We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Fossil's (FOSL) Q2 Loss Widens Y/Y on Sales Decline, Margin Up
Read MoreHide Full Article
Fossil Group, Inc. (FOSL - Free Report) incurred a net loss per share of 73 cents for the second quarter of 2024, wider than the net loss of 51 cents in the same period last year. This widening loss was primarily driven by a decline in sales and substantial restructuring costs.
Net sales for the quarter stood at $260 million, reflecting a 19.3% year-over-year decrease from $322 million in the second quarter of 2023. The sharp decline in revenues was due to reduced sales across key categories and geographies, exacerbated by Fossil’s strategic decision to exit the smartwatch category and optimize its retail store portfolio.
The performance in the second quarter of 2024 was notably weak, with substantial declines in sales and an increase in net losses. While the TAG Plan has led to some operational improvements, such as better gross margins and cost reductions, these efforts have not been enough to counterbalance the negative impact of reduced revenues and restructuring expenses. Sales declines were observed across all major geographic segments and product categories, resulting in a challenging quarter for the company.
Fossil Group, Inc. Price, Consensus and EPS Surprise
In the Americas, sales decreased 18% year over year to $119.6 million. Europe saw a 15% drop in revenues to $74.8 million. In Asia, sales fell 20% year over year to $65.2 million.
The company’s traditional watches category, a core segment, experienced a 17% decline in sales in constant currency. Additionally, both the leathers and jewelry categories reported double-digit declines, with leather goods declining 18% and jewelry sales decreasing by 10% in constant currency.
Financial Performance
Despite the sharp decline in sales, Fossil managed to expand its gross margin by 390 basis points to 52.6%, up from 48.7% in the same period last year. This margin improvement was primarily driven by the company’s TAG Plan, which included the exit from low-margin product lines like smartwatches and improvements in product margins within core categories.
Operating expenses totaled $170.9 million, representing an 11% reduction from the prior year, primarily due to lower compensation costs as a result of workforce reductions and other cost-saving measures under the TAG Plan. Nevertheless, restructuring charges increased significantly to $16.7 million, up from $4.6 million in the second quarter of 2023, largely due to professional services and employee-related costs associated with the restructuring.
Fossil incurred an operating loss of $34 million for the second quarter of 2024, narrower than the $35.3 million loss in the previous year’s quarter. On an adjusted basis, the operating loss was $16.7 million, narrower than $27.6 million in the year-ago quarter. It incurred a net loss of $38.8 million in the second quarter of 2024, widening from a net loss of $26.5 million in the same period last year.
Balance Sheet Position (As of Jun 29, 2024)
Fossil Group's cash and cash equivalents stood at $104.9 million, showing a decrease from $132.1 million as recorded on Jul 1, 2023. There was $51 million available under its revolving credit facility at the second-quarter end.
The company's total assets also decreased from $1.1 billion to $785.7 million.
Long-term debt was reduced significantly, from $243 million to $156.5 million.
Stockholders' equity saw a substantial decline, dropping from $336.9 million to $187.1 million.
Management Guidance
Fossil reiterated its full-year 2024 guidance, expecting worldwide net sales to reach approximately $1.2 billion. This forecast takes into account the ongoing challenges in consumer demand and the expected negative impact of about $100 million related to the exit from the smartwatch business and the closure of owned retail stores. The company anticipates an adjusted operating margin in the range of -3% to -5% for the full year, indicating continued pressure on profitability. However, Fossil expects to generate positive free cash flow for the year, supported by tax refunds received during the second quarter of 2024.
Other Developments
The TAG Plan continues to be a critical component of Fossil’s strategy, focusing on reducing operating expenses, improving operating margins, and stabilizing the business. The plan is projected to generate $100 million in additional annualized operating income benefits in 2024, building on the $125 million achieved in 2023. Restructuring costs related to the TAG Plan are estimated at $40 million for the full year.
In March 2024, Fossil initiated a strategic review of its business model and capital structure, exploring further operational changes and cost reductions. This review may include additional financing options, such as debt and equity, to strengthen the balance sheet. Fossil has engaged Evercore as its financial advisor to assist in this process, underscoring the company’s commitment to navigating through its ongoing challenges.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Fossil's (FOSL) Q2 Loss Widens Y/Y on Sales Decline, Margin Up
Fossil Group, Inc. (FOSL - Free Report) incurred a net loss per share of 73 cents for the second quarter of 2024, wider than the net loss of 51 cents in the same period last year. This widening loss was primarily driven by a decline in sales and substantial restructuring costs.
