Fossil Group returned to profitability in its fiscal third quarter, posting operating income of $25.3 million compared with an operating loss of $21.7 million in the same period last year, the company said on Tuesday. The comeback marks a dramatic shift for the watchmaker, which has struggled for years against competition from smartwatches and changing retail patterns. The company also returned to sales growth for the first time since the first fiscal quarter of 2022, with net sales up 0.4% to $271.2 million.
For the quarter ended October 3, Fossil reported net income of $11.7 million, or 19 cents per share, compared with a net loss of $39.9 million, or 76 cents per share, a year earlier. The company's operating expenses fell 11.1% to $137 million. CEO Franco Fogliato, who joined the company in 2024, told CNBC the results reflected "a very strong and disciplined management of full-price sales as well as cost management." The turnaround happened faster than expected. Fogliato said Fossil had previously not anticipated sales growth for another year and a half.
The company raised its full-year guidance after the strong quarter, now expecting net sales between $980 million and $990 million, compared with a prior expectation of a 3% to 5% decline. The retailer also said it expects positive free cash flow by year end. The improved forecast comes after Fossil suffered years of slumping sales and financial losses stemming from its struggle to compete with smartwatches, mounting debt and declining mall traffic.
Fossil's turnaround strategy has involved closing stores, moving away from heavy discounts to full-price sales, improving marketing and broadening its product range. Direct-to-consumer sales fell 5.9% in the third quarter, which Fogliato attributed to the company's "aggressive" downsizing. However, he noted that customers responded positively when the company stopped relying on markdowns. Asia emerged as a key growth engine for the quarter, with net sales growing 15.1%, largely driven by the India market.
The company is placing renewed emphasis on its core business of traditional analog watches, which account for around 86% of sales and grew 6.4% in the quarter. Smartwatch sales came in under $1 million for the period. Fogliato said a key to growth was not chasing the smartwatch trend, which had previously hampered Fossil's performance. He said the company is "entering 2027 with plenty of opportunities" as it focuses on growing its home market while building on international momentum.
For investors and business owners, Fossil's return to profitability and the raising of full-year guidance signals that the company's strategy of shrinking to a sustainable baseline before growing again may succeed, though the stock remains far below its peak valuations from the early-to-mid 2010s.