Yahoo Finance Fossil Group Inc (FOSL) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges with ...
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Fossil Group Inc (NASDAQ:FOSL) reported first quarter net sales and operating margin in line with expectations, demonstrating effective management amidst challenging conditions.
Gross margin increased by 300 basis points compared to the previous year, benefiting from the exit of the smartwatch category, improved product margins, and lower freight costs.
Operating expenses declined by 20% year-over-year, reflecting cost savings from reduced headcount and operational efficiencies initiated in 2023.
The Transform & Grow Plan is on track to deliver $100 million of annualized benefits in 2024, with significant contributions expected from product sourcing and supply chain initiatives.
Fossil Group Inc (NASDAQ:FOSL) received a US tax refund of $57 million, enhancing liquidity and supporting the execution of strategic plans in 2024.
Negative Points
First quarter net sales totaled $255 million, down 21% in constant currency, indicating continued pressure on revenue generation.
Approximately half of Fossil Group Inc (NASDAQ:FOSL)'s revenue base is experiencing persistent challenges, particularly in licensed fashion watch brands and the leathers category, which were down about 30% in Q1.
The company's exit from the smartwatch category and the closure of low to negative profit contribution retail stores create a headwind to sales in 2024.
Economic challenges in Greater China continue to impact consumer demand, contributing to a high double-digit decline in the region.
Despite efforts to stabilize the business, new product introductions and merchandising initiatives are not yet sufficient to offset broader category and brand challenges in major markets.
Q & A Highlights
Q: Can you provide an overview of Fossil Group's financial performance in the first quarter of 2024? A: (Sunil Doshi - CFO) First quarter net sales totaled $255 million, down 21% in constant currency. We narrowed our adjusted operating loss by $6 million to $19 million. Cash flow from operations was slightly positive, a significant improvement compared to last year when we used $86 million.
Q: What are the major themes affecting Fossil Group's revenue base in 2024? A: (Jeffrey Boyer - CEO) Three major themes are impacting our revenue: stabilization in about half of our revenue base, persistent challenges in our licensed fashion watch brands and leathers category, and the impact of closing low to negative profit contribution retail stores and exiting the smartwatch category.
Q: How is the Transform & Grow plan influencing Fossil Group's financials? A: (Jeffrey Boyer - CEO) The Transform & Grow plan is central to our improved gross margin and reduction in operating costs. We're on track to achieve $100 million of annualized benefits in 2024, with significant contributions from product sourcing and supply chain initiatives expected in the second half of the year.
Q: What steps is Fossil taking to strengthen its balance sheet and improve liquidity? A: (Jeffrey Boyer - CEO) We're pursuing asset monetization opportunities, including the sale of real estate in Europe, and we received US tax refunds of $57 million in mid-April. These actions, along with disciplined management of working capital, are expected to make us free cash flow positive in fiscal year 2024.
Q: Can you discuss the outlook for Fossil Group's sales and operating margin for the full year? A: (Sunil Doshi - CFO) Our full year forecast remains unchanged with net sales guidance of approximately $1.2 billion and an adjusted operating margin loss of 3% to 5%. This includes a $100 million negative impact from store and concession closures and the lapping of last year's smartwatch sales.
Q: What are Fossil Group's strategic priorities to stabilize the business and drive a turnaround? A: (Jeffrey Boyer - CEO) Our priorities include advancing our Transform & Grow plan, strengthening our balance sheet, stabilizing our business, and conducting a strategic review. We're focusing on pivoting resources into more stable and growing segments of our business, such as traditional watches and jewelry, and managing contractions in our fashion brands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
