Fossil Group Q3 Earnings Call Highlights

Key Points

• Fossil raised its full-year outlook after Q3 sales rose 2% to $276 million. It now expects sales of $980 million to $990 million and an adjusted operating margin of 5.5% to 6.5%, while continuing to target positive free cash flow.
• Adjusted operating income increased by $45 million year over year to $30 million, and gross margin expanded to 59.9% from 49%. Lower royalty guarantees, full-price selling, supply-chain improvements and lower tariffs helped margins.
• Fossil-branded product sales grew 14%, with growth in the U.S., India, wholesale and online channels. Management cited progress in its turnaround, while noting that about $10 million of wholesale shipments shifted from Q4 into Q3.

Fossil Group NASDAQ: FOSL raised its full-year sales and profit margin outlook after third-quarter revenue increased 2%, helped by growth in its namesake brand and a shift in the timing of wholesale shipments.

The watch and accessories company reported net sales of $276 million for the quarter. Adjusted operating income rose to $30 million, an increase of $45 million from a year earlier, while gross margin expanded to 59.9% from 49%.

Chief Executive Officer Franco Fogliato said the results exceeded the company’s expectations across its key metrics and reflected progress in its turnaround plan. Sales of Fossil-branded products grew 14% year over year, while traditional watch sales across all brands rose 6%.

Higher outlook follows third-quarter growth

Fossil now expects full-year net sales of $980 million to $990 million, up from its previous range of $955 million to $975 million. It raised its adjusted operating margin forecast to 5.5% to 6.5%, from 4% to 6%, and continues to expect positive free cash flow.

Chief Financial Officer Randy Greben said the company also expects positive reported net income and earnings per share for 2026. Third-quarter net income was $12 million, or 19 cents per diluted share, while year-to-date net income was approximately break-even.

Greben said quarterly revenue included approximately $10 million in wholesale shipments that moved from the fourth quarter into the third. Store closures reduced sales growth by approximately 1.9 percentage points. The company had previously projected a return to growth in the fourth quarter, but Greben said results were better than expected even with the shipment timing shift.

The company’s fourth-quarter outlook takes the shift into account, Greben said. He also expects selling, general and administrative expenses to be in the low 50s as a percentage of sales in the fourth quarter, as Fossil continues to invest in marketing. Those expenses were 48.9% of sales in the third quarter, down from a year earlier.

Lower royalties help margins

Greben attributed the 10.9-percentage-point increase in gross margin partly to reductions in minimum royalty guarantees agreed with some licensors for 2026. Fossil also changed how it accounts for expected royalty shortfalls, spreading them across all four quarters rather than recording them only in the third and fourth quarters, as it had in prior years.

Full-price selling, supply chain improvements and lower prevailing tariff rates also supported product margins, he said. Fossil continues to expect a full-year gross margin in the upper 50s. In response to an analyst’s question, Greben said the company received no tariff refunds during the quarter.

Fossil ended the quarter with $77 million in cash and cash equivalents and $35 million of availability under its asset-based lending facility. Inventory rose 13% from a year earlier to $189 million, which Greben said supported seasonal expectations and growth plans.

Brands and markets show momentum

Fogliato said the United States posted another quarter of growth and India continued to perform strongly. Trends in Europe, the Middle East and Africa improved considerably from the first half, although he said the European business had faced challenges associated with war and a shift to distributors in some markets. Fossil recently appointed a new general manager for the region.

Global wholesale sales rose 4%, led by the Fossil brand, as the company expanded distribution with existing partners and entered new specialty retailers, Fogliato said. Fossil also reported growth on fossil.com and positive comparable sales at Fossil stores.

The company ended the quarter with 174 stores worldwide, two fewer than at the end of the prior quarter. Fogliato said the store optimization work was largely behind Fossil and that the company would remain opportunistic about future openings.

Fossil’s Swiss-made Signature CS-1 watch collection, launched in October, has generated initial sales above expectations, Fogliato said. He cautioned, however, that the premium collection is unlikely to become the company’s largest product area, with Fossil remaining focused on more accessible price points and younger consumers.

Licensing talks continue

Fossil extended its licensing partnership with Diesel through 2032 and signed a new contract with Nick Jonas as a global Fossil brand ambassador. The company plans a global campaign and a new Jonas-designed watch collection in 2027, with products launching in the second half of that year.

Asked about other major licensing agreements, Fogliato said Fossil was in advanced discussions and had longstanding relationships with Armani and Michael Kors. Greben said the company remained confident it could reach acceptable long-term extensions with its remaining large licensors, though executives did not provide a timetable.

On capital allocation, Greben said the company’s priority has been returning to growth. Positive free cash flow would give Fossil options to continue investing in growth or consider allocating capital differently, he said.

About Fossil Group (NASDAQ:FOSL)

Fossil Group, Inc. is a global design, sourcing, marketing and distribution company focused primarily on watches and accessories. Its products include traditional watches, jewelry, handbags, small leather goods and other fashion accessories sold through company-operated and third-party retail stores, e-commerce channels and wholesale partners. The company markets products under its Fossil, Skagen, Michele and Relic brands, as well as through various licensed brand relationships. Fossil Group was founded in 1984 and is headquartered in Richardson, Texas.

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