Fossil Reports Fourth Quarter, Fiscal Year 2017 Results
Richardson, Texas-based Fossil Group reported a net loss for its fourth quarter of $79.9 million and a net loss of $478.2 million for the 2017 fiscal year ending December 31. This compares to net income of $49.7 million in fourth quarter 2016 and net income of $78.9 million for fiscal year 2016. The company operates in the promotional products industry as supplier Fossil (PPAI 196495).
“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,” says Kosta Kartsotis, Fossil Group chairman and CEO. “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 [margin improvement initiatives].”
Worldwide, net sales decreased $38.4 million, or four percent, compared to the same quarter one year earlier. For fiscal 2017, net sales decreased $254.2 million, or eight percent. The company’s overall watch sales declined across all geographic areas, although it did see growth in smart watch sales. Jewelry and leather product sales also declined.
“Fiscal 2017 saw us nearly double wearables to over $300 million, representing 14 percent of total watch sales,” says Kartsotis. “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 the 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.”
In fourth quarter 2017, Fossil’s operating expenses were $396.8 million, including $6.4 million of restructuring costs primarily related to store closings, as compared to $13.3 million of restructuring costs in the prior fiscal year fourth quarter. Expenses were lower compared to the fourth quarter of fiscal 2016 as a result of reduced store expenses given the significant number of stores closed since the end of fiscal 2016, as well as corporate and regional overhead cost reductions. Marketing was also lower in the fiscal 2017 fourth quarter due to reduced fixture spend and investments in lower cost digital campaigns compared to more expensive television advertising executed during the fiscal 2016 fourth quarter. For fiscal 2017, operating expenses were $1,783.1 million, including $407.1 million in non-cash intangible asset impairment charges and $48.2 million of restructuring costs associated with realigning and optimizing the organizational structure as well as costs associated with store closures.
Operating income for the fourth quarter of fiscal 2017 decreased to $51.3 million, driven by lower sales and gross margin. For fiscal 2017, the company operated at a $424.2 million loss, driven by non-cash intangible asset impairment charges and higher restructuring charges combined with lower sales and gross margin.
"In the year ahead, we expect to be a smaller yet more profitable company that is on a solid path for the future," 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.”