Fossil Group posted quarterly results on Tuesday that could point to early signs of a turnaround for the legacy watchmaker.
The company, which has struggled to compete with new gadgets in the years since its sales and stock price peaked in the 2010s, has been quietly undertaking a comeback strategy under CEO Franco Fogliato. The company's fiscal third-quarter earnings indicate the strategy is beginning to bear fruit.
The company said Tuesday that it returned to profitability in the third quarter, posting operating income of $25.3 million, compared to an operating loss of $21.7 million last year. It also returned to sales growth, with net sales up 0.4% to $271.2 million. The company last reported a year-over-year sales increase in the first fiscal quarter of 2022.
"We're excited about improving dramatically the profitability of the company through a very strong and disciplined management of full-price sales as well as cost management," Fogliato told CNBC in an exclusive interview.
For the quarter ended Oct. 3, Fossil reported net income of $11.7 million, or 19 cents per share, compared to a net loss of $39.9 million, or 76 cents per share, the year prior. The company also said its operating expenses fell 11.1% to $137 million. The company last posted quarterly net income in the third fiscal quarter of 2022.
With the signs of growth, the retailer also raised its full-year outlook, guiding for full-year net sales of between $980 million and $990 million, which would mark a slight decline from just over $1 billion in net sales in the prior year. That compares to a previous expectation of net sales falling between 3% and 5%. Fossil also said it's expecting positive free cash flow by the end of the year.
Fogliato said Fossil had previously not expected sales growth for another year and a half.
The stronger quarter comes after the company saw slumping sales and financial losses over the past few years. It struggled with the rise of smartwatches, mounting debt and the decline in mall foot traffic.
Fossil stock has lost the vast majority of its value since the early-to-mid 2010s, and despite a recent surge, was trading under $8 a share on Tuesday.
To right size the business, Fogliato, who joined Fossil in 2024, said he focused on closing stores, moving away from promotions to full-price sales, improving marketing and broadening Fossil's product range. That meant shrinking the business to a sustainable baseline before trying to grow it.
The company saw a 5.9% decrease in direct-to-consumer sales for its third quarter, which Fogliato attributed to the company's "aggressive" downsizing.
"We simplified a lot of the business doing this," Fogliato said, adding that customers responded well when the company moved away from markdowns. "People tell me they are excited about what they are seeing in the marketplace now."
Fossil added that its key growth engine for the quarter was Asia, where net sales grew 15.1%. Fogliato said much of that growth was led by the India market.
At the same time, growing internationally is only part of the watchmaker's strategy as it tries to improve its performance in its home country.
"Priority number one is to grow our home market, and we're doing that," he said. "As retail is settling into a smaller, more profitable base, ready to grow again, we're entering 2027 with plenty of opportunities."
Fogliato said one key to growth was not trying to keep up with the smartwatch trend. While trying to make gains in the smartwatch space initially hampered Fossil's performance, it's now investing in analog watches again.
Smartwatch sales came in under $1 million for the quarter, but sales for traditional watches – which make up around 86% of Fossil's sales – grew 6.4%.
"Fossil is literally having a comeback, a strong comeback, a momentum, and we can see this," Fogliato said. "And it comes not only through the numbers – it comes with the excitement we see in the stores, and we think we're just at the beginning. We have so much work to do."
