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FG

Fossil Group, Inc. (FOSL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue fell to $342.3M (-18.8% YoY), but margins inflected: gross margin expanded 630 bps to 53.9% and adjusted operating margin reached 5.9%, yielding adjusted EPS of $0.39 while GAAP diluted EPS was $(0.14) .
  • Sequential improvement vs Q3: revenue +$54.5M, gross margin up 450 bps, operating margin improved ~380 bps, and adjusted operating turned positive at $20.1M .
  • Management introduced a three‑pillar turnaround plan (core focus, cost rightsizing, balance sheet) and set 2027 targets: >$800M net sales, mid‑single‑digit adjusted operating margin, positive FCF; 2025 guidance calls for mid‑ to high‑teens sales decline and negative low‑single‑digit adjusted operating margin .
  • Liquidity improved to $177M (cash $123.6M + $53.4M revolver availability), inventory down 29% YoY to $178.6M; Q4 free cash flow was $30M—key near‑term stock support amid strategic review and new CFO appointment .

What Went Well and What Went Wrong

What Went Well

  • Margin and cost execution: gross margin +630 bps to 53.9% (ex-restructuring +850 bps) and SG&A down 17%; adjusted operating income turned to $20.1M and adjusted EBITDA to $23.1M .
  • Balance sheet progress: year-end liquidity $177M, inventory reduced 29% YoY, Q4 free cash flow $30M; management emphasized strengthening liquidity via asset sales and working capital .
  • Strategic momentum: launching new Fossil brand platform (new website), Nick Jonas campaign, license extensions (e.g., Michael Kors), and distributor transitions in five countries to lower costs .

What Went Wrong

  • Top-line pressure continued: Q4 net sales down 18.8% YoY; declines across regions and channels, with DTC comps -20% and traditional watches -10% in constant currency YoY; leathers -37%, jewelry -19% .
  • Restructuring costs and currency impacted results: Q4 included $7.6M cost of sales restructuring (Swiss factory closure) and ~$0.07 adverse FX on diluted EPS; other income swung to a $4.1M expense on net currency losses .
  • Continued store rationalization and smartwatch exit weighed ~600 bps on sales; 2025 outlook embeds ~4 pts sales impact from ~50 store closures and lower promotional intensity .

Financial Results

Quarterly progression (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$260.0 $287.8 $342.3
Gross Margin (%)52.6% 49.4% 53.9%
Operating Margin (%)(13.1)% (8.5)% (4.8)%
Adjusted Operating Margin (%)(6.4)% (6.5)% 5.9%
GAAP Diluted EPS ($)$(0.73) $(0.60) $(0.14)
Adjusted EPS ($)$(0.47) $(0.51) $0.39

YoY comparison

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$421.3 $342.3
Gross Margin (%)47.6% 53.9%
Operating Margin (%)(5.7)% (4.8)%
GAAP Diluted EPS ($)$(0.54) $(0.14)
Adjusted EPS ($)$(0.30) $0.39

Segment breakdown (Q4 2024 vs Q4 2023)

SegmentQ4 2023 Net Sales ($M)Q4 2024 Net Sales ($M)Commentary
Americas$203.7 $164.2 Constant currency down 18% YoY
Europe$135.7 $107.0 Constant currency down 21% YoY
Asia$80.9 $70.4 Constant currency down 13% YoY
Corporate$1.0 $0.7 —
Total$421.3 $342.3 —

Product categories (Q4 2024 vs Q4 2023)

CategoryQ4 2023 Net Sales ($M)Q4 2024 Net Sales ($M)Commentary
Traditional Watches$300.9 $268.8 Down 10% cc YoY
Smartwatches$21.5 $3.6 Exit drove ~600 bps sales impact
Leathers$51.8 $32.4 Down 37% cc YoY
Jewelry$40.4 $32.5 Down 19% cc YoY
Other$6.7 $5.0 —
Total$421.3 $342.3 —

KPIs

KPIQ3 2024Q4 2024
Liquidity ($M)$130.1 $177.0
Cash & Equivalents ($M)$106.3 $123.6
Revolver Availability ($M)$23.8 $53.4
Inventory ($M)$226.4 $178.6
Total Debt ($M)$175.7 $164.8
Free Cash Flow ($M)—$30
Stores (units)251 248

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Worldwide Net SalesFY 2024~$1.2B Revised to ~$1.1B Lowered; actual $1,145.0M delivered above revised
Adjusted Operating MarginFY 2024-3% to -5% Revised to -6% to -8% Guidance lowered; actual -3.0% better than revised
Worldwide Net SalesFY 2025N/ADecline mid to high teens New
Adjusted Operating Income MarginFY 2025N/ANegative low single digits New
Long-Term TargetsFY 2027N/A>$800M net sales; mid‑single‑digit adjusted OI margin; positive FCF New strategic targets

