Fossil Group, Inc. (NASDAQ: FOSL) today announced financial
results for the second quarter ended July 4, 2020.
Second Quarter Summary
- Worldwide net sales of $259 million
decreased 48% on a reported basis and 47% in constant
currency. The year-over-year decline primarily reflects
COVID-19 related impacts on a global basis, including retail and
wholesale closures, throughout much of the quarter.
- On a constant currency basis, sales
from the Company's owned e-commerce websites increased 138% and
third party marketplace e-commerce sales increased 20% compared to
prior year.
- Gross margin of 54.3%, representing
140 basis points of expansion compared to the second quarter of
2019.
- The Company reduced operating
expenses by $86 million, or 33%, on a year-over-year basis, due to
both its New World Fossil 2.0 - Transform to Grow program (“NWF
2.0”) and immediate cost reduction efforts.
- Operating loss of $37 million
compared to operating income of $2 million a year ago, primarily
due to COVID-19 impacts on sales.
- Cash and cash equivalents of $278
million, and total debt of $269 million as of July 4, 2020.
“Our second quarter results were impacted by
broad-based global store closures due to COVID-19 throughout much
of the quarter,” stated Kosta Kartsotis, Chairman and CEO. “Our
teams have responded quickly and executed well in the face of
significant COVID-19 impacts. In navigating this challenging
environment, we have taken aggressive actions to increase liquidity
and reduce costs, and further engaged with our consumers through
digital initiatives and product innovation. Importantly, we are
maintaining our focus on the strategic priorities we outlined at
the beginning of 2020, including the acceleration of our cost
reduction actions through NWF 2.0 and the expansion of our digital
capabilities to help drive continued growth in the e-commerce
channel.”
COVID-19 Update
The Company is continuing to closely manage liquidity, expenses
and inventory to navigate macro uncertainty and COVID-19 impacts.
During the second quarter, the Company:
- Amended its credit facility,
resulting in increased covenant flexibility;
- Reduced operating expenses across
payroll, marketing, travel, professional fees and contract labor
versus prior year;
- Closely managed working capital by
reducing inventory receipts; and
- Reduced outstanding debt and
revolving credit levels by $56 million.
As of July 4, 2020, the Company had total
liquidity of $311 million, comprised of $278 million of cash and
cash equivalents and $33 million of availability under its
revolving credit facility. The Company expects to close the
third quarter of 2020 with approximately $250 million to $300
million of cash and cash equivalents and approximately $30 million
of availability under its revolving credit facility.
Second Quarter 2020 Operating
Results
Worldwide net sales totaled $259.0 million, a
decrease of 48% on a reported basis and 47% in constant currency
compared to $501.4 million in the second quarter of fiscal 2019.
The year-over-year decline was primarily due to COVID-19 related
retail closures, including both Fossil stores and wholesale doors.
Partly offsetting brick-and-mortar sales declines was growth in
digital channels, with owned e-commerce websites increasing 138%
and dedicated third party marketplaces growing 20%, both on a
constant currency basis. The following table provides a summary of
net sales performance, on both an as reported and constant currency
basis, for the second quarter of 2020 compared to the 2019 second
quarter (in millions, except percentage data).
