Fossil Group, Inc. (NASDAQ: FOSL) today announced financial
results for the first quarter ended April 4, 2020 and provided
an update on the Company's response to COVID-19.
First Quarter Summary
- Worldwide net sales of $391 million decreased 16% on a reported
basis and 15% in constant currency. Sales in the quarter were
significantly impacted by COVID-19 on a global basis beginning in
February in Asia.
- The Company’s New World Fossil 2.0 - Transform to Grow Program
("NWF 2.0") was expanded to address additional challenges posed by
COVID-19. The Company's actions to improve its cost structure
are expected to result in cost savings totaling $100 million in
2020 versus previously estimated cost savings of $50 million.
- Operating loss of $134 million compared to $20 million a year
ago, primarily due to COVID-19 impacts on sales, gross margin and
non-cash asset impairments.
- Cash and cash equivalents of $245 million and net debt totaling
$74 million as of April 4, 2020.
Kosta Kartsotis, Chairman and CEO, stated, “As
people around the globe continue to face the many challenges
presented by COVID-19, we are taking actions to mitigate the
headwinds and chart our path forward amid a new operating
environment. We are proud of our teams who have prioritized the
health and safety of our communities while also moving quickly to
protect our business, strengthen our financial position and
accelerate our strategic priorities for 2020 and beyond.”
COVID-19 Update
In response to the COVID-19 crisis, the Company
implemented measures to protect employee safety and well-being,
including the previously announced store and office closings, which
largely remain in place today. The Company also cut costs across
the organization and enhanced its financial position through the
following actions during the first quarter:
- Proactively drawing down $100 million of the Company’s $275
million credit facility;
- Reducing operating expenses across payroll, marketing, travel,
professional fees and contract labor;
- Eliminating the majority of planned capital expenditures for
2020; and
- Closely managing working capital by reducing incoming
inventory.
As of April 4, 2020, the Company had total
liquidity of $278 million, comprised of $245 million of cash and
cash equivalents and $33 million of availability under its
revolving credit facility. The Company expects to close the
second quarter of 2020 with approximately $200 million of cash and
cash equivalents and approximately $30 million of availability
under its revolving credit facility.
First Quarter 2020 Operating
Results
Worldwide net sales totaled $390.7 million, a
decrease of 16% on a reported basis and 15% in constant currency
compared to $465.3 million in the first quarter of fiscal 2019. The
year-over-year decline was primarily due to the impact of COVID-19,
as stores and most of the Company's wholesale partners' stores were
closed beginning mid-March. Global retail comparable sales in
constant currency decreased 14% on a 14-week calendar basis and
were trending up 1% prior to COVID-19 store closings. The following
table provides a summary of net sales performance, on both an as
reported and constant currency basis, for the first quarter of 2020
compared to the 2019 first quarter (in millions, except percentage
data).
|
First Quarter |
|
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
Growth (Decline) |
|
Amounts as Reported |
|
Amounts as Reported |
|
Dollars as Reported (1) |
|
Constant Currency Dollars (2) |
|
Percentage as Reported (1) |
|
Percentage Constant Currency (2) |
Americas |
$ |
153 |
|
|
$ |
190 |
|
|
$ |
(37 |
) |
|
$ |
(37 |
) |
|
(20 |
)% |
|
(20 |
)% |
Europe |
128 |
|
|
153 |
|
|
(25 |
) |
|
(22 |
) |
|
(16 |
) |
|
(14 |
) |
Asia |
106 |
|
|
117 |
|
|
(11 |
) |
|
(8 |
) |
|
(9 |
) |
|
(7 |
) |
Corporate |
4 |
|
|
5 |
|
|
(1 |
) |
|
(1 |
) |
|
(28 |
) |
|
(29 |
) |
Total net sales |
$ |
391 |
|
|
$ |
465 |
|
|
$ |
(74 |
) |
|
$ |
(68 |
) |
|
(16 |
)% |
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Watches |
$ |
310 |
|
|
$ |
366 |
|
|
$ |
(56 |
) |
|
$ |
(51 |
) |
|
(15 |
)% |
|
(14 |
)% |
Leathers |
47 |
|
|
54 |
|
|
(7 |
) |
|
(6 |
) |
|
(12 |
) |
|
(11 |
) |
Jewelry |
23 |
|
|
31 |
|
|
(8 |
) |
|
(7 |
) |
|
(26 |
) |
|
(24 |
) |
Other |
11 |
|
|
14 |
|
|
(3 |
) |
|
(4 |
) |
|
(26 |
) |
|
(26 |
) |
Total net sales |
$ |
391 |
|
|
$ |
465 |
|
|
$ |
(74 |
) |
|
$ |
(68 |
) |
|
(16 |
)% |
|
(15 |
)% |
(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 $140.4 million compared to
$248.0 million in the first quarter of 2019. Gross margin decreased
to 35.9% from 53.3%, primarily reflecting liquidation and increased
inventory valuation adjustments of older generation connected
products and minimum licensed product royalties resulting from
decreased sales due to the impact of COVID-19.
Operating expenses totaled $274.7 million
compared to $267.9 million a year ago. Operating expenses in the
first quarter of 2020 included $9.4 million of restructuring costs,
primarily related to employee costs, professional services and
store closures, approximately $20 million of non-cash charges
related to operating lease right-of-use and intangible asset
impairment, and minimum marketing royalties. Operating expenses in
the first quarter of 2019 included $10.2 million of restructuring
costs.
First quarter operating loss was $134.3 million
compared to an operating loss of $19.9 million in the first quarter
of 2019. Net loss totaled $85.6 million, or ($1.69) per diluted
share, compared to net loss of $12.2 million, or ($0.25) per
diluted share, in the first quarter of 2019. Per share data
included restructuring charges of $0.15 per diluted share in the
first quarter of 2020 and $0.16 per diluted share in the first
quarter of 2019. During the first quarter of fiscal 2020,
currencies, including both the translation impact on operating
earnings and the impact of foreign currency hedging contracts,
unfavorably affected loss per diluted share by approximately
$0.12.
New World Fossil 2.0 - Transform to Grow
Initiative
During 2019, the Company initiated NWF 2.0,
which is 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, the Company is significantly expanding its NWF 2.0
transformation program to include additional organizational
efficiencies and to accelerate digital initiatives, resulting in
additional cost savings of $50 million in 2020.
Balance Sheet Summary
As of April 4, 2020, the Company had cash and
cash equivalents of $245 million, long-term debt of $298 million
and net debt of $74 million, including $190 million of borrowings
under its Term Credit Agreement. The Company is currently engaged
in discussions with its lenders regarding amending certain
covenants under the Term Credit Agreement. Inventories at the end
of first quarter 2020 totaled $440 million, an increase of 14%
versus a year ago, primarily reflecting reduced sales from
COVID-19 during the first quarter of 2020.
2020 Outlook
Due to continued uncertainty related to
COVID-19, the Company is not providing financial guidance at this
time. The Company anticipates that the COVID-19 pandemic will
continue to pressure sales throughout 2020, with the greatest
impact in the second quarter. Due to closures for both FOSSIL
stores and our wholesale partners during the majority of the second
quarter, worldwide net sales are expected to decline in the range
of 60%-70%, with contraction in retail and wholesale partly offset
by strength in e-commerce channels. The Company has commenced a
phased reopening of its FOSSIL retail stores globally, which is
expected to be completed by the end of June 2020, dependent upon
local regulations.
Kartsotis continued, “As we continue to navigate
the impacts of COVID-19, we are accelerating our focus on driving
digital growth and capturing organizational efficiencies, two of
our key strategic priorities for 2020. Our investments in digital
capabilities, including the recent completion of a new global
e-commerce platform, have allowed us to meet significantly
increased demand and seamlessly serve our customers. As economies
begin to reopen around the globe, we are working closely with our
wholesale partners and executing a phased reopening of our FOSSIL
stores.”
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 14 Weeks Ended |
|
For the 13 Weeks Ended |
($ in millions, except
per share data): |
April 4, 2020 |
|
March 30, 2019 |
Net sales |
$ |
390.7 |
|
|
$ |
465.3 |
|
Cost of sales |
250.3 |
|
|
217.3 |
|
Gross profit |
140.4 |
|
|
248.0 |
|
Gross margin |
35.9 |
% |
|
53.3 |
% |
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
262.8 |
|
|
257.7 |
|
Trade name impairment |
2.5 |
|
|
— |
|
Restructuring charges |
9.4 |
|
|
10.2 |
|
Total operating expenses |
$ |
274.7 |
|
|
$ |
267.9 |
|
Total operating expenses (% of
net sales) |
70.3 |
% |
|
57.6 |
% |
Operating income (loss) |
(134.3 |
) |
|
(19.9 |
) |
Operating margin |
(34.4 |
)% |
|
(4.3 |
)% |
Interest expense |
7.5 |
|
|
8.1 |
|
Other income (expense) - net |
(7.3 |
) |
|
25.8 |
|
Income (loss) before income
taxes |
(149.1 |
) |
|
(2.2 |
) |
Provision for income taxes |
(63.7 |
) |
|
9.6 |
|
Less: Net income attributable to noncontrolling interest |
0.2 |
|
|
0.4 |
|
Net income attributable to Fossil
Group, Inc. |
$ |
(85.6 |
) |
|
$ |
(12.2 |
) |
Earnings per share: |
|
|
|
Basic |
$ |
(1.69 |
) |
|
$ |
(0.25 |
) |
Diluted |
$ |
(1.69 |
) |
|
$ |
(0.25 |
) |
Weighted average common shares
outstanding: |
|
|
|
Basic |
50.6 |
|
|
49.6 |
|
Diluted |
50.6 |
|
|
49.6 |
|
|
|
|
|
|
|
Consolidated Balance Sheet Data ($ in
millions): |
April 4, 2020 |
|
March 30, 2019 |
Assets: |
|
|
|
Cash and cash equivalents |
$ |
245.4 |
|
|
$ |
271.4 |
|
Accounts receivable - net |
153.4 |
|
|
199.9 |
|
Inventories |
439.7 |
|
|
384.1 |
|
Other current assets |
128.6 |
|
|
133.1 |
|
Total current assets |
$ |
967.1 |
|
|
$ |
988.5 |
|
Property, plant and equipment - net |
$ |
138.7 |
|
|
$ |
172.7 |
|
Operating lease right-of-use assets |
269.1 |
|
|
312.0 |
|
Intangible and other assets - net |
157.7 |
|
|
116.7 |
|
Total long-term assets |
$ |
565.5 |
|
|
$ |
601.4 |
|
Total assets |
$ |
1,532.6 |
|
|
$ |
1,589.9 |
|
|
|
|
|
Liabilities and stockholders’ equity: |
|
|
|
Accounts payable, accrued expenses and other current
liabilities |
$ |
442.1 |
|
|
$ |
430.6 |
|
Short-term debt |
21.1 |
|
|
65.9 |
|
Total current liabilities |
$ |
463.2 |
|
|
$ |
496.5 |
|
Long-term debt |
$ |
298.5 |
|
|
$ |
161.1 |
|
Long-term operating lease liabilities |
281.1 |
|
|
311.6 |
|
Other long-term liabilities |
73.4 |
|
|
71.4 |
|
Total long-term liabilities |
$ |
653.0 |
|
|
$ |
544.1 |
|
Stockholders’ equity |
$ |
416.4 |
|
|
$ |
549.3 |
|
Total liabilities and stockholders’ equity |
$ |
1,532.6 |
|
|
$ |
1,589.9 |
|
|
|
|
|
|
|
|
|
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 14/13 Weeks Ended |
April 4, 2020 |
|
March 30, 2019 |
($ in millions) |
As Reported |
|
Impact of Foreign Currency Exchange
Rates |
|
Constant Currency |
|
As Reported |
Segment: |
|
|
|
|
|
|
|
Americas |
$ |
152.9 |
|
|
$ |
0.1 |
|
|
$ |
153.0 |
|
|
$ |
190.4 |
|
Europe |
128.2 |
|
|
3.2 |
|
|
131.4 |
|
|
153.3 |
|
Asia. |
106.2 |
|
|
2.8 |
|
|
109.0 |
|
|
116.9 |
|
Corporate |
3.4 |
|
|
(0.1 |
) |
|
3.3 |
|
|
4.7 |
|
Total net sales |
$ |
390.7 |
|
|
$ |
6.0 |
|
|
$ |
396.7 |
|
|
$ |
465.3 |
|
|
|
|
|
|
|
|
|
Product Categories: |
|
|
|
|
|
|
|
Watches |
$ |
309.9 |
|
|
$ |
5.1 |
|
|
$ |
315.0 |
|
|
$ |
366.2 |
|
Leathers |
47.3 |
|
|
0.5 |
|
|
47.8 |
|
|
53.9 |
|
Jewelry |
23.2 |
|
|
0.4 |
|
|
23.6 |
|
|
31.2 |
|
Other |
10.3 |
|
|
— |
|
|
10.3 |
|
|
14.0 |
|
Total net sales |
$ |
390.7 |
|
|
$ |
6.0 |
|
|
$ |
396.7 |
|
|
$ |
465.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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): |
|
|
Q2 |
|
Q3 |
|
Q4 |
Q1 |
Total |
Income (loss) before income taxes |
|
|
$ |
(5.2 |
) |
|
$ |
(18.0 |
) |
|
$ |
(6.0 |
) |
$ |
(149.1 |
) |
$ |
(178.3 |
) |
Plus: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7.4 |
|
|
7.4 |
|
|
7.0 |
|
7.5 |
|
29.3 |
|
Amortization and depreciation |
|
|
13.9 |
|
|
13.6 |
|
|
12.9 |
|
12.2 |
|
52.6 |
|
Impairment expense |
|
|
1.7 |
|
|
18.0 |
|
|
4.7 |
|
19.6 |
|
44.0 |
|
Other non-cash charges |
|
|
3.3 |
|
|
9.5 |
|
|
43.2 |
|
21.7 |
|
77.7 |
|
Stock-based compensation |
|
|
5.2 |
|
|
4.3 |
|
|
1.9 |
|
3.1 |
|
14.5 |
|
Restructuring expense |
|
|
7.3 |
|
|
7.0 |
|
|
5.2 |
|
9.4 |
|
28.9 |
|
Less: |
|
|
|
|
|
|
|
|
|
Interest Income |
|
|
0.9 |
|
|
0.3 |
|
|
0.1 |
|
— |
|
1.3 |
|
Adjusted EBITDA |
|
|
$ |
32.7 |
|
|
$ |
41.5 |
|
|
$ |
68.8 |
|
$ |
(75.6 |
) |
$ |
67.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Prior period amounts have been adjusted to
conform to the current period presentation.
Store Count Information
|
April 4, 2020 |
|
March 30, 2019 |
|
Americas |
|
Europe |
|
Asia |
|
Total |
|
Americas |
|
Europe |
|
Asia |
|
Total |
Full price accessory |
82 |
|
|
78 |
|
|
57 |
|
|
217 |
|
|
85 |
|
|
88 |
|
|
53 |
|
|
226 |
|
Outlets |
114 |
|
|
74 |
|
|
35 |
|
|
223 |
|
|
116 |
|
|
74 |
|
|
38 |
|
|
228 |
|
Full priced multi-brand |
— |
|
|
4 |
|
|
3 |
|
|
7 |
|
|
— |
|
|
4 |
|
|
3 |
|
|
7 |
|
Total stores |
196 |
|
|
156 |
|
|
95 |
|
|
447 |
|
|
201 |
|
|
166 |
|
|
94 |
|
|
461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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