Fossil Group Inc

Previous wording

Economic Environment Impacting Consumer Spending Ability and Preferences: Macroeconomic factors, including inflation and increased interest rates, impacted customer behavior in fiscal year 2023. In addition, our wholesale customers have shown caution in placing advance orders for merchandise. We expect interest rates to remain close to recent highs, along with continued economic uncertainty. While the impact of these macroeconomic factors are difficult to quantify, we expect continued negative impacts on consumer confidence and consumer demand in fiscal year 2024 in many of our major markets.

Current wording

Economic Environment Impacting Consumer Spending Ability and Preferences: In 2024, macroeconomic headwinds continued, including persistent inflation and elevated short-term interest rates in addition to slowing economic conditions in many of our major markets. While the impact of these macroeconomic factors are difficult to quantify, we expect these conditions to continue to have a negative impact on consumer confidence and consumer demand for discretionary goods in many of our major markets.

Previous wording

Inventory Levels: In fiscal year 2023, a slowing of consumer demand in our core categories, in part due to macro-economic factors such as higher inflation, resulted in excess inventory with many of our wholesale customers. With higher marketplace inventories and a worsening economic environment, retailers placed increased emphasis on rationalizing their inventory needs. With the challenging global macro environment, we expect many customers to continue to manage to leaner inventory levels than the prior year across our key categories. We will also continue to proactively manage our inventory purchases to mitigate our cash flow and inventory risks.

Current wording

Inventory Levels: Slower consumer demand across a wide array of discretionary goods has translated in some cases to excess inventory levels in key accounts and overall cautious buying patterns across our wholesale customers. With the challenging global macro environment, we expect many customers to continue to manage to leaner inventory levels than historically across our key categories to reduce inventory carrying risk. We will continue to proactively manage our inventory purchases to mitigate our cash flow and inventory risks.

Previous wording

World Conflicts: We continuously monitor the direct and indirect impacts from the military conflicts between Russia and Ukraine and in the Middle East. Our operations in Russia and Israel consist of sales through third-party distributors, and sales to these distributors are currently on hold. Our sales in Russia and Israel are not material to our financial results. We have no other operations, including supply chain, in Israel, Palestine, Russia or Ukraine. However, the continuation of the current military conflicts and/or an escalation of the conflicts beyond their current scope may continue to weaken the global economy and could result in additional inflationary pressures and supply chain constraints.

Current wording

World Conflicts: We continuously monitor the direct and indirect impacts from the military conflicts between Russia and Ukraine and in the Middle East. Our operations in Russia and Israel consist of sales through third-party distributors, and our sales in Russia and Israel are not material to our financial results. We have no other operations, including supply chain, in Israel, Palestine, Russia or Ukraine. However, the continuation of the current military conflicts or an escalation of the conflicts beyond their current scope may continue to weaken the global economy, negatively impact consumer confidence, and could result in additional inflationary pressures and supply chain constraints.

Previous wording

Business Strategies and Outlook: Our goal is to drive shareholder value and make a positive impact on our people, planet and communities. We continue to operate in a very challenging business environment for our product offerings. In early 2023, we initiated Our Transform and Grow plan (“TAG”), which was designed to reduce operating expenses, improve operating margins and advance our path to profitable growth. This initial phase of TAG was designed to deliver $100 million in annualized cost savings by the end of fiscal year 2024.

Current wording

In early 2023, we initiated our Transform and Grow plan (“TAG”), which was designed primarily to reduce operating expenses in order to improve operating margins and advance our path to profitable growth. The initial phase of TAG was designed to deliver $100 million in annualized cost savings by the end of fiscal year 2024.

Previous wording

In August 2023, as a result of a more comprehensive review of our business operations, we expanded the scope of TAG. Our goal in expanding TAG is to put additional emphasis on a broader set of initiatives aimed at restructuring or optimizing our operations, exit or minimize certain product offerings, brands and distribution, strengthen gross margins and improve our working capital efficiency.

Current wording

In August 2023, as a result of a more comprehensive review of our business operations, we expanded the scope of TAG to encompass multiple workstreams. Our goal in expanding TAG was to put additional emphasis on initiatives aimed at restructuring or optimizing our operations, exiting or minimizing certain product offerings, brands and distribution channels, strengthening gross margins through improvements in our sourcing and improving our working capital efficiency. Additionally, the Board established a Special Committee to provide primary Board oversight of our Transformation Office and drive accountability, timeliness and results in TAG (the "Special Committee"). Approximately half of the TAG workstreams were designed to structurally improve our gross margins. The remaining TAG workstreams were focused on removing costs from our expense structure with the goal of (i) re-calibrating our operating model for greater efficiency and lower fixed costs, (ii) driving savings in our procurement practices, and (iii) optimizing our direct channel operating costs.

Previous wording

Americas: The Americas segment is comprised of sales from our operations in the United States, Canada and Latin America. Sales are generated through diversified distribution channels that include wholesalers, distributors, and direct to consumer. Within each channel, we sell our products through a variety of physical point of sale, distributors and e-commerce channels. In the direct to consumer channel, we had 143 Company-owned stores as of the end of fiscal 2023 and an extensive collection of products available through our owned websites. As of the end of fiscal 2023, net sales in the Americas segment accounted for 45.4% of our consolidated revenue.

