Fossil Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Balance Sheet Transformation: Completed bond restructuring, extending debt maturity to 2029 and bringing $32.5 million in new capital.
• Brand Initiatives: Fossil was on Time Magazine's World's Best brands list. Nick Jonas as global brand ambassador drove 6 billion impressions, with exclusive product line exceeding expectations. Collaboration with Fantastic Four and Galactus was successful.
• Operational Progress: Narrowed sales decline to 7%, improved average unit retail in channels, strong gross margin focus, rightsized cost structure with $60M in cost savings year-to-date, and strengthened balance sheet.

Segment Performance

• Fossil Brand: In Q3, traditional watch sales in Fossil brand were up high double digits in department and specialty store channels. The Nick Jonas campaign and product line exceeded expectations, driving higher average unit retail. The Fossil brand's wholesale channel grew mid-single digits globally, with notable strength in EMEA and Asia.
• Co-licensed Brands (Armani, Kors, Diesel): Generated improved performance in key markets, with Kors, Armani Exchange, and Diesel showing year-over-year growth in wholesale. Armani was pressured by the macro environment in China.
• Financials: Q3 net sales totaled $267 million, down 7% in constant currency. Gross margin was 48.7%, down 70 basis points. SG&A expenses were lowered by 10% versus prior year. Adjusted operating loss narrowed to $15 million from $22 million a year ago.

Guidance

• Full Year 2025: Worldwide net sales expected to decline mid-teens (including $40M store closure impact), adjusted operating margin breakeven to slightly positive. Fourth quarter gross margin similar to last year, expected to drive positive adjusted operating margin.

Risks

• Tariff Environment: Fluid tariff environment could impact gross margin.
• Macro Environment: China's macro environment pressured Armani brand.
• Inventory Management: While inventory is lean, future inventory investment and market conditions could affect performance.

Question and Answer

Q: Wholesale grew 3% in constant currency while store comps down 22%. Explain the gap.

A: Randy clarified that store comps decline refers to direct-to-consumer, not physical stores. Stores are performing well, e-commerce business is smaller due to promotional strategy change.

Q: Asia region performance, especially India, Japan, China.

A: India is leading, Japan is doing well with strong team and Diesel performance, China is seeing better selling but still not positive growth.

Q: Inventory position and initiatives driving it.

A: Inventory down 26% year-over-year due to reducing SKUs, focusing on bestsellers, and better working capital management. Tighter inventory fits with distribution and promotional strategy to drive margin and sales.