Executive Summary

Fossil delivered Q2 2025 net sales of $220.4M and gross margin of 57.5%, achieved positive operating income and positive adjusted operating income, and raised full-year guidance, supported by cost reductions and a shift to full-price selling .
EPS beat: Adjusted diluted EPS of -$0.10 versus Wall Street consensus of -$0.21; revenue beat: $220.4M versus $198.0M consensus. Coverage is thin (1 estimate each), but the results were a clear beat on both top and bottom lines.*
Guidance raised: net sales decline now “mid-teens” (from “mid-to-high teens”); adjusted operating margin now “breakeven to slightly positive” (from “negative low single digits”) .
Balance sheet actions: announced new $150M ABL and transaction support agreement to amend and extend senior notes to 2029, including a $32M cash backstop, which management views as pivotal to turnaround execution .
Key catalysts: continuation of gross margin expansion, wholesale channel strengthening, reduced promotions, Nick Jonas global brand campaign, and improved liquidity via refinancing .

Values marked with an asterisk (*) in this report are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

Gross margin expanded 490 bps YoY to 57.5%, the third consecutive quarter of meaningful expansion, driven by improved product costing, exit from connected watches, lower freight, and reduced promotions .
Adjusted operating income turned positive to $3.8M (1.7% margin) from a $(17.0)M loss a year ago, reflecting strict cost control (SG&A down $32M YoY to $110.9M) and store closures .
Management quote: “We delivered a third consecutive quarter of positive adjusted operating income supported by a healthy gross margin profile and an improving cost structure.” — Franco Fogliato .

What Went Wrong

Net sales declined 15.2% YoY to $220.4M due to category and channel softness; DTC fell 30% and comparable retail declined 23% in constant currency; traditional watches -8%, leathers -39%, jewelry -22% .
Asia and Europe declined double-digits in constant currency (-12% and -14%, respectively), and China remains pressured by macro conditions .
Effective tax rate was 150.9%, with tax expense of $6.2M, resulting in a GAAP net loss of $2.3M despite operating income .

Financial Results

Headline P&L vs prior periods and estimates

Metric	Q4 2024	Q1 2025	Q2 2025
Net Sales ($USD Millions)	$342.3	$233.3	$220.4
Gross Margin (%)	53.9%	61.3%	57.5%
Operating Income (Loss) ($M)	$(16.3)	$(6.7)	$8.5
Operating Margin (%)	(4.8%)	(2.9%)	3.9%
Adjusted Operating Income (Loss) ($M)	$20.1	$10.3 (constant currency)	$3.8 (constant currency)
Adjusted Operating Margin (%)	5.9%	4.3% (constant currency)	1.7% (constant currency)
Adjusted EBITDA ($M)	$23.1	$9.1	$7.0
Adjusted EBITDA Margin (%)	6.7%	3.9%	3.2%
Diluted EPS ($)	$(0.14)	$(0.33)	$(0.04)
Adjusted Diluted EPS ($)	$0.39	$(0.10)	$(0.10)
Revenue Consensus Mean ($M)	—	—	$198.0*
EPS Consensus Mean ($)	—	—	$(0.21)*

Notes: Estimates marked with * are retrieved from S&P Global. Actuals for Q2 2025: Revenue $220.388M vs consensus $198.042M; Adjusted EPS -$0.10 vs consensus -$0.21; # of estimates: 1 for both revenue and EPS.*

Segment Net Sales (Constant Currency) Trend

Segment ($USD Millions)	Q4 2024	Q1 2025	Q2 2025
Americas	$166.9	$100.3	$97.1
Europe	$107.0	$79.1	$64.2
Asia	$70.4	$58.8	$57.5
Corporate	$0.7	$0.9	$0.1
Total	$345.0	$239.1	$218.9

Product Categories Net Sales (Constant Currency) Trend

Category ($USD Millions)	Q4 2024	Q1 2025	Q2 2025
Traditional Watches	$271.2	$189.5	$177.9
Smartwatches	$3.6	$4.1	$1.4
Total Watches	$274.8	$193.6	$179.3
Leathers	$32.5	$17.4	$16.7
Jewelry	$32.7	$22.8	$18.8
Other	$5.0	$5.3	$4.1
Total	$345.0	$239.1	$218.9

KPIs and Balance Sheet

KPI	Q4 2024	Q1 2025	Q2 2025
Store Count (Total)	248	220	214
Cash & Cash Equivalents ($M)	$123.6	$78.3	$109.9
Inventories ($M)	$178.6	$182.1	$178.1
Total Debt ($M)	$164.8	$180.0	$179.0
SG&A ($M)	$172.1	$133.8	$110.9

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Worldwide Net Sales	FY 2025	Decline mid-to-high teens	Decline mid-teens	Raised (less negative)
Adjusted Operating Margin	FY 2025	Negative low single digits	Breakeven to slightly positive	Raised

