UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: October 1, 2022September 30, 2023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-41040
__________________________________________________________________
FOSSIL GROUP, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________________________
| | | | | | | | | | | | | | |
Delaware | | 75-2018505 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
901 S. Central Expressway, | Richardson, | Texas | | 75080 |
(Address of principal executive offices) | | (Zip Code) |
(972) 234-2525
(Registrant’s telephone number, including area code)
__________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Ticker Symbol | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | FOSL | | The Nasdaq Stock Market LLC |
7.00% Senior Notes due 2026 | | FOSLL | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one):
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☒ |
| | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐☒ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding as of November 2, 2022: 51,836,456October 31, 2023: 52,477,538
FOSSIL GROUP, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 1, 2022SEPTEMBER 30, 2023
INDEX
Trademarks, service marks, trade names and copyrights
We use our FOSSIL, MICHELE, RELIC, SKAGEN and ZODIAC trademarks, as well as other trademarks, on certain watches, and smartwatches, our FOSSIL and SKAGEN trademarks on jewelry, and our FOSSIL trademark on leather goods and other fashion accessories in the U.S. and in a significant number of foreign countries. We also use FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL and WSI as trademarks on retail stores and FOSSIL, SKAGEN, WATCH STATION INTERNATIONAL, WSI, MISFIT, ZODIAC and MICHELE as trademarks on online e-commerce sites. This filing may also contain other trademarks, service marks, trade names and copyrights of ours or of other companies with whom we have, for example, licensing agreements to produce, market and distribute products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to or incorporated by reference into this report may be listed without the TM, SM, © and ® symbols, as applicable, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks, trade names and copyrights.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
IN THOUSANDS
| | | October 1, 2022 | | January 1, 2022 | | September 30, 2023 | | December 31, 2022 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 162,612 | | | $ | 250,844 | | Cash and cash equivalents | $ | 116,132 | | | $ | 198,726 | |
Accounts receivable - net of allowances for doubtful accounts of $15,025 and $16,388, respectively | 214,987 | | | 255,131 | | |
Accounts receivable - net of allowances for doubtful accounts of $13,857 and $14,647, respectively | | Accounts receivable - net of allowances for doubtful accounts of $13,857 and $14,647, respectively | 193,975 | | | 206,133 | |
Inventories | Inventories | 452,747 | | | 346,850 | | Inventories | 326,718 | | | 376,028 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 184,964 | | | 169,930 | | Prepaid expenses and other current assets | 148,114 | | | 164,413 | |
Total current assets | Total current assets | 1,015,310 | | | 1,022,755 | | Total current assets | 784,939 | | | 945,300 | |
Property, plant and equipment - net of accumulated depreciation of $418,090 and $436,663, respectively | 77,379 | | | 89,767 | | |
Property, plant and equipment - net of accumulated depreciation of $406,365 and $415,172, respectively | | Property, plant and equipment - net of accumulated depreciation of $406,365 and $415,172, respectively | 68,582 | | | 79,882 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 156,448 | | | 177,597 | | Operating lease right-of-use assets | 154,479 | | | 156,947 | |
| Intangible and other assets-net | Intangible and other assets-net | 65,849 | | | 78,600 | | Intangible and other assets-net | 55,244 | | | 55,999 | |
Total long-term assets | Total long-term assets | 299,676 | | | 345,964 | | Total long-term assets | 278,305 | | | 292,828 | |
Total assets | Total assets | $ | 1,314,986 | | | $ | 1,368,719 | | Total assets | $ | 1,063,244 | | | $ | 1,238,128 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable | Accounts payable | $ | 204,040 | | | $ | 229,877 | | Accounts payable | $ | 158,028 | | | $ | 191,141 | |
Short-term and current portion of long-term debt | 354 | | | 554 | | |
Short-term debt | | Short-term debt | 455 | | | 342 | |
Accrued expenses: | Accrued expenses: | | | | Accrued expenses: | | | |
Current operating lease liabilities | Current operating lease liabilities | 48,238 | | | 58,721 | | Current operating lease liabilities | 43,762 | | | 49,702 | |
Compensation | Compensation | 40,072 | | | 73,595 | | Compensation | 41,067 | | | 44,259 | |
Royalties | Royalties | 21,380 | | | 38,714 | | Royalties | 13,628 | | | 20,875 | |
Customer liabilities | Customer liabilities | 34,671 | | | 40,886 | | Customer liabilities | 40,505 | | | 41,996 | |
Transaction taxes | Transaction taxes | 8,293 | | | 17,147 | | Transaction taxes | 7,395 | | | 14,303 | |
Other | Other | 43,430 | | | 46,675 | | Other | 35,161 | | | 40,424 | |
Income taxes payable | Income taxes payable | 28,249 | | | 29,478 | | Income taxes payable | 8,588 | | | 22,878 | |
Total current liabilities | Total current liabilities | 428,727 | | | 535,647 | | Total current liabilities | 348,589 | | | 425,920 | |
Long-term income taxes payable | Long-term income taxes payable | 24,069 | | | 20,452 | | Long-term income taxes payable | 21,126 | | | 22,603 | |
Deferred income tax liabilities | Deferred income tax liabilities | 458 | | | 504 | | Deferred income tax liabilities | 600 | | | 616 | |
Long-term debt | Long-term debt | 293,583 | | | 141,354 | | Long-term debt | 255,935 | | | 216,132 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 151,928 | | | 174,520 | | Long-term operating lease liabilities | 142,128 | | | 150,188 | |
Other long-term liabilities | Other long-term liabilities | 25,988 | | | 30,884 | | Other long-term liabilities | 16,115 | | | 19,660 | |
Total long-term liabilities | Total long-term liabilities | 496,026 | | | 367,714 | | Total long-term liabilities | 435,904 | | | 409,199 | |
Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | |
Stockholders’ equity: | Stockholders’ equity: | | | | Stockholders’ equity: | | | |
Common stock, 51,827 and 52,146 shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively | 518 | | | 521 | | |
Common stock, 52,472 and 51,836 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | | Common stock, 52,472 and 51,836 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 525 | | | 518 | |
Additional paid-in capital | Additional paid-in capital | 304,498 | | | 300,848 | | Additional paid-in capital | 310,603 | | | 306,241 | |
Retained earnings | Retained earnings | 184,909 | | | 229,132 | | Retained earnings | 46,638 | | | 175,491 | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (96,876) | | | (67,275) | | Accumulated other comprehensive income (loss) | (76,666) | | | (76,318) | |
Total Fossil Group, Inc. stockholders’ equity | Total Fossil Group, Inc. stockholders’ equity | 393,049 | | | 463,226 | | Total Fossil Group, Inc. stockholders’ equity | 281,100 | | | 405,932 | |
Noncontrolling interests | Noncontrolling interests | (2,816) | | | 2,132 | | Noncontrolling interests | (2,349) | | | (2,923) | |
Total stockholders’ equity | Total stockholders’ equity | 390,233 | | | 465,358 | | Total stockholders’ equity | 278,751 | | | 403,009 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 1,314,986 | | | $ | 1,368,719 | | Total liabilities and stockholders’ equity | $ | 1,063,244 | | | $ | 1,238,128 | |
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
UNAUDITED
IN THOUSANDS, EXCEPT PER SHARE DATA
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Net sales | Net sales | $ | 436,271 | | | $ | 491,827 | | | $ | 1,183,292 | | | $ | 1,265,808 | | Net sales | $ | 344,121 | | | $ | 436,271 | | | $ | 991,123 | | | $ | 1,183,292 | |
Cost of sales | Cost of sales | 216,651 | | | 232,305 | | | 588,010 | | | 601,857 | | Cost of sales | 182,458 | | | 216,651 | | | 512,076 | | | 588,010 | |
Gross profit | Gross profit | 219,620 | | | 259,522 | | | 595,282 | | | 663,951 | | Gross profit | 161,663 | | | 219,620 | | | 479,047 | | | 595,282 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 196,530 | | | 205,718 | | | 591,521 | | | 593,522 | | Selling, general and administrative expenses | 191,433 | | | 196,530 | | | 569,493 | | | 591,521 | |
| Other long-lived asset impairments | Other long-lived asset impairments | 608 | | | 551 | | | 1,060 | | | 6,314 | | Other long-lived asset impairments | 622 | | | 608 | | | 838 | | | 1,060 | |
Restructuring charges | — | | | 5,447 | | | 5,438 | | | 18,716 | | |
Restructuring expenses | | Restructuring expenses | 16,003 | | | — | | | 27,732 | | | 5,438 | |
Total operating expenses | Total operating expenses | 197,138 | | | 211,716 | | | 598,019 | | | 618,552 | | Total operating expenses | 208,058 | | | 197,138 | | | 598,063 | | | 598,019 | |
Operating income (loss) | Operating income (loss) | 22,482 | | | 47,806 | | | (2,737) | | | 45,399 | | Operating income (loss) | (46,395) | | | 22,482 | | | (119,016) | | | (2,737) | |
Interest expense | Interest expense | 5,127 | | | 6,422 | | | 13,445 | | | 20,284 | | Interest expense | 5,760 | | | 5,127 | | | 16,110 | | | 13,445 | |
Other income (expense) - net | Other income (expense) - net | (1,859) | | | (482) | | | (1,915) | | | 882 | | Other income (expense) - net | (3,093) | | | (1,859) | | | 6,813 | | | (1,915) | |
Income (loss) before income taxes | Income (loss) before income taxes | 15,496 | | | 40,902 | | | (18,097) | | | 25,997 | | Income (loss) before income taxes | (55,248) | | | 15,496 | | | (128,313) | | | (18,097) | |
Provision for income taxes | 9,214 | | | 8,978 | | | 15,904 | | | 19,177 | | |
Provision (benefit) for income taxes | | Provision (benefit) for income taxes | 5,561 | | | 9,214 | | | (34) | | | 15,904 | |
Net income (loss) | Net income (loss) | 6,282 | | | 31,924 | | | (34,001) | | | 6,820 | | Net income (loss) | (60,809) | | | 6,282 | | | (128,279) | | | (34,001) | |
Less: Net income (loss) attributable to noncontrolling interests | Less: Net income (loss) attributable to noncontrolling interests | 433 | | | 504 | | | 738 | | | 1,032 | | Less: Net income (loss) attributable to noncontrolling interests | 253 | | | 433 | | | 574 | | | 738 | |
Net income (loss) attributable to Fossil Group, Inc. | Net income (loss) attributable to Fossil Group, Inc. | $ | 5,849 | | | $ | 31,420 | | | $ | (34,739) | | | $ | 5,788 | | Net income (loss) attributable to Fossil Group, Inc. | $ | (61,062) | | | $ | 5,849 | | | $ | (128,853) | | | $ | (34,739) | |
Other comprehensive income (loss), net of taxes: | Other comprehensive income (loss), net of taxes: | | | | | | | | Other comprehensive income (loss), net of taxes: | | | | | | | |
Currency translation adjustment | Currency translation adjustment | $ | (13,465) | | | $ | (3,237) | | | $ | (37,437) | | | $ | (12,293) | | Currency translation adjustment | $ | (3,801) | | | $ | (13,465) | | | $ | (1,994) | | | $ | (37,437) | |
Cash flow hedges - net change | Cash flow hedges - net change | 3,668 | | | 2,085 | | | 7,836 | | | 3,607 | | Cash flow hedges - net change | 4,623 | | | 3,668 | | | 1,646 | | | 7,836 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | (9,797) | | | (1,152) | | | (29,601) | | | (8,686) | | Total other comprehensive income (loss) | 822 | | | (9,797) | | | (348) | | | (29,601) | |
Total comprehensive income (loss) | Total comprehensive income (loss) | (3,515) | | | 30,772 | | | (63,602) | | | (1,866) | | Total comprehensive income (loss) | (59,987) | | | (3,515) | | | (128,627) | | | (63,602) | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | Less: Comprehensive income (loss) attributable to noncontrolling interests | 432 | | | 504 | | | 738 | | | 1,032 | | Less: Comprehensive income (loss) attributable to noncontrolling interests | 253 | | | 432 | | | 574 | | | 738 | |
Comprehensive income (loss) attributable to Fossil Group, Inc. | Comprehensive income (loss) attributable to Fossil Group, Inc. | $ | (3,947) | | | $ | 30,268 | | | $ | (64,340) | | | $ | (2,898) | | Comprehensive income (loss) attributable to Fossil Group, Inc. | $ | (60,240) | | | $ | (3,947) | | | $ | (129,201) | | | $ | (64,340) | |
Earnings (loss) per share: | Earnings (loss) per share: | | | | | | | | Earnings (loss) per share: | | | | | | | |
Basic | Basic | $ | 0.11 | | | $ | 0.60 | | | $ | (0.67) | | | $ | 0.11 | | Basic | $ | (1.16) | | | $ | 0.11 | | | $ | (2.47) | | | $ | (0.67) | |
Diluted | Diluted | $ | 0.11 | | | $ | 0.60 | | | $ | (0.67) | | | $ | 0.11 | | Diluted | $ | (1.16) | | | $ | 0.11 | | | $ | (2.47) | | | $ | (0.67) | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | | Weighted average common shares outstanding: | | | | | | | |
Basic | Basic | 51,825 | | | 52,141 | | | 51,843 | | | 51,900 | | Basic | 52,466 | | | 51,825 | | | 52,219 | | | 51,843 | |
Diluted | Diluted | 52,052 | | | 52,766 | | | 51,843 | | | 52,738 | | Diluted | 52,466 | | | 52,052 | | | 52,219 | | | 51,843 | |
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
IN THOUSANDS
| For the 13 Weeks Ended October 1, 2022 | |
For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended September 30, 2023 |
| | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity |
Shares | | Par value | Shares | | Par value |
Balance, July 2, 2022 | 51,807 | | | $ | 518 | | | $ | 304,775 | | | $ | — | | | $ | 179,060 | | | $ | (87,079) | | | $ | 397,274 | | | $ | (3,249) | | | $ | 394,025 | | |
Balance, July 1, 2023 | | Balance, July 1, 2023 | 52,446 | | | $ | 524 | | | $ | 308,768 | | | $ | — | | | $ | 107,700 | | | $ | (77,488) | | | $ | 339,504 | | | $ | (2,602) | | | $ | 336,902 | |
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 22 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 31 | | | 1 | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Acquisition of common stock for employee tax withholding | Acquisition of common stock for employee tax withholding | | (13) | | | — | | | — | | | (13) | | | — | | | (13) | | Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (14) | | | — | | | — | | | (14) | | | — | | | (14) | |
