Fossil Group Raises Outlook as Q3 Revenue Climbs 2 Percent

Fossil Group lifted its full-year sales and profit outlook after third-quarter revenue rose 2 percent to $276 million. The company, listed on NASDAQ as FOSL, now expects net sales of $980 million to $990 million for the year, up from its previous range of $955 million to $975 million.

The more striking number sits further down the income statement. Adjusted operating income (operating profit excluding one-off items) reached $30 million in the quarter, an improvement of $45 million from a year earlier. That is not a typo; the company swung from a loss.

Gross margin expanded to 59.9 percent from 49 percent. Chief Executive Officer Franco Fogliato said the results exceeded the company's expectations across its key metrics and reflected progress in its turnaround plan.

What drove the numbers?

Sales of Fossil-branded products grew 14 percent year over year. Traditional watch sales across all brands rose 6 percent. Chief Financial Officer Randy Greben said quarterly revenue included approximately $10 million in wholesale shipments that moved from the fourth quarter into the third.

The quarter was not entirely tailwind. Store closures reduced sales growth by approximately 1.9 percentage points. Greben said results were better than expected even with the shipment timing shift, and the fourth-quarter outlook accounts for it.

Why did margins jump so far?

Greben attributed the 10.9-percentage-point gross margin increase partly to reductions in minimum royalty guarantees agreed with some licensors for 2026. Fossil also changed how it accounts for expected royalty shortfalls, spreading them across all four quarters rather than concentrating them in the second half, as in prior years.

Full-price selling, supply chain improvements and lower prevailing tariff rates also supported product margins, he said. The company received no tariff refunds during the quarter, Greben confirmed in response to an analyst's question. Fossil continues to expect a full-year gross margin in the upper 50s.

Selling, general and administrative expenses fell to 48.9 percent of sales in the quarter, down from a year earlier. Greben expects them in the low 50s as a percentage of sales in the fourth quarter as the company keeps investing in marketing.

How profitable is the company now?

Third-quarter net income was $12 million, or 19 cents per diluted share. Year-to-date net income was approximately break-even. Greben said the company expects positive reported net income and earnings per share for 2026, and continues to expect positive free cash flow for the full year.

The adjusted operating margin forecast rose to 5.5 percent to 6.5 percent, from 4 percent to 6 percent previously.

Fossil ended the quarter with $77 million in cash and cash equivalents and $35 million of availability under its asset-based lending facility (a credit line secured against company assets). Inventory rose 13 percent from a year earlier to $189 million, which Greben said supported seasonal expectations and growth plans.

Where is growth coming from?

Fogliato said the United States posted another quarter of growth and India continued to perform strongly. Trends in Europe, the Middle East and Africa improved considerably from the first half, although the European business faced challenges associated with war and a shift to distributors in some markets. Fossil recently appointed a new general manager for the region.

Global wholesale sales rose 4 percent, led by the Fossil brand, as the company expanded distribution with existing partners and entered new specialty retailers. The company also reported growth on fossil.com and positive comparable sales at Fossil stores.

Fossil ended the quarter with 174 stores worldwide, two fewer than at the end of the prior quarter. Fogliato said the store optimization work was largely behind the company and that Fossil would remain opportunistic about future openings.

The Swiss-made Signature CS-1 watch collection, launched in October, has generated initial sales above expectations, Fogliato said. He cautioned, however, that the premium collection is unlikely to become the company's largest product area, with Fossil remaining focused on more accessible price points and younger consumers. Restraint is rare in earnings calls. It is welcome.

What about licensing and capital?

Fossil extended its licensing partnership with Diesel through 2032 and signed a new contract with Nick Jonas as a global Fossil brand ambassador. The company plans a global campaign and a Jonas-designed watch collection in 2027, with products launching in the second half of that year.

On other major licensing agreements, Fogliato said Fossil was in advanced discussions and had longstanding relationships with Armani and Michael Kors. Greben said the company remained confident it could reach acceptable long-term extensions with its remaining large licensors, though executives offered no timetable.

On capital allocation, Greben said the priority has been returning to growth. Positive free cash flow would give Fossil options to continue investing or consider allocating capital differently, he said.

Fossil Group, founded in 1984 and headquartered in Richardson, Texas, designs, sources, markets and distributes watches and accessories under its Fossil, Skagen, Michele and Relic brands, alongside licensed relationships. A turnaround, it appears, can be timed after all.