Fossil Group, Inc. (FOSL)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered sequential progress under the turnaround: revenue of $233.3M (down 8.5% y/y) and gross margin up 890 bps to 61.3%, while constant-currency adjusted operating margin reached 4.3% and adjusted EBITDA was $9.1M .
• GAAP loss narrowed: operating loss improved to $(6.7)M (from $(29.2)M), and diluted EPS was $(0.33) vs $(0.46) a year ago; adjusted net loss per diluted share was $(0.10) .
• Guidance reiterated: FY25 worldwide net sales decline mid-to-high teens; adjusted operating income margin in the negative low single digits; management emphasized tariff mitigation levers, pricing actions, and supply-chain flexibility .
• Potential catalysts: sustained margin strength from reduced promotions and smartwatch exit, $100M SG&A savings in 2025, sale-leaseback (> $20M cash) and refinancing workstreams, plus positive brand initiatives (e.g., Nick Jonas campaign); downside risks include DTC softness and macro/tariff uncertainty .

What Went Well and What Went Wrong

What Went Well

• Gross margin expansion: 61.3% (+890 bps y/y) driven by improved product margins, exiting smartwatches, favorable mix, and reduced freight costs .
• Positive adjusted profitability: constant-currency adjusted operating income of $10.3M (4.3% margin) and adjusted EBITDA of $9.1M (3.9% of sales) .
• Strategic execution and momentum: CEO highlighted “another quarter of progress” in the turnaround; CFO reiterated confidence in mitigating tariffs with global revenue mix, vendor cost sharing, pricing, and geo-diversified production (“even if China rates settle as high as 145%”) .

What Went Wrong

• Top-line pressure: Net sales declined 8.5% y/y (6.2% cc) amid category/channel softness; DTC -24% cc with comparable retail sales -22% .
• Category/brand headwinds: Leathers -37% cc and Jewelry -13% cc; majority of brands declined, though Michael Kors +12% cc and Fossil watch +3% provided offsets .
• FX and tax headwinds: Other income swung to $(3.3)M (currency losses) vs +$3.9M prior-year; effective tax rate was (23.3)%, driving net loss of $(17.6)M .

Financial Results

Segment net sales (constant currency detail)

• Regions (Q1 2025 cc vs as-reported Q1 2024): | Region ($M) | Q1 2024 (As Rep.) | Q1 2025 (As Rep.) | Q1 2025 (CC) | |---|---|---|---| | Americas | $110.0 | $97.7 | $100.3 | | Europe | $78.7 | $77.3 | $79.1 | | Asia | $65.6 | $57.4 | $58.8 | | Corporate | $0.6 | $0.9 | $0.9 | | Total | $254.9 | $233.3 | $239.1 |

• Product Categories (Q1 2025 cc vs as-reported Q1 2024): | Category ($M) | Q1 2024 (As Rep.) | Q1 2025 (As Rep.) | Q1 2025 (CC) | |---|---|---|---| | Traditional Watches | $186.5 | $184.6 | $189.5 | | Smartwatches | $8.9 | $4.0 | $4.1 | | Total Watches | $195.4 | $188.6 | $193.6 | | Leathers | $27.6 | $17.2 | $17.4 | | Jewelry | $26.3 | $22.3 | $22.8 | | Other | $5.6 | $5.2 | $5.3 | | Total | $254.9 | $233.3 | $239.1 |

KPIs and Balance Sheet

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We narrowed our sales declines, increased gross margin by 890 basis points and delivered a second consecutive quarter of positive adjusted operating profit.” — Franco Fogliato, CEO .
• “Even if tariff rates ultimately fell between 30% to 145% on goods from China... we’re confident that we can mitigate the full impact of tariffs to our 2025 outlook.” — Randy Greben, CFO .
• “We signed an agreement for the sale‑leaseback of our European distribution center… expected to close in Q2 and will bring in excess of $20 million to the balance sheet.” — Randy Greben, CFO .
• “These actions are expected to drive $100 million of SG&A savings in 2025 versus 2024.” — Management on cost initiatives .
• “Kors returned to growth… Armani Exchange up double digits; Armani pressured in China.” — CEO on brand performance .

Q&A Highlights

• The published transcript comprises prepared remarks and closing comments without a Q&A section; management nonetheless clarified guidance reiteration and tariff mitigation levers in prepared remarks .

Estimates Context

• Q1 2025 S&P Global consensus was limited/unavailable: S&P data reflected actual revenue of $233.293M for Q1 2025 without a pre‑release consensus; no consensus EPS was available for Q1 2025 (Revenue actual only, no estimate; EPS consensus not present).*
• For context on near-term estimates, S&P Global showed Q2 2025 consensus revenue of $198.042M and EPS of $(0.21)* (actuals post‑report were $220.388M revenue and $(0.10) EPS, indicating a beat on both metrics ex any non‑GAAP adjustments).*

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Margin trajectory is the core positive: 61.3% gross margin with improving adjusted operating metrics despite revenue declines; reduced promotions and smartwatch exit are potent levers .
• Tariff risk appears mitigable in 2025 per CFO (pricing, vendor cost sharing, production shifts, global mix), reducing downside scenario risk to this year’s outlook .
• Cost-out program on track: ~$100M SG&A savings, distributor transitions, and ~50 planned store closures underpin margin durability into 2H25 .
• Liquidity actions (sale‑leaseback >$20M, refinancing) are near-term catalysts to de-risk the balance sheet and extend runway for the turnaround .
• Top-line recovery is uneven: traditional watches stabilizing with some brand wins (Kors +12% cc), but DTC remains pressured; wholesale strength could sustain mix and margin benefits .
• Guidance steady but conservative: reiteration for FY25 suggests confidence in levers; delivery against sales stabilization and free cash inflows would be key stock drivers .
• Watch for execution on marketing/product (Nick Jonas campaign, collabs) to convert brand “heat” into sales acceleration without diluting margins .

Additional Context (Prior Two Quarters)

• Q4 2024: Revenue $342.3M; gross margin 53.9%; adjusted operating income $20.1M; FY25 guidance initially introduced (mid-to-high teens sales decline; negative low single-digit adj. op margin) .
• Q3 2024: Revenue $287.8M; gross margin 49.4%; adjusted operating loss $(18.7)M; inventory and liquidity improved; TAG plan savings tracking .

Press releases during Q1 2025:

• Board strengthened with two independent directors (Pamela Edwards, Wendy Schoppert), adding finance/operations and digital/governance expertise .