Fossil (FOSL) Q4 2025 Earnings Call Transcript

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Date

Mar. 11, 2026, 5 p.m. ET

Call participants

• Chief Executive Officer — Franco Fogliato
• Chief Financial Officer — Randy J. Greben

Takeaways

• Net sales -- $274 million for the quarter, down 20%, including a 4 percentage-point impact from store closures.
• Full-year net sales -- $1.0 billion, reflecting a 330 basis point headwind from store closures and an 80 basis point impact from the exit of connected watches.
• Gross margin -- 57.4% for the quarter, up 350 basis points; 2025 full-year gross margin at 55.9%, expanding 380 basis points, driven by full-price selling and operational improvements.
• SG&A reduction -- Selling, general, and administrative expenses dropped by 16% year over year, attributed to 49 store closures and lower compensation and administrative costs.
• Adjusted operating income -- $11 million for both the quarter and full year, representing a $48 million improvement year over year and the first positive result after two years of losses.
• Inventory -- Year-end inventory of $152 million, down 15%, with total inventory reduced by over $200 million in three years.
• Cash position -- Ended the year with $96 million in cash and cash equivalents, $67 million in revolver availability, and no ATM program usage.
• Full-price selling model -- Discount rates reduced by more than 50% over 18 months, resulting in structurally higher average unit retail (AUR) and improved channel profitability.
• Wholesale growth in core brands -- Global wholesale traditional watch business for core licensed brands grew 2%.
• Store footprint -- Closed six stores in the quarter, finishing with 199 locations globally; 2026 closures expected to be reduced to roughly 15 stores.
• 2026 sales outlook -- Forecasting revenue between $945 million and $965 million, down 4%-6% due to $21 million in store closure impacts and an extra week in the 2025 comparison; fourth quarter expected to mark a return to top-line growth.
• Adjusted operating margin guidance -- Projected range of 3%-5% for the coming year, with breakeven free cash flow.
• Minimum guaranteed royalty shortfall -- Material royalty headwinds experienced in 2025 are expected to be "materially abated in full-year 2026."
• SG&A rightsizing -- Company reduced SG&A by more than $250 million over three years; substantial savings achieved without significant one-time closing costs.
• 2028 targets -- New outlook includes mid-single-digit sales growth, high single-digit adjusted operating margins, and positive free cash flow in 2028.

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Risks

• CFO Randy J. Greben emphasized, "Provided there is no significant disruption to the macroeconomic environment," turnaround goals depend on continued stable conditions, signaling external uncertainty could impact the outlook.

Summary

The call highlighted a company transformation marked by meaningful reductions in SG&A and inventory, a decisive pivot to full-price selling, and structurally higher gross margins. Fossil Group (NASDAQ:FOSL) raised its forward sales outlook, now anticipating a sales low point one year earlier than previously planned, with management positioning the fourth quarter as a return to top-line growth. Leadership emphasized disciplined cost structure management, improvements in operational model efficiency, and renewed momentum in both proprietary and licensed brands as core pillars driving future profitability. Management noted that the wholesale traditional watch business for core licensed brands experienced category growth, and industry momentum was evident across major markets.

• CEO Franco Fogliato said the resilience of the brand led to stronger customer retention despite the move away from promotional sales.
• Store closures were timed with natural lease expirations, with minimal costs, supporting improved fleet performance.
• The launch of Big Tic and the upcoming Signature collection were called out as product innovation drivers intended to engage new and legacy customers.
• India was specifically highlighted as "an important strategic market" experiencing growth across all channels and brands.
• Marketing spend for 2026 is projected to be slightly lower but more efficiently deployed, focusing on ambassador partnerships and targeted digital campaigns.

Industry glossary

• AUR (Average Unit Retail): The average selling price per item, used to evaluate the profitability impact of pricing strategies.
• Minimum guaranteed royalty: A preset contractual payment required to licensors, regardless of sales volume, impacting gross margins if sales fall short.