Retirement of common stock | Retirement of common stock | (2) | | | — | | | (13) | | | 13 | | | — | | | — | | | — | | | — | | | — | | Retirement of common stock | (5) | | | (14) | | | 14 | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | (264) | | | — | | | — | | | — | | | (264) | | | — | | | (264) | | Stock-based compensation | — | | | — | | | 1,849 | | | — | | | — | | | — | | | 1,849 | | | — | | | 1,849 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | 5,849 | | | — | | | 5,849 | | | 433 | | | 6,282 | | Net income (loss) | — | | | — | | | — | | | — | | | (61,062) | | | — | | | (61,062) | | | 253 | | | (60,809) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (9,797) | | | (9,797) | | | — | | | (9,797) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | 822 | | | 822 | | | — | | | 822 | |
| Balance, October 1, 2022 | 51,827 | | | $ | 518 | | | $ | 304,498 | | | $ | — | | | $ | 184,909 | | | $ | (96,876) | | | $ | 393,049 | | | $ | (2,816) | | | $ | 390,233 | | |
Balance, September 30, 2023 | | Balance, September 30, 2023 | 52,472 | | | $ | 525 | | | $ | 310,603 | | | $ | — | | | $ | 46,638 | | | $ | (76,666) | | | $ | 281,100 | | | $ | (2,349) | | | $ | 278,751 | |
| For the 13 Weeks Ended October 2, 2021 | |
For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 1, 2022 |
| | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity |
Shares | | Par value | Shares | | Par value |
Balance, July 3, 2021 | 52,127 | | | $ | 521 | | | $ | 295,704 | | | $ | — | | | $ | 178,066 | | | $ | (66,434) | | | $ | 407,857 | | | $ | 1,470 | | | $ | 409,327 | | |
Balance, July 2, 2022 | | Balance, July 2, 2022 | 51,807 | | | $ | 518 | | | $ | 304,775 | | | $ | — | | | $ | 179,060 | | | $ | (87,079) | | | $ | 397,274 | | | $ | (3,249) | | | $ | 394,025 | |
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 21 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 22 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Acquisition of common stock for employee tax withholding | Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (56) | | | — | | | — | | | (56) | | | — | | | (56) | | Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (13) | | | — | | | — | | | (13) | | | — | | | (13) | |
Retirement of common stock | Retirement of common stock | (5) | | | — | | | (56) | | | 56 | | | — | | | — | | | — | | | — | | | — | | Retirement of common stock | (2) | | | (13) | | | 13 | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 2,857 | | | — | | | — | | | — | | | 2,857 | | | — | | | 2,857 | | Stock-based compensation | — | | | — | | | (264) | | | — | | | — | | | — | | | (264) | | | — | | | (264) | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | 31,420 | | | — | | | 31,420 | | | 504 | | | 31,924 | | Net income (loss) | — | | | — | | | — | | | — | | | 5,849 | | | — | | | 5,849 | | | 433 | | | 6,282 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (1,152) | | | (1,152) | | | — | | | (1,152) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (9,797) | | | (9,797) | | | — | | | (9,797) | |
| Balance, October 2, 2021 | 52,143 | | | $ | 521 | | | $ | 298,505 | | | $ | — | | | $ | 209,486 | | | $ | (67,586) | | | $ | 440,926 | | | $ | 1,974 | | | $ | 442,900 | | |
Balance, October 1, 2022 | | Balance, October 1, 2022 | 51,827 | | | $ | 518 | | | $ | 304,498 | | | $ | — | | | $ | 184,909 | | | $ | (96,876) | | | $ | 393,049 | | | $ | (2,816) | | | $ | 390,233 | |
| | For the 39 Weeks Ended October 1, 2022 | |
For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended September 30, 2023 |
| | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity |
Shares | | Par value | Shares | | Par value |
Balance, January 1, 2022 | 52,146 | | | $ | 521 | | | $ | 300,848 | | | $ | — | | | $ | 229,132 | | | $ | (67,275) | | | $ | 463,226 | | | $ | 2,132 | | | $ | 465,358 | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | 51,836 | | | $ | 518 | | | $ | 306,241 | | | $ | — | | | $ | 175,491 | | | $ | (76,318) | | | $ | 405,932 | | | $ | (2,923) | | | $ | 403,009 | |
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 896 | | | 9 | | | (9) | | | — | | | — | | | — | | | — | | | — | | | — | | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 800 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Acquisition of common stock for employee tax withholding | Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (12,443) | | | — | | | — | | | (12,443) | | | — | | | (12,443) | | Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (529) | | | — | | | — | | | (529) | | | — | | | (529) | |
Retirement of common stock | Retirement of common stock | (1,215) | | | (12) | | | (2,947) | | | 12,443 | | | (9,484) | | | — | | | — | | | — | | | — | | Retirement of common stock | (164) | | | (1) | | | (528) | | | 529 | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 6,606 | | | — | | | — | | | — | | | 6,606 | | | — | | | 6,606 | | Stock-based compensation | — | | | — | | | 4,898 | | | — | | | — | | | — | | | 4,898 | | | — | | | 4,898 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | (34,739) | | | — | | | (34,739) | | | 738 | | | (34,001) | | Net income (loss) | — | | | — | | | — | | | — | | | (128,853) | | | — | | | (128,853) | | | 574 | | | (128,279) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (29,601) | | | (29,601) | | | (29,601) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (348) | | | (348) | | | (348) | |
| Distribution of noncontrolling interest earnings | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,686) | | | (5,686) | | |
| Balance, October 1, 2022 | 51,827 | | | $ | 518 | | | $ | 304,498 | | | $ | — | | | $ | 184,909 | | | $ | (96,876) | | | $ | 393,049 | | | $ | (2,816) | | | $ | 390,233 | | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | 52,472 | | | $ | 525 | | | $ | 310,603 | | | $ | — | | | $ | 46,638 | | | $ | (76,666) | | | $ | 281,100 | | | $ | (2,349) | | | $ | 278,751 | |
| | For the 39 Weeks Ended October 2, 2021 | |
For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 1, 2022 |
| | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity | | Common stock | | Additional paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Stockholders' equity attributable to Fossil Group, Inc. | | Noncontrolling interest | | Total stockholders' equity |
Shares | | Par value | Shares | | Par value |
Balance, January 2, 2021 | 51,474 | | | $ | 515 | | | $ | 293,777 | | | $ | — | | | $ | 203,698 | | | $ | (58,900) | | | $ | 439,090 | | | $ | 942 | | | $ | 440,032 | | |
Balance, January 1, 2022 | | Balance, January 1, 2022 | 52,146 | | | $ | 521 | | | $ | 300,848 | | | $ | — | | | $ | 229,132 | | | $ | (67,275) | | | $ | 463,226 | | | $ | 2,132 | | | $ | 465,358 | |
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 857 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | — | | | — | | Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units | 896 | | | 9 | | | (9) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Acquisition of common stock for employee tax withholding | — | | | — | | | — | | | (2,405) | | | — | | | — | | | (2,405) | | | — | | | (2,405) | | |
Acquisition of common stock | | Acquisition of common stock | — | | | — | | | — | | | (12,443) | | | — | | | — | | | (12,443) | | | — | | | (12,443) | |
Retirement of common stock | Retirement of common stock | (188) | | | (2) | | | (2,403) | | | 2,405 | | | — | | | — | | | — | | | — | | | — | | Retirement of common stock | (1,215) | | | (12) | | | (2,947) | | | 12,443 | | | (9,484) | | | — | | | — | | | — | | | — | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 7,139 | | | — | | | — | | | — | | | 7,139 | | | — | | | 7,139 | | Stock-based compensation | — | | | — | | | 6,606 | | | — | | | — | | | — | | | 6,606 | | | — | | | 6,606 | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | 5,788 | | | — | | | 5,788 | | | 1,032 | | | 6,820 | | Net income (loss) | — | | | — | | | — | | | — | | | (34,739) | | | — | | | (34,739) | | | 738 | | | (34,001) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (8,686) | | | (8,686) | | | — | | | (8,686) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (29,601) | | | (29,601) | | | — | | | (29,601) | |
| Distribution of noncontrolling interest earnings | | Distribution of noncontrolling interest earnings | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,686) | | | (5,686) | |
| Balance, October 2, 2021 | 52,143 | | | $ | 521 | | | $ | 298,505 | | | $ | — | | | $ | 209,486 | | | $ | (67,586) | | | $ | 440,926 | | | $ | 1,974 | | | $ | 442,900 | | |
Balance, October 1, 2022 | | Balance, October 1, 2022 | 51,827 | | | $ | 518 | | | $ | 304,498 | | | $ | — | | | $ | 184,909 | | | $ | (96,876) | | | $ | 393,049 | | | $ | (2,816) | | | $ | 390,233 | |
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
IN THOUSANDS
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Operating Activities: | Operating Activities: | | | | | Operating Activities: | | | |
Net income (loss) | Net income (loss) | $ | (34,001) | | | $ | 6,820 | | | Net income (loss) | $ | (128,279) | | | $ | (34,001) | |
Adjustments to reconcile net loss to net cash provided used in operating activities: | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation, amortization and accretion | Depreciation, amortization and accretion | 17,587 | | | 23,410 | | | Depreciation, amortization and accretion | 14,487 | | | 17,587 | |
Non-cash lease expense | Non-cash lease expense | 60,073 | | | 68,920 | | | Non-cash lease expense | 56,515 | | | 60,073 | |
Stock-based compensation | Stock-based compensation | 5,821 | | | 7,139 | | | Stock-based compensation | 4,580 | | | 5,821 | |
Decrease in allowance for returns and markdowns | Decrease in allowance for returns and markdowns | (8,519) | | | (11,838) | | | Decrease in allowance for returns and markdowns | (231) | | | (8,519) | |
Gain on disposal of assets | Gain on disposal of assets | (448) | | | (5,169) | | | Gain on disposal of assets | (3,258) | | | (448) | |
Property, plant and equipment and other long-lived asset impairment losses | Property, plant and equipment and other long-lived asset impairment losses | 1,060 | | | 6,322 | | | Property, plant and equipment and other long-lived asset impairment losses | 838 | | | 1,060 | |
| Non-cash restructuring charges | Non-cash restructuring charges | 876 | | | 1,747 | | | Non-cash restructuring charges | 5,048 | | | 876 | |
Bad debt expense | Bad debt expense | 5,611 | | | 961 | | | Bad debt expense | 2,986 | | | 5,611 | |
| Other non-cash items | Other non-cash items | 9,973 | | | 10,975 | | | Other non-cash items | 1,385 | | | 9,973 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | | | Changes in operating assets and liabilities: | | | |
Accounts receivable | Accounts receivable | 22,677 | | | (25,571) | | | Accounts receivable | 11,228 | | | 22,677 | |
Inventories | Inventories | (137,244) | | | (111,673) | | | Inventories | 45,879 | | | (137,244) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (16,091) | | | 31,732 | | | Prepaid expenses and other current assets | 16,490 | | | (16,091) | |
Accounts payable | Accounts payable | (19,151) | | | 70,156 | | | Accounts payable | (31,124) | | | (19,151) | |
Accrued expenses | Accrued expenses | (56,944) | | | (30,007) | | | Accrued expenses | (23,732) | | | (56,944) | |
Income taxes | Income taxes | 2,470 | | | 2,523 | | | Income taxes | (15,535) | | | 2,470 | |
Operating lease liabilities | Operating lease liabilities | (68,533) | | | (83,443) | | | Operating lease liabilities | (65,239) | | | (68,533) | |
Net cash used in operating activities | Net cash used in operating activities | (214,783) | | | (36,996) | | | Net cash used in operating activities | (107,962) | | | (214,783) | |
Investing Activities: | Investing Activities: | | | | | Investing Activities: | | | |
Additions to property, plant and equipment | (8,717) | | | (6,739) | | | |
Decrease in intangible and other assets | 993 | | | 6,903 | | | |
Proceeds from the sale of property, plant and equipment and other | 28 | | | 11,360 | | | |
Additions to property, plant and equipment and other | | Additions to property, plant and equipment and other | (7,149) | | | (8,689) | |
(Increase) decrease in intangible and other assets | | (Increase) decrease in intangible and other assets | (1,247) | | | 993 | |
| Net cash (used in) provided by investing activities | (7,696) | | | 11,524 | | | |
| Net cash used in investing activities | | Net cash used in investing activities | (8,396) | | | (7,696) | |
Financing Activities: | Financing Activities: | | | | | Financing Activities: | | | |
| Acquisition of common stock | Acquisition of common stock | (12,444) | | | (2,405) | | | Acquisition of common stock | (529) | | | (12,444) | |
Distribution of noncontrolling interest earnings and other | Distribution of noncontrolling interest earnings and other | (6,069) | | | (232) | | | Distribution of noncontrolling interest earnings and other | — | | | (6,069) | |
Debt borrowings | Debt borrowings | 261,983 | | | 85,182 | | | Debt borrowings | 162,615 | | | 261,983 | |
Debt payments | Debt payments | (111,237) | | | (179,997) | | | Debt payments | (124,013) | | | (111,237) | |
Payment for shares of Fossil Accessories South Africa Pty. Ltd. | | Payment for shares of Fossil Accessories South Africa Pty. Ltd. | (2,316) | | | — | |
| Net cash provided by (used in) financing activities | 132,233 | | | (97,452) | | | |
Net cash provided by financing activities | | Net cash provided by financing activities | 35,757 | | | 132,233 | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (644) | | | (5,564) | | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (2,751) | | | (644) | |
Net decrease in cash, cash equivalents, and restricted cash | Net decrease in cash, cash equivalents, and restricted cash | (90,890) | | | (128,488) | | | Net decrease in cash, cash equivalents, and restricted cash | (83,352) | | | (90,890) | |
Cash, cash equivalents, and restricted cash: | Cash, cash equivalents, and restricted cash: | | | | | Cash, cash equivalents, and restricted cash: | | | |
Beginning of period | Beginning of period | 264,572 | | | 324,246 | | | Beginning of period | 204,075 | | | 264,572 | |
End of period | End of period | $ | 173,682 | | | $ | 195,758 | | | End of period | $ | 120,723 | | | $ | 173,682 | |
See notes to the unaudited condensed consolidated financial statements.
FOSSIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENT POLICIES
Basis of Presentation. The condensed consolidated financial statements include the accounts of Fossil Group, Inc., a Delaware corporation, and its wholly and majority-owned subsidiaries (the “Company”).
The information presented herein includes the thirteen-week period ended October 1, 2022September 30, 2023 (“Third Quarter”) as compared to the thirteen-week period ended October 2, 20211, 2022 (“Prior Year Quarter”), and the thirty-nine week period ended October 1, 2022September 30, 2023 ("Year To Date Period") as compared to the thirty-nine week period ended October 2, 20211, 2022 ("Prior Year YTD Period"). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s financial position as of October 1, 2022,September 30, 2023, and the results of operations for the Third Quarter, Prior Year Quarter, Year To Date Period and Prior Year YTD Period. All adjustments are of a normal, recurring nature.
Effective during fiscal year 2021, the Company made a change to the presentation of product net sales to include third-party smartwatch bands within the smartwatch product type. Third-party smartwatch bands were previously reported within the jewelry product type. The Company's historical disclosures have been recast to be consistent with its current presentation.
These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the fiscal year ended January 1,December 31, 2022 (the “2021“2022 Form 10-K”). Operating results for the Third Quarter are not necessarily indicative of the results to be achieved for the full fiscal year.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. We base our estimates on the information available at the time and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of the coronavirus (“COVID-19”) pandemic.circumstances. Actual results could differ from those estimates, including the impact of the COVID-19 pandemic.estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 20212022 Form 10-K.
Business. The Company is a global design, marketing and distribution company that specializes in consumer fashion accessories. Its principal offerings include an extensive line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts and sunglasses. In the watch and jewelry product categories, the Company has a diverse portfolio of globally recognized owned and licensed brand names under which its products are marketed. The Company's products are distributed globally through various distribution channels, including wholesale in countries where it has a physical presence, direct to the consumer through its retail stores and commercial websites and through third-party distributors in countries where the Company does not maintain a physical presence. The Company's products are offered at varying price points to meet the needs of its customers, whether they are value-conscious or luxury oriented. Based on its extensive range of accessory products, brands, distribution channels and price points, the Company is able to target style-conscious consumers across a wide age spectrum on a global basis.
Operating Expenses. Operating expenses include selling, general and administrative ("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 the Company's retail stores, point-of-sale expenses, advertising expenses and art, and 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, refinereduce and optimize the Company’s infrastructure and store closures. See Note 16—Restructuring for additional information on the Company’s restructuring plan.
Earnings (Loss) Per Share (“EPS”). Basic EPS is based on the weighted average number of common shares outstanding during each period. Diluted EPS adjusts basic EPS for the effects of dilutive common stock equivalents outstanding during each period using the treasury stock method.
The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS (in thousands, except per share data):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income (loss) attributable to Fossil Group, Inc. | Net income (loss) attributable to Fossil Group, Inc. | $ | 5,849 | | | $ | 31,420 | | | $ | (34,739) | | | $ | 5,788 | | Net income (loss) attributable to Fossil Group, Inc. | $ | (61,062) | | | $ | 5,849 | | | $ | (128,853) | | | $ | (34,739) | |
Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
Basic EPS computation: | Basic EPS computation: | | | | | Basic EPS computation: | | | | |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 51,825 | | | 52,141 | | | 51,843 | | | 51,900 | | Basic weighted average common shares outstanding | 52,466 | | | 51,825 | | | 52,219 | | | 51,843 | |
Basic EPS | Basic EPS | $ | 0.11 | | | $ | 0.60 | | | $ | (0.67) | | | $ | 0.11 | | Basic EPS | $ | (1.16) | | | $ | 0.11 | | | $ | (2.47) | | | $ | (0.67) | |
Diluted EPS computation: | Diluted EPS computation: | | | | | | | | Diluted EPS computation: | | | | | | | |
Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units | Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units | 227 | | | 625 | | | — | | | 838 | | Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units | — | | | 227 | | | — | | | — | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 52,052 | | | 52,766 | | | 51,843 | | | 52,738 | | Diluted weighted average common shares outstanding | 52,466 | | | 52,052 | | | 52,219 | | | 51,843 | |
Diluted EPS | Diluted EPS | $ | 0.11 | | | $ | 0.60 | | | $ | (0.67) | | | $ | 0.11 | | Diluted EPS | $ | (1.16) | | | $ | 0.11 | | | $ | (2.47) | | | $ | (0.67) | |
At the end of the Third Quarter and Year To Date Period, approximately 2.2 million and 2.1 million weighted average shares issuable under stock-based awards, respectively, were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 0.3 million and 0.3 million weighted average performance-based shares at the end of the Third Quarter and Year To Date Period, respectively.
At the end of each of the Prior Year Quarter and Prior Year YTD Period, approximately 1.7 million and 2.2 million weighted average shares issuable under stock-based awards, respectively, were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 12,900 and 26,100 weighted average performance-based shares at the end of the ThirdPrior Year Quarter and Prior Year To DateYTD Period, respectively. Additionally, 73,500 weighted average performance-based shares were not included in the diluted EPS calculation at the end of the Third Quarter because performance targets were not met.
At the end of each of the Prior Year Quarter and Prior Year YTD Period, approximately 0.3 million weighted average shares issuable under stock-based awards were not included in the diluted EPS calculation because they were antidilutive. The total antidilutive weighted average shares included 12,900 weighted average performance-based shares at the end of each of the Prior Year Quarter and Prior Year YTD Period. Additionally, 48,400 and 30,300 weighted average performance-based shares were not included in the diluted EPS calculation at the end of the Prior Year Quarter and Prior Year YTD Period, respectively, because performance targets were not met.
Cash, Cash Equivalents and Restricted Cash. Restricted cash included in intangible and other-assets net was comprised primarily of restricted cash balances for appealed tax assessments held in escrow and for pledged collateral to secure bank guarantees for the purpose of obtaining retail space. The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of September 30, 2023 and October 1, 2022 and October 2, 2021 that are presented in the condensed consolidated statement of cash flows (in thousands):
| | | October 1, 2022 | | October 2, 2021 | | | September 30, 2023 | | October 1, 2022 | |
Cash and cash equivalents | Cash and cash equivalents | $ | 162,612 | | | $ | 181,782 | | | Cash and cash equivalents | $ | 116,132 | | | $ | 162,612 | | |
Restricted cash included in prepaid expenses and other current assets | Restricted cash included in prepaid expenses and other current assets | 106 | | | 118 | | | Restricted cash included in prepaid expenses and other current assets | 106 | | | 106 | | |
Restricted cash included in intangible and other assets-net | Restricted cash included in intangible and other assets-net | 10,964 | | | 13,858 | | | Restricted cash included in intangible and other assets-net | 4,485 | | | 10,964 | | |
Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | $ | 173,682 | | | $ | 195,758 | | | Cash, cash equivalents and restricted cash | $ | 120,723 | | | $ | 173,682 | | |
Recently Issued Accounting Standards
In November 2021,October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10,2023-06, Government Assistance (Topic 832): Disclosures by Business Entities about Government AssistanceDisclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2021-10"2023-06"). The new standard increases transparencyamendments in ASU 2023-06 modify the disclosure or presentation requirements of government assistance by focusinga variety of topics in the FASB Accounting Standards Codification (the "Codification"), with the intention of clarifying or improving them and to align the requirements in the Codification with the regulations of the U.S. Securities and Exchange Commission (the “SEC”). The effective date for ASU 2023-06 varies and is determined for each individual disclosure based on the types of assistance given, an entity's accounting for the assistance, and the effecteffective date of the assistance onSEC's removal of the entity's financial statements to allow for more comparable information for investors and other financial statement users. This standard is effective for financial statements issued for annual periods beginning after December 15, 2021, but early adoption is permitted. This standardrelated disclosure. ASU 2023-06 will not have a materialan impact on the Company's consolidated financial statementsposition or related disclosures.results of operation.
Recently Adopted Accounting StandardsIn October 2021, the FASB issued ASU 2021-08, Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers("ASU 2021-08"). The guidance is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. The guidance requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 as if they had originated the contracts, as opposed to at fair value on the acquisition date. The standard will beis effective for business combinations that occur after January 1, 2023. EarlyThe adoption is permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. While the impact of this amendment is dependent on the nature of any future transactions, the Company currently doesstandard did not expect this standard to have a materialan impact on the Company's consolidated financial statements or related disclosures.
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") and subsequent guidance that clarified the scope and application of its original guidance. ASU 2020-04 provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company will adopt these standards when LIBOR is discontinued and does not expect it to have a material impact on its consolidated financial statements or related disclosures.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 at the beginning of fiscal year 2022, and it did not have a material effect on the Company's condensed consolidated financial statements.