|
Second Quarter |
|
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
Growth (Decline) |
|
Amounts asReported |
|
Amounts asReported |
|
Dollars asReported(1) |
|
ConstantCurrencyDollars (2) |
|
PercentageasReported(1) |
|
PercentageConstantCurrency(2) |
Americas |
$ |
106 |
|
|
$ |
223 |
|
|
$ |
(117 |
) |
|
$ |
(117 |
) |
|
(53 |
)% |
|
(52 |
)% |
Europe |
80 |
|
|
147 |
|
|
(67 |
) |
|
(66 |
) |
|
(46 |
) |
|
(45 |
) |
Asia |
69 |
|
|
126 |
|
|
(57 |
) |
|
(55 |
) |
|
(45 |
) |
|
(43 |
) |
Corporate |
4 |
|
|
5 |
|
|
(1 |
) |
|
— |
|
|
(8 |
) |
|
(8 |
) |
Total net sales |
$ |
259 |
|
|
$ |
501 |
|
|
$ |
(242 |
) |
|
$ |
(238 |
) |
|
(48 |
)% |
|
(47 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
Watches |
$ |
209 |
|
|
$ |
413 |
|
|
$ |
(204 |
) |
|
$ |
(200 |
) |
|
(49 |
)% |
|
(48 |
)% |
Leathers |
27 |
|
|
53 |
|
|
(26 |
) |
|
(26 |
) |
|
(49 |
) |
|
(49 |
) |
Jewelry |
15 |
|
|
21 |
|
|
(6 |
) |
|
(5 |
) |
|
(27 |
) |
|
(26 |
) |
Other |
8 |
|
|
14 |
|
|
(6 |
) |
|
(7 |
) |
|
(48 |
) |
|
(47 |
) |
Total net sales |
$ |
259 |
|
|
$ |
501 |
|
|
$ |
(242 |
) |
|
$ |
(238 |
) |
|
(48 |
)% |
|
(47 |
)% |
(1) Reported GAAP amounts include impacts from currency.(2)
Eliminates the effect of currency changes in fiscal 2020 to give
investors a better understanding of the underlying trends within
the business. See constant currency financial information at the
end of this release for more information.
Gross profit totaled $140.6 million compared to
$265.1 million in the second quarter of 2019. Gross margin
increased 140 basis points to 54.3% versus 52.9% a year ago,
primarily reflecting a higher mix of e-commerce sales and reduced
minimum licensor royalty costs, partially offset by heightened
promotional activity and increased freight and duty costs. Currency
favorably impacted the gross profit margin rate in the second
quarter of 2020 by approximately 50 basis points.
Operating expenses totaled $177.4 million
compared to $263.4 million a year ago. Operating expenses in the
second quarter of 2020 included $10.5 million of restructuring
costs, primarily related to employee costs, professional services
and store closures, while operating expenses in the second quarter
of 2019 included $7.3 million of restructuring costs. Second
quarter selling, general and administrative expenses decreased on a
year-over-year basis, reflecting lower compensation, marketing and
discretionary costs.
Second quarter operating loss was $36.8 million
compared to operating income of $1.7 million in the second quarter
of 2019. Net loss totaled $22.5 million, or ($0.44) per diluted
share, compared to net loss of $7.3 million, or ($0.15) per diluted
share, in the second quarter of 2019. Per share data included
restructuring charges of $0.16 per diluted share in the second
quarter of 2020 and $0.11 per diluted share in the second quarter
of 2019. During the second quarter of fiscal 2020, currencies,
including both the translation impact on operating earnings and the
impact of foreign currency hedging contracts, favorably affected
loss per diluted share by approximately $0.05.
New World Fossil 2.0 - Transform to Grow
Initiative
During 2019, the Company initiated NWF 2.0,
which was designed to deliver gross margin benefits and operating
expense reductions totaling $200 million over the three-year period
from 2019 to 2021. As a result of the unprecedented impact of
COVID-19, earlier this year the Company significantly expanded its
NWF 2.0 initiative to $250 million to include additional
organizational efficiencies and to accelerate digital initiatives.
The Company expects to generate $100 million in expense savings in
2020.
Balance Sheet Summary
As of July 4, 2020, the Company had cash and
cash equivalents of $278 million and total debt of $269 million,
including $170 million of borrowings under its Term Credit
Agreement. Inventories at the end of second quarter 2020 totaled
$376 million, a decrease of 18% versus a year ago, primarily
reflecting accelerated inventory reduction actions, particularly of
older generation connected product, and proactive management of
inbound receipts to align with reduced consumer demand.
2020 Outlook
In light of macro uncertainties and fluid
COVID-19 impacts, the Company is not providing full year financial
guidance at this time. The Company currently anticipates that third
quarter worldwide net sales will decline in the range of 35% to
45%, reflecting continued contraction in retail and wholesale,
partly offset by ongoing strength in e-commerce channels.