Current wording

Americas: The Americas segment is comprised of sales from our operations in the United States, Canada and Latin America. Sales are generated through diversified distribution channels that include wholesalers, distributors, and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors and e-commerce channels. In the direct to consumer channel, we had 114 Company-owned stores as of the end of fiscal 2024 and an extensive collection of products available through our owned websites. As of the end of fiscal 2024, net sales in the Americas segment accounted for 45% of our consolidated revenue.

Previous wording

Europe: The Europe segment is comprised of sales to customers based in European countries, the Middle East and Africa. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 86 Company-owned stores as of the end of fiscal 2023 and an extensive collection of products available through our owned websites. As of the end of fiscal 2023, net sales in the Europe segment accounted for 31.0% of our consolidated revenue.

Current wording

Europe: The Europe segment is comprised of sales to customers based in European countries, the Middle East and Africa. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 65 Company-owned stores as of the end of fiscal 2024 and an extensive collection of products available through our owned websites. As of the end of fiscal 2024, net sales in the Europe segment accounted for 31% of our consolidated revenue.

Previous wording

Asia: The Asia segment is comprised of sales to customers based in Australia, China (including Hong Kong, Macau, and Taiwan), India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea and Thailand. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 73 Company-owned stores as of the end of fiscal 2023 and an extensive collection of products available through our owned websites. As of the end of fiscal 2023, net sales in the Asia segment accounted for 23.2% of our consolidated revenue.

Current wording

Asia: The Asia segment is comprised of sales to customers based in Australia, China (including Hong Kong SAR, Macau SAR, and Taiwan), India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea and Thailand. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 69 Company-owned stores as of the end of fiscal 2024 and an extensive collection of products available through our owned websites. As of the end of fiscal 2024, net sales in the Asia segment accounted for 24% of our consolidated revenue.

Previous wording

Product Returns. We monitor customer returns and maintain a provision for estimated returns based upon historical experience, current information and any specific issues identified. While returns have historically been within our expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that our products are performing poorly in the retail market and/or we experience product damages or defects at a rate significantly higher than our historical rate, the resulting returns could have an adverse impact on the operating results for the period or periods in which such returns occur. If our allowance for product returns were to change by 10%, the impact, excluding taxes, would have been an approximate $1.6 million change to net income (loss).

Current wording

Product Returns. We monitor customer returns and maintain a provision for estimated returns based upon historical experience, current information and any specific issues identified. While returns have historically been within our expectations and the provisions established, future return rates may differ from those experienced in the past. In the event that our products are performing poorly in the retail market and/or we experience product damages or defects at a rate significantly higher than our historical rate, the resulting returns could have an adverse impact on the operating results for the period or periods in which such returns occur. If our allowance for product returns were to change by 10%, the impact, excluding taxes, would have been an approximate $1.5 million change to net income (loss).

Previous wording

Inventory. We account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable value based upon assumptions about forecasted sales demand, market conditions and available liquidation channels. Valuation of existing smartwatch inventory can be negatively impacted by the emergence of newer generation product. If actual future demand or market conditions are less favorable than those projected by management, or if liquidation channels are not readily available, additional inventory valuation reductions may be required. We assess our off-price sales on an ongoing basis and update our estimates accordingly. For every 1% of additional inventory valuation reductions as of fiscal year end 2023, we would have recorded an additional cost of sales of approximately $0.2 million.

Current wording

Inventory. We account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable value based upon assumptions about forecasted sales demand, market conditions and available liquidation channels. If actual future demand or market conditions are less favorable than those projected by management, or if liquidation channels are not readily available, additional inventory valuation reductions may be required. We assess our off-price sales on an ongoing basis and update our estimates accordingly. For every 1% of additional inventory valuation reductions as of fiscal year end 2024, we would have recorded an additional cost of sales of approximately $0.2 million.

Previous wording

Property, Plant and Equipment and Lease Impairment. We test for asset impairment of property, plant and equipment and lease assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset. In evaluating long-lived assets for recoverability, we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. When undiscounted cash flows estimated to be generated through the operations of our Company-owned retail stores are less than the carrying value of the underlying assets, the assets are impaired. If it is determined that assets are impaired, an impairment loss is recognized for the amount that the asset's book value exceeds its fair value. Should actual results or market conditions differ from those anticipated, additional losses may be recorded. We recorded impairment losses in long-lived asset impairments of $1.7 million, $2.1 million and $7.5 million in fiscal years 2023, 2022 and 2021, respectively, related to lease assets. We recorded impairment losses in long-lived asset impairments of $0.4 million, $0.2 million and $1.7 million in fiscal years 2023, 2022 and 2021, respectively, related to property, plant and equipment. We recorded impairment losses in restructuring charges of $0.7 million in fiscal year 2021 related to lease assets. We recorded impairment losses in restructuring charges of $0.1 million and $0.2 million in fiscal years 2022 and 2021, respectively, related to property, plant and equipment. In fiscal year 2023, an increase of 100 basis points to the discount rate would not have resulted in an increase to property, plant and equipment and lease impairment expense. A 10% decrease in future expected cash flows would have increased impairment expense by $1.1 million.