Full Conference Call Transcript

Franco Fogliato: Hello, everyone, and thank you for joining us. 2025 was a transformative year for the company, defined by operational excellence and financial performance that exceeded our expectations. We took bold steps to advance our turnaround plan, delivering strong execution against the three pillars we laid out just one year ago. Those include refocusing on our core, rightsizing our cost structure, and strengthening our balance sheet. We built a brand-led, consumer-focused operating model, assembled an exceptional management team, and established a culture of accountability. We recently appointed a new Chief People Officer who will be a valuable part of our efforts to continue strengthening our organizational capabilities, culture, and customer-first mindset.

I am incredibly proud of our teams and want to thank everyone across the organization for their energy, passion, and hard work, and for upholding our commitment to keep the consumer at the center of everything we do. Our turnaround efforts gained traction quickly, enabling us to end the year ahead of our initial plan. We delivered full-year performance above the updated guidance we provided halfway through the year. Net sales totaled $1.0 billion. Gross margin expanded 380 basis points to 55.9%, and we reduced SG&A by over $100 million. This drove a positive adjusted operating income of $11 million, a year-over-year improvement of $48 million. I will now turn to the operating highlights and key accomplishments of 2025.

First and foremost, we created a positive brand platform for the future. We accomplished this by improving the customer journey and delivering a robust pipeline of product innovation, all supported by powerful heritage brand storytelling. At the same time, we successfully established a full-price selling model by radically transforming our promotional cadence across channels. This enabled us to return the business to healthy gross margin in the mid-50s and improve the profitability in both our wholesale and direct-to-consumer channels. Importantly, this has strengthened our wholesale partner relationships, creating a powerful flywheel effect that is delivering benefits across all channels. Next, we re-energized our core licensed brands Michael Kors, Emporio Armani, Armani Exchange, and Diesel.

Most notably, strategic investment in point-of-sale and a renewed focus on specialty watch retail enabled us to improve our in-store presentation and performance in the wholesale channel. We also drove momentum in our traditional watch business by prioritizing our most scalable markets in the wholesale channel, including the U.S. and India. This resulted in wholesale traditional watch growth in our core brands of 2% globally for the full year in 2025. At the same time, we took clear action to right-size our cost structure and instituted a culture of strict cost control. Lastly, and as importantly, we transformed our balance sheet.

We now have the runway and flexibility to support the next phase of our turnaround, build a sustainable, profitable business model, and deliver long-term value creation. We have entered 2026 well positioned to leverage our foundational assets, including our 40-plus year heritage, iconic brand, innovative design, global reach, and talented teams. Also notable, the industry is experiencing strong momentum across markets and demographics. At the same time, our comeback is capturing increasing attention from consumers, partners, and the press. Just last month, I was at the Inhorgenta watch and jewelry show in Munich, where many of our brands were center stage.

In 2026, we will be making more bold moves on our journey to reinvent Fossil Group, Inc. and lead the industry. It is an exciting time for the company as we continue to foster a collaborative, creative, and energetic culture, accountability, and a strong commitment to win. We are turning the page to a new chapter in evolving our three strategic pillars as follows: returning to profitable growth, optimizing our operating model, and building shareholder value. Over the next three years, this evolution of our turnaround is expected to generate a return to top-line growth, high single-digit adjusted operating margin, and positive free cash flow.

More on our financial outlook shortly, but first, let us talk about the initiatives we will be executing against to further advance our turnaround. Within our first pillar, returning to profitable growth, our teams will be focusing on defined initiatives across the positive brand platform to fuel innovation, deepen consumer engagement, grow the traditional watch business, and reinvigorate our jewelry and leather categories. In 2026, we will be fueling innovation in design, technology, and storytelling. This includes reigniting key icons, continuing to delight our customers with culturally relevant collaborations, reviving one of Fossil’s most sought-after Y2K innovations, and introducing a selective group of premium products. Let me take you through the roadmap.

Starting with our watch icons, which make up a significant portion of our business, we will be innovating and expanding upon key collections including our Everett, Arlo, Machine, and Raquel platforms and our watch rings. Additionally, we will be doubling down on our Minis collection across all of our top women’s platforms. Following the success of 2025 collaborations such as Fantastic Four, Galactus, Minecraft, Xiaobei, and Superman, we will continue activating culturally relevant partnerships with both new and returning properties in 2026. These collaborations deliver highly engaged audiences, customer acquisition at scale, and meaningful earned media. Importantly, as we anniversary successful 2025 partnerships, we are focusing on converting collaboration shoppers into long-term Fossil customers, improving retention and lifetime value.

