Fossil Group (FOSL 1.49%), known for its portfolio of fashion watches and accessories, reported its latest quarterly results on Aug. 13, 2025. The most notable news in the release was a narrower-than-expected loss and a substantial beat on both earnings and revenue estimates, as EPS (non-GAAP) of -$0.10 exceeded the analysts' estimate of -$0.21, and revenue (GAAP) of $220.4 million exceeded the analysts' estimate of $198.0 million, despite a double-digit sales decline of 15.2% from the previous year. Revenue (GAAP) landed at $220.4 million, topping expectations by over $22 million.
Compared with the prior-year period, sales were down, but the quarter showed a clear improvement in profitability metrics and cost controls. Overall, the quarter demonstrated material operational improvement, with positive momentum on margins and expenses, even though underlying demand weakness persisted.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | ($0.10) | ($0.21) | ($0.47) | Improved |
| Revenue (GAAP) | $220.4 million | $198.04 million | $260.0 million | (15.2%) |
| Gross Margin | 57.5% | 52.6% | 4.9 pp | |
| Operating Income | $8.5 million | ($34.0 million) | Improved | |
| Adjusted EBITDA | $7.0 million | ($11.7 million) | Improved |
Source: Fossil Group. Note: Analyst estimates provided by FactSet.
Business Overview and Focus Areas
Fossil Group is a global fashion company specializing in designing and distributing accessories such as traditional watches, jewelry, and leathers. Its business model centers on both proprietary brands like Fossil and Skagen and licensed labels including Michael Kors, Armani Exchange, and Diesel. This broad portfolio helps the company reach a wide range of consumers worldwide.
The company’s success relies on several key factors. Maintaining strong brand relationships—both owned and licensed—is essential for market penetration and revenue streams. Its international distribution network, including hundreds of retail locations and wholesale partners, enables global reach. Innovation is important, especially with traditional and smartwatches, though the company has now exited smartwatches. Digital selling, inventory controls, and a quick response to market trends remain significant focus areas as competition and consumer tastes shift rapidly.
Quarterly Performance: Financial and Operating Highlights
The quarter brought clear improvements in profitability even as sales declined. The revenue figure fell 15.2% year over year. Wholesale revenue fell by 6% in constant currency, while the direct-to-consumer (DTC) channel posted a sharper 30% drop. Comparable retail sales dropped 23%, showing ongoing weakness in consumer demand at company-owned stores and digital channels. Regional declines were broad: Americas revenue fell 19%, Europe was down 14%, and Asia dropped 12%—all in constant currency terms.
Most product families saw lower numbers. Traditional watches, Fossil's core product, declined 8% in constant currency (non-GAAP) to $177.9 million. The leathers category, which includes items like belts and bags, plummeted 39% in constant currency to $16.7 million. Jewelry sales fell 22% to $18.8 million (constant currency), while the now-completed exit from the smartwatch segment accounted for a drop from $8.4 million in Q2 FY2024 to $1.4 million.
Gross margin, which measures the percent of sales left after direct costs like materials and production, increased by 4.9 percentage points from the previous year, reaching 57.5% (GAAP). Cost controls were a major theme, with selling, general, and administrative expenses (SG&A) down 27.8% year over year. Operating expenses as a share of sales fell 12 percentage points. This focus produced an operating income of $8.5 million—reversing a significant loss a year ago. Adjusted EBITDA, a profitability metric that strips out certain non-cash and unusual charges, swung to a positive $7.0 million, up from an $11.7 million loss in Q2 FY2024.
Several one-time events shaped the bottom line. The company recorded an $11 million gain from the sale of a European warehouse but incurred $7.3 million in restructuring charges. Along with reduced inventory and lower store count (down by 44 locations year over year), these changes reflect Fossil’s ongoing turnaround plan.
Brand and Channel Context
Fossil manages a large portfolio, with both internal and licensed fashion labels. Product types include traditional analog watches, jewelry, leathers, and formerly smartwatches—a category from which the company has now fully exited. While Q1 saw some strength in brands such as Michael Kors and Armani Exchange, management noted in the earnings release that “the majority of the brands in our portfolio decreased.” New brand initiatives, such as a global campaign with celebrity ambassador Nick Jonas, were announced as upcoming efforts to strengthen core brand engagement and awareness.
The company’s retail presence shrank further, with net closures of 44 stores. The quarter ended with 101 stores in the Americas, 52 in Europe, and 61 in Asia. This ongoing reduction in retail footprint is a strategic move to cut costs, but it also carries the risk of further limiting consumer access. Sales in all major regions declined double digits, showing broad-based demand pressure. Direct-to-consumer and e-commerce channels remained under pressure, with the DTC channel showing much weaker results than wholesale. The transition of smaller international markets to a distributor model continued, though no detailed e-commerce performance figures were specified in the latest quarter.
The exit from smartwatches, which contributed to roughly 6 percentage points of the net sales decline, reflects a shift back to core categories. However, this move removes exposure to the connected wearables market. Management described the cost savings and improved margins from this exit, but growth in other product categories has not yet offset that lost revenue.
Other pressures included a surge in the effective tax rate to 150.9%, higher interest expense year over year, and declining equity on the balance sheet. Inventories declined 11.9%, Inventories at the end of the second quarter of 2025 totaled $178.1 million, a decrease of 11.9% versus a year ago. Meanwhile, debt modestly increased to $179.0 million, and the company announced plans for a comprehensive refinancing to boost liquidity. These measures are intended to support ongoing operations as the turnaround continues.
Looking Ahead
Management raised full-year 2025 guidance modestly. It now expects worldwide net sales to decline in the mid-teens percentage range for FY2025, slightly better than the previous “mid- to high-teens” decline expectation. Guidance for adjusted operating margin (non-GAAP) has improved to a range of zero to slightly positive for FY2025, compared to the previous forecast of a low single-digit negative margin. The forecast for FY2025 factors in a $45 million negative impact from planned store closures and excludes potential one-off benefits from asset sales or currency fluctuations.
Looking forward, attention will remain on whether cost controls and brand investments can eventually reverse the ongoing contraction in sales. Investors should monitor whether demand for core product categories and owned brands stabilizes. The impact and effectiveness of new marketing—like the Nick Jonas brand campaign—will also be key in the coming quarters. Fossil Group does not currently pay a dividend.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