Current wording

Property, Plant and Equipment and Lease Impairment. We test for asset impairment of property, plant and equipment and lease assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset. In evaluating long-lived assets for recoverability, we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. When undiscounted cash flows estimated to be generated through the operations of our Company-owned retail stores are less than the carrying value of the underlying assets, the assets are impaired. If it is determined that assets are impaired, an impairment loss is recognized for the amount that the asset's book value exceeds its fair value. Should actual results or market conditions differ from those anticipated, additional losses may be recorded. We recorded impairment losses in long-lived asset impairments of $1.8 million, $1.7 million and $2.1 million in fiscal years 2024, 2023 and 2022, respectively, related to lease assets. We recorded impairment losses in long-lived asset impairments of $0.4 million, $0.4 million and $0.2 million in fiscal years 2024, 2023 and 2022, respectively, related to property, plant and equipment. We recorded impairment losses in restructuring charges of $5.4 million in fiscal year 2024, and no charges in fiscal years 2023 and 2022 related to lease assets. We recorded impairment losses in restructuring charges of $1.2 million, $0.0 million, $0.1 million in fiscal years 2024, 2023 and 2022, respectively, related to property, plant and equipment. In fiscal year 2024, an increase of 100 basis points to the discount rate would not have resulted in an increase to property, plant and equipment and lease impairment expense. A 10% decrease in future expected cash flows would have increased impairment expense by $0.3 million.

Previous wording

Income Taxes. We record valuation allowances against our deferred tax assets, when necessary, in accordance with ASC 740, Income Taxes ("ASC 740"). Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. The valuation allowance for fiscal years 2023, 2022 and 2021 was $192.6 million, $143.3 million and $123.0 million, respectively.

Current wording

Income Taxes. We record valuation allowances against our deferred tax assets, when necessary, in accordance with ASC 740, Income Taxes ("ASC 740"). Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. The valuation allowance for fiscal years 2024, 2023 and 2022 was $226.5 million, $192.6 million and $143.3 million, respectively.

Previous wording

The Organization for Economic Cooperation and Development ("OECD") and over 140 countries have agreed to enact a two-pillar solution to reform the international tax rules to address the challenges arising from the globalization and digitalization of the economy. "The Pillar Two Global Anti-Base Erosion (GloBE) Rules" provide a coordinated system to ensure that multinational enterprises with revenues above 750 million euro pay a minimum effective tax rate of 15% tax on the income arising in each of the jurisdictions in which they operate. The technical aspects of the calculation are still being developed. Implementation of these rules is scheduled for 2024, at which point we can determine the impact on our income tax expense and effective tax rate.

Current wording

The OECD and over 140 countries have agreed to enact a two-pillar solution to reform the international tax rules to address the challenges arising from the globalization and digitalization of the economy. The GloBE Rules provide a coordinated system to ensure that multinational enterprises with revenues above 750 million euro pay a minimum effective tax rate of 15% tax on the income arising in each of the jurisdictions in which they operate. Many aspects of Pillar Two became effective for tax years beginning in January 2024, with certain remaining impacts to be effective in 2025. Each country must enact its own legislation to apply the Pillar Two rules. Pillar Two did not have a material impact on the Company's financial results, including its annual estimated effective tax rate or liquidity in 2024, but will continue to monitor future developments.

Previous wording

Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings per Share: Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are non-GAAP financial measures. We define Adjusted EBITDA as our income (loss) before income taxes, plus interest expense, amortization and depreciation, impairment expense, other non-cash charges, stock-based compensation expense, restructuring cost of sales and expense and unamortized debt issuance costs included in loss on extinguishment of debt minus interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense and restructuring cost of sales and expense. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income attributable to Fossil Group, Inc. and diluted earnings per share, respectively, before impairment expense, restructuring cost of sales and expense and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share herein because they are widely used by investors for valuation and for comparing our financial performance with the performance of our competitors. We also use these non-GAAP financial measures to monitor and compare the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.

Current wording

Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share: Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are non-GAAP financial measures. We define Adjusted EBITDA as our income (loss) before income taxes, plus interest expense, amortization and depreciation, impairment expense, other non-cash charges, stock-based compensation expense, restructuring cost of sales and expense and unamortized debt issuance costs included in loss on extinguishment of debt minus interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense and restructuring cost of sales and expense. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income attributable to Fossil Group, Inc. and diluted earnings per share, respectively, before impairment expense, restructuring cost of sales and expense and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share herein because they are widely used by investors for valuation and for comparing our financial performance with the performance of our competitors. We also use these non-GAAP financial measures to monitor and compare the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.

Previous wording

Comparable Retail Sales: Both stores and e-commerce sites are included in comparable retail sales in the thirteenth month of operation. Stores that experience a gross square footage increase of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation. Comparable retail sales exclude the effects of foreign currency fluctuations.

