 2024 (As Reported) | Adjustments | Q1 2024 (As Adjusted) | Q1 2024 (Constant Currency Adjusted) | | :----- | :-------------------- | :---------- | :-------------------- | :----------------------------------- | | Operating Income (Loss) | $(29.2) million | $10.3 million | $(18.9) million | $(19.5) million | | Operating Margin (% of net sales) | (11.5)% | | (7.5)% | (7.6)% | | Net Income (Loss) attributable to Fossil Group, Inc. | $(24.3) million | $8.1 million | $(16.2) million | N/A | | Diluted EPS | $(0.46) | $0.16 | $(0.30) | N/A | Store Count Information This section details the global store count changes, showing a net reduction of 57 stores from March 2024 to April 2025 Store Openings and Closures From March 2024 to April 2025, Fossil Group closed a net of 57 stores globally, reducing the total count from 277 to 220 Store Openings and Closures | Region | Stores as of March 30, 2024 | Opened | Closed | Stores as of April 5, 2025 | Net Change | | :----- | :-------------------------- | :----- | :----- | :------------------------- | :--------- | | Americas | 135 | 0 | 33 | 102 | -33 | | Europe | 73 | 0 | 18 | 55 | -18 | | Asia | 69 | 5 | 11 | 63 | -6 | | Total Stores | 277 | 5 | 62 | 220 | -57 | Safe Harbor Statement This section provides a standard disclaimer for forward-looking statements, highlighting risks and uncertainties that could cause actual results to differ Forward-Looking Statements Disclaimer This disclaimer warns that forward-looking statements involve risks and uncertainties, with actual results potentially differing materially, and the company assumes no obligation to update them - Statements are forward-looking and involve risks and uncertainties, with actual results potentially differing materially from expectations[8] - Key risk factors include success of Turnaround Plan, balance sheet and liquidity, non-core asset sales, economic conditions, consumer spending, supply chain, foreign currency, competition, and debt covenants[8] - Company assumes no obligation to publicly update or revise any forward-looking statements, except as required by law[8]