Fossil's Q1 hit by pandemic, losses widen but cost savings grow too

By

Sandra Halliday

Published
Jun 4, 2020

Watchmaking giant Fossil had a tough time in Q1 as the effects of the global pandemic hurt its operations all over the world. But things could have been worse and its Q1 global net sales fell ’only’ 16% to $390.7 million as turnover was hit from February in Asia and then in other markets. 

The firm didn’t give a figure for e-commerce sales but its faster move into digital does appear to have helped it during the period.

Its operating loss was $134.3 million, much wider than the $19.9 million loss of a year ago. And the gross margin fell to 35.9% from 53.3%. This was on the back of liquidation and increased inventory valuation adjustments of older-generation connected products and minimum licensed product royalties linked to the impact of Covid-19.

It all meant the net loss hit $85.6 million, wider than the $12.2 million in Q1 2019. 

As mentioned, opening quarter sales fell 16%, or 15% currency-neutral, as its stores and most of the company's wholesale partners' stores were closed for much of the period. Global retail comparable sales on a currency-neutral basis fell 14% but had been trending up 1% prior to the store closings. 

Net sales in the Americas fell 20%, in Europe they were down 16%, in Asia they fell 9% and corporate sales fell 28%.

Category-wise, sales of watches (its biggest segment by far) fell 15%, while leathers were down 12%, jewelry was down 26% and ‘other’ categories dropped by the same amount.

But the quarter to April 24 also saw its existing New World Fossil 2.0 - Transform to Grow Program (NWF 2.0) being expanded to address the additional challenges. And its extra actions to improve its cost structure should mean savings of $100 million this year, double the savings it had already been planning. This has included eliminating the majority of planned capital expenditures for 2020 and closely managing working capital by reducing incoming inventory.

The company seems to be well capitalised to get through the crisis period and said that, as of April 4, it had total liquidity of $278 million, made up of $245 million of cash and cash equivalents and $33 million of availability under its revolving credit facility. It should close Q2 with more than $200 million available to it.

Chairman and CEO Kosta Kartsotis said: “As people around the globe continue to face the many challenges presented by Covid-19, we are taking actions to mitigate the headwinds and chart our path forward amid a new operating environment. We are accelerating our focus on driving digital growth and capturing organizational efficiencies, two of our key strategic priorities for 2020. 

“Our investments in digital capabilities, including the recent completion of a new global e-commerce platform, have allowed us to meet significantly increased demand and seamlessly serve our customers. As economies begin to reopen around the globe, we are working closely with our wholesale partners and executing a phased reopening of our Fossil stores.”