Fossil Group, Inc. Q4 FY2025 earnings call

2025 was transformative with operational excellence and financial performance exceeding expectations. Focused on refocusing core, right-sizing cost structure, and strengthening balance sheet. Created fossil brand platform for future by improving customer journey, product innovation, and full-price selling model. Re-energized core license brands. Transformed balance sheet. In 2026, will focus on returning to profitable growth (fueling innovation across brand platform, omni-channel initiatives, co-licensed brands, and India market), optimizing operating model (strengthening omnichannel strategy, go-to-market execution, etc.), and building shareholder value.

Net sales totaled $1 billion. Gross margin expanded 380 basis points to 55.9%, and SG&E was reduced by over $100 million. Full-year net sales: $1 billion, with 330 basis points of impact from store closures and 80 basis points from exit of connected watches. Q4 net sales: $274 million, down 20% including store closures impact. Q4 gross margin: 57.4%, up 350 basis points. Full-year gross margin: 55.9%, 380 basis points expansion vs 2024. Year-end inventory: $152 million, down 15% from last year. 2026 net sales guidance: $945 million to $965 million, including ~$21 million impact from retail store closures, with Q4 expected to be return to top-line growth.

2026 net sales expected in range of 945 to 965 million, with return to top-line growth in Q4. Positive adjusted operating margin expected to be 3% to 5% and breakeven free cash flow. 2028 expected to have mid-single-digit sales growth, high single-digit adjusted operating margins, and positive free cash flow. Previously communicated 2027 sales target of at least $800 million now expected to be surpassed in 2026.

Current geopolitical climate in Middle East, with company monitoring safety and well-being of employees and partners in the region. Potential macroeconomic environment disruptions that could impact business performance.

Q: What were the drivers of gross margin in the quarter, and what gives you confidence the improvements are sustainable?

A: Franco and Randy discussed significant progress in changing to full price selling model, work globally to drive strategy, better gross margin with DTC and AUR increases, and successful renegotiation of minimum guarantees for 2026 so third quarter dip shouldn't occur.

Q: What gives you confidence you'll be able to achieve return to growth in Q4 2026?

A: Last 18 months of transformation, excitement about innovation pipeline, good return from wholesale channel, resilient consumers, and strong portfolio brands.

Q: What more can you do to improve cost structure?

A: Continuous improvement, evaluating what's done, finding better ways, looking at store, market, channel performances, and opportunities in technology stack simplification, automation, AI, and sales leverage as returning to growth.

Q: Elaborate on deepening consumer engagement tactically?

A: Focus on innovation, product, storytelling, core license brands, Indian market, and spending marketing dollars better with smarter media mix, ambassadors.

Q: How do you think about sequencing the three pillars?

A: View as not sequential but flywheel effect, with profitable growth fueling optimizing operating model and building shareholder value.

Q: Has view of target consumer changed?

A: Consumer resilient, came back after shift to full price model, capturing nostalgic and new generation.

Q: How has conversation with wholesale partners evolved?

A: Partners impressed with speed of change, consistency, walking the talk, seeing more sales and margin, and relationships improved from not inspiring to lead by example.