Fossil Group, Inc. Q1 FY2025 earnings call

Turnaround Plan Pillars - Refocusing on core: Teams aligned on brand-led and consumer-focused model. Focus on traditional watches on major brand platforms and go-to-market execution. Have robust product innovation pipeline like Raquel line, Machine Chronograph, Fossil for Mine Craft collection, Fossil Shelby collection, and Supermen collection. Deploy marketing spend strategically, doubling down on media, influencer, and PR from Q2. - Rightsizing cost structure: Closed 28 stores, implemented corporate reduction in force in February, transitioned five international markets to distributor model, expect to close approx. 50 stores in 2025, aiming for $100 million of SG&A savings in 2025 vs 2024. - Strengthening balance sheet: Ended quarter with $100 million liquidity, signed sale-leaseback of European distribution center, working on debt maturities. New executives joined, including Chief Commercial Officer and Chief Vision Information Officer and General Manager of EMEA.

First quarter net sales totaled $239 million, down 6% in constant currency. Core sales declined 8% on a year-over-year basis, excluding the benefit of 700 basis points from the additional week in this year's retail calendar, partially offset by 500 basis points of impact from our smartwatch exit and retail store closures. First quarter gross margin expanded 880 basis points compared to last year, coming in at 61.1%. SG&A was brought down by $17 million to $136 million, a decrease of 11% versus prior year. First quarter adjusted operating income swung from a loss of $20 million last year to a $10 million profit this year, driving a Q1 adjusted operating margin of 4.3%. We ended the quarter with $100 million of liquidity, including $78 million in cash and cash equivalents and $21 million of availability under our revolving credit facility. Inventory levels totaled $182 million, down 19% compared to a year ago.

- Reiterating full year guidance: Worldwide net sales expected to decline in the mid- to high teens, including approx. $45 million impact from retail store closures and excluding foreign exchange and potential asset sales. Expect to continue narrowing year-over-year sales declines for remaining quarters in 2025. - SG&A savings: Expected to generate approx. $100 million of SG&A savings in 2025 vs 2024 from corporate reduction in force, store portfolio rationalization, and transitioning international markets to distributor model. - Adjusted operating margin: Expect full year adjusted operating margin in the negative low single digits. - Tariff mitigation: Confident in mitigating full impact of tariffs to 2025 outlook due to global revenue stream, vendor relationships, supply chain redundancy, price increases in Q2 and Q3, and geodiversifying production.