Fossil Group, Inc.

Key Measures of Financial Performance and Key Non-GAAP Financial Measures

Constant Currency Financial Information: As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. The translation of the operations of our foreign-based entities from their local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates and can have a significant impact on our reported financial results. In general, our overall financial results are affected positively by a weaker U.S. dollar and are affected negatively by a stronger U.S. dollar as compared to the foreign currencies in which we conduct our business.

As a result, in addition to presenting financial measures in accordance with accounting principles generally accepted in the United States of America ("GAAP"), our discussion contains references to constant currency financial information, which is a non-GAAP financial measure. To calculate net sales on a constant currency basis, net sales for the current fiscal year for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average rates during the comparable period of the prior fiscal year. We present constant currency information to provide investors with a basis to evaluate how our underlying business performed excluding the effects of foreign currency exchange rate fluctuations.

Adjusted EBITDA, Adjusted Operating Income (Loss), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share: Adjusted EBITDA, Adjusted operating income (loss), Constant currency 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, and restructuring expense, minus the gain on sale of our subsidiary, gains on asset divestitures, IEEPA refund claims for tariffs incurred in the prior year, and interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense, restructuring, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year. We define Constant currency adjusted operating income (loss) as operating income (loss) before impairment expense, restructuring expense, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year and excluding the effects of foreign currency exchange rate fluctuations. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively, before impairment expense, restructuring expense, the gain on sale of our subsidiary, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year. We have included Adjusted EBITDA, Adjusted operating income (loss), Constant currency 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), Constant currency 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), Constant currency 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.

The non-GAAP financial information presented herein should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Reconciliations between non-GAAP financial information and the most directly comparable GAAP measure are included where applicable.

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 were adjusted to normalize the 27-week Prior Year YTD Period with the 26-week Year To Date Period. Comparable retail sales also exclude the effects of foreign currency fluctuations.

Store Counts: While macroeconomic factors have shifted sales away from traditional brick and mortar stores towards digital channels, store counts continue to provide a key metric for management. Over time, we have made progress right-sizing our fleet of stores, focusing on closing our least profitable stores, and the size and quality of our store fleet have a direct impact on our sales and profitability.

Total Liquidity: We define total liquidity as cash and cash equivalents plus available borrowings on our revolving credit facility. We monitor and forecast total liquidity to ensure we can meet our financial obligations.

Components of Results of Operations

Revenues from sales of our products, including those that are subject to inventory consignment agreements, are recognized when control of the product is transferred to the customer and in an amount that reflects the consideration we expect to be entitled in exchange for the product. We accept limited returns from customers. We continually monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified. Our product returns are accounted for as reductions to revenue and cost of sales and an increase to customer liabilities and other current assets to the extent the returned product is resalable.

Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs and shipping and handling costs related to the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations. Additionally, cost of sales includes customs duties (net of any applicable refunds), product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling, inventory shrinkage and damages and restructuring charges.

Gross Profitand gross profit margin are influenced by our diversified business model that includes, but is not limited to: (i) product categories that we distribute; (ii) the multiple brands, including both owned and licensed, we offer within several product categories; (iii) the geographical presence of our businesses; and (iv) the different distribution channels we sell to or through.

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 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. 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.

Operating Expenses include SG&A, other 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 Plan.

Results of Operations

Quarterly Periods Ended July 4, 2026 and July 5, 2025

Consolidated Net Sales. Net sales decreased by $10.7 million, or 4.9% (4.4% in constant currency), for the Second Quarter compared to the Prior Year Quarter. The sales decrease was driven by the direct to consumer channel, with our store rationalization initiatives comprising approximately 220 basis points of the sales decline. Sales decreases were primarily in our Europe segment as the region is increasingly unfavorably impacted by the geopolitical climate in the Middle East. Wholesale sales increased by 0.1% (0.9% in constant currency). Direct to consumer sales declined by 14.6% (same in constant currency), due to a smaller store base and declines in our comparable retail sales. We have reduced our store footprint by 17.8% since the end of the Prior Year Quarter, including stores converted to franchises with the sale of our South Africa subsidiary. Global comparable retail sales decreased by 8.0%, primarily due to our full price selling model. From a category perspective, traditional watch sales decreased by 1.5% (0.9% in constant currency). Net sales in smartwatches were no longer significant, as we exited the category. The leathers category decreased by 30.8% (31.4% in constant currency) compared to the Prior Year Quarter, and jewelry sales decreased by 11.3% (11.3% in constant currency). From a brand perspective, the most significant sales declines were in the EMPORIO ARMANI and FOSSIL brands.

