Fossil Group Narrows Q2 Sales Decline and Raises Full-Year Guidance
Fossil Group (NASDAQ: FOSL) reported second-quarter net sales of $211 million, down 4% from a year earlier but ahead of the company’s expectations as sales trends improved through the period. Chief Executive Franco Fogliato said the results reflected progress in the company’s turnaround plan, with strength across key brands, channels and markets setting up a return to companywide sales growth in the fourth quarter.
Gross margin expanded 490 basis points year over year to 62.4%, and adjusted operating income doubled to $8.6 million. Chief Financial Officer Randy Greben described the figure as about $9 million on the earnings call. Following a stronger-than-expected first half, Fossil raised its full-year outlook for sales, adjusted operating margin and free cash flow.
Fossil has spent recent months shrinking its retail footprint, reworking parts of its international operating model and redirecting marketing dollars toward its core watch business. The latest numbers suggest those efforts are beginning to flow through to profit, even while total sales remain below year-ago levels.
The Americas region stabilized during the quarter, helped by mid-single-digit growth in the United States, according to Fogliato. Asia sales rose 4%, led by double-digit growth in India, where Fossil said demand was strong across its own brand and licensed labels including Armani, Diesel and Michael Kors in both wholesale and direct-to-consumer channels.
The Europe, Middle East and Africa region remained the soft spot. Fogliato pointed to geopolitical conditions in the Middle East and their impact on travel retail, as well as changes to Fossil’s operating model in some European markets that are creating near-term sales pressure but should improve profitability and reduce risk over the longer term.
Traditional watches were the standout category. Fossil’s global wholesale traditional-watch business rose 12%, and U.S. wholesale traditional-watch sales climbed 16%. Fogliato credited product innovation, storytelling and the company’s full-price selling strategy. In direct-to-consumer, e-commerce benefited from higher product margins and average unit retail as Fossil held its ground on price, while the “store of the future” initiative helped full-price retail stores deliver accelerating trends in product margin and average unit retail.
Fossil is leaning on new product development, premiumization and marketing to keep the traditional-watch momentum going. Recent releases include the Big Tic World Flags collection and collaborations with Star Wars and Marvel. This fall, the company plans to introduce the Machine X1 platform, and in October it will launch Signature, a premium Swiss-made watch platform, at New York Watch Week. Fossil later plans to bring Signature to India, with Padmanabh Singh, the Maharajah of Jaipur and a polo player, serving as the line’s global ambassador.
Marketing spending increased during the first half as Fossil shifted more investment toward upper-funnel demand creation and brand building. Fogliato said an event in Malaysia featuring K-pop artist L generated 600,000 impressions in a single day.
On the licensed-brand side, management said Michael Kors watches and jewelry improved in important channels and geographies. Emporio Armani continued to deliver strong sell-through from premium offerings, while Armani Exchange benefited from product newness and celebrity-focused events.
Second-quarter selling, general and administrative expense came in at $123 million, essentially flat with the prior-year quarter when excluding the $11 million gain Fossil recorded 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 after closing six locations and transitioning 11 South African stores to a distributor. Management expects two more closures this year and projects a global footprint of roughly 178 locations by the end of 2026. The major work on store-portfolio optimization is largely complete, executives said, and Fossil has extended more than 25 lease agreements for top-performing stores in the Americas.
The company also completed its switch to a distributor model in South Africa and moved Malaysia and Singapore to a hybrid operating model. 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 its 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 did not use its at-the-market equity program.
Looking ahead, 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 the extra week in 2025. The company lifted its adjusted operating margin forecast to 4% to 6% from 3% to 5% and now expects to generate positive free cash flow for the full year. Full-year gross margin is expected in the upper 50% range, assuming no additional tariff refunds in 2026.
A return to revenue growth in the fourth quarter would mark a milestone for Fossil after an extended stretch of restructuring and softer demand. The guidance suggests management expects the drag from a smaller store base and the 2025 calendar quirk to fade, allowing underlying trends to show through more clearly.
Year-to-date adjusted operating income reached $18.1 million, up 35% from $13.4 million a year earlier despite lower sales. Greben said the company 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.
Fossil Group designs, develops, markets and distributes consumer fashion accessories, focusing on lifestyle and wearable technology. Its product lineup includes analog and digital watches, smartwatches, jewelry, handbags, small leather goods and wearable devices. The company sells under its own Fossil brand and through license agreements with labels including Michael Kors, Armani Exchange, Burberry, Diesel, DKNY, Kate Spade and Tory Burch. Through proprietary e-commerce platforms and a global retail network, Fossil Group serves markets across North America, Europe, Asia and the Middle East. Its wearable technology segment combines traditional timepieces with features such as fitness tracking, heart-rate monitoring and NFC payments.
This article was originally published by MarketBeat.