Management notes Q3 margins will be pressured by recognition of minimum royalty guarantee shortfalls, with a return to positive adjusted operating income in Q4 implied in the outlook .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024 and Q1 2025)	Current Period (Q2 2025)	Trend
Gross Margin Discipline	TAG plan drove margin expansion; Q4 GM 53.9% and shift to full-price selling . Q1 GM 61%+ with reduced promos and exit of connected watches .	Third consecutive quarter of GM expansion to 57.5%; less promotional activity; surgical price increases; mitigation of tariffs .	Sustained discipline; GM profile strengthening despite tariff backdrop.
Wholesale Channel	Q1: Core brands showed double-digit growth in US wholesale; investment in POS and fixtures .	Strengthening partnerships, improved in-store storytelling; window takeovers planned around Nick Jonas campaign .	Improving; credibility with partners increasing.
DTC Rationalization	Q4/Q1: Reduced promotions; store closures (50 planned in 2025) .	DTC down 30% constant currency; comparable retail -23%; continued closures (6 in Q2) .	Near-term drag from strategic de-emphasis; focusing on quality traffic and AUR.
Tariffs/Macro	Q1: Multi-lever mitigation (vendor cost sharing, price increases, supply chain diversification) .	No negative GM impact YTD from tariffs; multiple mitigants; fluid environment acknowledged .	Managed risk; watch for Q3 royalty impact.
Licensed Brand Royalties	Q1: Achieved modest reductions in ’25, meaningful in ’26 .	Q3 will show divot from royalty deficits; curve bends favorably in ’26 .	2025 drag, 2026 relief.
Product & Collaboration	Q1: Minecraft sold out; Shelby, Superman launches; Nick Jonas campaign .	Strong collabs (Superman, Fantastic Four); Nick Jonas brand ambassador activation; uplift in engagement .	Increasing brand heat; upper funnel marketing up.
Supply Chain	Q1: Sale-leaseback of German DC to improve liquidity; working capital discipline .	Appointment of Chief Supply Chain Officer (Lakshmanan) to modernize supply chain .	Strengthening leadership and execution.

Management Commentary

“We delivered a third consecutive quarter of positive adjusted operating income supported by a healthy gross margin profile and an improving cost structure.” — Franco Fogliato, CEO .
“Gross margin…coming in at 57.4%.…higher product margins…exit from connected watches…lower freight costs…and significantly lower reliance on discounts and promotions.” — Randy Greben, CFO .
“We have successfully refinanced our revolving credit facility and entered into a transaction support agreement…to amend and extend our bond maturities into 2029.” — Franco Fogliato .
“We expect worldwide net sales to decline in the mid teens…updated outlook calls for breakeven to slightly positive adjusted operating margins.” — Randy Greben .

Q&A Highlights

Gross margin drivers: Full-price model and supply chain improvements raised AUR; consumers showed resilience to lower promotions; tariffs not a headwind YTD due to mitigations (cost sharing, sourcing optimization, price increases, FTZ leverage) .
Wholesale channel: Strengthened relationships, partners praising reduced promotions; investments in in-store presentation and marketing around Nick Jonas to drive momentum .
Younger consumers & product demand: Traditional watches seeing a comeback in Americas and India; collaborations (Minecraft, Superman) sold out quickly, supporting brand heat .

Estimates Context

Q2 2025 results vs Wall Street consensus (S&P Global): Revenue $220.388M vs $198.042M estimate (beat); Adjusted diluted EPS -$0.10 vs -$0.21 estimate (beat); both based on one estimate each.*
Implications: With margin discipline and cost reductions, consensus may need to move higher on gross margin trajectory and adjusted operating margin for H2, while acknowledging Q3 royalty shortfalls and DTC de-emphasis .

Values marked with an asterisk (*) are retrieved from S&P Global.

Key Takeaways for Investors

Fossil is executing a margin-first turnaround: gross margin expansion remains durable, driven by full-price selling, improved costing, and category mix shift away from connected watches .
Guidance was raised on both top and bottom line; expect a Q3 margin “divot” from minimum royalty shortfalls, with a return to positive adjusted operating income in Q4 .
Liquidity and runway improved via $150M ABL and senior notes extension framework; additional $32M backstop supports the plan .
Wholesale strength and reduced promotions are repairing partner relationships and should support sell-through; DTC de-emphasis is strategic and margin-accretive despite near-term sales headwinds .
Near-term catalysts: Nick Jonas global brand campaign and wholesale marketing activations; watch for Q3 royalty recognition impact and Asia/China macro pressure .
Medium-term thesis: Margin normalization and SG&A savings ($100M 2025 target) plus royalty relief in 2026 can underpin sustained profitability improvement .
Risk monitor: Tariff policy shifts and China demand; management’s toolkit (price, vendor cost-sharing, supply chain reallocation) currently mitigating GM impact .

Fossil Group, Inc. (FOSL)·Q2 2025 Earnings Summary