One of our most significant introductions this year is the return of Fossil Big Tic, a bold animated movement that combines analog craft with digital innovation. Originally introduced in the late 1990s, Big Tic is one of Fossil’s most recognizable and emotionally resonant designs. The design is geared towards the millennial watch consumer nostalgic for Y2K, Gen Z consumers craving an analog-forward accessory, and the male watch enthusiast looking for a big, bold watch to match his style. Earlier this month, we launched a nostalgic, limited-edition Y2K capsule, quickly followed by a reinvention of Big Tic Machine. Initial response from consumers and acclaim from the press has been tremendous thus far.

Our Big Tic marketing campaign reflects the evolution of our creative strategy, featuring a dynamic animated concept built around the idea that everything Big Tic touches becomes larger than life. Its bold storytelling reinforces product distinctiveness while driving momentum in real events. We have a lot more exciting Big Tic innovation coming and anticipate the momentum will continue to build as we roll out additional collections throughout the year. Another significant innovation coming later this year is the introduction of Signature, Fossil’s first premium platform in more than a decade. Rooted in craftsmanship and timeless design, the collection represents an important evolution for the brand and is designed to resonate with watch enthusiasts and collectors alike.

Signature will also introduce a new level of technical sophistication and assembly that reflects Fossil’s continued commitment to quality and innovation. We look forward to sharing more details in the coming quarters. While we are first and foremost a watchmaker, our jewelry and leather offerings expand our expression as an accessory brand. Our strategy for this category focuses on staying true to our brand DNA of quality, value, and timelessness. We are positioning the business with modern design, including new introductions inspired by our most important watch collections, and increasing personalization through engravable offerings. We will be supporting all of this product innovation with a focused, high-impact marketing roadmap.

In 2025, we concentrated our investments in priority markets, and the results validated that disciplined, brand-led investments drive stronger engagement and return. This year, we will continue scaling this approach, deploying our resources to opportunities where we can build further brand equity and accelerate growth. Our 2026 storytelling is designed to celebrate Fossil heritage, reinforce our quality and design credentials, and elevate cultural relevance. A great example of this is our exciting partnership with brand ambassador Nick Jonas. Nick has proven to be an authentic and highly engaged partner, currently anchoring campaigns across the Nick Jonas Collection, Machine, and Big Tic.

Moving now to our omnichannel initiatives, which are designed to modernize our brand expression in wholesale, improve our e-commerce business, and optimize our Fossil store portfolio. In the wholesale channel, we are focusing on our top customers in must-win markets, including the U.S., France, Germany, and India. For example, in the U.S., the strength of the Fossil brand, our robust product pipeline, and engaging campaigns are driving growth with key partners. Additionally, we are expanding distribution to specialty and energy retailers that can help build brand awareness and create excitement among the younger demographic. In the e-commerce channel, we have reshaped our business through two major actions over the past 18 months.

First, we dramatically reduced our discount posture by more than 50%, establishing a full-price selling model. Next, we implemented a comprehensive redesign of the Fossil site, featuring richer storytelling and a more seamless customer journey. The result is a smaller but more profitable sales channel with higher AUR across the entire marketplace. As we pursue long-term growth, we will continue to deliver consistent price and promotion while investing in personalization, inspiration, and more cohesive brand representation to drive customer engagement and strengthen brand perception. In the retail channel, we are optimizing our store portfolio and deploying our Store of the Future strategy in the U.S. and EMEA.

We are very pleased with the initial results from our Store of the Future concept, which blends lifestyle selling, data-led decision-making, and a purpose-driven strategy. Importantly, it is shifting our selling culture to proactive clienteling and outreach, personalized service, and community focus. This has resulted in improvements across key performance indicators, including AUR and conversion. Turning to our core licensed brands, we are focusing on initiatives to return the brands to sustained sales growth. We believe there is a significant opportunity to unlock potential in Michael Kors jewelry and men’s watches. Our strategy for Kors jewelry is centered on modern, wearable designs while leaning into one of our strongest assets, the MK logo.

