Fossil swings to profit in third quarter
Richardson, Texas-based watch and accessories company Fossil Group, Inc. announced Q3 earnings of $16.0 million, or $0.31 per diluted share, on Wednesday, progress which led shares in the business to shoot up more than 32% in after-hours trading. In the prior-year period Fossil reported a net loss of $25.9 million, or $0.51 per diluted share.
The company’s bottom line strength in the third quarter ended October 3, 2020, resulted in part from solid revenue growth in its e-commerce channel and Chinese operations. Fossil’s reduction of its total operating expenses by 26% year over year also contributed to the group’s return to profitability.
The group, which owns brands including Fossil, Michele, Misfit and Skagen, reported total net sales of $435.5 million for the quarter, down 19% from $539.5 million in the same period in the previous year. In constant currencies the decline was 20%.
This decrease was primarily due to the negative impact of Covid-19 on the company’s brick-and-mortar operations, an effect which was partially offset by the group’s digital channels. Fossil’s owned e-commerce platforms saw their sales increase 66% on a constant currency basis compared to the third quarter in the previous year, while revenues from dedicated third-party marketplaces increased 44%, also on a constant currency basis.
“The organization continues to execute well in the face of a challenging environment,” said Fossil Group chairman and CEO Kosta Kartsotis in a release. “We outperformed our topline expectations in the third quarter, reflecting ongoing momentum in our digital channels and strong growth in mainland China, as well as trend improvement in the wholesale channel
Overall, Fossil’s sales in Asia totaled $120 million during the quarter, down 17% in constant currencies year over year. In Europe sales came to $135 million, reflecting a decline of 25% in constant currencies compared to the prior-year period, while revenues in the Americas fell 20% to $175 million.
“We are making good progress on our strategic priorities, with accelerated initiatives around our digital expansion programs and structural cost reduction efforts,” added Kartsotis. “Given the uncertain environment, we are remaining agile and continuing to closely manage liquidity, expenses and inventory as we position the business for future growth.”
Efforts to improve Fossil’s gross margin and reduce operating expenses began as part of the company’s NWF 2.0 initiative in 2019, but these plans were accelerated and expanded following the onset of the Covid-19 pandemic. The group expects to generate $100 million in expense savings in 2020.
In the third quarter, Fossil successfully reduced expenses across payroll, marketing, professional fees, travel and contract labor.
Looking to the fourth quarter, the company predicts that its net sales will decline in the range of 30% to 40% in the period, due to the continued negative impact of the Covid-19 pandemic.
As well as its portfolio of owned brands, Fossil holds licenses for the likes of Emporio Armani, Diesel, DKNY, Kate Spade New York and Michael Kors.
As of October 2020, the company operates some 431 stores around the world, including 220 outlets.
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