Safe Harbor
Certain statements contained herein that are not
historical facts, including multi-year NWF expense reduction
estimates, the completion of any amendments to our Term Credit
Agreement, future financial estimates as well as estimated impacts
from COVID-19, tariffs, the Tax Cuts and Jobs Act, foreign currency
translation, amortization expense, foreign tax credits, non-cash
impairments and restructuring charges, constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve a number of risks and
uncertainties. The actual results of the future events
described in such forward-looking statements could differ
materially from those stated in such forward-looking
statements. Among the factors that could cause actual results
to differ materially are: the effect of worldwide economic
conditions; the impact of COVID-19; the length and severity of
COVID-19; the pace of recovery following COVID-19; the failure to
negotiate and enter into an amendment to the Term Credit Agreement;
significant changes in consumer spending patterns or preferences;
interruptions or delays in the supply of key components; acts of
war or acts of terrorism; changes in foreign currency valuations in
relation to the U.S. dollar; lower levels of consumer spending
resulting from a general economic downturn or generally reduced
shopping activity caused by public safety or consumer confidence
concerns; the performance of our products within the prevailing
retail environment; risks related to excess inventory, including
older generation connected products; customer acceptance of both
new designs and newly-introduced product lines, including risks
related to new generation connected products; financial
difficulties encountered by customers; the effects of vigorous
competition in the markets in which we operate; compliance with
debt covenants and other contractual provisions; risks related to
the success of our restructuring programs; the termination or
non-renewal of material licenses, risks related to foreign
operations and manufacturing; changes in the costs of materials,
labor and advertising; government regulation and tariffs; our
ability to secure and protect trademarks and other intellectual
property rights; and the outcome of current and possible
future litigation, as well as the risks and uncertainties set forth
in the Company’s most recent Annual Report on Form 10-K filed with
the Securities and Exchange Commission (the “SEC”). These
forward-looking statements are based on our current expectations
and beliefs concerning future developments and their potential
effect on us. While management believes that these forward-looking
statements are reasonable as and when made, there can be no
assurance that future developments affecting us will be those that
we anticipate. Readers of this release should consider these
factors in evaluating, and are cautioned not to place undue
reliance on, the forward-looking statements contained herein.
The Company assumes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise, except as required by law.
About Fossil
Group, Inc.
Fossil Group, Inc. is a global design,
marketing, distribution and innovation company specializing in
lifestyle accessories. Under a diverse portfolio of owned and
licensed brands, our offerings include fashion watches, jewelry,
handbags, small leather goods and connected products. We are
committed to delivering the best in design and innovation across
our owned brands, Fossil, Michele, Misfit, Relic, Skagen and
Zodiac, and licensed brands, Armani Exchange, BMW, Diesel,
DKNY, Emporio Armani, kate spade new york, Michael Kors, PUMA and
