Fossil Group NASDAQ: FOSL reported second-quarter 2026 net sales of $211 million, down 4% from a year earlier but ahead of the company’s expectations as sales trends continued to improve. Chief Executive Officer Franco Fogliato said the results reflected progress in the company’s turnaround plan, with strength in key brands, channels and markets helping set the stage for an anticipated return to companywide sales growth in the fourth quarter.
Gross margin expanded 490 basis points year over year to 62.4%, while adjusted operating income doubled to $8.6 million, which Chief Financial Officer Randy Greben rounded to $9 million during the call. Fossil raised its full-year outlook for sales, adjusted operating margin and free cash flow following the stronger-than-expected first half.
Regional and Channel Performance
The Americas region stabilized during the quarter, supported by mid-single-digit growth in the U.S., according to Fogliato. Asia sales increased 4%, led by double-digit growth in India. Fossil said India delivered double-digit growth during the period across its Fossil, Armani, Diesel and Michael Kors brands, with gains in both wholesale and direct-to-consumer channels.
Fogliato said the company continued to face pressure in Europe, the Middle East and Africa, particularly from geopolitical conditions in the Middle East and their effect on travel retail. He also noted that changes to the company’s operating model in some European markets have created near-term sales pressure while improving profitability and reducing risk over the longer term.
Traditional watches were a major source of growth. Fossil’s traditional-watch wholesale business rose 12% globally, while U.S. wholesale traditional-watch sales increased 16%. Fogliato attributed the performance to product innovation, storytelling and the company’s full-price selling strategy.
The company said its direct-to-consumer e-commerce business benefited from higher product margins and average unit retail prices as it emphasized price integrity. Its “store of the future” strategy also contributed to improved performance at full-price retail stores, including accelerating trends in product margin and average unit retail.
Product, Marketing and India Initiatives
Fogliato said Fossil is pursuing traditional-watch growth through new product development, premiumization and marketing. Recent releases included the Big Tic World Flags collection, along with Star Wars and Marvel collaborations. The company plans to introduce the Machine X1 platform this fall and launch its Signature collection, a premium Swiss-made watch platform, at New York Watch Week in October.
The Signature collection will subsequently launch in India, supported by a partnership with Padmanabh Singh, the Maharajah of Jaipur and a polo player, whom Fossil identified as its global Signature ambassador.
Fossil also increased marketing investment during the first half of 2026, shifting more spending toward upper-funnel demand creation and brand building. During the second quarter, the company held an event in Malaysia featuring K-pop star L that generated 600,000 impressions in one day, Fogliato said.
For licensed brands, management said Michael Kors watches and jewelry showed improved performance in important channels and geographies. Emporio Armani continued to see strong sell-through from premium offerings, while Armani Exchange benefited from product newness and celebrity-focused events.
Costs, Store Portfolio and Balance Sheet
Second-quarter selling, general and administrative expense was $123 million. Greben said the figure was essentially flat excluding an $11 million gain recorded in the prior-year quarter from the sale of a European distribution center. Lower store-related, compensation and administrative costs offset a planned increase in marketing spending.
Fossil ended the quarter with 17 fewer stores, including six closures and 11 South African locations transitioned to a distributor. The company expects two additional closures this year and anticipates ending 2026 with approximately 178 locations globally. Management said the major work to optimize the store portfolio is largely complete, while more than 25 lease agreements for top-performing Americas stores have been extended.
The company also completed South Africa’s transition to a distributor model and moved Malaysia and Singapore to a hybrid operating model. In addition, Fossil signed a lease for a new North American fulfillment and distribution center in Sunnyvale, Texas, which is expected to begin operating later this year at a lower cost than the existing rental facility.
Fossil ended the quarter with $79 million in cash and cash equivalents and $18 million of availability under its asset-based lending facility. Inventory totaled $178 million, roughly flat from the prior-year quarter. The company collected $4.9 million during the quarter from a $5.9 million tariff refund recognized in the first quarter and reported no use of its at-the-market equity program.
Outlook Raised
Fossil now expects worldwide net sales to decline 3% to 5% in 2026, compared with its prior outlook for a 4% to 6% decline. Management said roughly 360 basis points of the expected decline reflects the net impact of store closures and an extra week in 2025.
The company raised its forecast for adjusted operating margin to 4% to 6%, from a prior range of 3% to 5%, and now expects to generate positive free cash flow for the full year. Fossil also expects full-year gross margin in the upper 50% range, assuming it receives no additional tariff refunds in 2026.
Greben said year-to-date adjusted operating income reached $18.1 million, up 35% from $13.4 million a year earlier despite lower sales. Management said it remains focused on returning to sustainable top-line growth in the fourth quarter through product launches, wholesale expansion, marketing, full-price selling and continued operating discipline.
About Fossil Group (NASDAQ:FOSL)
Fossil Group, Inc designs, develops, markets and distributes consumer fashion accessories, focusing on lifestyle and wearable technology. The company offers a wide range of products including analog and digital watches, smartwatches, jewelry, handbags, small leather goods and wearable devices. It sells merchandise under its own Fossil brand and via license agreements with international labels such as Michael Kors, Armani Exchange, Burberry, Diesel, DKNY, Kate Spade and Tory Burch. Through its proprietary e-commerce platforms and global retail network, Fossil Group serves markets across North America, Europe, Asia and the Middle East.
The group's wearable technology segment combines traditional timepieces with features such as fitness tracking, heart-rate monitoring and NFC payments.
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