Current wording

Comparable Retail Sales: Both stores and e-commerce sites are included in comparable retail sales in the thirteenth month of operation. Stores that experience a gross square footage change of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation. Comparable retail sales exclude the effects of foreign currency fluctuations.

Previous wording

The attributes of this diversified business model produce varying ranges of gross profit margin. Generally, on a historical basis, our fashion branded traditional watch and jewelry offerings produce higher gross profit margins than our smartwatches and leather goods offerings. In addition, in most product categories that we offer, brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands. However, smartwatches carry relatively lower margins than our other major product categories. Gross profit margins related to sales in our Europe and Asia businesses are historically higher than our Americas business, primarily due to the following factors: (i) premiums charged in comparison to retail prices on products sold in the U.S.; (ii) the product sales mix in our international businesses, in comparison to our Americas business, is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods; and (iii) the watch sales mix in our Europe and Asia businesses, in comparison to our Americas business, are comprised more predominantly of higher priced licensed brands.

Current wording

The attributes of this diversified business model produce varying ranges of gross profit margin. Generally, on a historical basis, our fashion branded traditional watch and jewelry offerings produce higher gross profit margins than our smartwatches and leather goods offerings. In addition, in most product categories that we offer, brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands. However, smartwatches carry relatively lower margins than our major product categories. Gross profit margins related to sales in our Europe and Asia businesses are historically higher than our Americas business, primarily due to the following factors: (i) premiums charged in comparison to retail prices on products sold in the U.S.; (ii) the product sales mix in our international businesses, in comparison to our Americas business, is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods; and (iii) the watch sales mix in our Europe and Asia businesses, in comparison to our Americas business, are comprised more predominantly of higher priced licensed brands.

Previous wording

Operating Expenses include selling, general and administrative ("SG&A"), long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of our retail stores, point-of-sale expenses, advertising expenses and art, design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and support costs such as treasury, legal, information services, accounting, internal audit, human resources, executive management costs and costs associated with stock-based compensation. Restructuring charges include costs to reorganize, refine and optimize our Company’s infrastructure and store closures under our TAG and New World Fossil initiatives.

Current wording

Operating Expenses include SG&A, long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of our retail stores, point-of-sale expenses, advertising expenses and art, design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and support costs such as treasury, legal, information services, accounting, internal audit, human resources, executive management costs and costs associated with stock-based compensation. Restructuring charges include costs to reorganize, refine and optimize our Company’s infrastructure and store closures under our Turnaround, TAG and New World Fossil initiatives.

Previous wording

Consolidated Net Sales. Net sales decreased $270.0 million or 16.0% (15.9% in constant currency) for fiscal year 2023, as compared to fiscal year 2022. Sales declined in all three regions. Corporate revenue decreased due to sales declines in revenue recognized over time, based on the timing of progress in completing performance obligations under a licensing agreement. The sales decrease was largely driven by declines in our wholesale channel, and to a lesser extent, declines in smartwatch sales and our store rationalization initiatives. Wholesale sales declined 21.2% (21.4% in constant currency), reflecting lower purchases by wholesale accounts due to tighter management of inventories and lower end-consumer demand. Direct to consumer sales decreased 7.5% (6.9% in constant currency), mainly due to a smaller store base. We have reduced our store footprint by 40 stores (12%), since the end of the fiscal year 2022. Comparable retail sales decreased 2% during fiscal year 2023, compared to fiscal year 2022 with growth in e-commerce more than offset by declines in stores. From a category perspective, traditional watch sales decreased 12.4% (12.2% in constant currency). Sales of smartwatches declined 46.6% (46.5% in constant currency) as we have shifted our focus away from the category as part of our product rationalization initiatives. Leathers declined 11.3% (10.7% in constant currency) and jewelry declined 14.7% (15.4% in constant currency). From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines in MICHAEL KORS, FOSSIL and EMPORIO ARMANI.

Current wording

Consolidated Net Sales. Net sales decreased $267.4 million, or 18.9% (18.6% in constant currency), for fiscal year 2024, as compared to fiscal year 2023. Sales declined in all three regions. The sales decrease was largely driven by overall category, consumer and channel softness. Our exit of smartwatches and store closures as part of our TAG initiatives negatively impacted sales in fiscal year 2024 by $95 million as compared to fiscal year 2023. Wholesale sales declined 15.0% (14.6% in constant currency), reflecting lower purchases by wholesale accounts due to tighter management of inventories and lower end-consumer demand. Direct to consumer sales decreased 24.4% (24.1% in constant currency), partially due to a smaller store base. We have reduced our store footprint by 54 stores (17.9%), since the end of fiscal year 2023. Comparable retail sales decreased 14.5% during fiscal year 2024, compared to fiscal year 2023, with declines in both e-commerce and store sales, as we became less promotional. From a category perspective, traditional watch sales decreased 14.0% (13.6% in constant currency). Sales of smartwatches declined 69.2% (same in constant currency), as we exited the category. Leathers declined 29.9% (29.6% in constant currency) and jewelry declined 12.9% (12.4% in constant currency). From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines in FOSSIL, EMPORIO ARMANI and MICHAEL KORS.

