Fossil Returns to Profit With $25.3 Million Operating Income in Q3

Fossil Group returned to profitability in the third quarter, marking a sharp reversal from the losses reported during the same period last year. The company posted operating income of $25.3 million, compared with an operating loss of $21.7 million in the third quarter of the previous fiscal year. This marks the first time the brand has reported a year over year sales increase since the first fiscal quarter of 2022.

Net sales rose 0.4% to $271.2 million for the quarter ended October 3. Fossil also reported net income of $11.7 million, or 19 cents per share. This contrasts with a net loss of $39.9 million, or 76 cents per share, reported one year earlier. The company last posted quarterly net income in the third fiscal quarter of 2022.

Operating expenses fell 11.1% to $137 million during the period. CEO Franco Fogliato, who joined the company in 2024, said the improvement stems from disciplined management of full price sales and cost controls. He noted that the company had not expected to see sales growth for another year and a half.

The watchmaker raised its full year outlook on the strength of these results. Fossil now guides for net sales between $980 million and $990 million. This represents a slight decline from just over $1 billion in the prior year but is an improvement from previous expectations of a 3% to 5% drop. The company also expects to achieve positive free cash flow by the end of the year.

Fogliato said the turnaround strategy involves shrinking the business to a sustainable baseline before pursuing growth. Key actions included closing stores, reducing promotions in favor of full price sales, and broadening the product range. Direct to consumer sales decreased by 5.9% during the quarter, a result Fogliato attributed to the aggressive downsizing of the retail footprint.

International markets served as a primary driver for the quarter. Net sales in Asia grew by 15.1%, with the India market leading that expansion. However, Fogliato emphasized that growing in the home market remains the company's top priority. He stated that retail is settling into a smaller, more profitable base that is ready to grow again as it enters 2027.

Fossil is pivoting away from the smartwatch segment that has challenged traditional watchmakers in recent years. Smartwatch sales remained under $1 million for the quarter. In contrast, sales for traditional watches, which account for approximately 86% of Fossil's total revenue, increased by 6.4%.

The stock price reflects the recent financial shifts. Fossil shares were trading under $8 on Tuesday, a figure that remains significantly lower than the levels seen in the early to mid 2010s. Despite the long term decline in value, the recent earnings report suggests the company is stabilizing its operations.

Fogliato described the current period as the beginning of a momentum shift. He said customers have responded positively to the move away from markdowns, with staff reporting excitement from shoppers seeing the new product lines in stores. The company plans to continue investing in analog watches while maintaining its leaner cost structure.

The results show a company that has adjusted its model to survive in a competitive retail environment. By focusing on core strengths and reducing overhead, Fossil has moved from a position of loss to one of modest growth. The data indicates that the strategy of prioritizing full price sales and specific regional markets is yielding tangible financial results for shareholders.