We have recalibrated our pricing architecture to improve accessibility and enhance our competitive position. In men’s watches, we are returning to proven Michael Kors design codes and investing behind hero platforms that have historically driven scale. We will do this by focusing on bold, confident styling, recognizable attributes, and strong perceived value within key price tiers. For the Emporio Armani brand, we are pursuing opportunities in select markets outside of China, where there is strong local demand for premium products and additional runway in the wholesale channel to broaden assortment and leverage long-standing partnerships. We are also continuing to drive the Armani Exchange brand, which is experiencing strong momentum across major markets, including the U.S. and India.

Key initiatives include elevating our retail presence, expanding distribution, building on the success of our icons, and delivering localized product offerings. Turning now to the final area of focus under our growth pillar, we see a significant opportunity in India, which has been the fastest-growing large economy in the world for the past four years. It is an important strategic market where our brands have category leadership, strong momentum, and secular tailwinds. I was in India last month with other members of our executive team as part of our focus on unlocking the full potential of this geography, where we are experiencing growth across all channels and brands.

In 2026, we will be building further brand heat across our portfolio by broadening our assortment, entering premium price points, and introducing limited editions, all supported by dynamic storytelling. We will also be increasing our footprint to expand distribution, opening additional wholesale doors with both new and existing partners, and opening new Fossil retail stores. We have a highly seasoned team in India who is committed to driving continued growth and rapidly scaling the business. Moving now to our second turnaround pillar, optimizing our operating model. We made significant progress towards rightsizing our expense structure in 2025. With this improved baseline and an emphasis on stricter cost control, we are well positioned to continue to drive optimization across the organization.

We will be focused on initiatives to strengthen our omnichannel strategy and go-to-market execution while prioritizing operational investment and infrastructure improvements. Key areas of focus include sharpening our go-to-market execution to elevate point-of-sale engagement, reducing complexity and improving business agility, enhancing our digital and technology infrastructure, delivering best-in-class supply chain performance, and prioritizing high-impact projects and key performance indicators. I will now turn to our third and final pillar, building shareholder value. The rapid progress we made in year one of the turnaround, our accelerating profit profile, and our strengthening balance sheet give us the conditions to create lasting value for all of our stakeholders.

We expect to continue improving profitability, affording us the optionality to strategically invest for growth and value creation. Building on the strong execution and financial performance we delivered in 2025, we are pleased to be raising the financial targets we introduced one year ago. As a reminder, we previously communicated a 2027 sales target of at least $800 million. We now expect to surpass that benchmark one year earlier than planned. In 2026, we expect sales in the range of $945 million to $965 million, highlighted by a return to top-line growth in the fourth quarter. Additionally, we expect positive adjusted operating margin of 3% to 5% and breakeven free cash flow.

Our commitment to operational excellence and returning the business to profitable growth is grounded in a focus on disciplined accountability and performance. I am grateful to our teams, partners, and shareholders for their continuing support of Fossil Group, Inc. and look forward to reporting to you on our progress throughout the year. Before I turn the call to Randy, I would like to acknowledge the current geopolitical climate. As a global company, we are disheartened by the events occurring in the Middle East, and we are closely monitoring the safety and well-being of our employees and partners in the region. I will now turn the call over to Randy to discuss the financials.

Randy J. Greben: Thank you, Franco. 2025 was a year of tremendous progress on multiple fronts. I am pleased that we gained strong traction on our turnaround initiatives, delivered financial results ahead of our expectations, and transformed our balance sheet. Our 2025 performance reflects the strength of our brand, strategies, and teams, and demonstrates that we have the right building blocks in place to drive long-term growth and profitability. Now I will turn to the specifics of our fourth quarter and full-year performance. Net sales for Q4 totaled $274 million, reflecting a decline of 20%, including four points of impact from store closures.

