Fossil Group Q2 FY26 earnings call FOSL

Fossil Group's turnaround plan is yielding compounding benefits, with Q2 FY26 marking another quarter of strong financial performance. The company reported net sales of $211 million, a 4% decline year-over-year, but exceeding expectations and narrowing the rate of decline. Gross margins expanded significantly by 490 basis points to 62.4%, driven by a commitment to full-price selling. Adjusted operating income doubled to $8.6 million, demonstrating effective cost management and flow-through.

The company is strengthening its Fossil brand platform through continuous innovation, drawing from its 40-year design heritage. Recent product launches in the first half of 2026 included the Big Tic and World Flags collection, alongside collaborations with Star Wars and Marvel. Upcoming launches include the X-1 evolution of the Machine platform this fall, and the new Swiss-made Signature collection, which will premiere at New York Watch Week in October, aiming to elevate craftsmanship and premiumization.

Investment in demand creation accelerated in Q2, focusing on digital-first approaches, social engagement, and immersive events to drive brand heat and new customer acquisition. The Big Tic Y2K campaign was nominated for 'best marketing campaign of the year,' and a K-pop star event in Malaysia generated 600,000 impressions in one day. Future marketing efforts will continue to drive cultural relevance, particularly for the Signature launch and the holiday season.

Fossil is modernizing its brand expression at wholesale, improving its e-commerce business, and optimizing its store portfolio. Wholesale growth is driven by product innovation, storytelling, and full-price selling, with U.S. wholesale traditional watch growth at 16%. DTC channels are prioritizing full-price integrity and customer journey, while the 'store of the future' strategy is gaining traction in full-price stores, showing accelerating trends in product margins and average unit retail (AUR).

The Americas region stabilized, highlighted by mid-single-digit growth in the U.S., while the Asia region increased 4% with strong double-digit growth in India. India is a strategic market, showing double-digit growth across Fossil, Armani, Diesel, and Michael Kors brands in both wholesale and direct-to-consumer channels. The India factory recently achieved ISO certification, supporting increased throughput and the tremendous growth runway in the market.

Tactical advancements in optimizing the operating model include the deployment of AI for back-office automation and productivity improvements. The company transitioned its South Africa subsidiary to a distributor model and its Malaysia and Singapore markets to a hybrid operating model, both expected to lower operating costs and reduce G&A. Lease extensions on over 25 top-performing Americas stores and a new North American fulfillment center in Sunnyvale, Texas, further underscore efforts to optimize costs and accommodate future growth.