Previous wording

Americas Net Sales. Americas net sales decreased $103.2 million or 13.9% (14.2% in constant currency) for fiscal year 2023 as compared to fiscal year 2022. Sales decreased in almost all brands with the biggest decreases in MICHAEL KORS and FOSSIL. Sales decreases in our wholesale and stores channel were partially offset by growth in our owned e-commerce sales. Comparable retail sales declined slightly during fiscal year 2023, with growth in e-commerce more than offset by declines in stores.

Current wording

Americas Net Sales. Americas net sales decreased $125.6 million or 19.6% (19.1% in constant currency) for fiscal year 2024 as compared to fiscal year 2023. Sales decreased in almost all brands with the biggest decreases in FOSSIL and MICHAEL KORS. Sales decreased in our wholesale, stores and owned e-commerce channels. Comparable retail sales declined moderately during fiscal year 2024, with declines in both store and owned e-commerce channels.

Previous wording

Europe Net Sales. During fiscal year 2023, Europe net sales decreased $103.9 million or 19.2% (20.8% in constant currency) in comparison to fiscal year 2022. The greatest sales decreases were in the MICHAEL KORS and FOSSIL brands. Sales declined in our wholesale and stores channels, while owned e-commerce sales increased. Comparable retail sales increased slightly during fiscal year 2023, with growth in store and owned e-commerce sales.

Current wording

Europe Net Sales. During fiscal year 2024, Europe net sales decreased $79.8 million or 18.2% (18.7% in constant currency) in comparison to fiscal year 2023. The greatest sales decreases were in the FOSSIL and MICHAEL KORS brands. Sales declined in our wholesale, stores and owned e-commerce channels. Comparable retail sales decreased moderately during fiscal year 2024, with declines in both store and owned e-commerce channels.

Previous wording

Asia Net Sales. In fiscal year 2023, Asia net sales decreased $49.4 million or 13.1% (9.6% in constant currency) in comparison to fiscal 2022. Sales decreased across the majority of regions, most notably in greater China, while sales in India increased in constant currency. Sales declines were primarily in the EMPORIO ARMANI and FOSSIL brands. Comparable retail sales decreased moderately during fiscal year 2023.

Current wording

Asia Net Sales. In fiscal year 2024, Asia net sales decreased $58.1 million or 17.7% (16.4% in constant currency) in comparison to fiscal 2023. Sales decreased across the majority of the region, most notably in greater China, and were partially offset by sales growth in India and Australia. The greatest sales declines were in the EMPORIO ARMANI brand. Comparable retail sales decreased moderately during fiscal year 2024, with growth in owned e-commerce more than offset by declines in stores sales.

Previous wording

Gross Profit. Gross profit of $679.6 million in fiscal year 2023 decreased $151.1 million, or 18.2%, in comparison to $830.7 million in fiscal year 2022, driven mainly by the decrease in sales. The gross profit margin rate decreased to 48.1% in fiscal year 2023 compared to 49.4% in fiscal year 2022, largely due to increased promotions and licensor minimum royalty costs and unfavorable currency and product mix impacts, driven by connected products. These costs were partially offset by reduced freight costs.

Current wording

Gross Profit. Gross profit of $597.2 million in fiscal year 2024 decreased $82.4 million, or 12.1%, in comparison to $679.6 million in fiscal year 2023, driven mainly by the decrease in sales. The gross profit margin rate increased to 52.2% in fiscal year 2024 compared to 48.1% in fiscal year 2023, primarily due to initiatives under our TAG plan, including improved product margins in our core categories and our exit from the smartwatch category. These benefits were partially offset by a $7.6 million restructuring charge related to closure of our Swiss manufacturing operations.

Previous wording

Operating Expenses. For fiscal year 2023, total operating expenses decreased to $822.6 million or 58.2% of net sales, compared to $832.2 million or 49.5% of net sales in fiscal year 2022. SG&A expenses were $777.2 million in fiscal year 2023 compared to $823.7 million in fiscal year 2022. As a percentage of net sales, SG&A expenses increased to 55.0% in fiscal year 2023 as compared to 49.0% in fiscal year 2022, mainly driven by decreased sales. During fiscal year 2023, we incurred $43.3 million in restructuring charges as compared to $6.1 million in fiscal year 2022.

Current wording

Operating Expenses. For fiscal year 2024, total operating expenses decreased to $701.1 million or 61.2% of net sales, compared to $822.6 million or 58.2% of net sales in fiscal year 2023. SG&A expenses were $638.8 million in fiscal year 2024 compared to $777.2 million in fiscal year 2023. As a percentage of net sales, SG&A expenses increased to 55.8% in fiscal year 2024 as compared to 55.0% in fiscal year 2023, mainly driven by deleveraging on lower sales. During fiscal year 2024, we incurred $59.8 million in restructuring charges as compared to $43.3 million in fiscal year 2023.

