Fossil Group, Inc. 2026 Q2 Earnings Call

Hello, everyone, and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer, and Randy Greben, Chief Financial Officer. Before we begin, I would like to remind you that information made available during this conference call contains forward-looking information, and actual results could differ materially from those that will be discussed during this call. Fossil Group's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in the company's Form 8-K, 10-Q and 10-K reports filed with the SEC. In addition, Fossil 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. During today's call, we will refer to constant currency results as well as certain non-GAAP financial measures.

Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8-K and is available in the investors section on fossilgroup.com. With that, I'll now turn the call over to Franco to begin.

Good afternoon. Thank you, Christine, and welcome everyone. We're pleased to deliver another quarter of strong financial performance, which reflects the compounding benefits of our turnaround plan and disciplined execution. Our Q2 net sales totaled $211 million, led by strength in key brands, channels and geographies, which is setting the stage for our return to top line growth in the fourth quarter of this year. Gross margin of 62.4% were above our expectation, largely attributable to our full price selling model and adjusted operating income doubled versus a year ago, coming in at $8.6 million. These standout results and continuing momentum enable us to confidently raise our full year outlook, underscoring the strength of our turnaround pillars and our commitment to driving durable growth and value creation. During the quarter, we saw notable strength in two of our biggest and most scalable markets, the U.S. and India.

From a regional perspective, the Americas region stabilized and was highlighted by mid-single digit growth in the U.S. The Asia region increased 4% with strong double-digit growth in India. Solid performance in these two regions is particularly gratifying given the headwinds we're seeing in the EMEA, which is being increasingly impacted by the geopolitical climate in the Middle East. Another standout this quarter was our Fossil brand traditional watch business, which delivered impressive growth of 12% globally in the wholesale channel. We're pleased that our solid top-line results, healthy gross margins and effective cost management translated to strong bottom-line delivery in the quarter. We view this as a testament to the hard work and commitment of our teams around the world. We would like to express our gratitude for their ongoing dedication to helping us consistently deliver on our plans.

Now, I will turn to some updates on the initiatives under our three strategic turnaround pillars. First, returning to profitable growth. We're strengthening the Fossil brand platform through action to fuel innovation, deepen consumer engagement, grow the traditional watch business, and reinvigorate our jewelry and leather categories. Our product engine is key to growing our business. As a market share leader, we are benefiting from structural tailwinds that are driving traditional watch growth across markets and demographics. We're uniquely positioned to capture this opportunity by continuing to deliver a steady pipeline of innovation. We're building a portfolio that allows Fossil to win at every level, from attainable, everyday style to elevated watchmaking.

We're thrilled to have recently been nominated for American Watch Brand of the Year, Volume Watch Brand of the Year, and Best Marketing Campaign for Big Tic Y2K for the upcoming WatchPro Awards in September, a premier watch industry event. This is a tremendous honor that speaks to the enduring strength of the Fossil brand and the talented teams driving our product engine and storytelling. Fossil has over 40 years of design heritage that we are drawing from to inspire innovation for the future. By bringing back iconic products from our archives, we're transforming nostalgia into a competitive advantage. We're just getting started in 2026. In the first half of the year, we launched Big Tic World Flags collection to coincide with the FIFA World Cup games, and continued to bring high-profile collaboration with Star Wars and Marvel to market.

At the same time, Fossil icons like the Everett, Machine, Neutra, and Townsman collection for men, and the Raquel and Scarlett collection for women continue to drive scale and market share. We're continually innovating on our icons forward, which has enabled us to create bestsellers like watch rings and minis, two categories that Fossil had defined within the industry. This fall, we are launching an exciting evolution of our Machine platform, the X1, which is bolder, sporting, and marks another step forward in our premiumization strategy. We're focused on elevating our brand equity through innovation, material, craftsmanship, and now Swiss watchmaking. Among our biggest product stories in the second half of the year is the launch of a Signature, a premium platform that introduces a new level of technical sophistication and Swiss-made craftsmanship.

We're incredibly proud of this offering and believe it represents an important new chapter for the Fossil brand. The Signature collection will premiere at New York Watch Week in October, supported by a dedicated campaign designed to celebrate craftsmanship and drive engagement with watch industry press and influencers. This will be quickly followed by a launch event in India, where consumers are increasingly seeking premium products. We will be amplifying the India launch by partnering with Padmanabh Singh, our global Signature ambassador. Pudmo is the Maharajah of Jaipur and one of India's leading polo players. He represents a unique blend of heritage, modern style, and global influence that we believe will help to drive excitement and engagement. Storytelling is also critical to our brand-led consumer-focused operating model, and in Q2, we accelerated our investment in demand creation.

In the first half of 2026, the combination of robust product innovation and targeted marketing investment helped us drive brand heat and new customer acquisition. Our global marketing teams have been focusing on putting Fossil at the center of culture with a digital-first approach, social engagement, and immersive events. During Q2, we had a Fossil fun event featuring K-pop star Ell at our flagship store in the capital of Malaysia. The event drew an overwhelming response from hundreds of fans, far exceeding the capacity of our store. It also captured live media attention, drove exceptionally high engagement rates on social media, and generated 600,000 impressions in one day. We're continuing to invest behind marketing and events to drive cultural relevance and have more storytelling on deck for the second half, including our Signature launch and other key moments leading up to the holiday season.

Looking further out, there is much more to come next year in terms of product innovation and creative marketing. We just held our spring-summer 2027 global sales meeting at our headquarters in Dallas last month. The energy, collaboration, and enthusiasm from our teams from around the globe was tremendous and reflective of the exciting opportunities in front of us. Turning to our omnichannel initiative, which are focused on modernizing our brand expression at wholesale, improving our e-commerce business, and optimizing our Fossil store portfolio. On the wholesale front, we're driving growth with our long-term partners and extending our footprint in specialty retail doors. This is primarily being driven by three major factors, great product support by a robust innovation pipeline, engaging storytelling, and our commitment to full price selling. During Q2, we saw traditional watch growth in both the Americas and Asia region, with strength across brands in key markets.

This includes the important U.S. market, where wholesale channel performance was highlighted by traditional watch growth of 16%, led by even stronger performance from the Fossil brand. Looking now at DTC in the e-commerce channel, we're continuing to drive higher product margin and AUR as we prioritize full price integrity and implement initiatives to provide a more engaging customer journey. In the retail channel, we're pleased to note that our store of the future strategy is continuing to gain traction, driving improved performance in our full-price stores during the quarter. Most notably, we're seeing accelerating trends across product margin and AUR. Building on the momentum we have seen across channels, we recently strengthened our leadership in the Americas region by bringing in seasoned industry veterans to lead our wholesale and retail businesses.

We believe this leadership addition will accelerate our efforts to strengthen operational excellence, drive productivity, and increase market share. Moving now to our core licensed brands. In the Michael Kors brand, watches and jewelry deliver another quarter of improved performance in our most important channels and geographies. The brand is undergoing a successful turnaround, and we are following their lead on style and fashion authority. We are evolving our strong hero watch collection like Lexington that resonate globally with consumers, while also building new platforms, beginning with the Chelsea collection this fall. We are also focused on rejuvenating jewelry through elevated design and a refined pricing strategy, and bringing new energy to the men's across collection and price point. In Emporio Armani, the brand continues to generate strong sell-through, driven by innovation and a focus on premium offerings.

While the Armani Exchange brand is benefiting from product newness and curated events featuring celebrity collaboration. This fall, Emporio Armani will introduce next evolution of the Archetipo, a classic dress watch positioned in the $200-$300 price segment, and one of the brand's most iconic timepieces, which will serve as the foundation of the collection for the years to come. Looking now at India, one of our most important strategic markets, where we are seeing ongoing strength in all brands and channels. During Q2, we delivered double-digit growth in the Fossil, Armani, Diesel, and Kors brand, with strong performance in both the wholesale and direct-to-consumer channels. This was driven by product newness, disciplined full price selling, and great storytelling as our experienced team continued to deliver strong execution. We are actioning a number of initiatives to continue the momentum.