Fossil Group(FOSL) - 2025 Q2 - Quarterly Results

Financial Performance Overview Fossil Group reported strong Q2 2025 results with positive operating income and raised full-year guidance, driven by its successful turnaround plan Second Quarter 2025 Financial Highlights Fossil Group reported positive operating income of $8 million for Q2 2025, a significant turnaround from the loss in the prior year. Despite a 15.2% decline in worldwide net sales to $220 million, gross margin expanded by 490 basis points to 57.5%. The company's strong performance led to an increase in its full-year 2025 guidance Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Change (YoY) | | :--- | :--- | :--- | | Worldwide Net Sales | $220 million | -15.2% | | Gross Margin | 57.5% | +490 bps | | Operating Income | $8 million | N/A (vs. loss in Q2 2024) | | Operating Margin | 3.9% | N/A (vs. negative margin in Q2 2024) | - The company has raised its financial guidance for the full year 2025[1] Management Commentary CEO Franco Fogliato attributed the outperformance to the company's turnaround plan, which has delivered a third consecutive quarter of positive adjusted operating income. He highlighted a comprehensive refinancing plan to strengthen the financial position and expressed confidence in the second half of the year, driven by key brand-building initiatives. This momentum supports the decision to raise the full-year 2025 outlook - The company's turnaround plan is showing strength, resulting in a third consecutive quarter of positive adjusted operating income[3] - A comprehensive refinancing plan was announced to strengthen the balance sheet and support growth plans[2][3] - Focus for the second half of the year includes brand-building initiatives, such as a global campaign featuring celebrity brand ambassador Nick Jonas[3] Detailed Financial Analysis This section provides an in-depth analysis of Q2 2025 operating results, including sales performance, profitability, and key balance sheet metrics Second Quarter 2025 Operating Results In Q2 2025, net sales fell 15.2% to $220.4 million, impacted by market softness, the exit from the smartwatch category, and store closures. Despite the sales decline, gross margin improved significantly to 57.5% from 52.6% YoY, driven by better product margins and lower freight costs. Operating expenses decreased by 30.8%, leading to an operating income of $8.5 million, a substantial improvement from a $34.0 million loss in Q2 2024. Net loss narrowed to $2.3 million from $38.8 million in the prior-year quarter Q2 2025 Net Sales Performance (Constant Currency) | Category | Change (YoY) | | :--- | :--- | | By Region | | | Americas | -19% | | Europe | -14% | | Asia | -12% | | By Channel | | | Wholesale | -6% | | Direct to Consumer | -30% | | By Product | | | Traditional Watches | -8% | | Leathers | -39% | | Jewelry | -22% | - The exit from the smartwatch category and store rationalization initiatives accounted for approximately 6 percentage points of the total sales decline[4] Q2 2025 Profitability vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross Profit | $126.7M | $136.9M | | Gross Margin | 57.5% | 52.6% | | Operating Expenses | $118.2M | $170.9M | | Operating Income (Loss) | $8.5M | $(34.0)M | | Net Loss | $(2.3)M | $(38.8)M | | Diluted Loss Per Share | $(0.04) | $(0.73) | Balance Sheet Summary As of July 5, 2025, Fossil Group maintained total liquidity of $110.6 million, primarily composed of $109.9 million in cash and cash equivalents. The company successfully reduced inventories by 11.9% year-over-year to $178.1 million. Total debt stood at $179.0 million Balance Sheet Highlights (as of July 5, 2025) | Metric | Amount | YoY Change | | :--- | :--- | :--- | | Total Liquidity | $110.6M | N/A | | Cash and Cash Equivalents | $109.9M | +4.8% | | Inventories | $178.1M | -11.9% | | Total Debt | $179.0M | +12.6% | Outlook and Strategy Fossil Group has raised its full-year 2025 financial guidance, reflecting improved sales decline forecasts and a positive adjusted operating margin outlook Full Year 2025 Outlook Reflecting strong year-to-date performance and progress on its turnaround plan, Fossil Group has raised its financial guidance for the full year 2025. The company now anticipates a smaller decline in net sales and has improved its adjusted operating margin forecast Updated Full