Previous wording

Operating Income (Loss). Operating income (loss) was a loss of $143.0 million in fiscal year 2023, as compared to a loss of $1.5 million in the prior fiscal year. The operating loss in fiscal year 2023 was primarily due to deleveraging of expenses with the decline in net sales. As a percentage of net sales, operating margin was (10.1)% in fiscal year 2023 as compared to (0.1)% in fiscal year 2022 and was negatively impacted by 70 basis points due to changes in foreign currencies.

Current wording

Operating Income (Loss). Operating income (loss) was a loss of $103.9 million in fiscal year 2024, as compared to a loss of $143.0 million in the prior fiscal year. As a percentage of net sales, operating margin was (9.1)% in fiscal year 2024 as compared to (10.1)% in fiscal year 2023 and was negatively impacted by 10 basis points due to changes in foreign currencies.

Previous wording

Other Income (Expense)—Net. During fiscal year 2023, other income (expense) - net was income of $8.7 million compared to expense of $1.4 million in the prior fiscal year. The change in other income (expense)-net was largely reflective of net currency gains in fiscal year 2023 as compared to net currency losses in fiscal year 2022 and increased interest income in fiscal year 2023.

Current wording

Other Income (Expense)—Net. During fiscal year 2024, other income (expense) - net was income of $4.9 million compared to income of $8.7 million in the prior fiscal year. The change in other income (expense)-net was primarily due to net currency losses in fiscal year 2024 as compared to net currency gains in fiscal year 2023. Net currency losses in fiscal 2024 were more than offset by interest income in fiscal 2024.

Previous wording

Provision for Income Taxes. During fiscal year 2023, there was an income tax expense of $0.5 million, resulting in an effective tax rate of (0.3)%, compared to (96.7)% in fiscal year 2022. The 2023 effective rate was favorably impacted by reduced foreign income taxes, release of reserves for uncertain tax positions and the accrual of interest income on tax receivables, whereas the 2022 effective rate was unfavorably impacted by the low level of pre-tax earnings and valuation allowances on deferred tax assets.

Current wording

Provision for Income Taxes. During fiscal year 2024, there was an income tax benefit of $11.8 million, resulting in an effective tax rate of 10.0%, compared to (0.3)% in fiscal year 2023. The 2024 effective rate was favorably impacted by reduced foreign income taxes, release of reserves for uncertain tax positions and the accrual of interest income on tax receivables, whereas the 2023 effective rate was unfavorably impacted by the low level of pre-tax earnings and valuation allowances on deferred tax assets.

Previous wording

Net Income (Loss) Attributable to Fossil Group, Inc. Fiscal year 2023, net income (loss) attributable to Fossil Group, Inc. was a net loss of $157.1 million, or $3.00 per diluted share, in comparison to a net loss of $44.2 million, or $0.85 per diluted share, in the prior fiscal year. During fiscal year 2023, currency fluctuations unfavorably impacted diluted earnings (loss) per share by $0.10.

Current wording

Net Income (Loss) Attributable to Fossil Group, Inc. In fiscal year 2024, net income (loss) attributable to Fossil Group, Inc. was a net loss of $102.7 million, or $1.94 per diluted share, in comparison to a net loss of $157.1 million, or $3.00 per diluted share, in the prior fiscal year. During fiscal year 2024, currency fluctuations unfavorably impacted diluted earnings (loss) per share by $0.04.

Previous wording

Our cash and cash equivalents balance at the end of fiscal year 2023 was $117.2 million, including $104.4 million held by foreign subsidiaries outside the U.S., in comparison to $198.7 million at the end of fiscal year 2022, including $195.8 million held by foreign subsidiaries outside the U.S. Generally, starting in the third quarter, our cash needs begin to increase, typically reaching a peak in the September-November time frame as we increase inventory levels in advance of the holiday season. Our quarterly cash requirements are also impacted by debt repayments, restructuring charges and capital expenditures.

Current wording

Our cash and cash equivalents balance at the end of fiscal year 2024 was $123.6 million, including $92.5 million held by foreign subsidiaries outside the U.S., in comparison to $117.2 million at the end of fiscal year 2023, including $104.4 million held by foreign subsidiaries outside the U.S. Generally, starting in the third quarter, our cash needs begin to increase, typically reaching a peak in the September-November time frame as we increase inventory levels in advance of the holiday season. Our quarterly cash requirements are also impacted by debt repayments, royalty payments, restructuring charges and capital expenditures.

Previous wording

At the end of fiscal year 2023, we had working capital of $368.2 million compared to working capital of $519.4 million at the end of the prior fiscal year. At the end of fiscal year 2023, we had $0.5 million of outstanding short-term borrowings and $207.0 million in long-term debt including unamortized issuance costs compared to $0.3 million of short-term borrowings and $216.1 million in long-term debt including unamortized issuance costs at the end of fiscal year 2022.

Current wording

At the end of fiscal year 2024, we had working capital of $227.9 million compared to working capital of $368.2 million at the end of the prior fiscal year. At the end of fiscal year 2024, we had $2.2 million of outstanding short-term borrowings and $162.7 million in long-term debt including unamortized issuance costs compared to $0.5 million of short-term borrowings and $207.0 million in long-term debt including unamortized issuance costs at the end of fiscal year 2023.