Tory Burch. We bring each brand story to life through an
extensive distribution network across numerous geographies,
categories and channels. Certain press release and SEC filing
information concerning the Company is also available at
www.fossilgroup.com.
Investor Relations: |
Christine Greany |
|
The Blueshirt Group |
|
(858) 523-1732 |
|
christine@blueshirtgroup.com |
|
|
|
|
|
|
Consolidated Income
Statement Data |
For the 13 Weeks Ended |
|
For the 13 Weeks Ended |
($ in millions, except
per share data): |
July 4, 2020 |
|
June 29, 2019 |
Net sales |
$ |
259.0 |
|
|
$ |
501.4 |
|
Cost of sales |
118.4 |
|
|
236.3 |
|
Gross profit |
140.6 |
|
|
265.1 |
|
Gross margin |
54.3 |
% |
|
52.9 |
% |
Operating expenses: |
|
|
|
Selling, general and administrative expenses |
166.9 |
|
|
256.1 |
|
Restructuring charges |
10.5 |
|
|
7.3 |
|
Total operating expenses |
$ |
177.4 |
|
|
$ |
263.4 |
|
Total operating expenses (% of
net sales) |
68.5 |
% |
|
52.5 |
% |
Operating income (loss) |
(36.8 |
) |
|
1.7 |
|
Operating margin |
(14.2 |
)% |
|
0.3 |
% |
Interest expense |
7.9 |
|
|
7.4 |
|
Other income (expense) - net |
0.9 |
|
|
0.5 |
|
Income (loss) before income
taxes |
(43.8 |
) |
|
(5.2 |
) |
Provision for income taxes |
(20.8 |
) |
|
1.4 |
|
Less: Net income attributable to noncontrolling interest |
(0.5 |
) |
|
0.7 |
|
Net income attributable to Fossil
Group, Inc. |
$ |
(22.5 |
) |
|
$ |
(7.3 |
) |
Earnings per share: |
|
|
|
Basic |
$ |
(0.44 |
) |
|
$ |
(0.15 |
) |
Diluted |
$ |
(0.44 |
) |
|
$ |
(0.15 |
) |
Weighted average common shares
outstanding: |
|
|
|
Basic |
51.2 |
|
|
50.3 |
|
Diluted |
51.2 |
|
|
50.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data ($ in
millions): |
July 4, 2020 |
|
June 29, 2019 |
Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
277.6 |
|
|
$ |
226.6 |
|
Accounts receivable - net |
130.1 |
|
|
204.2 |
|
Inventories |
375.9 |
|
|
460.3 |
|
Other current assets |
98.1 |
|
|
124.4 |
|
Total current assets |
$ |
881.7 |
|
|
$ |
1,015.5 |
|
Property, plant and equipment - net |
$ |
133.3 |
|
|
$ |
165.2 |
|
Operating lease right-of-use assets |
253.9 |
|
|
305.4 |
|
Intangible and other assets - net |
182.4 |
|
|
122.1 |
|
Total long-term assets |
$ |
569.6 |
|
|
$ |
592.7 |
|
Total assets |
$ |
1,451.3 |
|
|
$ |
1,608.2 |
|
|
|
|
|
Liabilities and stockholders’ equity: |
|
|
|
Accounts payable, accrued expenses and other current
liabilities |
$ |
438.5 |
|
|
$ |
461.2 |
|
Short-term debt |
25.2 |
|
|
66.4 |
|
Total current liabilities |
$ |
463.7 |
|
|
$ |
527.6 |
|
Long-term debt |
$ |
243.9 |
|
|
$ |
162.0 |
|
Long-term operating lease liabilities |
270.1 |
|
|
308.5 |
|
Other long-term liabilities |
77.0 |
|
|
70.5 |
|
Total long-term liabilities |
$ |
591.0 |
|
|
$ |
541.0 |
|
Stockholders’ equity |
$ |
396.6 |
|
|
$ |
539.6 |
|
Total liabilities and stockholders’ equity |
$ |
1,451.3 |
|
|
$ |
1,608.2 |
|
|
|
|
|
|
|
|
|
Constant Currency Financial
Information
The following table presents the Company’s
business segment and product net sales on a constant currency basis
which are non-GAAP financial measures. To calculate net sales
on a constant currency basis, net sales for the current fiscal year
period for entities reporting in currencies other than the U.S.
dollar are translated into U.S. dollars at the average rates during
the comparable period of the prior fiscal year. The Company
presents constant currency information to provide investors with a
basis to evaluate how its underlying business performed excluding
the effects of foreign currency exchange rate fluctuations.