Net sales for the quarter stood at $260 million, reflecting a 19.3% year-over-year decrease from $322 million in the second quarter of 2023. The sharp decline in revenues was due to reduced sales across key categories and geographies, exacerbated by Fossil’s strategic decision to exit the smartwatch category and optimize its retail store portfolio.
The performance in the second quarter of 2024 was notably weak, with substantial declines in sales and an increase in net losses. While the TAG Plan has led to some operational improvements, such as better gross margins and cost reductions, these efforts have not been enough to counterbalance the negative impact of reduced revenues and restructuring expenses. Sales declines were observed across all major geographic segments and product categories, resulting in a challenging quarter for the company.
Fossil Group, Inc. Price, Consensus and EPS Surprise
Fossil Group, Inc. price-consensus-eps-surprise-chart | Fossil Group, Inc. Quote
Sales Performance
In the Americas, sales decreased 18% year over year to $119.6 million. Europe saw a 15% drop in revenues to $74.8 million. In Asia, sales fell 20% year over year to $65.2 million.
The company’s traditional watches category, a core segment, experienced a 17% decline in sales in constant currency. Additionally, both the leathers and jewelry categories reported double-digit declines, with leather goods declining 18% and jewelry sales decreasing by 10% in constant currency.
Financial Performance
Despite the sharp decline in sales, Fossil managed to expand its gross margin by 390 basis points to 52.6%, up from 48.7% in the same period last year. This margin improvement was primarily driven by the company’s TAG Plan, which included the exit from low-margin product lines like smartwatches and improvements in product margins within core categories.
Operating expenses totaled $170.9 million, representing an 11% reduction from the prior year, primarily due to lower compensation costs as a result of workforce reductions and other cost-saving measures under the TAG Plan. Nevertheless, restructuring charges increased significantly to $16.7 million, up from $4.6 million in the second quarter of 2023, largely due to professional services and employee-related costs associated with the restructuring.
Fossil incurred an operating loss of $34 million for the second quarter of 2024, narrower than the $35.3 million loss in the previous year’s quarter. On an adjusted basis, the operating loss was $16.7 million, narrower than $27.6 million in the year-ago quarter. It incurred a net loss of $38.8 million in the second quarter of 2024, widening from a net loss of $26.5 million in the same period last year.
Balance Sheet Position (As of Jun 29, 2024)
Fossil Group's cash and cash equivalents stood at $104.9 million, showing a decrease from $132.1 million as recorded on Jul 1, 2023. There was $51 million available under its revolving credit facility at the second-quarter end.
The company's total assets also decreased from $1.1 billion to $785.7 million.
Long-term debt was reduced significantly, from $243 million to $156.5 million.
Stockholders' equity saw a substantial decline, dropping from $336.9 million to $187.1 million.
Management Guidance
Fossil reiterated its full-year 2024 guidance, expecting worldwide net sales to reach approximately $1.2 billion. This forecast takes into account the ongoing challenges in consumer demand and the expected negative impact of about $100 million related to the exit from the smartwatch business and the closure of owned retail stores. The company anticipates an adjusted operating margin in the range of -3% to -5% for the full year, indicating continued pressure on profitability. However, Fossil expects to generate positive free cash flow for the year, supported by tax refunds received during the second quarter of 2024.
Other Developments
The TAG Plan continues to be a critical component of Fossil’s strategy, focusing on reducing operating expenses, improving operating margins, and stabilizing the business. The plan is projected to generate $100 million in additional annualized operating income benefits in 2024, building on the $125 million achieved in 2023. Restructuring costs related to the TAG Plan are estimated at $40 million for the full year.
In March 2024, Fossil initiated a strategic review of its business model and capital structure, exploring further operational changes and cost reductions. This review may include additional financing options, such as debt and equity, to strengthen the balance sheet. Fossil has engaged Evercore as its financial advisor to assist in this process, underscoring the company’s commitment to navigating through its ongoing challenges.