For the full year in 2025, net sales were $1.0 billion, including 330 basis points of impact from store closures and 80 basis points of impact from the exit of connected watches. Fourth quarter gross margin came in at 57.4%. That is up 350 basis points from last year and reflects the ongoing strength of product margins as well as our focus on full-price selling, which allowed us to drive structurally higher margins over the past 12 to 18 months.

Indeed, full-year gross margin for 2025 was 55.9%, representing 380 basis points of expansion versus 2024, even with the continued and compounded headwind of minimum royalty guarantee shortfalls which, as previously shared, are expected to be materially abated in full-year 2026. In 2025, we executed against several initiatives that drove a meaningful improvement in gross margin. Specifically, we substantially lowered our discount rate, strengthened our supply chain, negotiated better terms with key suppliers, retooled our open-to-buy processes, and implemented targeted price increases. I am pleased to note that all of these actions not only improved our underlying gross margin profile, but also enabled us to largely mitigate tariff headwinds throughout the year.

The fact that we were able to absorb the impact of tariffs in 2025 while delivering a return to healthy gross margins demonstrates the agility of our supply chain and is a testament to our teams around the globe. Looking at 2026, we expect to continue to offset the current rate structure through our mitigation strategies and have not embedded material rate changes or any tariff refunds into our forward-looking guidance. Moving now to operating expenses. Strict cost control enabled us to lower SG&A expenses by 16% versus prior year. The improvement is attributable to 49 fewer stores in operation versus a year ago, as well as lower compensation and administrative expenses.

During Q4, we closed six additional stores, ending the year with 199 locations globally. All 49 closures in 2025 occurred at natural lease expiration with minimal closing costs. Given the improving performance of our fleet, we expect to reduce our number of store closures down to approximately 15 locations this year. As we continue to focus on improving our cost structure, our teams are acting with financial discipline and rigor. I am pleased to note that on a full-year basis, we slightly over-delivered on our full-year SG&A savings target of $100 million. Zooming out, the successful delivery of 2025’s SG&A savings target was a key follow-on to work that began in 2023.

In total, the company’s SG&A levels have been rightsized by more than $250 million over the last 36 months. And while the lion’s share of this work is behind us, we are never done. As Franco mentioned, in 2026 we expect to further optimize our operating model by capturing efficiencies throughout the organization. We will be directing resources towards go-to-market execution, operational investments, and infrastructure improvements. Looking now at our bottom-line performance in Q4, strong gross margins north of 57% and exceptional expense management translated to a profitable quarter, with adjusted operating income totaling $11 million. We also achieved positive adjusted operating income for the full year, also at $11 million.

This is notable after two consecutive years of losses on the bottom line and is another very tangible demonstration of our turnaround taking root. Turning to the balance sheet. We ended the year with $96 million in cash and cash equivalents, $67 million of availability under our asset-based revolver, and no utilization of our ATM program. Year-end inventory was $152 million, down 15% from last year, consistent with sales and in line with our expectations. It is worth noting that we have brought inventory levels down by more than $200 million over the last three years.

The reduction in inventory, particularly in the last year, has not only seen us become more appropriately balanced in terms of weeks of supply and churn but, as importantly, it occurred as we rebalanced our overall inventory position to include far more full-margin products. Strengthening the balance sheet was a key pillar under the first phase of our turnaround, and we delivered on that in spades. We are pleased to have entered 2026 in a healthy position with the right combination of liquidity and debt maturity horizon. Now let us take a look at our outlook for 2026 and beyond.

We are incredibly proud of the work our teams are doing and believe we are poised for another year of strong execution as we embark on the next evolution of our turnaround plan that Franco just laid out. Provided there is no significant disruption to the macroeconomic environment, we expect our turnaround pillars to deliver the following outcomes for full-year 2026. Worldwide net sales of $945 million to $965 million, including approximately $21 million of impact related to retail store closures. That is down 4% to 6% and represents a significant improvement in the rate of decline versus last year. For added context, the impact of store closures and the extra week in 2025 is worth about 360 basis points.