The constant currency financial information presented herein should
not be considered a substitute for, or superior to, the measures of
financial performance prepared in accordance with GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
For the 13 Weeks Ended |
|
July 4, 2020 |
|
June 29, 2019 |
($ in millions) |
As Reported |
|
Impact ofForeignCurrencyExchangeRates |
|
ConstantCurrency |
|
As Reported |
Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
105.8 |
|
|
$ |
0.7 |
|
|
$ |
106.5 |
|
|
$ |
223.1 |
|
Europe |
79.5 |
|
|
1.4 |
|
|
80.9 |
|
|
147.1 |
|
Asia |
69.2 |
|
|
2.3 |
|
|
71.5 |
|
|
126.3 |
|
Corporate |
4.5 |
|
|
— |
|
|
4.5 |
|
|
4.9 |
|
Total net sales |
$ |
259.0 |
|
|
$ |
4.4 |
|
|
$ |
263.4 |
|
|
$ |
501.4 |
|
|
|
|
|
|
|
|
|
Product Categories: |
|
|
|
|
|
|
|
Watches |
$ |
209.5 |
|
|
$ |
3.8 |
|
|
$ |
213.3 |
|
|
$ |
413.3 |
|
Leathers |
26.6 |
|
|
0.3 |
|
|
26.9 |
|
|
52.6 |
|
Jewelry |
15.2 |
|
|
0.2 |
|
|
15.4 |
|
|
20.8 |
|
Other |
7.7 |
|
|
0.1 |
|
|
7.8 |
|
|
14.7 |
|
Total net sales |
$ |
259.0 |
|
|
$ |
4.4 |
|
|
$ |
263.4 |
|
|
$ |
501.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial
measure. We define Adjusted EBITDA as our net income (loss)
before the impact of income tax expense (benefit), plus interest
expense, amortization and depreciation, impairment expense, other
non-cash charges, stock-based compensation expense, and
restructuring expense minus interest income. We have included
Adjusted EBITDA herein because it is widely used by investors for
valuation and for comparing our financial performance with the
performance of our competitors. We also use Adjusted EBITDA
to monitor and compare the financial performance of our
operations. Our presentation of Adjusted EBITDA may not be
comparable to similarly titled measures other companies
report. Adjusted EBITDA is not intended to be used as an
alternative to any measure of our performance in accordance with
GAAP. The following table reconciles Adjusted EBITDA to the most
directly comparable GAAP financial measure, which is income (loss)
before income taxes. Certain line items presented in the
tables below, when aggregated, may not foot due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019(1) |
|
Fiscal 2020 |
|
|
|
($ in
millions): |
Q3 |
|
Q4 |
|
Q1 |
|
Q2 |
Total |
Income (loss) before income
taxes |
$ |
(18.0 |
) |
|
$ |
(6.0 |
) |
|
$ |
(149.1 |
) |
|
$ |
(43.8 |
) |
$ |
(216.9 |
) |
Plus: |
|
|
|
|
|
|
|
|
Interest expense |
7.4 |
|
|
7.0 |
|
|
7.5 |
|
|
7.9 |
|
|
29.8 |
|
Amortization and depreciation |
13.6 |
|
|
12.9 |
|
|
12.2 |
|
|
10.7 |
|
|
49.4 |
|
Impairment expense |
18.0 |
|
|
4.7 |
|
|
19.6 |
|
|
3.4 |
|
|
45.7 |
|
Other non-cash charges |
9.5 |
|
|
43.2 |
|
|
21.7 |
|
|
3.6 |
|
|
78.0 |
|
Stock-based compensation |
4.3 |
|
|
1.9 |
|
|
3.1 |
|
|
2.9 |
|
|
12.2 |
|
Restructuring expense |
7.0 |
|
|
5.2 |
|
|
9.4 |
|
|
10.5 |
|
|
32.1 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
Interest Income |
0.3 |
|
|
0.1 |
|
|
— |
|
|
(0.1 |
) |
|
0.3 |
|
Adjusted EBITDA |
$ |
41.5 |
|
|
$ |
68.8 |
|
|
$ |
(75.6 |
) |
|
$ |
(4.7 |
) |
$ |
30.0 |
|
(1) Prior period amounts have been adjusted to conform to the
current period presentation.
|
Store Count Information |
|
|
|
|
|
July 4, 2020 |
|
June 29, 2019 |
|
Americas |
|
Europe |
|
Asia |
|
Total |
|
Americas |
|
Europe |
|
Asia |
|
Total |
Full price accessory |
80 |
|
|
76 |
|
|
54 |
|
|
210 |
|
|
87 |
|
|
88 |
|
|
51 |
|
|
226 |
|
Outlets |
114 |
|
|
74 |
|
|
32 |
|
|
220 |
|
|
115 |
|
|
73 |
|
|
35 |
|
|
223 |
|
Full priced multi-brand |
— |
|
|
3 |
|
|
3 |
|
|
6 |
|
|
— |
|
|
4 |
|
|
3 |
|
|
7 |
|
Total stores |
194 |
|
|
153 |
|
|
89 |
|
|
436 |
|
|
202 |
|
|
165 |
|
|
89 |
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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