Fossil Group, Inc. Reports Third Quarter 2022 Financial Results
November 09, 2022 at 16:15 PM EST
RICHARDSON, Texas, Nov. 09, 2022 (GLOBE NEWSWIRE) -- Fossil Group, Inc. (NASDAQ: FOSL) today announced financial results for the third quarter ended October 1, 2022.
Third Quarter Summary
“Our third quarter results were in line with our expectations against the backdrop of continued macro headwinds globally,” said Kosta Kartsotis, Chief Executive Officer. “The trends we saw in the second quarter have largely persisted into the second half of the year. These include ongoing COVID-19 restrictions in mainland China, elevated inventory levels among our wholesale partners and global inflation, which is affecting consumer sentiment. Additionally, the record strength of the U.S. dollar reduced our net sales and operating margins in the third quarter.”
“Our teams executed well in a dynamic environment and have recently completed important milestones on our 2022 digital roadmap in time to support holiday selling. Entering the holiday selling season, we are delivering excitement through product innovation across watches, jewelry and leathers, including our recently launched Fossil Heritage Collection, which celebrates our iconic designs, as well as our new limited-edition Harry Potter x Fossil collaboration. Recognizing that the macro headwinds will persist into 2023, we are sharpening our focus on capturing efficiencies in our business model, while driving growth through our digital roadmap and updated FOSSIL brand strategy.”
Third Quarter 2022 Operating Results
Amounts referred to as “adjusted” as well as “constant currency” are non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to their closest reported GAAP measures are included at the end of this press release.
Balance Sheet Summary
As of October 1, 2022, the Company had cash and cash equivalents of $163 million. Inventories at the end of the third quarter of 2022 totaled $453 million, an increase of 14% versus a year ago. The Company accelerated inventory purchases in the first half of 2022 to mitigate extended transportation lead times and potential Covid-19 driven restrictions from its primary supply base in mainland China. Inventory flow into the Company’s warehouses in the third quarter was down significantly versus last year and the Company continues to conservatively manage purchases to reduce inventory balances. Total debt was $294 million. In the fourth quarter of 2022, Fossil amended its credit facility extending the maturity by three years. The amended facility now matures in November 2027 and carries the same interest rate structure, other than the required transition from LIBOR to SOFR.
The Company is updating its guidance for full year 2022 to reflect the estimated impact of prevailing foreign currency translation, and a more cautious outlook on global markets, including a slowdown in consumer spending in our categories, and the ongoing COVID-19 related restrictions in mainland China.
For fiscal year 2022, the Company now expects worldwide net sales declines of approximately 7% to 10% versus prior guidance of net sales declines of 5% to 8%. This updated guidance includes an estimated foreign currency negative impact of 500 basis points, which compares to our prior estimate of 450 basis points for the full year. On a constant currency basis, the Company expects worldwide net sales declines of 2% to 5%.
The Company is tightening its range of adjusted operating margin(1) guidance for the full year to 2% to 3%, which compares to prior guidance of 2% to 4%.
(1) A reconciliation of adjusted operating margin, a non-GAAP financial measure, to a corresponding GAAP measure is not available on a forward-looking basis without unreasonable efforts due to the high variability and low visibility of certain income and expense items that are excluded in calculating adjusted operating margin.
Certain statements contained herein that are not historical facts, 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: increased political uncertainty and the Ukraine crisis; the effect of worldwide economic conditions; the effect of the COVID-19 pandemic; the impact of inflation; results of tax examinations; significant changes in consumer spending patterns or preferences; interruptions or delays in the supply of key components or products; acts of war or acts of terrorism; loss of key facilities; data breach or information systems disruptions; 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; customer acceptance of both new designs and newly-introduced product lines; changes in the mix of product sales; the effects of vigorous competition in the markets in which we operate; compliance with debt covenants and other contractual provisions and meeting debt service obligations; risks related to the success of our business strategy; the termination or non-renewal of material licenses; risks related to foreign operations and manufacturing; changes in the costs of materials and labor; government regulation and tariffs; our ability to secure and protect trademarks and other intellectual property rights; levels of traffic to and management of our retail stores; loss of key personnel 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 and subsequent Quarterly Reports on Form 10-Q 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 traditional watches, smartwatches, jewelry, handbags, small leather goods, belts and sunglasses. We are committed to delivering the best in design and innovation across our owned brands, Fossil, Michele, Relic, Skagen and Zodiac, and licensed brands, Armani Exchange, 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.
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.
Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share
Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are non-GAAP financial measures. 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, restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt minus interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense and restructuring expense. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively, before impairment expense, restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share herein because they are widely used by investors for valuation and for comparing our financial performance with the performance of our competitors. We also use both non-GAAP financial measures to monitor and compare the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.
The following tables reconcile 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.
(1) Prior period amounts have been adjusted to conform to the current period presentation.
(1) Prior period amounts have been adjusted to conform to the current period presentation.
The following tables reconcile Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share to the most directly comparable GAAP financial measures, which are operating income (loss), net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively. Certain line items presented in the table below, when aggregated, may not foot due to rounding.
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