2. REVENUE
Disaggregation of Revenue. Due to changes in the Company’s product types as discussed in Note 1 to the Condensed Consolidated Financial Statements, product results for the Prior Year Quarter and Prior Year YTD Period have been recast to present results on a comparable basis. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended September 30, 2023 |
| | Americas | | Europe | | Asia | | Corporate | | Total | | Americas | | Europe | | Asia | | Corporate | | Total |
Product type | Product type | | | | | | | | Product type | | | | | | | |
Watches: | Watches: | | Watches: | |
Traditional watches | Traditional watches | $ | 132,077 | | | $ | 102,142 | | | $ | 75,970 | | | $ | 9 | | | $ | 310,198 | | Traditional watches | $ | 113,611 | | | $ | 72,941 | | | $ | 66,103 | | | $ | 28 | | | $ | 252,683 | |
Smartwatches | Smartwatches | 14,578 | | | 10,401 | | | 8,327 | | | — | | | 33,306 | | Smartwatches | 7,352 | | | 5,927 | | | 4,034 | | | — | | | 17,313 | |
Total watches | Total watches | $ | 146,655 | | | $ | 112,543 | | | $ | 84,297 | | | $ | 9 | | | $ | 343,504 | | Total watches | $ | 120,963 | | | $ | 78,868 | | | $ | 70,137 | | | $ | 28 | | | $ | 269,996 | |
Leathers | Leathers | 27,262 | | | 5,683 | | | 8,150 | | | — | | | 41,095 | | Leathers | 20,815 | | | 6,201 | | | 5,993 | | | — | | | 33,009 | |
Jewelry | Jewelry | 8,353 | | | 22,955 | | | 6,560 | | | — | | | 37,868 | | Jewelry | 8,797 | | | 19,892 | | | 5,928 | | | — | | | 34,617 | |
Other | Other | 2,056 | | | 2,498 | | | 1,205 | | | 8,045 | | | 13,804 | | Other | 2,034 | | | 2,705 | | | 995 | | | 765 | | | 6,499 | |
Consolidated | Consolidated | $ | 184,326 | | | $ | 143,679 | | | $ | 100,212 | | | $ | 8,054 | | | $ | 436,271 | | Consolidated | $ | 152,609 | | | $ | 107,666 | | | $ | 83,053 | | | $ | 793 | | | $ | 344,121 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 183,900 | | | $ | 143,453 | | | $ | 100,076 | | | $ | 800 | | | $ | 428,229 | | Revenue recognized at a point in time | $ | 152,469 | | | $ | 107,479 | | | $ | 82,936 | | | $ | 518 | | | $ | 343,402 | |
Revenue recognized over time | Revenue recognized over time | 426 | | | 226 | | | 136 | | | 7,254 | | | 8,042 | | Revenue recognized over time | 140 | | | 187 | | | 117 | | | 275 | | | 719 | |
Consolidated | Consolidated | $ | 184,326 | | | $ | 143,679 | | | $ | 100,212 | | | $ | 8,054 | | | $ | 436,271 | | Consolidated | $ | 152,609 | | | $ | 107,666 | | | $ | 83,053 | | | $ | 793 | | | $ | 344,121 | |
| | | For the 13 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended October 1, 2022 |
| | Americas | | Europe | | Asia | | Corporate | | Total | | Americas | | Europe | | Asia | | Corporate | | Total |
Product type | Product type | | | | | | | | Product type | | | | | | | |
Watches: | Watches: | | Watches: | |
Traditional watches | Traditional watches | $ | 130,988 | | | $ | 113,501 | | | $ | 101,275 | | | $ | — | | | $ | 345,764 | | Traditional watches | $ | 132,077 | | | $ | 102,142 | | | $ | 75,970 | | | $ | 9 | | | $ | 310,198 | |
Smartwatches | Smartwatches | 25,205 | | | 16,344 | | | 12,528 | | | 8 | | | 54,085 | | Smartwatches | 14,578 | | | 10,401 | | | 8,327 | | | — | | | 33,306 | |
Total watches | Total watches | $ | 156,193 | | | $ | 129,845 | | | $ | 113,803 | | | $ | 8 | | | $ | 399,849 | | Total watches | $ | 146,655 | | | $ | 112,543 | | | $ | 84,297 | | | $ | 9 | | | $ | 343,504 | |
Leathers | Leathers | 23,389 | | | 7,231 | | | 5,770 | | | — | | | 36,390 | | Leathers | 27,262 | | | 5,683 | | | 8,150 | | | — | | | 41,095 | |
Jewelry | Jewelry | 12,285 | | | 25,554 | | | 8,486 | | | — | | | 46,325 | | Jewelry | 8,353 | | | 22,955 | | | 6,560 | | | — | | | 37,868 | |
Other | Other | 1,895 | | | 3,257 | | | 1,435 | | | 2,676 | | | 9,263 | | Other | 2,056 | | | 2,498 | | | 1,205 | | | 8,045 | | | 13,804 | |
Consolidated | Consolidated | $ | 193,762 | | | $ | 165,887 | | | $ | 129,494 | | | $ | 2,684 | | | $ | 491,827 | | Consolidated | $ | 184,326 | | | $ | 143,679 | | | $ | 100,212 | | | $ | 8,054 | | | $ | 436,271 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 193,367 | | | $ | 165,598 | | | $ | 129,313 | | | $ | 1,004 | | | $ | 489,282 | | Revenue recognized at a point in time | $ | 183,900 | | | $ | 143,453 | | | $ | 100,076 | | | $ | 800 | | | $ | 428,229 | |
Revenue recognized over time | Revenue recognized over time | 395 | | | 289 | | | 181 | | | 1,680 | | | 2,545 | | Revenue recognized over time | 426 | | | 226 | | | 136 | | | 7,254 | | | 8,042 | |
Consolidated | Consolidated | $ | 193,762 | | | $ | 165,887 | | | $ | 129,494 | | | $ | 2,684 | | | $ | 491,827 | | Consolidated | $ | 184,326 | | | $ | 143,679 | | | $ | 100,212 | | | $ | 8,054 | | | $ | 436,271 | |
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended September 30, 2023 |
| | Americas | | Europe | | Asia | | Corporate | | Total | | Americas | | Europe | | Asia | | Corporate | | Total |
Product type | Product type | | | | | | | | Product type | | | | | | | |
Watches: | Watches: | | Watches: | |
Traditional watches | Traditional watches | $ | 366,714 | | | $ | 253,728 | | | $ | 209,857 | | | $ | 23 | | | $ | 830,322 | | Traditional watches | $ | 313,842 | | | $ | 204,156 | | | $ | 194,259 | | | $ | 1,955 | | | $ | 714,212 | |
Smartwatches | Smartwatches | 47,228 | | | 33,347 | | | 24,134 | | | — | | | 104,709 | | Smartwatches | 28,285 | | | 17,812 | | | 13,395 | | | — | | | 59,492 | |
Total watches | Total watches | $ | 413,942 | | | $ | 287,075 | | | $ | 233,991 | | | $ | 23 | | | $ | 935,031 | | Total watches | $ | 342,127 | | | $ | 221,968 | | | $ | 207,654 | | | $ | 1,955 | | | $ | 773,704 | |
Leathers | Leathers | 69,091 | | | 18,372 | | | 23,763 | | | — | | | 111,226 | | Leathers | 68,889 | | | 17,959 | | | 19,746 | | | — | | | 106,594 | |
Jewelry | Jewelry | 25,548 | | | 62,730 | | | 18,217 | | | — | | | 106,495 | | Jewelry | 20,439 | | | 53,773 | | | 16,808 | | | — | | | 91,020 | |
Other | Other | 5,944 | | | 7,933 | | | 3,592 | | | 13,071 | | | 30,540 | | Other | 5,736 | | | 7,918 | | | 3,104 | | | 3,047 | | | 19,805 | |
Consolidated | Consolidated | $ | 514,525 | | | $ | 376,110 | | | $ | 279,563 | | | $ | 13,094 | | | $ | 1,183,292 | | Consolidated | $ | 437,191 | | | $ | 301,618 | | | $ | 247,312 | | | $ | 5,002 | | | $ | 991,123 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 513,393 | | | $ | 375,433 | | | $ | 279,193 | | | $ | 3,032 | | | $ | 1,171,051 | | Revenue recognized at a point in time | $ | 436,727 | | | $ | 301,047 | | | $ | 246,971 | | | $ | 4,177 | | | $ | 988,922 | |
Revenue recognized over time | Revenue recognized over time | 1,132 | | | 677 | | | 370 | | | 10,062 | | | 12,241 | | Revenue recognized over time | 464 | | | 571 | | | 341 | | | 825 | | | 2,201 | |
Consolidated | Consolidated | $ | 514,525 | | | $ | 376,110 | | | $ | 279,563 | | | $ | 13,094 | | | $ | 1,183,292 | | Consolidated | $ | 437,191 | | | $ | 301,618 | | | $ | 247,312 | | | $ | 5,002 | | | $ | 991,123 | |
|
| | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 |
| | Americas | | Europe | | Asia | | Corporate | | Total | | Americas | | Europe | | Asia | | Corporate | | Total |
Product type | Product type | | | | | | | | Product type | | | | | | | |
Watches: | Watches: | | Watches: | |
Traditional watches | Traditional watches | $ | 349,024 | | | $ | 266,316 | | | $ | 262,416 | | | $ | 1,053 | | | $ | 878,809 | | Traditional watches | $ | 366,714 | | | $ | 253,728 | | | $ | 209,857 | | | $ | 23 | | | $ | 830,322 | |
Smartwatches | Smartwatches | 78,308 | | | 43,277 | | | 28,477 | | | 24 | | | 150,086 | | Smartwatches | 47,228 | | | 33,347 | | | 24,134 | | | — | | | 104,709 | |
Total watches | Total watches | $ | 427,332 | | | $ | 309,593 | | | $ | 290,893 | | | $ | 1,077 | | | $ | 1,028,895 | | Total watches | $ | 413,942 | | | $ | 287,075 | | | $ | 233,991 | | | $ | 23 | | | $ | 935,031 | |
Leathers | Leathers | 63,851 | | | 19,933 | | | 20,057 | | | — | | | 103,841 | | Leathers | 69,091 | | | 18,372 | | | 23,763 | | | — | | | 111,226 | |
Jewelry | Jewelry | 26,506 | | | 61,974 | | | 16,560 | | | — | | | 105,040 | | Jewelry | 25,548 | | | 62,730 | | | 18,217 | | | — | | | 106,495 | |
Other | Other | 5,294 | | | 8,019 | | | 4,115 | | | 10,604 | | | 28,032 | | Other | 5,944 | | | 7,933 | | | 3,592 | | | 13,071 | | | 30,540 | |
Consolidated | Consolidated | $ | 522,983 | | | $ | 399,519 | | | $ | 331,625 | | | $ | 11,681 | | | $ | 1,265,808 | | Consolidated | $ | 514,525 | | | $ | 376,110 | | | $ | 279,563 | | | $ | 13,094 | | | $ | 1,183,292 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 521,702 | | | $ | 398,533 | | | $ | 331,180 | | | $ | 6,490 | | | $ | 1,257,905 | | Revenue recognized at a point in time | $ | 513,393 | | | $ | 375,433 | | | $ | 279,193 | | | $ | 3,032 | | | $ | 1,171,051 | |
Revenue recognized over time | Revenue recognized over time | 1,281 | | | 986 | | | 445 | | | 5,191 | | | 7,903 | | Revenue recognized over time | 1,132 | | | 677 | | | 370 | | | 10,062 | | | 12,241 | |
Consolidated | Consolidated | $ | 522,983 | | | $ | 399,519 | | | $ | 331,625 | | | $ | 11,681 | | | $ | 1,265,808 | | Consolidated | $ | 514,525 | | | $ | 376,110 | | | $ | 279,563 | | | $ | 13,094 | | | $ | 1,183,292 | |
|
Contract Balances. As of October 1, 2022,September 30, 2023, the Company had no material contract assets on the Company's condensed consolidated balance sheets and no deferred contract costs. The Company had contract liabilities of (i) $0.9$0.5 million and $4.9$0.8 million as of October 1, 2022September 30, 2023 and January 1,December 31, 2022, respectively, related to remaining performance obligations on licensing income, (ii) $3.4$1.6 million and $3.0$3.7 million as of October 1, 2022September 30, 2023 and January 1,December 31, 2022, respectively, primarily related to remaining performance obligations on wearable technology products and (iii) $2.8$2.6 million and $3.6$3.1 million as of October 1, 2022September 30, 2023 and January 1,December 31, 2022, respectively, related to gift cards issued.
3. INVENTORIES
Inventories consisted of the following (in thousands):
| | | October 1, 2022 | | January 1, 2022 | | September 30, 2023 | | December 31, 2022 |
Components and parts | Components and parts | $ | 22,546 | | | $ | 23,668 | | Components and parts | $ | 14,137 | | | $ | 20,998 | |
Work-in-process | Work-in-process | 4 | | | 2 | | Work-in-process | 211 | | | — | |
Finished goods | Finished goods | 430,197 | | | 323,180 | | Finished goods | 312,370 | | | 355,030 | |
Inventories | Inventories | $ | 452,747 | | | $ | 346,850 | | Inventories | $ | 326,718 | | | $ | 376,028 | |
4. WARRANTY LIABILITIES
The Company’s warranty liability is recorded in accrued expenses-other in the Company’s condensed consolidated balance sheets. Warranty liability activity consisted of the following (in thousands):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Beginning balance | Beginning balance | $ | 19,159 | | | $ | 21,916 | | Beginning balance | $ | 13,623 | | | $ | 19,159 | |
Settlements in cash or kind | Settlements in cash or kind | (5,465) | | | (8,096) | | Settlements in cash or kind | (5,266) | | | (5,465) | |
Warranties issued and adjustments to preexisting warranties (1) | Warranties issued and adjustments to preexisting warranties (1) | (148) | | | 5,296 | | Warranties issued and adjustments to preexisting warranties (1) | 1,879 | | | (148) | |
Ending balance | Ending balance | $ | 13,546 | | | $ | 19,116 | | Ending balance | $ | 10,236 | | | $ | 13,546 | |
(1) Changes in cost estimates related to preexisting warranties are aggregated with accruals for new standard warranties issued and foreign currency changes.
5. INCOME TAXES
The Company’s income tax (benefit) expense and related effective rates were as follows (in thousands, except percentage data):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Income tax (benefit) expense | Income tax (benefit) expense | $ | 9,214 | | | $ | 8,978 | | | $ | 15,904 | | | $ | 19,177 | | Income tax (benefit) expense | $ | 5,561 | | | $ | 9,214 | | | $ | (34) | | | $ | 15,904 | |
Effective tax rate | Effective tax rate | 59.5 | % | | 22.0 | % | | (87.9) | % | | 73.8 | % | Effective tax rate | (10.1) | % | | 59.5 | % | | — | % | | (87.9) | % |
The effective tax rate in the Third Quarter was unfavorable as compared todiffered from the Prior Year Quarter primarily due to a higher levelchange in the Company’s global mix of foreign losses for which no tax benefit could be accrued. The Prior Year Quarter tax rate also benefited from favorable discrete items. The overall tax rate is impacted by the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act which requires the inclusion ofearnings. In addition, income taxes were accrued on certain foreign income in the tax return which absorbs all of the U.S. net operating loss ("NOL"). Foreign income taxes are also paid on this same foreign income, resulting in double taxation.
The Year To Date Period effective tax rate is negative due to the overall pre-tax loss whereas the Prior Year YTD Period effective tax rate was positive since the Prior Year YTD Period income was positive. Both effective rates are high since income tax was accrued on foreign entities with positive taxable incomejurisdictions and no tax benefit can be realizedhas been accrued on the U.S. NOL.
