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Fossil Group, Inc. Reports Fourth Quarter and Fiscal Year 2017 Results

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Fourth Quarter Net Sales of $921 million; Diluted EPS (Loss) of $(1.65) 

Adjusted EPS of $0.64 Excluding Tax Reform and Restructuring Charges of $2.29

Fiscal Year 2017 Net Sales of $2.8 billion; Diluted EPS (Loss) of $(9.87)
Adjusted EPS of $0.05 Excluding Non-Cash Intangible Asset Impairment, Tax Reform and Restructuring Charges of $9.92

 Provides First Quarter and Fiscal 2018 Guidance

RICHARDSON, Texas, Feb. 13, 2018 (GLOBE NEWSWIRE) --  Fossil Group, Inc. (NASDAQ:FOSL) (the "Company" or "Fossil Group") today reported its financial results for the fourth quarter and fiscal year ended December 30, 2017.  Fourth quarter and fiscal year results include net sales near the high-end of the Company's previously provided guidance.  Reported diluted earnings per share include the impacts from the Tax Cuts and Jobs Act (the "Tax Act") that was signed into law in December 2017.  These impacts along with tax valuation allowances recorded in the fourth quarter of fiscal 2017 were not contemplated in the Company's guidance provided on November 7, 2017.  Diluted earnings per share, excluding these tax related charges, were in line with guidance.

The Company reported net income (loss) for the fourth quarter of fiscal 2017 of $(79.9) million compared to $49.7 million for the fourth quarter of fiscal 2016.  Diluted earnings (loss) per share were $(1.65), including tax charges of $2.20 per diluted share due to the impacts from the Tax Act combined with a valuation allowance and a restructuring charge of $0.09 per diluted share, as compared to $1.03 for the fourth quarter of fiscal 2016.  Currencies, including both the translation impact on operating earnings and the impact of foreign currency hedging contracts, favorably affected the year-over-year earnings (loss) per share comparison by $0.09.

For fiscal year 2017, the Company reported net income (loss) of $(478.2) million compared to $78.9 million for fiscal 2016.  Diluted earnings (loss) per share were $(9.87), compared to $1.63 for fiscal 2016.  Diluted earnings (loss) per share for fiscal 2017 of $(9.87) included non-cash intangible asset impairment charges of $7.07 per diluted share, tax charges resulting from the Tax Act and valuation allowance of $2.20 per diluted share and a restructuring charge of $0.65 per diluted share.  Currencies, including both the translation impact on operating earnings and the impact of foreign currency hedging contracts, unfavorably affected the year-over-year earnings (loss) per share comparison by $(0.01).

Kosta Kartsotis, Fossil Group, Chairman and CEO commented: "In fiscal 2017, Fossil Group, embarked on a set of strategic initiatives aimed at accelerating the evolution of the business to position the Company for long term profitable growth. While sales and earnings were challenged as expected, we generated progress toward our objectives that include:  driving growth in wearables across our portfolio of powerful brands, leveraging our scale to lower supply chain costs, increasing our digital capabilities, and continuing the transformation of our business through New World Fossil. To this end, fiscal 2017 saw us nearly double wearables to over $300 million, representing 14% of total watch sales.  This success drove an increase in Fossil watch sales for the second half of the year with positive comps in our direct business during the important holiday quarter.  With wearable launches ahead of holiday, we significantly improved the trajectory for Michael Kors watches and drove a double digit increase in fourth quarter Armani watch sales.  Overall, we introduced a number of new hybrid and display smartwatches across 14 brands and believe the continuation of this effort, combined with the innovation we are introducing across our traditional styles, has us poised for stabilization and growth over time.  Also, positioning us well is the work we did across the supply chain.  By year end, wearable product costs were aligned with our margin goal, setting the stage to increase gross margin in 2018.  On the digital front, we greatly increased our reach, helping to drive a 31% increase in e-commerce sales in the fourth quarter, and our New World Fossil initiative led to $95 million reduction in expenses for the year placing us right on track to achieve our $200 million profit improvement goal.  I am proud of our team as their combined efforts, focus and passion led to significant accomplishments toward each of our objectives, giving us a stronger platform from which to continue our progress in fiscal 2018."

"In the year ahead, we expect to be a smaller yet more profitable company that is on a solid path for the future," Mr. Kartsotis, continued.  "Our priorities are focused on delivering innovative wearable and traditional watch styles while improving performance in the handbag and jewelry categories and driving increases in digital sales.  While we continue to expect North America to be challenging given the dynamics of the retail and consumer environment in the region, with our commitment to drive out costs through our New World Fossil initiative and with improved sourcing costs, we expect to deliver more profit to the bottom line.  The credit agreement completed last month increases the financial flexibility we have to continue to invest in support of our growth and achieve our ultimate goal of creating greater value for all Fossil stakeholders."

Operating Results
Compared to the fourth quarter of fiscal 2016, the impact of a weaker U.S. dollar increased the Company's fiscal 2017 reported net sales by $29.9 million and operating income by $11.0 million.  During fiscal 2017, the impact of a weaker U.S. dollar increased the Company's reported net sales by $23.3 million and had a relatively neutral impact on operating income.  The discussion of the Company's net sales is presented on a GAAP basis and in constant dollars and reflects regional performance based on sales in all channels within the geographic location.

The following tables provide a summary of net sales performance, on both a reported and constant currency basis, for the fourth quarter of fiscal 2017 and fiscal year 2017 compared to the fiscal 2016 fourth quarter and fiscal year 2016.

  Fourth Quarter                
  2017   2016   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 $ 442       $ 483       $ (41 )   $ (44 )   (8 )%   (9 )%
Europe 337       333       4     (20 )   1     (6 )
Asia 142       143       (1 )   (4 )   (1 )   (3 )
                           
Total net sales $ 921       $ 959       $ (38 )   $ (68 )   (4 )%   (7 )%
                           
Watches $ 728       $ 749       $ (21 )   $ (44 )   (3 )%   (6 )%
Leathers 108       115       (7 )   (10 )   (6 )   (9 )
Jewelry 72       80       (8 )   (12 )   (10 )   (14 )
Other 13       15       (2 )   (2 )   (13 )   (15 )
                           
Total net sales $ 921       $ 959       $ (38 )   $ (68 )   (4 )%   (7 )%


  Fiscal Year                
  2017   2016   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 $ 1,316       $ 1,525       $ (209 )   $ (211 )   (14 )%   (14 )%
Europe 974       1,002       (28 )   (46 )   (3 )   (5 )
Asia 498       515       (17 )   (20 )
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