Fossil Group(US:FOSL)2023-11-08 16:00Consumer Spending and Market Environment - Fossil Group reported a cautious consumer spending environment due to macroeconomic factors, expecting continued pressure on discretionary spending in Q4 2023[98]. - Factors affecting actual results include changes in consumer spending patterns, supply chain interruptions, and competition in the market[184]. Financial Performance - Consolidated net sales decreased by $92.2 million, or 21.1%, in Q3 2023 compared to Q3 2022, with declines across all regions[126]. - Gross profit decreased by 26.4% to $161.7 million, with a gross profit margin of 47.0%, down from 50.3% in the prior year quarter[133]. - Total operating expenses increased by 5.5% to $208.1 million, representing 60.5% of net sales, compared to 45.2% in the prior year quarter[134]. - Operating loss was $46.4 million, with an operating margin of (13.5)%, compared to an operating income of $22.5 million and a margin of 5.2% in the prior year quarter[135]. - Net income attributable to Fossil Group, Inc. for the third quarter was a loss of $61.1 million, or $1.16 per diluted share, compared to a net income of $5.8 million, or $0.11 per diluted share, in the prior year[140]. - Adjusted net loss for the third quarter was $49.0 million, with an adjusted loss per diluted share of $0.93, compared to an adjusted net income of $6.3 million, or $0.12 per diluted share, in the prior year[141]. - Consolidated net sales decreased by $192.2 million, or 16.2% (15.5% in constant currency), for the year-to-date period compared to the prior year[146]. - Net loss attributable to Fossil Group, Inc. was $128.9 million, or $2.47 per diluted share, compared to a loss of $34.7 million, or $0.67 per diluted share, in the prior year YTD period[160]. - Adjusted net loss for the Year To Date Period was $101.0 million, with an adjusted loss per diluted share of $1.94, compared to an adjusted net loss of $29.5 million, or $0.57 per diluted share, in the prior year YTD period[161]. Sales Performance - Wholesale sales declined by 24.2% (25.4% in constant currency), driven by lower purchases by wholesale accounts and reduced consumer demand[126]. - Direct to consumer sales decreased by 11.4% (11.9% in constant currency), attributed to a reduced store footprint, which was down by 41 stores (12%) since the end of the prior year quarter[126]. - Net sales in the Americas decreased by $31.7 million, or 17.2% (17.6% in constant currency), primarily in the FOSSIL and MICHAEL KORS brands[128]. - Europe net sales decreased by $36.0 million, or 25.1% (29.6% in constant currency), with significant declines in MICHAEL KORS and FOSSIL brands[130]. - Asia net sales decreased by $17.2 million, or 17.2% (14.2% in constant currency), with notable declines in the EMPORIO ARMANI brand[132]. - Traditional watch sales decreased by 18.5% (19.4% in constant currency), while smartwatch sales declined by 48.0% (49.1% in constant currency)[126]. Operational Strategy and Initiatives - The company anticipates generating approximately $300 million in annualized operating income benefits by the end of 2025 through its expanded Transform and Grow Plan (TAG)[106]. - Fossil Group expects to incur charges of approximately $100 million to $120 million over the duration of TAG, with an estimated $50 million of charges in fiscal year 2023[106]. - Fossil Group's TAG plan includes initiatives to exit or minimize certain product offerings and strengthen gross margins[106]. - The company is focused on optimizing its core categories and brands to improve gross margins and reduce operating expenses through better inventory management[107]. Liquidity and Financial Stability - Fossil Group's total liquidity, defined as cash and cash equivalents plus available borrowings, is monitored to ensure financial obligations can be met[120]. - The cash and cash equivalents balance at the end of the third quarter was $116.1 million, down from $162.6 million at the end of the prior year quarter[168]. - Net working capital decreased to $436.4 million from $586.6 million at the end of the prior year quarter[169]. - Total liquidity as of September 30, 2023, was $139.5 million, down from $213.0 million a year earlier[175]. - The company had available borrowing capacity of $23.4 million under the revolving facility as of September 30, 2023[181]. - The company is in compliance with all debt covenants related to its credit facilities as of September 30, 2023[181]. Risks and Uncertainties - Actual results may differ materially due to various risks and uncertainties outlined in the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[185]. - Forward-looking statements involve risks such as increased political uncertainty, worldwide economic conditions, and pandemic effects[184]. - Risks related to the success of the TAG Plan and business strategy could impact future performance[184]. - Changes in foreign currency valuations and costs of materials and labor are potential risks[184]. - Customer acceptance of new product designs and lines is crucial for future sales performance[184]. - The company faces challenges from government regulations, tariffs, and potential litigation outcomes[184]. - Loss of key personnel and management of retail store traffic are significant operational risks[184]. - Compliance with debt covenants and meeting debt service obligations are critical for financial stability[184].