US tax losses and on certain losses in other foreign jurisdictions due to valuation allowances previously recorded. The effective tax rate can also vary from quarter-to-quarter due to changes in the Company's global mix of earnings, the resolution of income tax audits, changes in uncertain tax positions, and changes in tax law.
As of October 1, 2022,September 30, 2023, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $28.9$23.3 million, of which $23.9$23.3 million would favorably impact the effective tax rate in future periods, if recognized. In the second quarter of fiscal year 2022, the U.S. Internal Revenue Service opened an examination of the Company's 2019 federal income tax return to review the refund claim filed under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which allowed carrybacks of NOLs for that year. The Company is subject to examinations in various state and foreign jurisdictions for its 2013-20212013-2022 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax audit settlements are subject to significant uncertainty.
The Company has classified uncertain tax positions as long-term income taxes payable, unless such amounts are expected to be settled within twelve months of the condensed consolidated balance sheet date. As of October 1, 2022,September 30, 2023, the Company had recorded $11.6$8.5 million of unrecognized tax benefits, excluding interest and penalties, for positions that are expected to be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable. At October 1, 2022,September 30, 2023, the total amount of accrued income tax-related interest included in the condensed consolidated balance sheets was $9.4$5.7 million. There waswere no accrued tax-related penalties. For the Third Quarter, the Company accrued income tax-related interest expense of $0.5 million.
6. STOCKHOLDERS’ EQUITY
Common and Preferred Stock. The Company has 100,000,000 shares of common stock, par value $0.01 per share, authorized, with 51,827,26752,472,039 and 52,145,73851,836,456 shares issued and outstanding at October 1, 2022September 30, 2023 and January 1,December 31, 2022, respectively. The Company has 1,000,000 shares of preferred stock, par value $0.01 per share, authorized, with none issued or outstanding at October 1, 2022September 30, 2023 or January 1,December 31, 2022. Rights, preferences and other terms of preferred stock will be determined by the Board of Directors at the time of issuance.
Common Stock Repurchase Programs. Purchases of the Company’s common stock are made from time to time pursuant to its repurchase programs, subject to market conditions and at prevailing market prices, through the open market. Repurchased shares of common stock are recorded at cost and become authorized but unissued shares which may be issued in the future for general corporate or other purposes. The Company may terminate or limit its stock repurchase program at any time. In the event the repurchased shares are cancelled, the Company accounts for retirements by allocating the repurchase price to common stock, additional paid-in capital and retained earnings.
The repurchase price allocation is based upon the equity contribution associated with historical issuances. The repurchase programs are conducted pursuant to Rule 10b-18 of the Exchange Act.
During the first quarter of fiscal year 2022, the Company effectively retired 1.0 million shares of common stock repurchased under its repurchase programs. The effective retirement of repurchased common stock decreased common stock by $10,000, additional paid-in capital by $0.5 million, retained earnings by $9.5 millionAt September 30, 2023 and treasury stock by $10.0 million.At
October 1, 2022 and January 1,December 31, 2022, all treasury stock had been effectively retired. As of October 1, 2022,September 30, 2023, the Company had $20.0 million of repurchase authorizations remaining under its repurchase program.
The following table reflects the Company's common stock repurchase activity for the periods indicated (in millions):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Fiscal Year Authorized | Fiscal Year Authorized | Dollar Value Authorized | | Termination Date | | Number of Shares Repurchased | | Dollar Value Repurchased | | Number of Shares Repurchased | | Dollar Value Repurchased | Fiscal Year Authorized | Dollar Value Authorized | | Termination Date | | Number of Shares Repurchased | | Dollar Value Repurchased | | Number of Shares Repurchased | | Dollar Value Repurchased |
| 2010 | 2010 | $ | 30.0 | | | None | | 1.0 | | $ | 10.0 | | | — | | | $ | — | | 2010 | $ | 30.0 | | | None | | — | | $ | — | | | 1.0 | | | $ | 10.0 | |
7. EMPLOYEE BENEFIT PLANS
Stock-Based Compensation Plans. The following table summarizes stock options and stock appreciation rights activity during the Third Quarter:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Appreciation Rights | | Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (in Thousands) | | | | (in Years) | | (in Thousands) |
Outstanding at July 2, 2022 | | 199 | | | $ | 51.21 | | | 0.8 | | $ | — | |
Granted | | — | | | — | | | | | |
Exercised | | — | | | — | | | | | — | |
Forfeited or expired | | (98) | | | 46.98 | | | | | |
Outstanding at October 1, 2022 | | 101 | | | 55.31 | | | 1.1 | | — | |
Exercisable at October 1, 2022 | | 101 | | | $ | 55.31 | | | 1.1 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Appreciation Rights | | Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (in Thousands) | | | | (in Years) | | (in Thousands) |
Outstanding at July 1, 2023 | | 75 | | | $ | 46.55 | | | 0.6 | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Outstanding at September 30, 2023 | | 75 | | | 46.55 | | | 0.3 | | — | |
Exercisable at September 30, 2023 | | 75 | | | $ | 46.55 | | | 0.3 | | $ | — | |
The aggregate intrinsic value shown in the table above is based on the exercise price for outstanding and exercisable options/rights at October 1, 2022.September 30, 2023.
Stock Appreciation Rights Outstanding and Exercisable. The following tables summarizetable summarizes information with respect to stock options and stock appreciation rights outstanding and exercisable at October 1, 2022:September 30, 2023:
| Stock Appreciation Rights Outstanding | Stock Appreciation Rights Outstanding | | Stock Appreciation Rights Exercisable | Stock Appreciation Rights Outstanding | | Stock Appreciation Rights Exercisable |
Range of Exercise Prices | Range of Exercise Prices | | Number of Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Number of Shares | | Weighted- Average Exercise Price | Range of Exercise Prices | | Number of Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Number of Shares | | Weighted- Average Exercise Price |
| | | (in Thousands) | | | | (in Years) | | (in Thousands) | | | | | (in Thousands) | | | | (in Years) | | (in Thousands) | | |
$36.73 - $80.22 | | 101 | | | $ | 55.31 | | | 1.1 | | 101 | | | $ | 55.31 | | |
$36.73 - $55.09 | | $36.73 - $55.09 | | 75 | | | $ | 46.55 | | | 0.3 | | 75 | | | $ | 46.55 | |
| Total | Total | | 101 | | | $ | 55.31 | | | 1.1 | | 101 | | | $ | 55.31 | | Total | | 75 | | | $ | 46.55 | | | 0.3 | | 75 | | | $ | 46.55 | |
Restricted Stock Units and Performance Restricted Stock Units. The following table summarizes restricted stock unit and performance restricted stock unit activity during the Third Quarter:
| Restricted Stock Units and Performance Restricted Stock Units | Restricted Stock Units and Performance Restricted Stock Units | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | Restricted Stock Units and Performance Restricted Stock Units | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| | | (in Thousands) | | | | | (in Thousands) | | |
Nonvested at July 2, 2022 | | 2,016 | | | $ | 10.16 | | |
Granted | | — | | | — | | |
Nonvested at July 1, 2023 | | Nonvested at July 1, 2023 | | 2,235 | | | $ | 6.25 | |
| Vested | Vested | | (23) | | | 7.68 | | Vested | | (31) | | | 7.72 | |
Forfeited | Forfeited | | (26) | | | 9.95 | | Forfeited | | (191) | | | 6.31 | |
Nonvested at October 1, 2022 | | 1,967 | | | $ | 10.19 | | |
Nonvested at September 30, 2023 | | Nonvested at September 30, 2023 | | 2,013 | | | $ | 6.21 | |
The total fair value of restricted stock units vested was $131,002$0.1 million during the Third Quarter. Vesting of performance restricted stock units is based on achievement of operating margin growth and achievement of sales growth and operating margin targets in relation to the performance of a certain identified peer group.
Long-Term Incentive Plans. On the date of the Company’s annual stockholders meeting, each non-employee director automatically receives a grant of restricted stock units with a fair market value of approximately $130,000, which vest 100% on the earlier of one year from the date of grant or the date of the Company's next annual stockholders meeting, provided such director is providing services to the Company or a subsidiary of the Company on that date. Beginning with the grant in fiscal year 2021, non-employee directors couldmay elect to defer receipt of all or a portion of the restricted stock units. Asunits settled in common stock of October 1, 2022, the Company had 30,000 shares of restricted stock units that had vested but were deferred in connection with non-employee director compensation.upon the vesting date. In addition, beginning in fiscal year 2021, non-employee directors may defer the cash portion of their annual fees. Each participant may also elect to have the cash portion of his or her annual fees for each calendar year treated as if invested in units of common stock of the Company.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables disclose changes in the balances of each component of accumulated other comprehensive income (loss), net of taxes (in thousands):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended September 30, 2023 |
| | Currency Translation Adjustments | | Cash Flow Hedges | | | | | | Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | | Forward Contracts | | | Pension Plan | | Total | | Currency Translation Adjustments | | Forward Contracts | | | Pension Plan | | Total |
Beginning balance | Beginning balance | $ | (99,573) | | | $ | 8,512 | | | | $ | 3,982 | | | $ | (87,079) | | Beginning balance | | $ | (580) | | | | $ | 11,966 | | | $ | (77,488) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | (13,465) | | | 7,950 | | | | — | | | (5,515) | | Other comprehensive income (loss) before reclassifications | (3,801) | | | 3,881 | | | | — | | | 80 | |
Tax (expense) benefit | Tax (expense) benefit | — | | | 261 | | | | — | | | 261 | | Tax (expense) benefit | — | | | 59 | | | | — | | | 59 | |
Amounts reclassed from accumulated other comprehensive income (loss) | Amounts reclassed from accumulated other comprehensive income (loss) | — | | | 4,310 | | | | — | | | 4,310 | | Amounts reclassed from accumulated other comprehensive income (loss) | — | | | (882) | | | | — | | | (882) | |
Tax (expense) benefit | Tax (expense) benefit | — | | | 233 | | | | — | | | 233 | | Tax (expense) benefit | — | | | 199 | | | | — | | | 199 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | (13,465) | | | 3,668 | | | | — | | | (9,797) | | Total other comprehensive income (loss) | (3,801) | | | 4,623 | | | | — | | | 822 | |
Ending balance | Ending balance | $ | (113,038) | | | $ | 12,180 | | | | $ | 3,982 | | | $ | (96,876) | | Ending balance | $ | (92,675) | | | $ | 4,043 | | | | $ | 11,966 | | | $ | (76,666) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 1, 2022 |
| Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | Forward Contracts | | | | Pension Plan | | Total |
Beginning balance | $ | (99,573) | | | $ | 8,512 | | | | | $ | 3,982 | | | $ | (87,079) | |
Other comprehensive income (loss) before reclassifications | (13,465) | | | 7,950 | | | | | — | | | (5,515) | |
Tax (expense) benefit | — | | | 261 | | | | | — | | | 261 | |
Amounts reclassed from accumulated other comprehensive income (loss) | — | | | 4,310 | | | | | — | | | 4,310 | |
Tax (expense) benefit | — | | | 233 | | | | | — | | | 233 | |
Total other comprehensive income (loss) | (13,465) | | | 3,668 | | | | | — | | | (9,797) | |
Ending balance | $ | (113,038) | | | $ | 12,180 | | | | | $ | 3,982 | | | $ | (96,876) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 |
| Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | Forward Contracts | | | | Pension Plan | | Total |
Beginning balance | $ | (90,681) | | | $ | 2,397 | | | | | $ | 11,966 | | | $ | (76,318) | |
Other comprehensive income (loss) before reclassifications | (1,994) | | | 130 | | | | | — | | | (1,864) | |
Tax (expense) benefit | — | | | 687 | | | | | — | | | 687 | |
Amounts reclassed from accumulated other comprehensive income | — | | | (1,568) | | | | | — | | | (1,568) | |
Tax (expense) benefit | — | | | 739 | | | | | — | | | 739 | |
Total other comprehensive income (loss) | (1,994) | | | 1,646 | | | | | — | | | (348) | |
Ending balance | $ | (92,675) | | | $ | 4,043 | | | | | $ | 11,966 | | | $ | (76,666) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 2, 2021 |
| Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | Forward Contracts | | | | Pension Plan | | Total |
Beginning balance | $ | (70,234) | | | $ | 2,372 | | | | | $ | 1,428 | | | $ | (66,434) | |
Other comprehensive income (loss) before reclassifications | (3,237) | | | 3,320 | | | | | — | | | 83 | |
Tax (expense) benefit | — | | | (29) | | | | | — | | | (29) | |
Amounts reclassed from accumulated other comprehensive income (loss) | — | | | 1,263 | | | | | — | | | 1,263 | |
Tax (expense) benefit | — | | | (57) | | | | | — | | | (57) | |
Total other comprehensive income (loss) | (3,237) | | | 2,085 | | | | | — | | | (1,152) | |
Ending balance | $ | (73,471) | | | $ | 4,457 | | | | | $ | 1,428 | | | $ | (67,586) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 |
| Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | Forward Contracts | | | | Pension Plan | | Total |
Beginning balance | $ | (75,601) | | | $ | 4,344 | | | | | $ | 3,982 | | | $ | (67,275) | |
Other comprehensive income (loss) before reclassifications | (37,437) | | | 16,151 | | | | | — | | | (21,286) | |
Tax (expense) benefit | — | | | 790 | | | | | — | | | 790 | |
Amounts reclassed from accumulated other comprehensive income | — | | | 8,512 | | | | | — | | | 8,512 | |
Tax (expense) benefit | — | | | 593 | | | | | — | | | 593 | |
Total other comprehensive income (loss) | (37,437) | | | 7,836 | | | | | — | | | (29,601) | |
Ending balance | $ | (113,038) | | | $ | 12,180 | | | | | $ | 3,982 | | | $ | (96,876) | |
| | | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 |
| | Currency Translation Adjustments | | Cash Flow Hedges | | | | | | Currency Translation Adjustments | | Cash Flow Hedges | | | | |
| | | Forward Contracts | | | Pension Plan | | Total | | Currency Translation Adjustments | | Forward Contracts | | | Pension Plan | | Total |
Beginning balance | Beginning balance | $ | (61,178) | | | $ | 850 | | | | $ | 1,428 | | | $ | (58,900) | | Beginning balance | | $ | 4,344 | | | | $ | 3,982 | | | $ | (67,275) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | (12,293) | | | 3,934 | | | | — | | | (8,359) | | Other comprehensive income (loss) before reclassifications | (37,437) | | | 16,151 | | | | — | | | (21,286) | |
Tax (expense) benefit | Tax (expense) benefit | — | | | (247) | | | | — | | | (247) | | Tax (expense) benefit | — | | | 790 | | | | — | | | 790 | |
Amounts reclassed from accumulated other comprehensive income (loss) | Amounts reclassed from accumulated other comprehensive income (loss) | — | | | 210 | | | | — | | | 210 | | Amounts reclassed from accumulated other comprehensive income (loss) | — | | | 8,512 | | | | — | | | 8,512 | |
Tax (expense) benefit | Tax (expense) benefit | — | | | (130) | | | | — | | | (130) | | Tax (expense) benefit | — | | | 593 | | | | — | | | 593 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | (12,293) | | | 3,607 | | | | — | | | (8,686) | | Total other comprehensive income (loss) | (37,437) | | | 7,836 | | | | — | | | (29,601) | |
Ending balance | Ending balance | $ | (73,471) | | | $ | 4,457 | | | | $ | 1,428 | | | $ | (67,586) | | Ending balance | $ | (113,038) | | | $ | 12,180 | | | | $ | 3,982 | | | $ | (96,876) | |
See “Note 10—Note—10 Derivatives and Risk Management”Management for additional disclosures about the Company’s use of derivatives.
