Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fossil Group Inc (NASDAQ:FOSL) has appointed Franco Fogliato as the new CEO, bringing extensive experience in leading global brands and successful turnarounds.
• The company is focusing on redefining and simplifying its core business to drive growth and profitability.
• Fossil Group Inc (NASDAQ:FOSL) reported a 240 basis point expansion in gross margin, attributed to strategic exits and pricing initiatives.
• The company is actively working on a new brand platform and global campaign to strengthen its connection with consumers.
• Fossil Group Inc (NASDAQ:FOSL) is making progress in asset monetization, including the sale of a building in France and plans for a sale-leaseback of a distribution center in Germany.

Negative Points

• Fossil Group Inc (NASDAQ:FOSL) reported a 16% decline in net sales for the third quarter, with significant pressure on the top line.
• The smartwatch exit and store closures contributed to a 600 basis point decline in sales.
• The company continues to face challenges with larger licensed watch brands as partners undergo repositioning efforts.
• Fossil Group Inc (NASDAQ:FOSL) closed seven stores in the third quarter, with plans to close up to 58 by year-end, indicating ongoing restructuring.
• The company revised its full-year outlook, expecting an adjusted operating margin loss between negative 6% and negative 8%.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with FOSL.

Q: What are the immediate priorities for Fossil Group under the new CEO, Franco Fogliato? A: Franco Fogliato, Chief Executive Officer, emphasized three key priorities: redefining and focusing on the core business, rightsizing the business infrastructure, and strengthening the balance sheet to improve liquidity. He plans to simplify the operating model and make bold moves to reignite growth in the Fossil brand.

Q: How did Fossil Group perform financially in the third quarter of 2024? A: Andrew Skobe, Interim Chief Financial Officer, reported that third-quarter net sales were $288 million, down 16% in constant currency. The decline was partly due to the exit from smartwatches and store closures. However, gross margin expanded by 240 basis points to 49.4%, driven by the exit of connected products and benefits from retail pricing and promotional initiatives.

Q: What actions are being taken to stabilize sales and improve profitability? A: Franco Fogliato mentioned several actions, including introducing a global brand ambassador for the Fossil brand, normalizing promotional levels to improve gross margin, leveraging successful product lines like the women's Raquel line, and relaunching the men's Machine platform. These efforts aim to strengthen product offerings and enhance brand connection with consumers.

Q: What is the status of Fossil Group's store closures and cost reduction efforts? A: Andrew Skobe stated that Fossil Group closed seven stores in Q3, ending the quarter with 251 stores, a 17% reduction from the previous year. The company plans to close up to 58 stores by year-end. SG&A expenses decreased by 16% year-over-year, reflecting lower store operating costs, compensation, and administrative expenses.

Q: What are the expectations for Fossil Group's financial performance in the near future? A: The company revised its full-year outlook, expecting worldwide net sales of approximately $1.1 billion and an adjusted operating margin loss ranging from negative 6% to negative 8%. Fossil Group anticipates positive cash flow in 2024 and aims to achieve at least $100 million of annualized P&L benefits from its transformation and growth plan.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.