Fossil Group (NASDAQ: FOSL) reported Q4 EPS of ($0.14), $0.93 worse than the analyst estimate of $0.79. Revenue for the quarter came in at $712 million versus the consensus estimate of $724.65 million.

Fourth Quarter Financial Overview

• Worldwide net sales of $712 million decreased 10% on a reported basis and 9% in constant currency.
• Double-digit growth in Asia and global third party e-commerce marketplaces, partially offsetting declines in the Wholesale channel.
• Strong performance in the Company’s latest generation display product, Gen 5, and new Hybrid HR watch, reflecting positive response to Fossil Group’s high performance technology and design innovation.
• Continued progress under the Company’s New World Fossil 2.0 - Transform to Grow Program ("NWF 2.0"), designed to achieve gross margin benefits and operating expense reductions totaling $200 million between 2019 and 2021.
• Gross margin of 43.3% compared to 53.0% a year ago, primarily reflecting a one-time, non-cash charge of $38 million related to the write-down of older generation connected inventory.
• Operating expenses of $309 million, down 12% year-over-year, attributable to continued progress under NWF 2.0.
• Operating loss of $1.0 million compared to operating income of $67 million a year ago due to softness in sales and gross margin, partially offset by benefits from NWF 2.0.
• Cash and cash equivalents of $200 million and net debt totaling $5.0 million at year-end.

Kosta Kartsotis, Chairman and CEO, stated, “We are disappointed to close the year with a challenging fourth quarter, which primarily reflects lower than expected performance in our older generation connected products and ongoing softness in the department store channel. These pressures more than offset strong performance in our Gen 5 offering - our latest generation display product - and our Hybrid HR product, as well as double-digit growth in Asia and solid growth in our third party e-commerce channel. The top line softness resulted in heightened promotional activity and an inventory write-down, which had a substantial impact on our gross margins and profitability in the quarter.”

“As we navigate the challenging operating environment, we are taking actions to pivot our business model by deploying greater resources toward the Direct to Consumer channel, accelerating our connected product offerings and building on our success in the Asia region,” continued Kartsotis. “Our goal is to stabilize our business in traditional channels with a renewed emphasis on consumer driven innovation and enhanced story telling. At the same time, we are strengthening our operations and re-engineering our cost structure through our New World Fossil 2.0 - Transform to Grow program. Our teams made significant progress under this initiative in 2019 - we captured total benefits of $50 million for the full year, primarily through operating expense reductions. Importantly, we remain on track to achieve total benefits of $200 million over the three-year period from 2019 to 2021.”

The Company is providing guidance on a GAAP basis. For comparison purposes, the Company has also provided additional information which quantifies the estimated impact on its operating expenses and operating income for non-operational items impacting operating results for fiscal 2020 and the first quarter of fiscal 2020. The Company provided the following financial guidance for the first quarter and full year of fiscal 2020:

Q1 2020

• Net sales decline in the range of (10.0%) to (3.5%), including the estimated negative impacts of business exits and currency of approximately (2.5%) and (1.3%), respectively
• Gross margin in the range of 47.0% to 49.0%
• Operating expenses ranging from $256 million to $265 million, including restructuring charges of $12 million, inclusive of severance and related costs
• Operating margin in the range of (14.0%) to (10.0%)
• Interest expense of approximately $8 million
• Income (loss) before income taxes in the range of ($67) million to ($52) million

Full Year 2020

• Net sales decline in the range of (11.5%) to (4.5%), including the estimated negative impact of business exits and currency of approximately (1.3%) and (0.5%), respectively
• Gross margin in the range of 50.5% to 51.5%
• Operating expenses ranging from $1,015 million to $1,055 million, including restructuring charges of $35 million, inclusive of severance and related costs
• Operating margin in the range of (1.5%) to 1.5%
• Interest expense of approximately $32 million
• Income (loss) before income taxes in the range of ($57) million to $3 million

For earnings history and earnings-related data on Fossil Group (FOSL) click here.