The following table sets forth consolidated net sales by segment (dollars in millions):

Net sales information by product category is summarized as follows (dollars in millions):

In the Second Quarter, the translation of foreign-based net sales into U.S. dollars decreased net sales by $1.0 million, with unfavorable impacts of $2.7 million in Asia partially offset by favorable impacts of $0.8 million in both of our Americas and Europe segments, as compared to the Prior Year Quarter.

Stores. The following table sets forth the number of stores on the dates indicated below:

Americas Net Sales. Americas net sales increased by $1.0 million, or 1.0% (0.2% in constant currency), during the Second Quarter compared to the Prior Year Quarter. The largest sales increases were in the MICHAEL KORS and TORY BURCH brands. Sales increased in the wholesale channel and decreased in the store and e-commerce channels. Comparable retail sales decreased moderately during the Second Quarter.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Americas segment (dollars in millions):

Europe Net Sales. Europe net sales decreased by $11.4 million, or 17.0% (18.2% in constant currency), during the Second Quarter compared to the Prior Year Quarter. Our sales decreased across much of the Eurozone and in all major distribution channels, primarily due to the increasingly challenging geopolitical environment in the Middle East. The largest sales decreases were in the FOSSIL brand. Comparable retail sales decreased sharply during the Second Quarter, with sales declines in our stores and owned e-commerce.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Europe segment (dollars in millions):

Asia Net Sales. Net sales in Asia decreased 1.0% (increased 3.7% in constant currency) during the Second Quarter compared to the Prior Year Quarter. Sales increases in India were more than offset by sales decreases in Greater China and unfavorable currency impacts. Constant currency sales growth in FOSSIL, MICHAEL KORS and DIESEL was partially offset by sales decreases in EMPORIO ARMANI. Sales decreased in our direct channels and were partially offset by sales increases in wholesale. Comparable retail sales increased moderately during the Second Quarter with sales growth in our stores partially offset by declines in our owned e-commerce.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis from period to period for the Asia segment (dollars in millions):

Gross Profit. Gross profit of $130.8 million in the Second Quarter increased by 3.2% compared to $126.7 million in the Prior Year Quarter. Our gross profit margin rate increased to 62.4% in the Second Quarter compared to 57.5% in the Prior Year Quarter. The year-over-year increase primarily reflecting improved product margins in our core categories driven by benefits from our full price selling model, sourcing initiatives and reduced tariffs. This increase was partially offset by the accelerated timing of licensed brand minimum royalty recognition as compared to the Prior Year Quarter.

Expenses. Total operating expenses in the Second Quarter increased by 7.9% to $127.6 million, or 60.8% of net sales, compared to $118.2 million, or 53.7% of net sales, in the Prior Year Quarter. Operating expenses in the Prior Year Quarter were favorably impacted by an $11 million gain on the sale of our European warehouse. SG&A expenses were $123.5 million in the Second Quarter compared to $110.9 million in the Prior Year Quarter. As a percentage of net sales, SG&A expenses increased to 58.9% in the Second Quarter compared to 50.3% in the Prior Year Quarter, primarily due to the $11.0 million gain on the sale of our European warehouse included in the Prior Year Quarter. Restructuring expenses were $3.4 million in the Second Quarter, compared to $7.3 million in the Prior Year Quarter.

Operating Income (loss). Operating income in the Second Quarter was $3.2 million as compared to operating income of $8.5 million in the Prior Year Quarter. As a percentage of net sales, operating margin was 1.5% in the Second Quarter compared to 3.9% in the Prior Year Quarter. The operating margin rate in the Second Quarter included an unfavorable impact of 60 basis points due to changes in foreign currencies.

Operating income (loss) by segment was as follows (dollars in millions):

Interest Expense. Interest expense was $8.3 million in the Second Quarter compared to $4.3 million the Prior Year Quarter due to increased debt issuance cost amortization, higher debt balances and increased interest rates.

Other Income (Expense)-Net. During the Second Quarter, other income (expense)-net was an expense of $1.7 million, compared to an expense of $38,000 in the Prior Year Quarter, primarily reflecting increased currency losses in the Second Quarter as compared to the Prior Year Quarter, and partially offset by a $0.8 million gain on the sale of a subsidiary in the Second Quarter.