And it is worth reiterating the point that Franco made a few minutes ago. Based on the guidance we are providing today, we now see 2026 as the sales low point under our turnaround, one year earlier than previously planned, and materially higher than the approximately $800 million in revenue we indicated for 2027 one year ago. As we look at the cadence of the year, we anticipate that 2026 will be second-half weighted with year-over-year declines slowing through the year and an expected return to top-line growth in the fourth quarter. This is in line with seasonal trends but, more importantly, reflects the compounding benefits of our turnaround initiatives.

This includes the lapping of last year’s store closures and selected further closures this year, the sunsetting of some non-core small licensed brands, and our watchstation.com website, and the comping of last year’s inventory reset as we shifted our focus to full-price selling. Importantly, we anticipate that gross margins will remain healthy in the mid-to-upper 50s. Further, we expect that the intra-quarter volatility we have experienced, particularly in Q3 of previous years, should be largely abated with the benefit of our minimum guaranteed royalty relief. Additionally, expense control is expected to drive another year of meaningful SG&A reduction and enable us to achieve SG&A leverage.

While we will be investing in marketing to support the robust pipeline of innovation that Franco spoke about, total marketing dollars are expected to be down slightly versus 2025. We are positioned to achieve improved profitability in 2026, and expect adjusted operating margins to be in the range of 3% to 5% on a full-year basis. Additionally, our focus on improving cash conversion is expected to result in breakeven free cash flow as we drive the business to be cash-generating in 2027 and beyond. With innovative product offerings, favorable watch industry dynamics, and talented teams, we are looking forward to building upon the foundation and track record we established in year one of our turnaround.

To that end, we are rolling forward our previously communicated three-year outlook by one year. In 2028, we expect our turnaround plan to be driving mid-single-digit sales growth, high single-digit adjusted operating margins, and positive free cash flow. Looking further ahead, we believe our brand-led, consumer-focused, and increasingly optimized operating model will deliver benefits well into the future. Now I will ask the operator to open the call to Q&A. We will now begin the question and answer session. Our first question comes from the line of Tom Forte with Maxim Group. Tom, please go ahead.

Tom Forte: Great, thanks. Franco and Randy, congrats on the strong quarter and year. I have three questions. I will go one at a time. I apologize to the extent that you may have commented on these during the prepared remarks. Question number one, what were the drivers of gross margin in the quarter, and what gives you confidence the improvements are sustainable?

Franco Fogliato: Hi, Tom. First of all, thank you. We are excited. Look, we made significant progress. I think you remember, we always said that the fourth quarter last year was the beginning of the new strategy. Towards the end of the fourth quarter, we wanted to build a smaller company, more profitable. We wanted to change the model from very promotional into a full-price selling model, and we are continuing with this strategy. We are very excited. I am thankful for the work the teams have done globally to drive this strategy, and this strategy is very much paying shareholder value.

Not only have we seen a better gross margin with our DTC, but we have seen incredible AUR increases across the marketplace as we become less promotional through the marketplace. We are excited. We are a product and marketing company. We built greater relationships with our partners. I just got back from the trade show, as I mentioned in my earlier remarks. There is great momentum. We have seen customers that we have not done business with for years. They are coming back to us now because we are leading by example. So very, very encouraged.

Randy J. Greben: Thank you, Franco. And, Tom, wonderful to hear from you. The only thing that I would add is, while Franco likes to say 2025 is in the past and we are now living in 2026, if you look at 2025, our gross margin performance was actually quite sustainable and consistent, other than the dip that we took in the third quarter, which, as we have spoken about, was related to royalty shortfalls. As we have successfully renegotiated our minimum guarantees for 2026, that third-quarter divot should not be in place, and you should see that continued sustained performance. So, really, the past is a very positive indication. We have already locked in the improvement that we were seeking for 2026.

Tom Forte: Alright, wonderful, and I appreciate both of you answering all my questions. Alright, so question number two. It looks like you are guiding to an inflection point in sales and a return to growth in 2026. What gives you confidence you will be able to achieve that goal?

Franco Fogliato: Look, the last 18 months have been a transformation of the company. We are in the middle of the journey. We see the light at the end of the tunnel: a smaller company returning to growth. And we are excited about the opportunities. I keep saying I am excited about what we have done, but that is history. I am excited about what we are delivering to the market now in terms of innovation, but I guarantee you, we are more excited about what is coming next. You know, the pipeline takes 18 months to get there. We are so excited about the opportunities.