Previous wording

Operating Activities. Cash used in operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities of $59.5 million in fiscal year 2023 decreased from cash used of $110.9 million in fiscal year 2022, primarily due to proactively managing our inventory levels down in fiscal year 2023, and partially offset by decreased earnings in fiscal year 2023 as compared to fiscal year 2022.

Current wording

Operating Activities. Cash provided by (used in) operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities of $46.7 million in fiscal year 2024 improved as compared to cash used in operating activities of $59.5 million in fiscal year 2023, primarily due to the receipt of a U.S. tax refund of $57.3 million during fiscal year 2024, management of other working capital items including inventory and a smaller net loss in fiscal year 2024 as compared to fiscal year 2023.

Previous wording

Investing Activities. Investing cash flows primarily consist of capital expenditures and are offset by proceeds from the sale of property, plant and equipment.

Current wording

Investing Activities. Investing cash flows primarily consist of capital expenditures and are offset by proceeds from the sale of property, plant and equipment. Investing cash flows increased in fiscal year 2024 compared to fiscal year 2023 due to the sale of our building in France in fiscal year 2024, which generated approximately $7.8 million of net proceeds.

Previous wording

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The decrease in financing cash flows in fiscal year 2023 compared to fiscal year 2022 was reflective of net debt payments in fiscal year 2023 as compared to net debt borrowings in fiscal year 2022.

Current wording

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The increase in cash used in financing initiatives in fiscal year 2024 compared to fiscal year 2023 primarily resulted from $43.8 million of net debt payments in fiscal year 2024 as compared to $10.8 million of net debt payments in fiscal year 2023.

Previous wording

For the fiscal year ending December 28, 2024, we expect total capital expenditures to be approximately $10 million. Our capital expenditure budget is an estimate and is subject to change.

Current wording

For the fiscal year ending January 2, 2026, we expect total capital expenditures to be approximately $5 million. Our capital expenditure budget is an estimate and is subject to change.

Previous wording

Sources of Liquidity. We believe cash flows from operations, combined with existing cash on hand and amounts available under our credit facilities will be sufficient to fund our cash needs for at least the next twelve months. Although we believe we have adequate sources of liquidity, the success of our operations, in light of the market volatility and uncertainty, among other factors, could impact our business and liquidity.

Current wording

Sources of Liquidity. We believe cash flows from operations and proceeds from non-core asset sales, combined with existing cash on hand and amounts available under our credit facilities will be sufficient to fund our cash needs for at least the next twelve months. Although we believe we have adequate sources of liquidity, the success of our operations, in light of the market volatility and uncertainty, among other factors, could impact our business and liquidity.

Previous wording

The following table shows our sources of liquidity (in millions):

Current wording

The following table shows our sources of liquidity from cash and cash equivalents and Revolving Facility availability (in millions):

Previous wording

We are assessing potential sources of supplemental liquidity in light of our operating performance, the timing of the expected benefits of our TAG plan and other relevant considerations. In the event our liquidity becomes insufficient, we may be required to limit our spending or sell assets. In addition, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for other debt securities (including additional secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, or may otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital structure. Any of these transactions could impact our financial results, including additional expenses, charges and cancellation of indebtedness income. We cannot assure you whether any of such transactions will be consummated, whether we will achieve the benefits of any such transaction, or whether our cost of capital will increase, any of which could have an impact on our future liquidity. Additionally, we currently have a $56.5 million (including interest) U.S. tax refund that is expected to be received in fiscal year 2024, however the timing of the refund is uncertain.

Current wording

We are pursuing initiatives to monetize non-core assets, improve working capital and bolster liquidity. We are also continuing to work with strategic advisors to address our upcoming debt maturities in the third and fourth quarters of 2026. We are assessing potential sources of supplemental liquidity in light of our operating performance, the timing of the expected benefits of our restructuring plans and other relevant considerations. In the event our liquidity becomes insufficient, we may be required to limit our spending or sell additional assets. In addition, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for other debt securities (including additional secured debt), issuance of equity (including preferred stock and convertible securities), repurchase or redemption of outstanding indebtedness, or may otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital structure. Any of these transactions could impact our financial results, including additional expenses, charges and cancellation of indebtedness income. We cannot assure you whether any of such transactions will be consummated, whether we will achieve the benefits of any such transaction, or whether our cost of capital will increase, any of which could have an impact on our future liquidity.