Provision for Income Taxes. Income tax expense for the Second Quarter was $3.7 million, resulting in an effective income tax rate of (54.2)%. For the Prior Year Quarter, income tax expense was $6.2 million, resulting in an effective income tax rate of 150.9%. The effective tax rate changed favorably from 150.9% in the Prior-Year Quarter to (54.2%) in the Second Quarter, primarily due to lower tax expense accrued on foreign earnings. The Company did not recognize a tax benefit on U.S. losses in either period. Although the Company reported a pre-tax loss with positive tax expense, the reduction in foreign tax expense resulted in a less unfavorable effective tax rate compared with the Prior Year Quarter.

Net Income (Loss) Attributable to Fossil Group, Inc. Second Quarter net income (loss) attributable to Fossil Group, Inc. was a net loss of $10.6 million, or $0.18 per diluted share, compared to a net loss of $2.3 million, or $0.04 per diluted share, in the Prior Year Quarter. The translation of foreign currencies negatively impacted diluted loss per share by $0.05 in the Second Quarter.

Adjusted EBITDA. The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial measure, which is income (loss) before income taxes. Certain line items presented in the table below, when aggregated, may not foot due to rounding (dollars in millions).

(2)Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility

Adjusted Operating Income (Loss), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile both Adjusted operating income (loss) and Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share to the most directly comparable GAAP financial measures, which are operating income (loss), net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively. Certain line items presented in the table below, when aggregated, may not foot due to rounding.

(1)Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility

Fiscal Year To Date Periods Ended July 4, 2026 and July 5, 2025

Consolidated Net Sales. Net sales decreased by $19.3 million, or 4.3% (5.5% in constant currency), for the Year To Date Period compared to the Prior Year YTD Period, with declines primarily in our Europe segment as the region is increasingly impacted by the geopolitical climate in the Middle East. Net sales in the Americas and Asia segments were approximately flat. Our store rationalization initiatives comprised approximately 230 basis points of the sales decline in the Year To Date Period compared to the Prior Year YTD Period. Wholesale sales increased 4.1% (3.2% in constant currency). Direct to consumer sales declined by 20.7% (22.5% in constant currency). We have reduced our store footprint by 38 stores (17.8%), since the end of the Prior Year Quarter, including stores converted to franchises with the sale of our South Africa subsidiary. Global comparable retail sales decreased 11.2%, primarily due to our full price selling model. From a category perspective, traditional watch sales increased 0.4% (decreased 0.7% in constant currency). Net sales in smartwatches decreased 42.6% (42.5% in constant currency), as we exited the category. The leathers category decreased 34.6% (36.1% in constant currency), and jewelry sales decreased 10.3% (12.9% in constant currency). From a brand perspective, our biggest sales declines were in the FOSSIL and EMPORIO ARMANI brands.

The following table sets forth consolidated net sales by segment (dollars in millions):

Net sales information by product category is summarized as follows (dollars in millions):

During the Year To Date Period, the translation of foreign-based net sales into U.S. dollars increased reported net sales by $5.5 million, including favorable impacts of $6.2 million and $2.6 million in our Europe and Americas segments, respectively, partially offset by an unfavorable impact of $3.3 million in our Asia segment compared to the Prior Year YTD Period.

Americas Net Sales. Americas net sales were roughly flat (a decrease of 1.3% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. Declines in our stores and e-commerce channels were offset by sales growth in our wholesale channel. Sales declines in FOSSIL leathers and jewelry were offset by sales increases in FOSSIL watches and slight growth in most other brands. Comparable retail sales declined moderately during the Year To Date Period.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis for the Americas segment (dollars in millions):

Europe Net Sales. Europe net sales decreased by $17.2 million, or 11.9% (16.2% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. Our sales decreased across much of the Eurozone and in all major distribution channels, primarily due to the increasingly challenging geopolitical environment in the Middle East. The largest sales decreases were in the FOSSIL brand. Comparable retail sales decreased sharply during the Year To Date Period, with sales declines in our stores and owned e-commerce.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis for the Europe segment (dollars in millions):

