Fossil, the renowned watchmaking company, encountered a difficult first quarter due to the impact of the global pandemic on its operations worldwide. Nonetheless, the company managed to minimize the decline in its Q1 global net sales to 16%, amounting to $390.7 million. The decrease in revenue was mainly felt from February onwards in Asia, followed by other markets. Though Fossil did not disclose the specific figure for e-commerce sales, it is evident that the company’s increased focus on digital channels played a crucial role in mitigating the impact of the pandemic. Unfortunately, the operating loss for the quarter soared to $134.3 million, significantly higher than the $19.9 million loss recorded in the same period last year. Furthermore, the gross margin declined to 35.9% from 53.3%, primarily due to liquidation and inventory valuation adjustments for older-generation connected products, and minimum licensed product royalties linked to the Covid-19 crisis.
Consequently, Fossil reported a net loss of $85.6 million for Q1 2020, compared to $12.2 million in the previous year. As mentioned before, net sales declined by 16% (or 15% currency-neutral) as both Fossil’s own stores and those of its wholesale partners were closed for a significant portion of the quarter. On a currency-neutral basis, global retail comparable sales dropped by 14%, although they had been showing a positive trend of 1% prior to store closures. Sales in the Americas declined by 20%, while Europe and Asia experienced decreases of 16% and 9% respectively. Corporate sales also fell by 28%. In terms of product categories, watch sales, which represent Fossil’s largest segment, experienced a 15% decline. Leathers were down by 12%, jewelry by 26%, and other product categories also saw a drop of 26%.
Despite the challenges faced in Q1, Fossil expanded its existing New World Fossil 2.0 – Transform to Grow Program (NWF 2.0) to address the additional challenges brought on by the pandemic. The company also implemented additional measures to improve its cost structure, resulting in expected savings of $100 million for the year, double the initial savings target. These measures included reducing planned capital expenditures for 2020 and effectively managing working capital by reducing incoming inventory. Fossil seems to be well-positioned to navigate through the crisis period, with total liquidity of $278 million as of April 4th. This liquidity consists of $245 million in cash and cash equivalents, as well as $33 million available under its revolving credit facility. By the end of Q2, the company expects to have more than $200 million available.
Kosta Kartsotis, Chairman and CEO of Fossil, expressed the company’s determination to overcome the challenges posed by the pandemic. He stated, “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.”