Fossil's Q3 Loss Narrows Y/Y, TAG Plan Drives Margin Growth

Core Insights - Fossil Group, Inc. reported an adjusted net loss per share of 51 cents for Q3 2024, an improvement from a loss of 93 cents per share in the same period last year [1] - Revenues decreased by 16.4% to $287.8 million from $344.1 million year-over-year, influenced by strategic exits from the smartwatch segment and retail closures [1][15] Financial Performance - Gross margin improved to 49.4%, up from 47% in the previous year, primarily due to the Transform and Grow (TAG) Plan [9] - Operating expenses decreased by 20% to $166.7 million from $208.1 million, reflecting efficiencies from the TAG Plan [10] - The operating loss narrowed to $24.5 million from $46.4 million year-over-year, with adjusted operating loss also improving to $18.7 million from $31.1 million [11] Sales Performance - Sales in the Americas fell to $121.3 million, a 20% decline in constant currency [4] - European sales dropped to $97 million, an 11% year-over-year decline in constant currency [5] - Asia reported $69 million in sales, marking a 17% decrease in constant currency [6] - Total watch sales decreased to $227.2 million from $270 million, with traditional watch sales down 12% in constant currency [7] Strategic Initiatives - The TAG Plan aims for $300 million in annualized operating income benefits by 2025, with $125 million achieved in 2023 and at least $100 million expected in 2024 [3] - Fossil's strategic business review, initiated in March 2024, may lead to further operational adjustments, including cost reductions and debt refinancing [16] Balance Sheet Overview - As of September 28, 2024, Fossil held cash and cash equivalents of $106.3 million, down from $116.1 million a year earlier [13] - Total assets decreased to $812.4 million from $1.1 billion, while long-term debt reduced to $173.4 million from $255.9 million [13] - Shareholders' equity fell significantly to $161.9 million from $278.8 million [14] Management Guidance - For 2024, Fossil projects net sales of around $1.1 billion, factoring in a $100 million negative impact from the smartwatch exit and store closures [15] - Adjusted operating margin is expected to be between (6)% and (8)%, with positive free cash flow anticipated due to tax refunds [15]