9. SEGMENT INFORMATION
The Company reports segment information based on the “management approach.” The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments are comprised of (i) Americas, (ii) Europe and (iii) Asia. Each reportable operating segment includes sales to wholesale and distributor customers, and sales through Company-owned retail stores and e-commerce activities based on the location of the selling entity. The Americas segment primarily includes sales to customers based in Canada, Latin America and the United States. The Europe segment primarily includes sales to customers based in European countries, the Middle East and Africa. The
Asia segment primarily includes sales to customers based in Australia, China (including Hong Kong, Macau and Taiwan), India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea and Thailand. Each reportable operating segment provides similar products and services.
The Company evaluates the performance of its reportable segments based on net sales and operating income (loss). Net sales for geographic segments are based on the location of the selling entity. Operating income (loss) for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. Corporate includes peripheral revenue generating activities from factories and intellectual property and general corporate expenses, including certain administrative, legal, accounting, technology support costs, equity compensation costs, payroll costs attributable to executive management, brand management, product development, art, creative/product design, marketing, strategy, compliance and back office supply chain expenses that are not allocated to the various segments because they are managed at the corporate level internally. The Company does not include intercompany transfers between segments for management reporting purposes.
Summary information by operating segment was as follows (in thousands):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 |
| | Net Sales | | Operating Income (Loss) | | Net Sales | | Operating Income (Loss) | | Net Sales | | Operating Income (Loss) | | Net Sales | | Operating Income (Loss) |
Americas | Americas | $ | 184,326 | | | $ | 33,403 | | | $ | 193,762 | | | $ | 46,589 | | Americas | $ | 152,609 | | | $ | 25,818 | | | $ | 184,326 | | | $ | 33,403 | |
Europe | Europe | 143,679 | | | 31,076 | | | 165,887 | | | 40,549 | | Europe | 107,666 | | | 13,290 | | | 143,679 | | | 31,076 | |
Asia | Asia | 100,212 | | | 17,515 | | | 129,494 | | | 23,996 | | Asia | 83,053 | | | 15,951 | | | 100,212 | | | 17,515 | |
Corporate | Corporate | 8,054 | | | (59,512) | | | 2,684 | | | (63,328) | | Corporate | 793 | | | (101,454) | | | 8,054 | | | (59,512) | |
Consolidated | Consolidated | $ | 436,271 | | | $ | 22,482 | | | $ | 491,827 | | | $ | 47,806 | | Consolidated | $ | 344,121 | | | $ | (46,395) | | | $ | 436,271 | | | $ | 22,482 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 |
| Net Sales | | Operating Income (Loss) | | Net Sales | | Operating Income (Loss) |
Americas | $ | 514,525 | | | $ | 87,966 | | | $ | 522,983 | | | $ | 109,172 | |
Europe | 376,110 | | | 65,489 | | | 399,519 | | | 67,616 | |
Asia | 279,563 | | | 38,807 | | | 331,625 | | | 50,553 | |
Corporate | 13,094 | | | (194,999) | | | 11,681 | | | (181,942) | |
Consolidated | $ | 1,183,292 | | | $ | (2,737) | | | $ | 1,265,808 | | | $ | 45,399 | |
| | | | | | | |
Due to changes in the Company’s product types as discussed in Note 1 to the Condensed Consolidated Financial Statements, product results for the Prior Year Quarter and Prior Year YTD Period have been recast to present results on a comparable basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
| Net Sales | | Operating Income (Loss) | | Net Sales | | Operating Income (Loss) |
Americas | $ | 437,191 | | | $ | 61,817 | | | $ | 514,525 | | | $ | 87,966 | |
Europe | 301,618 | | | 19,572 | | | 376,110 | | | 65,489 | |
Asia | 247,312 | | | 30,555 | | | 279,563 | | | 38,807 | |
Corporate | 5,002 | | | (230,960) | | | 13,094 | | | (194,999) | |
Consolidated | $ | 991,123 | | | $ | (119,016) | | | $ | 1,183,292 | | | $ | (2,737) | |
| | | | | | | |
The following table reflects net sales for each class of similar products in the periods presented (in thousands, except percentage data):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total |
Watches: | | | | | | | |
Traditional watches | $ | 252,683 | | | 73.4 | % | | $ | 310,198 | | | 71.1 | % |
Smartwatches | 17,313 | | | 5.0 | | | 33,306 | | | 7.6 | |
Total watches | $ | 269,996 | | | 78.4 | % | | $ | 343,504 | | | 78.7 | % |
Leathers | 33,009 | | | 9.6 | | | 41,095 | | | 9.4 | |
Jewelry | 34,617 | | | 10.1 | | | 37,868 | | | 8.7 | |
Other | 6,499 | | | 1.9 | | | 13,804 | | | 3.2 | |
Total | $ | 344,121 | | | 100.0 | % | | $ | 436,271 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
| Net Sales | Percentage of Total | | Net Sales | | Percentage of Total |
Watches: | | | | | | |
Traditional watches | $ | 714,212 | | 72.1 | % | | $ | 830,322 | | | 70.2 | % |
Smartwatches | 59,492 | | 6.0 | | | 104,709 | | | 8.8 | |
Total watches | $ | 773,704 | | 78.1 | % | | $ | 935,031 | | | 79.0 | % |
Leathers | 106,594 | | 10.8 | | | 111,226 | | | 9.4 | |
Jewelry | 91,020 | | 9.2 | | | 106,495 | | | 9.0 | |
Other | 19,805 | | 1.9 | | | 30,540 | | | 2.6 | |
Total | $ | 991,123 | | 100.0 | % | | $ | 1,183,292 | | | 100.0 | % |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total |
Watches: | | | | | | | |
Traditional watches | $ | 310,198 | | | 71.1 | % | | $ | 345,764 | | | 70.3 | % |
Smartwatches | 33,306 | | | 7.6 | | | 54,085 | | | 11.0 | |
Total watches | $ | 343,504 | | | 78.7 | % | | $ | 399,849 | | | 81.3 | % |
Leathers | 41,095 | | | 9.4 | | | 36,390 | | | 7.4 | |
Jewelry | 37,868 | | | 8.7 | | | 46,325 | | | 9.4 | |
Other | 13,804 | | | 3.2 | | | 9,263 | | | 1.9 | |
Total | $ | 436,271 | | | 100.0 | % | | $ | 491,827 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 |
| Net Sales | Percentage of Total | | Net Sales | | Percentage of Total |
Watches: | | | | | | |
Traditional watches | $ | 830,322 | | 70.2 | % | | $ | 878,809 | | | 69.4 | % |
Smartwatches | 104,709 | | 8.8 | | | 150,086 | | | 11.9 | |
Total watches | $ | 935,031 | | 79.0 | % | | $ | 1,028,895 | | | 81.3 | % |
Leathers | 111,226 | | 9.4 | | | 103,841 | | | 8.2 | |
Jewelry | 106,495 | | 9.0 | | | 105,040 | | | 8.3 | |
Other | 30,540 | | 2.6 | | | 28,032 | | | 2.2 | |
Total | $ | 1,183,292 | | 100.0 | % | | $ | 1,265,808 | | | 100.0 | % |
| | | | | | |
10. DERIVATIVES AND RISK MANAGEMENT
Cash Flow Hedges. The primary risks managed by using derivative instruments are the fluctuations in global currencies that will ultimately be used by non-U.S. dollar functional currency subsidiaries to settle future payments of intercompany inventory transactions denominated in U.S. dollars. Specifically, the Company projects future intercompany purchases by its non-U.S. dollar functional currency subsidiaries generally over a period of up to 24 months. The Company enters into forward contracts, generally for up to 85% of the forecasted purchases, to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. Additionally, the Company enters into forward contracts to manage fluctuations in Japanese yen exchange rates that will be used to settle future third-party inventory component purchases by a U.S. dollar functional currency subsidiary. Forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date and exchange rate. These forward contracts are designated as single cash flow hedges. Fluctuations in exchange rates will either increase or decrease the Company’s U.S. dollar equivalent cash flows from these inventory transactions, which will affect the Company’s U.S. dollar earnings. Gains or losses on the forward contracts are expected to offset these fluctuations to the extent the cash flows are hedged by the forward contracts.
For a derivative instrument that is designated and qualifies as a cash flow hedge, the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss), net of taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
As of October 1, 2022,September 30, 2023, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge future payments of inventory transactions (in millions):
| Functional Currency | Functional Currency | | Contract Currency | Functional Currency | | Contract Currency |
Type | Type | | Amount | | Type | | Amount | Type | | Amount | | Type | | Amount |
Euro | Euro | | 105.1 | | | U.S. dollar | | 113.6 | | Euro | | 91.3 | | | U.S. dollar | | 100.2 | |
Canadian dollar | Canadian dollar | | 44.7 | | | U.S. dollar | | 34.9 | | Canadian dollar | | 41.2 | | | U.S. dollar | | 31.0 | |
Mexican peso | Mexican peso | | 302.3 | | | U.S. dollar | | 14.7 | | Mexican peso | | 220.3 | | | U.S. dollar | | 12.5 | |
British pound | British pound | | 7.9 | | | U.S. dollar | | 10.0 | | British pound | | 8.1 | | | U.S. dollar | | 10.2 | |
Australian dollar | | Australian dollar | | 7.8 | | | U.S. dollar | | 5.2 | |
Japanese yen | Japanese yen | | 847.6 | | | U.S. dollar | | 7.0 | | Japanese yen | | 602.6 | | | U.S. dollar | | 4.6 | |
Australian dollar | | 9.6 | | | U.S. dollar | | 6.8 | | |
U.S. dollar | U.S. dollar | | 13.4 | | | Japanese yen | | 1,730.0 | | U.S. dollar | | 7.7 | | | Japanese yen | | 1,040.0 | |
Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain intercompany transactions and for which the Company does not elect hedge accounting treatment. As of October 1, 2022,September 30, 2023, the Company did not have anyhad non-designated forward contracts.contracts of $0.1 million on 1.8 million rand associated with a South African rand-denominated foreign subsidiary. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings when they occur.
The gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes are set forth below (in thousands):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 |
Cash flow hedges: | Cash flow hedges: | | | | Cash flow hedges: | | | |
Forward contracts | Forward contracts | $ | 8,211 | | | $ | 3,292 | | Forward contracts | $ | 3,940 | | | $ | 8,211 | |
| Total gain (loss) recognized in other comprehensive income (loss), net of taxes | Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | 8,211 | | | $ | 3,292 | | Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | 3,940 | | | $ | 8,211 | |
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Cash flow hedges: | Cash flow hedges: | | | | Cash flow hedges: | | | |
Forward contracts | Forward contracts | $ | 16,941 | | | $ | 3,687 | | Forward contracts | $ | 817 | | | $ | 16,941 | |
| Total gain (loss) recognized in other comprehensive income (loss), net of taxes | Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | 16,941 | | | $ | 3,687 | | Total gain (loss) recognized in other comprehensive income (loss), net of taxes | $ | 817 | | | $ | 16,941 | |
|
The following tables disclose the gains and losses on derivative instruments recorded in accumulated other comprehensive income (loss), net of taxes during the term of the hedging relationship and reclassified into earnings, and gains and losses on derivatives not designated as hedging instruments recorded directly to earnings (in thousands):
| Derivative Instruments | Derivative Instruments | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | Effect of Derivative Instruments | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | Derivative Instruments | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | Effect of Derivative Instruments | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 |
Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Cost of sales | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 3,158 | | | $ | 689 | | Forward contracts designated as cash flow hedging instruments | | Cost of sales | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | (1,368) | | | $ | 3,158 | |
Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Other income (expense)-net | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 1,385 | | | $ | 518 | | Forward contracts designated as cash flow hedging instruments | | Other income (expense)-net | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 685 | | | $ | 1,385 | |
Forward contracts not designated as hedging instruments | Forward contracts not designated as hedging instruments | | Other income (expense)-net | | Total gain (loss) recognized in income | | $ | (3) | | | $ | 61 | | Forward contracts not designated as hedging instruments | | Other income (expense)-net | | Total gain (loss) recognized in income | | $ | 29 | | | $ | (3) | |
|
| Derivative Instruments | Derivative Instruments | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | Effect of Derivative Instruments | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | Derivative Instruments | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | Effect of Derivative Instruments | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Cost of sales | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 6,198 | | | $ | 938 | | Forward contracts designated as cash flow hedging instruments | | Cost of sales | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | (1,387) | | | $ | 6,198 | |
Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Other income (expense)-net | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 2,907 | | | $ | (858) | | Forward contracts designated as cash flow hedging instruments | | Other income (expense)-net | | Total gain (loss) reclassified from accumulated other comprehensive income (loss) | | $ | 558 | | | $ | 2,907 | |
Forward contracts not designated as hedging instruments | Forward contracts not designated as hedging instruments | | Other income (expense)-net | | Total gain (loss) recognized in income | | $ | 63 | | | $ | (12) | | Forward contracts not designated as hedging instruments | | Other income (expense)-net | | Total gain (loss) recognized in income | | $ | 92 | | | $ | 63 | |
|
The following table discloses the fair value amounts for the Company’s derivative instruments as separate asset and liability values, presents the fair value of derivative instruments on a gross basis, and identifies the line items in the condensed consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included (in thousands):
| | | | Asset Derivatives | | Liability Derivatives | | | Asset Derivatives | | Liability Derivatives |
| | | October 1, 2022 | | January 1, 2022 | | October 1, 2022 | | January 1, 2022 | | | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
Derivative Instruments | Derivative Instruments | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value | Derivative Instruments | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value | | Condensed Consolidated Balance Sheets Location | | Fair Value |
Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Prepaid expenses and other current assets | | $ | 13,418 | | | Prepaid expenses and other current assets | | $ | 3,452 | | | Accrued expenses-other | | $ | 1,290 | | | Accrued expenses-other | | $ | 177 | | Forward contracts designated as cash flow hedging instruments | | Prepaid expenses and other current assets | | $ | 3,781 | | | Prepaid expenses and other current assets | | $ | 2,783 | | | Accrued expenses-other | | $ | 698 | | | Accrued expenses-other | | $ | 2,659 | |
| Forward contracts not designated as cash flow hedging instruments | | Forward contracts not designated as cash flow hedging instruments | | Prepaid expenses and other current assets | | 6 | | | Prepaid expenses and other current assets | | — | | | Accrued expenses-other | | — | | | Accrued expenses-other | | 16 | |
| Forward contracts designated as cash flow hedging instruments | Forward contracts designated as cash flow hedging instruments | | Intangible and other assets-net | | 1,171 | | | Intangible and other assets-net | | — | | | Other long-term liabilities | | — | | | Other long-term liabilities | | — | | Forward contracts designated as cash flow hedging instruments | | Intangible and other assets-net | | 680 | | | Intangible and other assets-net | | 112 | | | Other long-term liabilities | | — | | | Other long-term liabilities | | 318 | |
| Total | Total | | | | $ | 14,589 | | | | | $ | 3,452 | | | | | $ | 1,290 | | | | | $ | 177 | | Total | | | | $ | 4,467 | | | | | $ | 2,895 | | | | | $ | 698 | | | | | $ | 2,993 | |
The following tables summarize the effects of the Company's derivative instruments on earnings (in thousands):
| | | Effect of Derivative Instruments | | Effect of Derivative Instruments |
| | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 |
| | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net |
Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | | $ | 216,651 | | | $ | (1,859) | | | $ | 232,305 | | | $ | (482) | | Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | | $ | 182,458 | | | $ | (3,093) | | | $ | 216,651 | | | $ | (1,859) | |
Gain (loss) on cash flow hedging relationships: | Gain (loss) on cash flow hedging relationships: | | Gain (loss) on cash flow hedging relationships: | |
Forward contracts designated as cash flow hedging instruments: | Forward contracts designated as cash flow hedging instruments: | | Forward contracts designated as cash flow hedging instruments: | |
Total gain (loss) reclassified from other comprehensive income (loss) | Total gain (loss) reclassified from other comprehensive income (loss) | | $ | 3,158 | | | $ | 1,385 | | | $ | 689 | | | $ | 518 | | Total gain (loss) reclassified from other comprehensive income (loss) | | $ | (1,368) | | | $ | 685 | | | $ | 3,158 | | | $ | 1,385 | |
Forward contracts not designated as hedging instruments: | Forward contracts not designated as hedging instruments: | | Forward contracts not designated as hedging instruments: | |
Total gain (loss) recognized in income | Total gain (loss) recognized in income | | $ | — | | | $ | (3) | | | $ | — | | | $ | 61 | | Total gain (loss) recognized in income | | $ | — | | | $ | 29 | | | $ | — | | | $ | (3) | |
| | | Effect of Derivative Instruments | | Effect of Derivative Instruments |
| | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
| | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net | | Cost of Sales | | Other Income (Expense)-net |
Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | | $ | 588,010 | | | $ | (1,915) | | | $ | 601,857 | | | $ | 882 | | Total amounts of income and expense line items presented in the condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded | | $ | 512,076 | | | $ | 6,813 | | | $ | 588,010 | | | $ | (1,915) | |
Gain (loss) on cash flow hedging relationships: | Gain (loss) on cash flow hedging relationships: | | Gain (loss) on cash flow hedging relationships: | |
Forward contracts designated as cash flow hedging instruments: | Forward contracts designated as cash flow hedging instruments: | | Forward contracts designated as cash flow hedging instruments: | |
Total gain (loss) reclassified from other comprehensive income (loss) | Total gain (loss) reclassified from other comprehensive income (loss) | | $ | 6,198 | | | $ | 2,907 | | | $ | 938 | | | $ | (858) | | Total gain (loss) reclassified from other comprehensive income (loss) | | $ | (1,387) | | | $ | 558 | | | $ | 6,198 | | | $ | 2,907 | |
Forward contracts not designated as hedging instruments: | Forward contracts not designated as hedging instruments: | | Forward contracts not designated as hedging instruments: | |
Total gain (loss) recognized in income | Total gain (loss) recognized in income | | $ | — | | | $ | 63 | | | $ | — | | | $ | (12) | | Total gain (loss) recognized in income | | $ | — | | | $ | 92 | | | $ | — | | | $ | 63 | |
|
At the end of the Third Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through March 2024.2025. As of October 1, 2022, an estimated netSeptember 30, 2023, a $3.1 million gain of $12.3 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.
11. FAIR VALUE MEASUREMENTS
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
•Level 3 — Unobservable inputs based on the Company’s assumptions.
ASC 820 requires the use of observable market data if such data is available without undue cost and effort.
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of October 1, 2022September 30, 2023 (in thousands):
| | | Fair Value at October 1, 2022 | | Fair Value at September 30, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Forward contracts | Forward contracts | $ | — | | | $ | 14,589 | | | $ | — | | | $ | 14,589 | | Forward contracts | $ | — | | | $ | 4,467 | | | $ | — | | | $ | 4,467 | |
| Total | Total | $ | — | | | $ | 14,589 | | | $ | — | | | $ | 14,589 | | Total | $ | — | | | $ | 4,467 | | | $ | — | | | $ | 4,467 | |
Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
Contingent consideration | Contingent consideration | $ | — | | | $ | — | | | $ | 2,063 | | | $ | 2,063 | | Contingent consideration | $ | — | | | $ | — | | | $ | 593 | | | $ | 593 | |
Forward contracts | Forward contracts | — | | | 1,290 | | | — | | | 1,290 | | Forward contracts | — | | | 698 | | | — | | | 698 | |
| Total | Total | $ | — | | | $ | 1,290 | | | $ | 2,063 | | | $ | 3,353 | | Total | $ | — | | | $ | 698 | | | $ | 593 | | | $ | 1,291 | |
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of January 1,December 31, 2022 (in thousands):
| | | Fair Value at January 1, 2022 | | Fair Value at December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | Assets: | | | | | | | |
Forward contracts | Forward contracts | $ | — | | | $ | 3,452 | | | $ | — | | | $ | 3,452 | | Forward contracts | $ | — | | | $ | 2,895 | | | $ | — | | | $ | 2,895 | |
| Total | Total | $ | — | | | $ | 3,452 | | | $ | — | | | $ | 3,452 | | Total | $ | — | | | $ | 2,895 | | | $ | — | | | $ | 2,895 | |
Liabilities: | Liabilities: | | | | | | | | Liabilities: | | | | | | | |
Contingent consideration | Contingent consideration | $ | — | | | $ | — | | | $ | 1,840 | | | $ | 1,840 | | Contingent consideration | $ | — | | | $ | — | | | $ | 3,630 | | | $ | 3,630 | |
Forward contracts | Forward contracts | — | | | 177 | | | — | | | 177 | | Forward contracts | — | | | 2,993 | | | — | | | 2,993 | |
| Total | Total | $ | — | | | $ | 177 | | | $ | 1,840 | | | $ | 2,017 | | Total | $ | — | | | $ | 2,993 | | | $ | 3,630 | | | $ | 6,623 | |
The fair values of the Company’s forward contracts are based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. See Note 10—Derivatives and Risk Management, for additional disclosures about the forward contracts.
As of October 1, 2022,September 30, 2023, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $301.2$261.9 million and had a fair value of approximately $236.6$195.8 million. The fair value of debt was based on observable market inputs.
During the Year to Date Period, operating lease right-of-use ("ROU") assets with a carrying amount of $2.0 million and property, plant and equipment-net with a carrying value of $0.3 million were written down to a fair value of $1.3 million and $0.2 million, respectively, resulting in impairment charges of $0.8 million. During the Prior Year YTD Period, ROU assets with carrying amount of $3.3 million and property, plant and equipment-net with a carrying value of $0.3 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of $2.3 million and $0.2 million, respectively, resulting in impairment charges of $1.1 million. During the Prior Year YTD Period, ROU assets with carrying amount of $14.0 million and property, plant and equipment-net with a carrying value of $2.5 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of $7.4 million and $1.0 million, respectively, resulting in impairment charges of $8.1 million.
The fair values of operating lease ROU assets and fixed assets related to retail stores were determined using Level 3 inputs, including forecasted cash flows and discount rates. Of the $1.1$0.8 million impairment expense in the Year to Date Period, $0.6 million and $0.2 million was recorded in other long-lived asset impairments in the Europe and Americas segments, respectively. Of the $1.1 million impairment expense in the Prior Year YTD Period, $0.6 million, $0.3 million and $0.2 million was recorded in other long-lived asset impairments in the Americas, Europe and Asia segments, respectively. Of the $8.1 million impairment expense in the Prior Year Quarter, $3.1 million, $2.2 million and $1.0 million was recorded in other long-lived asset impairments in the Americas, Europe and Asia segments, respectively, and $1.8 million was recorded in restructuring charges in the Europe segment.