We think, as we are driving a smaller DTC, we have seen a very good return from our wholesale channel, beyond our expectations in 2025. The consumer is very resilient. They love our portfolio of brands. Customers have a long-term relationship with the company. We are driving the company to get back into growth because the company has incredible assets and incredible brands.

Tom Forte: Alright, excellent. Alright, so third and final question from me. It seems like you have already made a number of adjustments to manage expenses. In the next evolution of your turnaround plan, you talk about further improving the cost structure. What more can you do that you have not already done?

Franco Fogliato: It is a great question. Let me take the lead, and then I will have Randy jump in, and he is driving that. Look, as an organization, we are driving continuous improvement that we are really anchoring into the discipline of managing the company. We will constantly evaluate what we do and constantly find a better way to do it. It is all about the innovation, the way we bring the product to market, the focus on driving the business. We are so pleased because, honestly, since we refinanced the business in November, this is a different company. Everything we do is about how we become more efficient. We are very, very pleased.

I think there are plenty of opportunities still there. We are looking at store performance, market performance, channel performance. This is really part of what we want to drive: accountability and focus on driving shareholder value.

Randy J. Greben: A few things that I would like to add, if I could. If you think about the work that we have done to manage expenses, it has been very broad, and we are quite proud of the breadth and depth of where we have made adjustments to our business. One of the things that is important as we look into the future is the continued optimization of the business. And if you think about ways that may play out, we have lots of opportunity as it relates to the simplification of our technology stack, places in which we can leverage automation or AI.

And then as you move forward into the more medium-term horizon of our turnaround, that is when we start to play a little bit of offense as well, and we get the benefit of sales leverage as we return to growth.

Tom Forte: Thank you for taking my questions.

Franco Fogliato: Thank you very much.

Operator: Your next question comes from the line of Owen Rickert with Northland Capital Markets. Owen, please go ahead.

Owen Rickert: Hey, guys. Congrats on a great quarter, and the outlook is pretty solid here. I have about four questions for you. I guess, firstly, deepening consumer engagement is cited as a key growth driver going forward. Can you just maybe elaborate on what that means tactically? It sounds like more marketing spend in the first half of the year, and, I guess, how are you measuring an engagement improvement?

Franco Fogliato: Great. Hi, Owen. Thanks again. Look, we are excited that we are a product and marketing company. Part of the strategy in the turnaround plan was to refocus the company on the fundamentals. When I joined the company and we assembled a world-class management team, we clearly said product takes time, and we saw some of that coming through Fall 2025. Really, Spring 2026 is very exciting. You have seen we launched Big Tic with Fossil. It is an incredible success, and we are just at the beginning. We think innovation in product and the way we bring storytelling to the market will be the key differentiator. Think about the animation we just launched with Big Tic.

This is, to us, just the beginning. When I think about our core licensed brands, which is really the second pillar of returning to growth—think about Michael Kors, Armani, Diesel—those are world-class brands that consumers are shopping every day. We see good momentum. We are investing in jewelry. We are investing in traditional watches. We see great momentum there. And the third pillar we are really proud of is our India market that has been overperforming the company. You know, India is the fourth largest economy in the world and has been one of the fastest growing in the last few years. It is an industry that is growing. We are very well positioned there.

We have seen strong growth, and we think that market will continue to grow for us. So very excited. It is early days. Look, we are here for the long run. We think that as we get the company back into the fundamentals, the opportunity is there, and we are really focusing on driving performance going forward.

Randy J. Greben: The only thing that I would add is, Owen, you suggested in your question that we would be spending more on marketing. Our anticipation is actually that we will be spending slightly less on marketing in 2026. We will certainly be spending the marketing dollars that we do spend better. We will be more optimized in terms of the way we deploy our funds—smarter media mix modeling, smarter use of ambassadors. We have a robust pipeline of initiatives that we expect to really drive efficiency as we work through this year and into the next.