Earnings Call Themes & Trends

TopicQ2 2024 (Prev Mentions)Q3 2024 (Prev Mentions)Q4 2024 (Current)Trend
Brand/platform strategyTAG driving margin/SG&A; stabilizing Fossil watches; ambassador initiatives (e.g., Michele/Ashley Graham) New CEO outlining brand‑led, consumer‑focused model; upper‑funnel push; Machine relaunch New Fossil brand platform, new website; Nick Jonas campaign to reintroduce brand Building momentum
Licensed brandsMixed; SKECHERS extension to 2029 Challenges in larger licensed brands; working with partners Reduced minimum royalties, improved in‑store presentation; extension of Michael Kors Stabilizing/optimizing
Channel mix & promotionsDTC optimization, normalize promotions Return to roots in wholesale, less promotional DTC Prioritize wholesale, transform DTC; reduced promotions improved GM Improving margins, near‑term sales headwind
Geography focusIndia strength; inventory distort toward growth markets Prioritize U.S., Germany, France, India Transition smaller geographies to distributors (5 markets) Streamlining footprint
Supply chain/sourcingSourcing benefits to GM in H2 Continued SKU rationalization/sourcing benefits Additional sourcing benefits expected H1 2025 to GM Positive margin driver
Tariffs/macroWholesale softness U.S./Europe; China demand weak Wholesale pressure, macro soft No material tariff impact anticipated based on scenarios Macro still soft, tariffs neutral
Cost actionsRightsizing workforce, store closures; TAG benefits >=$100M in 2024 Expect $300M total plan benefits by end 2025 ~$100M SG&A savings in 2025; ~50 store closures; distributor transitions Accelerating savings
Balance sheet & liquidity$57M tax refund; asset monetization Asset monetization (France property sale) and planned sale‑leaseback (Germany) Liquidity $177M; pursuing noncore asset sales Strengthening liquidity

Management Commentary

  • “We’re pleased to have concluded the year with fourth quarter results that exceed our top and bottom line guidance…expanded gross margins, reduced costs and delivered positive adjusted operating margins.” — CEO Franco Fogliato .
  • “We introduced a turnaround plan centered on 3 primary pillars: Refocusing on our core, rightsizing our cost structure and strengthening our balance sheet.” — CEO Franco Fogliato .
  • “Gross margin included restructuring charges of ~$8M…Excluding these costs, gross margin increased by 850 basis points.” — CFO remarks .
  • “We expect to capture SG&A savings of approximately $100 million compared to 2024…corporate reduction in force…close ~50 stores…transitioned 5 markets to a distributor model.” — CFO remarks .
  • “In 2026, we expect to be adjusted operating income profitable on a smaller sales base; in 2027, mid‑single‑digit adjusted operating margin and positive free cash flow on >$800M sales.” — CEO Franco Fogliato .

Q&A Highlights

  • The published transcript primarily contains prepared remarks and forward‑looking commentary; management clarified tariff impact is not expected to be material and reiterated a focus on full‑price selling to sustain gross margin improvements .
  • Guidance cadence: initiatives expected to gain traction through 2025, narrowing YoY sales declines as the year progresses; store closures (~$45M sales impact) and reduced promotions embedded .
  • Cost‑savings drivers and distributor transitions were discussed with specifics on workforce reduction and 5 countries already shifted, implying further optionality in 2025 .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was not retrievable due to SPGI request limits; therefore, a direct comparison to consensus is unavailable. Management stated Q4 exceeded their top and bottom line guidance, indicating an internal beat vs guidance rather than a verified Street beat/miss .

Key Takeaways for Investors

  • Margin inflection and cost execution are the central near‑term thesis: Q4 adjusted operating margin of 5.9% and adjusted EPS of $0.39 amid sales declines suggests structural margin progress from TAG and reduced promotions .
  • Liquidity runway improved (cash + revolver $177M) with inventory down 29% YoY; FCF turned positive in Q4 ($30M), supporting turnaround execution while strategic review proceeds .
  • 2025 will be a reset year: expect top‑line contraction (mid‑high teens) driven by store closures (~4 pts) and promotion normalization, but margin/SG&A tailwinds to narrow adjusted operating losses—watch gross margin trajectory and cadence through the year .
  • Structural focus areas: brand platform relaunch (Nick Jonas campaign), license optimizations (Michael Kors extension), wholesale emphasis, and distributor transitions in smaller markets—key to improving mix and profitability .
  • Risks: macro/consumer softness (U.S./Europe/China), currency volatility (Q4 other income expense $4.1M on net FX losses), and execution risk on cost and brand initiatives .
  • Long‑term frame: 2027 targets (>$800M sales, mid‑single‑digit adjusted OI margin, positive FCF) set a de‑risked smaller base, implying valuation upside if margin sustainability is demonstrated across cycles .
  • Near‑term trading: monitor evidence of wholesale stabilization (noted improving U.S. wholesale), promotional discipline adherence, and any asset monetization/financing milestones from the strategic review as potential catalysts .