For the third quarter of 2024, Fossil Group, Inc. (FOSL Quick QuoteFOSL - Free Report) incurred an adjusted net loss per share of 51 cents, narrower than the adjusted loss of 93 cents per share in the prior-year period. 

Revenues totaled $287.8 million, reflecting a 16.4% decrease from $344.1 million a year ago. This was largely driven by weakness across categories and channels, and by strategic moves such as exiting the smartwatch segment and closing certain retail locations, which impacted revenue by six percentage points.

Fossil's quarterly performance showed a mix of improvements in operational efficiencies alongside revenue declines. While sales decreased, gross margin increased primarily due to initiatives under the Transform and Grow (TAG) Plan. This plan also reduced selling, general and administrative expenses, which declined 16% compared to last year due to lower compensation and other cost-saving measures.

The TAG plan targets $300 million in annualized operating income benefits by 2025, with around $125 million achieved in 2023 and at least $100 million expected in 2024. 

Key Business Metrics

Sales by Region

Americas

Revenues in the Americas were $121.3 million, down from $152.6 million, representing a 20% decline in constant currency terms. This region experienced significant weakness due to channel and consumer softness.

Europe

Sales in Europe dropped to $97 million, an 11% year-over-year decline on a constant currency basis, driven by similar factors affecting the Americas.

Asia

Asia reported $69 million in sales, marking a 17% decrease in constant currency terms compared to the third quarter of 2023, with lower consumer demand contributing to this downturn.

Sales by Product Categories

Watches

Total watch sales were $227.2 million, down from $270 million in the third quarter of 2023. Traditional watch sales decreased by 12% in constant currency, and smartwatch sales dropped significantly due to Fossil’s exit from this category.

Leathers and Jewelry

Leather products and jewelry sales declined 28% and 10% in constant currency, respectively. This reflects broader demand challenges in accessories and discretionary spending.

Gross Margin

Fossil’s gross margin improved to 49.4%, up from 47% in the previous year’s quarter. This expansion was primarily attributable to the TAG Plan, which improved product margins by exiting lower-margin categories like smartwatches. However, increased royalty costs partially offset these gains.

Operating Expenses

Operating expenses totaled $166.7 million, a decrease from $208.1 million last year, thanks to efficiencies realized under the TAG Plan.

Operating Loss

Fossil’s operating loss was $24.5 million, significantly narrower than the $46.4 million loss in the third quarter of 2023. The adjusted operating loss also narrowed to $18.7 million from $31.1 million, reflecting successful cost-cutting measures.

Net Loss

Fossil incurred a net loss of $32 million for the third quarter of 2024, narrower than the net loss of $61.1 million recorded in the same quarter of the previous year. Adjusted net loss, which excludes restructuring and impairment charges, was $27.4 million, narrower from an adjusted net loss of $49 million in the third quarter of 2023.

Balance Sheet Update (As of Sept. 28, 2024)

Fossil held cash and cash equivalents totaling $106.3 million, a slight decline from $116.1 million in the prior-year period. At the third-quarter end, it had $23.8 million available under its revolving credit facility.

Total assets decreased notably to $812.4 million from $1.1 billion a year earlier.

Long-term debt stood at $173.4 million, down from $255.9 million. Short-term debt increased slightly to $2.3 million from $0.5 million.

Shareholders' equity saw a substantial decrease, falling to $161.9 million from $278.8 million as of Sept. 30, 2023.

Management Guidance

For 2024, Fossil revised its outlook, projecting net sales of around $1.1 billion. This guidance reflects an anticipated negative impact of approximately $100 million from the smartwatch exit and store closures, along with an expectation of ongoing channel and consumer softness. Adjusted operating margin is expected to be (6)-(8)%. Additionally, Fossil anticipates positive free cash flow for the year, benefiting from tax refunds of about $57 million received in the second quarter of 2024.

Other Developments

Fossil’s strategic business review, announced in March 2024, is an ongoing effort to reassess its business model and capital structure. This review may lead to further operational adjustments beyond those covered by the TAG Plan, potentially including additional cost reductions, debt refinancing, or asset sales. The company has engaged Evercore as a financial advisor to assist with this process. This restructuring effort aims to position Fossil for sustainable growth and improved financial resilience, especially given the challenging retail environment.