Year 2025 Guidance | Metric | New Guidance | Prior Guidance | | :--- | :--- | :--- | | Worldwide Net Sales Decline | Mid-teens | Mid to high teens | | Adjusted Operating Margin | Break even to slightly positive | Negative low single digits | - The net sales guidance includes an expected negative impact of approximately $45 million related to retail store closures[9] Supplemental Financial Data This section provides detailed consolidated financial statements, segment performance data, and reconciliations of GAAP to non-GAAP financial measures Consolidated Financial Statements This section presents the detailed unaudited consolidated income statements and balance sheets for the periods ended July 5, 2025, and June 29, 2024, providing a comprehensive view of the company's financial position and performance Consolidated Income Statement This statement details the company's revenues, expenses, and net loss for the 13-week periods ended July 5, 2025, and June 29, 2024 Income Statement Summary (13 Weeks Ended) | ($ in millions) | July 5, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Net sales | $220.4 | $260.0 | | Gross profit | $126.7 | $136.9 | | Operating income (loss) | $8.5 | $(34.0) | | Net loss attributable to Fossil Group, Inc. | $(2.3) | $(38.8) | | Diluted loss per share | $(0.04) | $(0.73) | Consolidated Balance Sheet This statement provides a snapshot of the company's assets, liabilities, and equity as of July 5, 2025, and June 29, 2024 Balance Sheet Summary | ($ in millions) | July 5, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $109.9 | $104.9 | | Inventories | $178.1 | $202.1 | | Total assets | $704.5 | $785.7 | | Total debt (Short & Long-term) | $179.0 | $159.1 | | Stockholders' equity | $133.9 | $187.1 | | Total liabilities and stockholders' equity | $704.5 | $785.7 | Segment and Product Performance (Constant Currency) On a constant currency basis for Q2 2025, net sales declined across all geographic segments, with the Americas showing the largest decrease. By product, the exit from smartwatches is evident in its sharp decline, while the core traditional watch category saw a single-digit decrease. Leathers and jewelry categories experienced significant double-digit declines Q2 Net Sales by Segment (Constant Currency) | ($ in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Americas | $97.1 | $119.6 | -18.8% | | Europe | $64.2 | $74.8 | -14.2% | | Asia | $57.5 | $65.2 | -11.8% | | Total | $218.9 | $260.0 | -15.8% | Q2 Net Sales by Product (Constant Currency) | ($ in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Traditional watches | $177.9 | $194.1 | -8.3% | | Smartwatches | $1.4 | $8.4 | -83.3% | | Leathers | $16.7 | $27.2 | -38.6% | | Jewelry | $18.8 | $24.2 | -22.3% | Reconciliation of GAAP to Non-GAAP Measures The company provides reconciliations for non-GAAP measures to offer a clearer view of underlying business performance by excluding items like restructuring costs and asset impairments. For Q2 2025, Adjusted Operating Income was $3.8 million, and Adjusted EBITDA was $7.0 million, both marking significant improvements from losses of $17.0 million and $11.7 million, respectively, in the prior-year quarter Adjusted EBITDA Reconciliation Summary | ($ in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Income (loss) before income taxes | $4.1 | $(36.6) | | Adjustments (Interest, D&A, Restructuring, etc.) | +$2.9 | +$24.9 | | Adjusted EBITDA | $7.0 | $(11.7) | Adjusted Operating Income Reconciliation Summary | ($ in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Operating income (loss) (GAAP) | $8.5 | $(34.0) | | Restructuring Expenses | $7.3 | $16.7 | | Gains on Asset Divestitures | $(11.5) | - | | Other Long-Lived Asset Impairment | - | $0.6 | | As Adjusted Operating Income (Loss) | $4.3 | $(16.7) | Store Count Information As part of its store rationalization strategy, Fossil Group continued to reduce its physical retail footprint. The company closed 47 stores and opened 3, resulting in a net reduction of 44 stores. The total store count decreased from 258 at the end of Q2 2024 to 214 at the end of Q2 2025 Store Count by Region | Region | June 29, 2024 | Opened | Closed | July 5, 2025 | | :--- | :--- | :--- | :--- | :--- | | Americas | 120 | 0 | 19 | 101 | | Europe | 69 | 0 | 17 | 52 | | Asia | 69 | 3 | 11 | 61 | | Total stores | 258 | 3 | 47 | 214 |