Owen Rickert: Got it. Thanks, guys. Next for me, you mentioned those three pillars of the next evolution—profitable growth, optimize the operating model, and building shareholder value. How do you think about sequencing those? Is profitable growth the prerequisite for everything else, or are the three pillars running in parallel?

Franco Fogliato: Let me take this, and then I will leave Randy to dig in and give you more visibility. We always said that returning the company to growth is a priority. We think the reason why we have done everything we have done so far is because we believe the company has an opportunity to return to growth. We also see the industry coming back, which is very encouraging. It is very pleasing to see younger generations coming back into traditional watches. All of this is very exciting. The first 18 months for me with the company have been simply fantastic. They have been exciting.

I look every day at all the opportunities, and I think, we are doing the right work to focus on what matters, which is really profitable sales. And once we are really driving this and we see our DTC stabilizing because we are less promotional, and we continue to invest in our wholesale channel, there is no reason why the company should not grow given the strong assets we have here.

Randy J. Greben: Owen, I do not necessarily view them as sequential. There really should be a flywheel effect. If you think about the third pillar—building shareholder value—that should be borne through an improvement in profitability, our ability to grow and then strategically invest for growth, and, of course, to generate cash, all borne through efficiencies in the operating model and growing of the top line. So much less about sequencing, more about getting all of these three to fuel each other.

Owen Rickert: Got it, got it. Super helpful, guys. And then we are seeing some pretty nice tailwinds with consumer adoption. As you think about the consumer you are trying to target, has your view of that target consumer for the Fossil brand and licensed brands evolved through this transformation process or this turnaround process at all?

Franco Fogliato: Thanks for the question. This is probably the most impressive thing I have ever seen in my career: the resilience of our consumer. Literally, we moved from a model that was highly dependent on promotional sales into a model highly dependent on full-price sales, and we have seen no slowdown. We have seen consumers coming back, buying our product. We lost some consumers in our Fossil brand, and to be honest, I am not even sure we wanted those because they were looking for deals. And we got back some of the consumers we lost because we were very promotional. There is only one way of defining that: the resilience of our brand. So we are very pleased with this.

Every time we discuss internally, that is probably the biggest and best surprise we had. I would have thought we would have impacted more, but it did not happen. The consumer went back and said, we love what you guys are doing for Fossil. And the Big Tic response is just phenomenal, as we are capturing not only the nostalgia of consumers that saw Big Tic from the 1990s, but we are catching this new generation that wants a real brand. So very exciting. Thanks for asking.

Owen Rickert: Great. And then last for me, when you talk to your wholesale partners today versus, let us say, a year ago, how has that conversation been evolving? Are they leaning in more, asking for more products, more marketing support? What is the qualitative feel of those relationships right now?

Franco Fogliato: It is a great question. We are on the phone with them weekly. Some of them have decades-long relationships with us. They are impressed. They are impressed by the speed of change we have driven within the company. They love the consistency. I recall—I think I said this on the previous call—the first time I met with them in, I think it was October or November 2024, they said, we love your story, but we have heard the story before. When I met them again in Q1 2025, they said, you have been consistent. Keep going this way. And now they recognize we are walking the talk, and they love it. And, to be honest, the results are paying.

They are seeing more sales support for our brand. They are seeing more margin because they are less promotional. And suddenly, from being probably not very inspiring, we went to leading by example. We have a great relationship. I was in Munich, in Germany, for the jewelry and watch trade show, and, literally, a year ago they were happy we were back, but this year was really surprising. They were coming, and we literally had customers that had not done business with us for years. They are back and want to deal with Fossil Group, Inc.

This company has a great reputation, and it was one of the reasons I thought this company had an opportunity to have a much stronger future. I think the first indications from our partners are very encouraging.

Owen Rickert: Great. Thanks for taking my questions, guys.

Franco Fogliato: Thank you, Owen. Thank you so much.

Operator: That concludes our question and answer session. I will now turn the call back over to Franco for any closing remarks. Franco?

Franco Fogliato: Thank you everyone for listening to today’s call. We are excited about where we are headed and look forward to talking with you after the Q1 results.

Operator: That concludes today’s conference call. You may now disconnect.

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