Fossil Group, Inc. Q4 FY2024 earnings call

• Turnaround plan centered on three pillars: refocusing on core, right-sizing cost structure, strengthening balance sheet.
• Refocusing on core: Launching new Fossil brand platform, leveraging co-licensed brands (e.g., extended Michael Kors license), optimizing wholesale global footprint by prioritizing scalable markets and transitioning smaller geographies to distributor model, driving channel profitability by prioritizing wholesale and transforming DTC model.
• Right-sizing cost structure: Expecting $100 million of SG&A savings in 2025 via corporate workforce reduction, store closures, and transition to distributor model; closed six stores in Q4, ending the year with 248 stores.
• Strengthening balance sheet: Ended the year with $177 million of liquidity; working on monetizing non-core assets and addressing debt maturities.
• Key highlights: Achieved adjusted operating income profitability in Q4, improving US wholesale performance, reduced promotional levels leading to higher gross margin, transitioned five international markets to distributor model, and partnered with Nick Jonas for brand campaign.

Fourth quarter net sales totaled $342 million, down 18% in constant currency. 600 basis points of the decline is attributable to smart watch exit and store closures. Fossil traditional watch business increased 2% globally versus the prior year, excluding store closures. Gross margin expanded by 630 basis points compared to last year, coming in at 53.9%. Excluding restructuring charges related to Swiss manufacturing operations, gross margin increased by 850 basis points. SG&A expenses were down $35 million to $172 million, a 17% decrease from cost takeout actions. Fourth quarter adjusted operating income was $20 million, compared to a loss of $8 million a year ago, resulting in a 6% adjusted operating margin.

• 2025 worldwide net sales expected to decline in the mid to high teens, with ~$45 million impact from store closures and reduced promotional activity.
• Gross margin expected to continue improving as we drive full-price selling model.
• SG&A expenses expected to be $100 million less than 2024 due to various cost-saving initiatives.
• Anticipate narrowing adjusted operating loss on a full-year basis in 2025, and return to adjusted operating income profitability in 2026 with mid-single-digit adjusted operating margin and positive free cash flow by 2027 on net sales over $800 million.

• Actual results could differ materially from forward-looking statements due to factors like new information, future events, etc.
• Macro environment softening could impact results.
• Foreign currency exchange rate changes could affect financial performance.
• Potential asset sales may not be realized as expected.