Fossil sales woes continue, net loss expands to $48.2 million

By

Obi Anyanwu

Published
May 10, 2017

The sales woes continue for Fossil. The watch and accessories company ended fiscal year 2016 with sales declines and it begins fiscal year 2017 with steeper drops due to “a challenging retail environment and a watch category undergoing significant change,” according to CEO Kosta Kartsotis.

 
Fossil is committed to its wearables and smartwatch product offering, tapping celebrities such as Kristen Bell, Yara Shahidi, Leslie Odom Jr. and Austin Mahone to promote its watches in a new campaign, and it remains focused on its New World Fossil initiative that is intended to improve profitability.
 
Kartsotis said that retailers and consumers are paying attention to the “newness and innovation” that Fossil is infusing into its fashion accessories, and he is excited about the new smartwatches that debuted at Baselworld in Switzerland in March.

“We believe we are in a position to further expand our leadership position in the fashion accessories space, expand our addressable market, and improve our financial performance,” said Kartsotis.
 
The changes in business and product offerings may be the catalyst for the Fossil’s sales woes this quarter, which was in line with expectations. Net sales fell in every segment and category in the first quarter, resulting in a 12% decrease in worldwide net sales to $581.8 million from $659.8 million.
 
Sales fell 17% in the Americas, 7% in Europe, and 5% in Asia, as well as 21% in the Leathers category, 12% for Jewelry, and 9% for Watches (changes in foreign currency negatively impacted net sales). Net sales also fell on a constant currency basis.
 
Fossil also reported a net loss of $(48.2) million compared to a net income of $5.8 million. Diluted loss per share was $(1.00) compared to diluted earnings per share of $0.12 in the previous first quarter.
 
Gross margin fell 300 basis points to 49.8% driven by increased promotional activity in outlets and e-commerce and changes in foreign currency. Operating expenses were $334.8 million, including $26.3 million of restructuring costs associated with store closures as part of the New World Fossil initiative, and the operating loss was $45.3 million.
 
Kartsotis concluded, “Our focus for the year continues to be on executing against our New World Fossil restructuring initiative, driving growth in our core watch business and advancing our wearable products with an expanded offering across additional brands. As we continue to reimagine the watch and its capabilities, we are on track to launch over 300 skus this year with enhanced engineering that will enable slimmer cases, more functionality and brighter screens and easier charging for display watches."
 
Fossil expects its sales to decline in fiscal 2017 in range of 6.0% to 1.5% and expects a diluted loss and earnings per share in range of $(0.40) to $0.30. Second quarter net sales are expected to fall between 11.5% and 8.0% and diluted loss per share is expected to range from $(1.00) to $(0.83).