Shares of Fossil Group, Inc. (FOSL Quick QuoteFOSL - Free Report) have rallied 27.9% since the company reported its first-quarter earnings for fiscal 2025, significantly outperforming the S&P 500’s modest 1.4% gain during the same period. Over the past month, the stock has surged an impressive 81.3%, well ahead of the S&P 500’s 15.4% increase, reflecting renewed investor optimism in the company’s ongoing turnaround strategy and improving fundamentals.

Fossil incurred first-quarter net loss per share of 33 cents, which narrowed from 46 cents in the prior-year quarter. Adjusted net loss per share of 10 cents narrowed from 30 cents a year earlier. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The company reported net sales of $233.3 million, down 8.5% from $254.9 million in the prior-year period. In constant currency terms, the decline was 6.2%. 

The top-line weakness was primarily driven by category softness, especially in smartwatches and leather goods, and the impact of store closures. Despite the sales decline, gross profit rose to $143 million from $133.5 million a year earlier, as gross margin expanded to 61.3%, up 890 basis points, supported by favorable product mix, exiting the smartwatch category, and lower freight costs.

Operating loss narrowed significantly to $6.7 million from $29.2 million in the year-ago quarter. On an adjusted constant currency basis, Fossil reported operating income of $10.3 million versus an adjusted operating loss of $18.9 million in the first quarter of 2024. 

Fossil Group, Inc. Price, Consensus and EPS Surprise

Fossil Group, Inc. price-consensus-eps-surprise-chart | Fossil Group, Inc. Quote

Business Segment Highlights

Fossil's performance varied across regions and product categories. Sales in the Americas and Asia declined 9% and 10%, respectively, on a constant currency basis, while Europe posted a modest 1% increase. By category, traditional watches grew 2%, offsetting some of the impact from a 37% decline in leather goods and a 13% drop in jewelry. Notably, the MICHAEL KORS brand posted a 12% sales increase, standing out amid broader portfolio declines.

Wholesale sales rose 6% on a constant currency basis, benefiting from channel rebalancing and promotional pullbacks, while direct-to-consumer (DTC) sales dropped 24%, impacted by a 22% decrease in comparable retail sales. The company ended the quarter with 220 stores, down from 277, after closing 62 locations and opening 5.

Management Commentary

CEO Franco Fogliato emphasized that the quarter marked another step forward in Fossil’s turnaround plan, highlighting strong progress in operational and financial metrics. He noted that restructuring initiatives and strategic decisions to reduce promotional activity contributed to the gross margin improvement. CFO Randy Greben added that operating expenses declined by 8% year-over-year, reflecting cost discipline and digital marketing spend reductions.

Management also pointed to successful product innovation, particularly in its core Fossil line and in collaborative launches like the Fossil for Mine Craft collection and a limited-edition Fossil Shelby watch. These initiatives were credited with generating social media traction and consumer engagement. Additionally, wholesale momentum was bolstered by improved storytelling and branding in the men’s segment and a focus on top-performing SKUs.

Drivers of Improvement

The significant year-over-year margin expansion stemmed from several strategic moves: exiting the underperforming smartwatch segment, shifting focus to full-price sales, improving cost structures, and optimizing product assortments. The e-commerce channel also saw margin gains despite softer volumes, while retail trends showed early signs of recovery in units per transaction and conversion rates at high-traffic locations.

On the cost side, SG&A dropped to $133.8 million from $152.2 million, aided by lower compensation costs, fewer stores, and a planned decrease in digital advertising. Inventory declined 19% year over year to $182.1 million, aligning with efforts to streamline assortments and reduce markdown risk.

Guidance

Fossil reiterated its full-year 2025 guidance, projecting a worldwide net sales decline in the mid-to-high teens and an adjusted operating margin in the negative low single digits. The outlook factors in a $45 million revenue hit from planned retail store closures and excludes foreign currency impacts. Management also cited confidence in its ability to offset potential tariff risks through diversification and mitigation strategies.

Other Developments

During the quarter, Fossil signed an agreement to sell its distribution center in Eckstedt, Germany, in a sale-leaseback transaction expected to close in the second quarter. The deal is projected to add $20 million in balance sheet cash upon completion, supporting the company’s refinancing efforts and strengthening liquidity, which stood at $99.5 million at quarter-end.