Fossil Group, Inc. Reports Second Quarter 2021 Financial Results; Raises Full Year Outlook
11 Agosto 2021 - 5:15PM
Fossil Group, Inc. (NASDAQ: FOSL) today announced financial results
for the second quarter ended July 3, 2021.
Second Quarter Fiscal 2021
Summary
- Worldwide net sales of $411 million increased 59%, or 51% on a
constant currency basis. Net sales performance was strong in all
three regions, led by a 64% increase in the Americas on a constant
currency basis and continued momentum in mainland China, which
recorded net sales growth of 38% on a constant currency basis.
- Net sales through all digital
channels grew 10% and 82%, on a constant currency basis, compared
to the second quarter of fiscal 2020 and 2019, respectively, and
represented 41% of worldwide net sales.
- Operating income of $14 million
compared to an operating loss of $37 million a year ago.
- Total liquidity of $294 million,
consisting of cash and cash equivalents of $252 million and $42
million of borrowing availability, and total debt of $178 million,
each as of July 3, 2021.
“Our strong second quarter performance reflects
solid operational execution across all channels and regions in a
challenging consumer environment,” said Kosta Kartsotis, Chairman
and CEO. “We are encouraged by improving consumer demand in our
largest markets and our core category of traditional watches. Based
on our strong year-to-date performance and strengthening demand
signals going into the second half of the year, we are raising our
2021 outlook. Looking ahead we are pleased that our digital
initiatives, brand-building efforts and ongoing transformation
activities are positioning the business to deliver sustained sales
and earnings growth over the long-term.”
Second Quarter 2021 Operating
Results
Amounts referred to as “Adjusted” as well as
“constant currency” are Non-GAAP measures. Reconciliations of these
Non-GAAP measures to their closest GAAP reported measure is
included at the end of this press release.
- Net sales totaled
$410.9 million, an increase of 59% on a reported basis and 51% in
constant currency compared to $259.0 million in the second quarter
of fiscal 2020. Net sales, in constant currency, grew in all
regions with the Americas at 64%, Europe at 44% and Asia at 41%
versus the same quarter last year. Additionally, total digital
sales grew 10%, in constant currency, in the second quarter and
represented 41% of worldwide net sales.
- Gross profit
totaled $221.8 million compared to $140.6 million in the second
quarter of 2020. Gross margin decreased 30 basis points to 54.0%
versus 54.3% a year ago. The year-over-year decrease primarily
reflects a non-recurrence of the prior year’s reduced minimum
licensor royalty costs and increased Americas regional sales mix.
These decreases were largely offset by improved product and channel
mix, a favorable currency impact and reduced tariffs.
- Operating expenses
totaled $207.5 million compared to $177.4 million a year ago. As a
percentage of net sales, operating expenses were 50.5% in the
second quarter of 2021 compared to 68.5% in the prior year second
quarter. Selling, general and administrative (“SG&A”) expenses
were $200.5 million compared to $163.5 million in the second
quarter of 2020. The year-over-year increase reflects higher
marketing and compensation costs, primarily due to lower levels of
expense during the onset of the COVID-19 pandemic in the second
quarter of 2020. As a percentage of net sales, SG&A expenses
were 48.8% in the second quarter of 2021 compared to 63.1% in the
prior year second quarter.
- Operating income
increased to $14.3 million compared to an operating loss of $36.8
million in the second quarter of 2020. Adjusted operating income
totaled $21.3 million compared to an adjusted operating loss of
$22.9 million in the second quarter of 2020.
- Net loss totaled
$1.2 million, compared to a net loss of $22.5 million in the second
quarter of 2020, as operating income of $14.3 million was more than
offset by the provision for income taxes and interest expense. On a
per share basis, net loss was $0.02 per diluted share, compared to
a net loss of $0.44 per diluted share in the second quarter of
2020. Per share data included restructuring charges of $0.09 per
diluted share in the second quarter of 2021 and $0.16 per diluted
share in the second quarter of 2020. During the second quarter of
2021, currencies favorably affected income per diluted share by
approximately $0.13.
Balance Sheet Summary
As of July 3, 2021, the Company had total
liquidity of $294 million, comprised of $252 million of cash and
cash equivalents and $42 million of availability under its
revolving credit facility. Total debt was $178 million, including
$129 million under its term credit agreement. Inventories at the
end of the second quarter of 2021 totaled $352 million, a decrease
of 6% versus a year ago.
Outlook
For fiscal year 2021, the Company is raising its
outlook for worldwide net sales growth to approximately 14% to 17%
and full year Adjusted EBITDA(1) margin guidance to 6% to 8%. For
the 13-week quarter ending October 2, 2021, worldwide net sales are
expected to increase in the range of 5% to 10% compared to the
13-week quarter ended October 3, 2020.
(1) A reconciliation of Adjusted EBITDA, 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
EBITDA.
Safe Harbor
Certain statements contained herein that are not
historical facts, including the success of our connected
accessories, future financial guidance as well as estimated impacts
of 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; significant
changes in consumer spending patterns or preferences; interruptions
or delays in the supply of key components; 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; our ability to maintain proper inventory levels; 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 business strategy and 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; levels of traffic to and management
of our retail stores; 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/A 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.
