Fossil group released quarterly results on Tuesday that could indicate the first signs of a turnaround for the historic watchmaker.
The company, which has struggled to compete with new gadgets in the years since its sales and stock price peaked in the 2010s, has been quietly undertaking a comeback strategy under the leadership of CEO Franco Fogliato. The company’s third-quarter financial results indicate that the strategy is starting to pay off.
The company announced Tuesday that it returned to profitability in the third quarter, posting an operating profit of $25.3 million, compared to an operating loss of $21.7 million last year. Sales also returned to growth, with net sales up 0.4% to $271.2 million. The company last reported a year-over-year sales increase in the first fiscal quarter of 2022.
“We are excited to significantly improve the profitability of the company through very strong and disciplined full-price sales management as well as cost management,” Fogliato told CNBC in an exclusive interview.
For the quarter ended Oct. 3, Fossil reported net income of $11.7 million, or 19 cents per share, compared with a net loss of $39.9 million, or 76 cents per share, the year before. The company also said its operating expenses fell 11.1% to $137 million. The company last reported quarterly net income in the third fiscal quarter of 2022.
Amid signs of growth, the retailer also raised its full-year outlook, expecting full-year net sales of between $980 million and $990 million, which would mark a slight decline from the previous year’s net sales of just over $1 billion. This compares to previous expectations that net sales would fall between 3% and 5%. Fossil also said it expects positive free cash flow by the end of the year.
Fogliato said Fossil doesn’t expect sales growth for another year and a half.
The strongest quarter comes after the company experienced declining sales and financial losses in recent years. It was faced with the rise of smart watches, growing debt and falling attendance at shopping centers.
Fossil stocks have lost the vast majority of their value since the early and mid-2010s, and despite a recent rally, they were trading below $8 a share on Tuesday.
To right-size the company, Fogliato, who joined Fossil in 2024, said he focused on closing stores, moving from promotions to full-price sales, improving marketing and expanding Fossil’s product line. This meant reducing the business to a sustainable base level before trying to grow it.
The company reported a 5.9% decline in direct-to-consumer sales in the third quarter, which Fogliato attributed to the company’s “aggressive” discounting.
“By doing it this way, we simplified a lot of the business,” Fogliato said, adding that customers responded well when the company ditched markdowns. “People tell me they’re excited about what they’re seeing in the market right now.”
Fossil added that its main growth driver for the quarter was Asia, where net sales increased 15.1%. Fogliato said much of this growth was driven by the Indian market.
At the same time, international growth is only part of the watchmaker’s strategy as it seeks to improve its performance in its home country.
“The number one priority is to develop our domestic market, and that is what we are doing,” he said. “As retail settles into a smaller, more profitable base, ready to grow again, we enter 2027 with plenty of opportunity.”
Fogliato said one of the keys to growth was not trying to follow the smartwatch trend. While attempts to make gains in the smartwatch space initially hampered Fossil’s performance, the company is now investing again in analog watches.
Smartwatch sales were less than $1 million for the quarter, but sales of traditional watches, which account for about 86% of Fossil’s sales, increased 6.4%.
“Fossil is literally making a comeback, a comeback, a momentum, and we can see it,” Fogliato said. “And it doesn’t just come from the numbers, it also comes from the enthusiasm that we see in the stores, and we think we’re just at the beginning. We have so much work to do.”
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