Asia Net Sales. Asia net sales decreased by $2.0 million, or 1.7% (increased 1.1% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. Net sales increases in our wholesale channel were more than offset by decreases in our stores and e-commerce channels. Sales growth in India was more than offset by declines in Greater China and the rest of Asia. Sales declines were predominantly in the EMPORIO ARMANI brand and were partially offset by smaller increases in MICHAEL KORS, DIESEL, ARMANI EXCHANGE and FOSSIL. Comparable retail sales increased slightly for the Year To Date Period with growth in our stores partially offset by declines in owned e-commerce.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis for the Asia segment (dollars in millions):

Gross Profit. Gross profit of $265.5 million in the Year To Date Period decreased by $4.2 million, or 1.6%, compared to $269.7 million in the Prior Year YTD Period. The gross profit margin rate increased to 61.1% in the Year To Date Period compared to 59.5% in the Prior Year YTD Period. The year-over-year increase primarily reflects improved product margins in our core categories driven by benefits from our full price selling model, sourcing initiatives and reduced tariffs. This increase was partially offset by the accelerated timing of licensed brand minimum royalty recognition as compared to the prior year. Changes in foreign currencies resulted in a 10 basis point positive impact.

Operating Expenses. For the Year To Date Period, total operating expenses decreased to $250.2 million compared to $268.0 million in the Prior Year YTD Period. SG&A expenses were $244.0 million in the Year To Date Period compared to $244.8 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses increased to 56.2% in the Year To Date Period, compared to 54.0% in the Prior Year YTD Period, primarily as a result of an $11.0 million gain on the sale of our European warehouse during the Prior Year YTD Period. During the Year To Date Period, we incurred restructuring costs of $5.5 million, compared to restructuring costs of $23.1 million in the Prior Year YTD Period. We incurred other long-lived asset impairment charges of $0.7 million in the Year To Date Period compared to charges of $0.1 million in the Prior Year YTD Period. The translation of foreign-denominated expenses during the Year To Date Period increased operating expenses by $4.0 million when compared to the Prior Year YTD Period, as a result of the weaker U.S. dollar.

Operating Income (Loss). Operating income (loss) was income of $15.2 million in the Year To Date Period as compared to income of $1.7 million in the Prior Year YTD Period. As a percentage of net sales, operating margin was 3.5% in the Year To Date Period as compared to 0.4% in the Prior Year YTD Period. Changes in foreign currencies resulted in a 10 basis point negative impact.

Operating income (loss) by segment was as follows (dollars in millions):

Interest Expense. Interest expense was $16.8 million during the Year To Date Period compared to $8.8 million in the Prior Year YTD Period due to increased debt issuance cost amortization, higher debt balances and increased interest rates in the Year To Date Period.

Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net was expense of $0.6 million in comparison to expense of $3.3 million in the Prior Year YTD Period. The change in other income (expense)-net was primarily due to less net currency losses in the Year To Date Period compared to the Prior Year YTD Period.

Provision for Income Taxes. Income tax expense for the Year To Date Period was $9.2 million, resulting in an effective income tax rate of (432.2)%. The Prior Year YTD Period income tax expense was $9.6 million, resulting in an effective income tax rate of (92.7)%. The effective tax rate for the Year To Date Period unfavorably changed from the Prior Year YTD Period, primarily due to a change in the global mix of earnings. In both the current and prior year periods, tax expense was recognized on foreign earnings with no corresponding tax benefit recognized on U.S. losses. The Company’s pre-tax loss, combined with positive tax expense, resulted in a significantly more negative effective tax rate in the Year To Date Period as compared to the Prior Year YTD Period.

Net Income (Loss) Attributable to Fossil Group, Inc. For the Year To Date Period, net loss was $11.4 million, or $0.19 per diluted share, in comparison to a loss of $19.9 million, or $0.37 per diluted share, in the Prior Year YTD Period. Diluted loss per share in the Year To Date Period, as compared to the Prior Year YTD Period, was positively impacted by $0.05 per diluted share due to the impact of currency.

Adjusted EBITDA. The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial measure, which is income (loss) before income taxes. Certain line items presented in the table below, when aggregated, may not foot due to rounding (dollars in millions).

(2 )Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility

Adjusted Operating Income (Loss), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile both Adjusted operating income (loss) and Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share to the most directly comparable GAAP financial measures, which are operating income (loss), net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively. Certain line items presented in the table below, when aggregated, may not foot due to rounding.

(1)Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility