Fossil Group’s Earnings Call: Mixed Sentiment Amid Strategic Moves

Fossil Group, Inc. ((FOSL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Fossil Group, Inc. recently held its earnings call, revealing a mixed sentiment among investors and analysts. While the company celebrated notable improvements in sales performance, gross margins, and operational efficiency, it also acknowledged ongoing challenges such as core sales decline, planned store closures, and the potential impact of tariffs. However, the company’s proactive approach to refinancing and strategic partnerships was highlighted as a promising path forward.

Sequential Improvement in Sales Performance

Fossil Group reported a sequential improvement in sales performance, with core sales declining by just 8%, representing a 400 basis point improvement compared to the fourth quarter. This indicates a positive trend in the company’s ability to stabilize its sales figures amidst challenging market conditions.

Gross Margin Expansion

The company achieved a gross margin exceeding 61%, which is nearly a 9-point increase from the previous year. This expansion in gross margin reflects Fossil Group’s enhanced operational efficiency and cost management strategies.

Positive Adjusted Operating Margins

Fossil Group delivered positive adjusted operating margins of 4.3%, showcasing its ability to maintain profitability despite the challenges faced in the retail sector.

Fossil Traditional Watch Growth

The traditional watch segment of Fossil Group’s business posted a 7% growth globally compared to the prior year. This growth demonstrates the enduring appeal of Fossil’s core product line.

Reduction in SG&A Expenses

The company successfully reduced its SG&A expenses by $17 million to $136 million, marking an 11% reduction compared to the prior year. This reduction is part of Fossil Group’s broader cost-saving initiatives.

Strategic Partnerships and Collaborations

Fossil Group has engaged in successful collaborations, such as the Fossil for Mine Craft collection, which sold out quickly, and the upcoming Fossil Shelby collection. These partnerships are expected to enhance brand visibility and drive sales.

Refinancing and Liquidity Efforts

The company signed an agreement for the sale-leaseback of its European distribution center, expected to generate over $20 million. This move is part of Fossil Group’s efforts to improve its liquidity position.

Core Sales Decline

Despite improvements, Fossil Group experienced an 8% year-over-year decline in core sales. This remains a critical area of concern for the company as it seeks to reverse this trend.

Retail Store Closures

The company closed 28 stores during the first quarter and plans to close approximately 50 more throughout 2025. This strategy is aimed at optimizing the retail footprint and reducing costs.

Debt and Liquidity Challenges

Fossil Group is actively addressing its liquidity position and upcoming debt maturities, which remain significant challenges for the company.

Impact of Tariffs

The potential impact of tariffs on goods from China, with rates possibly reaching 145%, poses a risk to Fossil Group’s cost structure and profitability.

Forward-Looking Guidance

During the earnings call, Fossil Group provided comprehensive guidance for the fiscal year, focusing on strategic initiatives and improvements. The company aims to achieve approximately $100 million in SG&A savings for 2025 compared to 2024 by closing around 50 stores and transitioning certain international markets to a distributor model. Despite anticipating a mid-to-high teens decline in worldwide net sales, the company remains focused on maintaining a negative low single-digit adjusted operating margin. These projections are made in the context of mitigating potential tariff impacts, leveraging a global revenue stream, and optimizing the supply chain.

In conclusion, Fossil Group’s earnings call presented a mixed outlook, with significant achievements in operational efficiency and strategic partnerships counterbalanced by challenges in core sales and external economic factors. Investors will be keenly watching how the company navigates these dynamics in the coming quarters.