Previous wording

The Notes are our general unsecured obligations. The Notes bear interest at the rate of 7.00% per annum. Interest on the Notes is payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year. The Notes mature on November 30, 2026. We may redeem the Notes for cash in whole or in part at any time at our option at the following prices: (i) after November 30, 2023 and prior to November 30, 2024, at a price equal to $25.50 per $25.00 principal amount of Notes, (ii) on or after November 30, 2024 and prior to November 30, 2025, at a price equal to $25.25 per $25.00 principal amount of Notes and (iii) on or after November 30, 2025, at a price equal to $25.00 per $25.00 principal amount of Notes, plus (in each case noted above) accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Current wording

The Notes are our general unsecured obligations. The Notes bear interest at the rate of 7.00% per annum. Interest on the Notes is payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year. The Notes mature on November 30, 2026. We may redeem the Notes for cash in whole or in part at any time at our option at the following prices: (i) prior to November 30, 2025, at a price equal to $25.25 per $25.00 principal amount of Notes and (ii) on or after November 30, 2025, at a price equal to $25.00 per $25.00 principal amount of Notes, plus (in each case noted above) accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Previous wording

Revolving Facility: On September 26, 2019, we and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other of our subsidiaries from time to time party thereto designated as borrowers, and certain of our subsidiaries from time to time party thereto as guarantors, entered into a secured asset-based revolving credit agreement (as amended from time to time, the "Revolving Facility") with JPMorgan Chase Bank, N.A. as administrative agent (the "ABL Agent"), J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells Fargo Bank, National Association as joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and each of the lenders from time to time party thereto (the "ABL Lenders"). On November 8, 2022 we entered into Amendment No. 4 (the "Amendment”) to the Revolving Facility. The Amendment, among other things, (i) extends the maturity date of the credit facility to November 8, 2027 (provided, that if we have any indebtedness in an amount in excess of $35 million that matures prior to November 8, 2027, the maturity date of the credit facility shall be the 91st day prior to the maturity date of such other indebtedness) and (ii) changes the calculation methodology of the borrowing base to include the value of certain of our intellectual property in such methodology and to provide for seasonal increases to certain advance rates.

Current wording

Revolving Facility: On September 26, 2019, we and Fossil Partners L.P., as the U.S. borrowers, and Fossil Group Europe GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited and Fossil Canada Inc., as the non-U.S. borrowers, certain other of our subsidiaries from time to time party thereto designated as borrowers, and certain of our subsidiaries from time to time party thereto as guarantors, entered into a secured asset-based revolving credit agreement (as amended from time to time, the "Revolving Facility") with JPMorgan Chase Bank, N.A. as administrative agent (the "ABL Agent"), J.P. Morgan AG, as French collateral agent, JPMorgan Chase Bank, N.A., Citizens Bank, N.A. and Wells Fargo Bank, National Association as joint bookrunners and joint lead arrangers, and Citizens Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents and each of the lenders from time to time party thereto (the "ABL Lenders"). On November 8, 2022 we entered into Amendment No. 4 (the "Amendment”) to the Revolving Facility. The Amendment, among other things, (i) extended the maturity date of the credit facility to November 8, 2027 (provided, that if we have any indebtedness in an amount in excess of $35 million that matures prior to November 8, 2027, the maturity date of the credit facility shall be the 91st day prior to the maturity date of such other indebtedness) and (ii) changed the calculation methodology of the borrowing base to include the value of certain of our intellectual property in such methodology and to provide for seasonal increases to certain advance rates. Because of the springing maturity feature described in the preceding sentence, if the Notes (as defined below) are not repaid or refinanced to a later maturity date in a manner that reduces the balance due on November 30, 2026 to $35 million or less, the maturity date of the Revolving Facility will be August 31, 2026.

Previous wording

The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the “Revolving Credit Commitment”), of which up to $125.0 million is available under a U.S. facility, an aggregate of $80.0 million is available under a European facility, $10.0 million is available under a Hong Kong facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the borrowing base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the “Letters of Credit”). The French facility includes a $1.0 million subfacility for swingline loans, and the European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a line cap equal to the lesser of the total Revolving Credit Commitment and the aggregate borrowing bases under the U.S. facility, the European facility, the Hong Kong facility, the French facility and the Canadian facility. Loans under the Revolving Facility may be made in U.S. dollars, Canadian dollars, euros, Hong Kong dollars or pounds sterling.

Current wording

The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the “Revolving Credit Commitment”), of which up to $125.0 million is available under a U.S. facility, an aggregate of $80.0 million is available under a European facility, $10.0 million is available under a Hong Kong SAR facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the borrowing base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the “Letters of Credit”). The French facility includes a $1.0 million subfacility for swingline loans, and the European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a line cap equal to the lesser of the total Revolving Credit Commitment and the aggregate borrowing bases under the U.S. facility, the European facility, the Hong Kong SAR facility, the French facility and the Canadian facility. Loans under the Revolving Facility may be made in U.S. dollars, Canadian dollars, euros, Hong Kong dollars or pounds sterling.

Previous wording

(e.g. from 90% to 95%) during the period commencing on the date of delivery of the borrowing base certificate with respect to the second fiscal month of the Company and ending on the last day of the period covered by the borrowing base certificate delivered with respect to the fifth fiscal month of the Company.

Current wording

The above advance rates (other than the advance rate with respect to intellectual property) are seasonally increased by 5% (e.g. from 90% to 95%) during the period commencing on the date of delivery of the borrowing base certificate with respect to the second fiscal month of the Company and ending on the last day of the period covered by the borrowing base certificate delivered with respect to the fifth fiscal month of the Company.