Investor Relations: |
Christine Greany |
|
The Blueshirt Group |
|
(858) 722-7815 |
|
christine@blueshirtgroup.com |
Consolidated Income Statement Data |
For the 13
Weeks Ended |
|
For the 13
Weeks Ended |
($ in millions, except
per share data): |
July 3, 2021 |
|
July 4, 2020 |
Net sales |
$ |
410.9 |
|
|
|
$ |
259.0 |
|
|
Cost of sales |
189.1 |
|
|
|
118.4 |
|
|
Gross profit |
221.8 |
|
|
|
140.6 |
|
|
Gross margin |
54.0 |
|
% |
|
54.3 |
|
% |
Operating expenses: |
|
|
|
Selling, general and administrative expenses |
200.5 |
|
|
|
163.5 |
|
|
Trade name impairment |
— |
|
|
|
— |
|
|
Other long-lived asset impairments |
1.3 |
|
|
|
3.4 |
|
|
Restructuring charges |
5.7 |
|
|
|
10.5 |
|
|
Total operating expenses |
$ |
207.5 |
|
|
|
$ |
177.4 |
|
|
Total operating expenses (% of net sales) |
50.5 |
|
% |
|
68.5 |
|
% |
Operating income (loss) |
14.3 |
|
|
|
(36.8 |
) |
|
Operating margin |
3.5 |
|
% |
|
(14.2 |
) |
% |
Interest expense |
6.5 |
|
|
|
7.9 |
|
|
Other income (expense) - net |
(0.5 |
) |
|
|
0.9 |
|
|
Income (loss) before income taxes |
7.3 |
|
|
|
(43.8 |
) |
|
Provision for income taxes |
8.1 |
|
|
|
(20.8 |
) |
|
Less: Net income attributable to noncontrolling interest |
0.4 |
|
|
|
(0.5 |
) |
|
Net income attributable to Fossil Group, Inc. |
$ |
(1.2 |
) |
|
|
$ |
(22.5 |
) |
|
Earnings per share: |
|
|
|
Basic |
$ |
(0.02 |
) |
|
|
$ |
(0.44 |
) |
|
Diluted |
$ |
(0.02 |
) |
|
|
$ |
(0.44 |
) |
|
Weighted average common shares outstanding: |
|
|
|
Basic |
52.0 |
|
|
|
51.2 |
|
|
Diluted |
52.0 |
|
|
|
51.2 |
|
|
Consolidated Balance Sheet Data ($ in
millions): |
July 3, 2021 |
|
July 4, 2020 |
Assets: |
|
|
|
Cash and cash equivalents |
$ |
252.3 |
|
|
$ |
277.6 |
|
Accounts receivable - net |
187.6 |
|
|
130.1 |
|
Inventories |
352.0 |
|
|
375.9 |
|
Other current assets |
157.3 |
|
|
98.1 |
|
Total current assets |
$ |
949.2 |
|
|
$ |
881.7 |
|
Property, plant and equipment - net |
$ |
97.6 |
|
|
$ |
133.3 |
|
Operating lease right-of-use assets |
199.5 |
|
|
253.9 |
|
Intangible and other assets - net |
91.1 |
|
|
182.4 |
|
Total long-term assets |
$ |
388.2 |
|
|
$ |
569.6 |
|
Total assets |
$ |
1,337.4 |
|
|
$ |
1,451.3 |
|
|
|
|
|
Liabilities and stockholders’ equity: |
|
|
|
Accounts payable, accrued expenses and other current
liabilities |
$ |
483.4 |
|
|
$ |
438.5 |
|
Short-term debt |
38.4 |
|
|
25.2 |
|
Total current liabilities |
$ |
521.8 |
|
|
$ |
463.7 |
|
Long-term debt |
$ |
139.7 |
|
|
$ |
243.9 |
|
Long-term operating lease liabilities |
203.0 |
|
|
270.1 |
|
Other long-term liabilities |
63.6 |
|
|
77.0 |
|
Total long-term liabilities |
$ |
406.3 |
|
|
$ |
591.0 |
|
Stockholders’ equity |
409.3 |
|
|
$ |
396.6 |
|
Total liabilities and stockholders’ equity |
$ |
1,337.4 |
|
|
$ |
1,451.3 |
|
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 13 weeks ended July 3, 2021 |
|
For the 13 weeks ended July 4, 2020 |
|
Growth (Decline) |
($ in millions) |
As Reported |
|
Less: Impact of Foreign Currency Exchange
Rates |
|
Constant Currency |
|
As Reported |
|
Percentage as Reported |
|
Percentage Constant Currency |
Segment: |
|
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
176.7 |
|
|
$ |
(3.2 |
) |
|
|
$ |
173.5 |
|
|
$ |
105.8 |
|
|
67 |
% |
|
64 |
% |
Europe |
124.4 |
|
|
(9.7 |
) |
|
|
114.7 |
|
|
79.5 |
|
|
56 |
|
|
44 |
|
Asia |
103.5 |
|
|
(6.1 |
) |
|
|
97.4 |
|
|
69.2 |
|
|
50 |
|
|
41 |
|
Corporate |
6.3 |
|
|
(0.1 |
) |
|
|
6.2 |
|
|
4.5 |
|
|
40 |
|
|
38 |
|
Total net sales |
$ |
410.9 |
|
|
$ |
(19.1 |
) |
|
|
$ |
391.8 |
|
|
$ |
259.0 |
|
|
59 |
% |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Product Categories: |
|
|
|
|
|
|
|
|
|
|
|
Watches |
$ |
329.4 |
|
|
$ |
(15.5 |
) |
|
|
$ |
313.9 |
|
|
$ |
209.5 |
|
|
57 |
% |
|
50 |
% |
Leathers |
33.3 |
|
|
(1.2 |
) |
|
|
32.1 |
|
|
26.6 |
|
|
25 |
|
|
21 |
|
Jewelry |
36.9 |
|
|
(2.0 |
) |
|
|
34.9 |
|
|
15.2 |
|
|
143 |
|
|
130 |
|
Other |
11.3 |
|
|
(0.4 |
) |
|
|
10.9 |
|
|
7.7 |
|
|
47 |
|
|
42 |
|
Total net sales |
$ |
410.9 |
|
|
$ |
(19.1 |
) |
|
|
$ |
391.8 |
|
|
$ |
259.0 |
|
|
59 |
% |
|
51 |
% |
Adjusted operating income (loss) and
Adjusted EBITDA
Adjusted operating income (loss) and Adjusted
EBITDA are non-GAAP financial measures. We define Adjusted
operating income (loss) as operating income (loss) before
impairment expense and restructuring expense. 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 operating income (loss)
and Adjusted EBITDA 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 Adjusting operating income
(loss) and Adjusted EBITDA may not be comparable to similarly
titled measures other companies report. Adjusted operating income
(loss) and Adjusted EBITDA are not intended to be used as
alternatives to any measure of our performance in accordance with
GAAP.
The following table reconciles Adjusted
operating income (loss) to the most directly comparable GAAP
financial measure, which is operating income (loss).
|
|
|
|
|
|
|
|
($ in
millions): |
Operating income (loss) |
|
Less: Other long-lived asset impairment |
|
Less: Restructuring expenses |
|
Adjusted operating income (loss) |
|
|
|
|
|
|
|
|
For the 13 weeks ended July 3,
2021 |
$14.3 |
|
$1.3 |
|
$5.7 |
|
$21.3 |
For the 13 weeks ended July 4, 2020 |
|
(36.8 |
) |
|
|
3.4 |
|
|
|
10.5 |
|
|
|
(22.9 |
) |
The following table reconciles Adjusted EBITDA
to the most directly comparable GAAP financial measure, which is
income (loss) before income taxes. Certain line items presented in
the tables below, when aggregated, may not foot due to
rounding.
|
|
|
Fiscal 2020(1) |
|
Fiscal 2021 |
|
($ in
millions): |
|
|
Q3 |
|
Q4 |
|
Q1 |
|
Q2 |
Total |
Income (loss) before income taxes |
|
|
$ |
9.5 |
|
|
$ |
11.5 |
|
|
$ |
(22.2 |
) |
|
|
$ |
7.3 |
|
|
$ |
6.1 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
8.0 |
|
|
8.4 |
|
|
7.3 |
|
|
|
6.5 |
|
|
30.2 |
|
Amortization and depreciation |
|
|
10.3 |
|
|
10.0 |
|
|
8.9 |
|
|
|
7.5 |
|
|
36.7 |
|
Impairment expense |
|
|
4.6 |
|
|
6.5 |
|
|
4.5 |
|
|
|
1.3 |
|
|
16.9 |
|
Other non-cash charges |
|
|
2.0 |
|
|
1.0 |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
2.5 |
|
Stock-based compensation |
|
|
3.2 |
|
|
1.9 |
|
|
1.8 |
|
|
|
2.5 |
|
|
9.4 |
|
Restructuring expense |
|
|
5.7 |
|
|
10.9 |
|
|
7.5 |
|
|
|
5.7 |
|
|
29.8 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
Interest Income |
|
|
0.1 |
|
|
0.2 |
|
|
0.1 |
|
|
|
0.1 |
|
|
0.5 |
|
Adjusted EBITDA |
|
|
$ |
43.3 |
|
|
$ |
50.0 |
|
|
$ |
7.5 |
|
|
|
$ |
30.3 |
|
|
$ |
131.1 |
|
(1) Prior period amounts have been adjusted to
conform to the current period presentation.
Store Count Information
|
July 4, 2020 |
|
Opened |
|
Closed |
|
July 3, 2021 |
Americas |
194 |
|
2 |
|
30 |
|
166 |
Europe |
153 |
|
2 |
|
22 |
|
133 |
Asia |
89 |
|
1 |
|
3 |
|
87 |
Total stores |
436 |
|
5 |
|
55 |
|
386 |
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