Fossil Reports Narrowed Q1 Loss Year-Over-Year, Fueled by Watch Sales in Turnaround Strategy

Published On: May 20, 2025 3:47 pm

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Fossil Group Reports Earnings: Stock Surges Amid Turnaround Efforts

Shares of Fossil Group, Inc. (FOSL) have rallied 27.9% since the company released its first-quarter earnings for fiscal 2025, outperforming the S&P 500’s modest 1.4% gain during the same timeframe. Over the past month, the stock surged 81.3%, significantly ahead of the S&P 500’s 15.4% rise. This reflects growing investor optimism regarding the company’s turnaround strategy and its improving fundamentals.

During the first quarter, Fossil posted a net loss of 33 cents per share, which is an improvement from the 46 cents loss seen in the same quarter the previous year. The adjusted net loss per share was 10 cents, narrowing from 30 cents a year earlier. Stay ahead of market-making news.

The company recorded net sales of $233.3 million, down 8.5% from $254.9 million in the prior-year period. In constant currency terms, the sales decline was 6.2%.

This decrease in sales was mainly driven by a downturn in certain categories, particularly smartwatches and leather goods, along with the repercussions of store closures. Despite these sales challenges, gross profit rose to $143 million, an increase from $133.5 million a year ago, while gross margin expanded to 61.3%, up 890 basis points. This improvement came from a favorable product mix, exiting the smartwatch category, and lower freight costs.

Operating loss significantly decreased to $6.7 million from $29.2 million in the same quarter last year. On an adjusted constant currency basis, Fossil reported operating income of $10.3 million, in contrast to an adjusted operating loss of $18.9 million in the first quarter of 2024.

Fossil Group, Inc. Price, Consensus, and EPS Surprise

Price-Consensus-EPS Surprise Chart for Fossil Group, Inc.

Business Segment Highlights

Fossil’s performance showed variation across regions and product categories. In the Americas and Asia, sales declined by 9% and 10%, respectively, on a constant currency basis. Conversely, Europe experienced a modest increase of 1%. In terms of product categories, traditional watches saw growth of 2%, which helped offset a significant 37% decline in leather goods and a 13% drop in jewelry. Notably, the MICHAEL KORS brand achieved a 12% sales increase, standing out amidst declines in broader segments.

Wholesale sales rose by 6% on a constant currency basis, supported by channel rebalancing and reduced promotional activities. However, direct-to-consumer (DTC) sales fell by 24%, attributed to a 22% decline in comparable retail sales. The company concluded the quarter with 220 stores, down from 277, due to the closure of 62 locations and the opening of 5.

Management Commentary

CEO Franco Fogliato stated that the quarter represented another step forward in Fossil’s turnaround plan, pointing out significant advancements in both operational and financial metrics. He mentioned that restructuring initiatives and strategic choices to minimize promotional activities contributed to the increase in gross margin. CFO Randy Greben noted an 8% year-over-year drop in operating expenses, reflecting cost discipline and cuts in digital marketing expenditures.

Management highlighted successful product innovation, especially within the core Fossil line and collaborative launches like the Fossil for Mine Craft collection and the limited-edition Fossil Shelby watch. These initiatives have reportedly enhanced social media engagement and consumer interest. Improved storytelling and branding efforts in the men’s category also boosted wholesale momentum.

Drivers of Improvement

The substantial year-over-year margin expansion resulted from strategic moves, such as exiting the underperforming smartwatch segment, focusing on full-price sales, optimizing cost structures, and refining product assortments. The e-commerce channel experienced margin gains, even amidst lower sales volumes, while retail trends showed early signs of recovery in transaction units and conversion rates at high-traffic locations.

On the cost front, selling, general, and administrative (SG&A) expenses decreased to $133.8 million from $152.2 million, aided by lower compensation costs, a reduction in stores, and planned cuts in digital advertising. Furthermore, inventory declined by 19% year-over-year to $182.1 million, aligning with the objective of streamlining assortments and minimizing markdown risks.

Guidance

Fossil maintained its full-year 2025 guidance, anticipating a worldwide net sales decline in the mid-to-high teens and an adjusted operating margin in the negative low single digits. This outlook considers a projected $45 million revenue impact from planned retail store closures and excludes foreign currency fluctuations. Management expressed confidence in the company’s ability to mitigate potential tariff risks through diversification and strategic measures.

Other Developments

During the quarter, Fossil entered into an agreement to sell its distribution center in Eckstedt, Germany, as part of a sale-leaseback transaction expected to close in the second quarter. This deal is anticipated to enhance the company’s liquidity with an addition of $20 million to its balance sheet cash upon completion, which stood at $99.5 million at the end of the quarter.