12. INTANGIBLE AND OTHER ASSETS
The following table summarizes intangible and other assets (in thousands):
| | | | | | October 1, 2022 | | January 1, 2022 | | | | | September 30, 2023 | | December 31, 2022 |
| | | Useful | | Gross | | Accumulated | | Gross | | Accumulated | | | Useful | | Gross | | Accumulated | | Gross | | Accumulated |
| | | Lives | | Amount | | Amortization | | Amount | | Amortization | | | Lives | | Amount | | Amortization | | Amount | | Amortization |
Intangibles-subject to amortization: | Intangibles-subject to amortization: | | | | | | | | | | | Intangibles-subject to amortization: | | | | | | | | | | |
Trademarks | Trademarks | | 10 yrs. | | $ | 3,775 | | | $ | 3,366 | | | $ | 3,775 | | | $ | 3,310 | | Trademarks | | 10 yrs. | | $ | 4,051 | | | $ | 3,316 | | | $ | 3,728 | | | $ | 3,243 | |
Customer lists | Customer lists | | 5 - 10 yrs. | | 37,778 | | | 37,521 | | | 41,403 | | | 40,353 | | Customer lists | | 5 - 10 yrs. | | — | | | — | | | 279 | | | 266 | |
Patents | Patents | | 3 - 20 yrs. | | 2,371 | | | 2,039 | | | 2,371 | | | 2,013 | | Patents | | 3 - 20 yrs. | | 909 | | | 559 | | | 867 | | | 537 | |
| Developed technology | | 7 yrs. | | 2,193 | | | 2,056 | | | 2,193 | | | 1,645 | | |
| Trade name | Trade name | | 6 yrs. | | 4,502 | | | 2,251 | | | 4,502 | | | 1,688 | | Trade name | | 6 yrs. | | 4,502 | | | 3,001 | | | 4,502 | | | 2,439 | |
Other | Other | | 7 - 20 yrs. | | 523 | | | 367 | | | 537 | | | 352 | | Other | | 7 - 20 yrs. | | 342 | | | 227 | | | 342 | | | 195 | |
Total intangibles-subject to amortization | Total intangibles-subject to amortization | | | | 51,142 | | | 47,600 | | | 54,781 | | | 49,361 | | Total intangibles-subject to amortization | | | | 9,804 | | | 7,103 | | | 9,718 | | | 6,680 | |
Intangibles-not subject to amortization: | Intangibles-not subject to amortization: | | | | | | | | | | | Intangibles-not subject to amortization: | | | | | | | | | | |
Trade names | Trade names | | | | 8,850 | | | | | 8,881 | | | | Trade names | | | | 8,880 | | | | | 8,876 | | | |
Other assets: | Other assets: | | | | | | | | | | | Other assets: | | | | | | | | | | |
| Deposits | Deposits | | | | 16,683 | | | | | 19,418 | | | | Deposits | | | | 16,144 | | | | | 16,487 | | | |
| Deferred tax asset-net | Deferred tax asset-net | | | | 19,806 | | | | | 24,552 | | | | Deferred tax asset-net | | | | 16,859 | | | | | 17,262 | | | |
Restricted cash | Restricted cash | | | | 10,963 | | | | | 13,611 | | | | Restricted cash | | | | 4,485 | | | | | 5,243 | | | |
| Forward contracts | | | | 1,171 | | | | | — | | | | |
Investments | | 327 | | | 327 | | | |
| Debt issuance costs | Debt issuance costs | | 3,330 | | | 4,578 | | | Debt issuance costs | | 2,649 | | | 3,124 | | |
Other | Other | | | | 1,177 | | | | | 1,813 | | | | Other | | | | 3,526 | | | | | 1,969 | | | |
Total other assets | Total other assets | | | | 53,457 | | | 64,299 | | | Total other assets | | | | 43,663 | | | 44,085 | | |
Total intangible and other assets | Total intangible and other assets | | | | $ | 113,449 | | | $ | 47,600 | | | $ | 127,961 | | | $ | 49,361 | | Total intangible and other assets | | | | $ | 62,347 | | | $ | 7,103 | | | $ | 62,679 | | | $ | 6,680 | |
Total intangible and other assets-net | Total intangible and other assets-net | | | | | | $ | 65,849 | | | | | $ | 78,600 | | Total intangible and other assets-net | | | | | | $ | 55,244 | | | | | $ | 55,999 | |
Amortization expense for intangible assets was approximately $0.6$0.2 million and $0.7$0.6 million for the Third Quarter and the Prior Year Quarter, respectively, and $1.9$0.7 million and $2.7$1.9 million for the Year To Date Period and Prior Year YTD Period, respectively. Estimated aggregate future amortization expense by fiscal year for intangible assets is as follows (in thousands):
| Fiscal Year | Fiscal Year | | Amortization Expense | Fiscal Year | | Amortization Expense |
2022 (remaining) | | $ | 610 | | |
2023 | | $ | 901 | | |
2023 (remaining) | | 2023 (remaining) | | $ | 232 | |
2024 | 2024 | | $ | 884 | | 2024 | | $ | 928 | |
2025 | 2025 | | $ | 693 | | 2025 | | $ | 737 | |
2026 | 2026 | | $ | 102 | | 2026 | | $ | 146 | |
2027 | | 2027 | | $ | 128 | |
Thereafter | Thereafter | | $ | 352 | | Thereafter | | $ | 530 | |
13. COMMITMENTS AND CONTINGENCIES
Litigation. The Company is occasionally subject to litigation or other legal proceedings in the normal course of its business. The Company does not believe that the outcome of any currently pending legal matters, individually or collectively, will have a material effect on the business or financial condition of the Company.
14. LEASES
The Company's leases consist primarily of retail space, offices, warehouses, distribution centers, equipment and vehicles. The Company determines if an agreement contains a lease at inception based on the Company's right to the economic benefits of the leased assets and its right to direct the use of the leased asset. ROU assets represent the Company's right to use an underlying asset, and ROU liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at the commencement date adjusted for the lease term and lease country to determine the present value of the lease payments.
Some leases include one or more options to renew at the Company's discretion, with renewal terms that can extend the lease from approximately one to ten additional years. The renewal options are not included in the measurement of ROU assets and ROU liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Short-term leases are leases having a term of twelve months or less at inception. The Company does not record a related lease asset or liability for short-term leases. The Company has certain leases containing lease and non-lease components which are accounted for as a single lease component. The Company has certain lease agreements where lease payments are based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The variable portion of these lease payments is not included in the Company's lease liabilities. The Company's lease agreements do not contain any significant restrictions or covenants other than those that are customary in such arrangements.
The components of lease expense were as follows (in thousands):
| Lease Cost | Lease Cost | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | Lease Cost | | Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Operating lease cost(1) | Operating lease cost(1) | | SG&A | | $ | 18,445 | | | $ | 21,356 | | | $ | 58,001 | | | $ | 66,450 | | Operating lease cost(1) | | SG&A | | $ | 18,108 | | | $ | 18,445 | | | $ | 54,599 | | | $ | 58,001 | |
| Short-term lease cost | Short-term lease cost | | SG&A | | $ | 170 | | | $ | 153 | | | $ | 570 | | | $ | 472 | | Short-term lease cost | | SG&A | | $ | 302 | | | $ | 170 | | | $ | 812 | | | $ | 570 | |
Variable lease cost | Variable lease cost | | SG&A | | $ | 7,166 | | | $ | 6,252 | | | $ | 21,817 | | | $ | 17,032 | | Variable lease cost | | SG&A | | $ | 4,684 | | | $ | 7,166 | | | $ | 16,337 | | | $ | 21,817 | |
(1) Includes sublease income, which was immaterial.
The following table discloses supplemental balance sheet information for the Company’s leases (in thousands):
| Leases | Leases | | Condensed Consolidated Balance Sheets Location | | October 1, 2022 | | January 1, 2022 | Leases | | Condensed Consolidated Balance Sheets Location | | September 30, 2023 | | December 31, 2022 |
Assets | Assets | | | | | | | Assets | | | | | | |
Operating | Operating | | Operating lease ROU assets | | $ | 156,448 | | | $ | 177,597 | | Operating | | Operating lease ROU assets | | $ | 154,479 | | | $ | 156,947 | |
| Liabilities | Liabilities | | Liabilities | |
Current: | Current: | | Current: | |
Operating | Operating | | Current operating lease liabilities | | $ | 48,238 | | | $ | 58,721 | | Operating | | Current operating lease liabilities | | $ | 43,762 | | | $ | 49,702 | |
| Noncurrent: | Noncurrent: | | Noncurrent: | |
Operating | Operating | | Long-term operating lease liabilities | | $ | 151,928 | | | $ | 174,520 | | Operating | | Long-term operating lease liabilities | | $ | 142,128 | | | $ | 150,188 | |
|
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases:
| Lease Term and Discount Rate | Lease Term and Discount Rate | | October 1, 2022 | | January 1, 2022 | Lease Term and Discount Rate | | September 30, 2023 | | December 31, 2022 |
Weighted-average remaining lease term: | Weighted-average remaining lease term: | | | | | Weighted-average remaining lease term: | | | | |
Operating leases | Operating leases | | 5.7 years | | 5.7 years | Operating leases | | 6.4 years | | 5.6 years |
| Weighted-average discount rate: | Weighted-average discount rate: | | Weighted-average discount rate: | |
Operating leases | Operating leases | | 14.2 | % | | 14.1 | % | Operating leases | | 14.8 | % | | 14.1 | % |
|
Future minimum lease payments by year as of October 1, 2022September 30, 2023 were as follows (in thousands):
| Fiscal Year | Fiscal Year | | Operating Leases | | Fiscal Year | | Operating Leases | |
2022 (remaining) | | $ | 21,708 | | | |
2023 | | 73,629 | | | |
2023 (remaining) | | 2023 (remaining) | | $ | 19,821 | | |
2024 | 2024 | | 50,214 | | | 2024 | | 65,741 | | |
2025 | 2025 | | 35,551 | | | 2025 | | 48,230 | | |
2026 | 2026 | | 28,772 | | | 2026 | | 37,191 | | |
2027 | | 2027 | | 26,782 | | |
Thereafter | Thereafter | | 94,674 | | | Thereafter | | 101,945 | | |
| Total lease payments | Total lease payments | | $ | 304,548 | | | Total lease payments | | $ | 299,710 | | |
Less: Interest | Less: Interest | | 104,382 | | | Less: Interest | | 113,820 | | |
Total lease obligations | Total lease obligations | | $ | 200,166 | | | Total lease obligations | | $ | 185,890 | | |
Supplemental cash flow information related to leases was as follows (in thousands):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 68,182 | | | $ | 83,189 | | Operating cash flows from operating leases | $ | 65,239 | | | $ | 68,182 | |
| Leased assets obtained in exchange for new operating lease liabilities | Leased assets obtained in exchange for new operating lease liabilities | 22,775 | | | 11,319 | | Leased assets obtained in exchange for new operating lease liabilities | 35,507 | | | 22,775 | |
As of October 1, 2022,September 30, 2023, the Company did not have any material operating or finance leases that have been signed but not commenced.
15. DEBT ACTIVITY
On September 26, 2019, the Company 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 subsidiaries of the Company from time to time party thereto designated as borrowers, and certain subsidiaries of the Company from time to time party thereto as guarantors, entered into a $275.0 million secured asset-based revolving credit agreement (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"). The Revolving Facility was most recently amended onOn November 8, 2022. In addition, on September 26, 2019,2022, the Company as borrower, entered into a termAmendment No. 4 (the "Amendment") to the Revolving Facility. The Amendment, among other things, (i) extended the maturity date of the credit agreement (the "Term Credit Agreement").facility to November 8, 2027 (provided, that if the Company has 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 the Company’s intellectual property in such methodology and to provide for seasonal increases to certain advance rates.
In November 2021, the Company sold $150.0 million aggregate principal amount of 7.00% senior notes due 2026 (the “Notes”), generating net proceeds of approximately $141.7 million. The Notes were issued pursuant to an indenture (the Base Indenture)"Base Indenture") and a first supplemental indenture (the First"First Supplemental IndentureIndenture" and, together with the Base Indenture, the Indenture)"Indenture") with The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee)"Trustee").
The Notes are general unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness, and will rank senior in right of payment to the Company’s future subordinated indebtedness, if any. The Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and the Notes are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries (excluding any amounts owed by such subsidiaries to the Company). 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, commencing on February 28, 2022.year. The Notes mature on November 30, 2026.
The Company may redeem the Notes for cash in whole or in part at any time at its option. Prior to November 30, 2023, the redemption price will be $25.00 per $25.00 principal amount of Notes, plus a "make-whole” premium consisting of the greater of (1) 1.0% of the principal amount of the Note and (2) the excess of (a) the present value at such redemption date of (i)
the redemption price of the Note at November 30, 2023 plus (ii) all required interest payments due on the Note through November 30, 2023 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points discounted to the redemption date on a semi-annual basis (assuming a 360- day year consisting of twelve 30-day months), over (b) the principal amount of the Note, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. On and after November 30, 2023, the Company may redeem the Notes (i) on or 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.
The Indenture contains customary events of default and cure provisions. If an event of default (other than an event of default of the type described in the following sentence) occurs and is continuing with respect to the Notes, the Trustee may, and at the direction of the registered holders of at least 25% in aggregate principal amount of the outstanding debt securities of the Notes shall, declare the principal amount plus accrued and unpaid interest, premium and additional amounts, if any, on the Notes to be due and payable immediately. If an event of default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the principal amount plus accrued and unpaid interest, and premium, if any, on the Notes will become immediately due and payable without any action on the part of the Trustee or any holder of the Notes.
On November 8, 2021, the Company used the majority of the net proceeds from the Notes offering to repay the outstanding borrowings under the Term Credit Agreement. In connection with the repayment of the outstanding borrowings under the Term Credit Agreement, the Company incurred prepayment fees and accrued interest costs of $2.6 million and wrote off $7.1 million of debt issuance costs and $4.6 million of original issuance discount related to the Term Credit Agreement. The remaining net proceeds were used for general corporate purposes.
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 Revolving Facility expires and is due and payable on November 8, 2027 (provided, that if the Company has any indebtedness in an amount in excess of $35.0 million that matures prior to November 8, 2027, the maturity date of the Revolving Facility shall be the 91st day prior to the maturity date of such other indebtedness). 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.
The Revolving Facility is an asset-based facility, in which borrowing availability is subject to a borrowing base equal to:(a) with respect to the Company, the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible U.S. finished goods inventory and (y) 65% of the lower of cost or market value of eligible U.S. finished goods inventory, plus (ii) 85% of the eligible U.S. accounts receivable, plus (iii) 90% of eligible U.S. credit card accounts receivable, plus (iv) the lesser of (x) 40% of the appraised net orderly liquidation value of eligible U.S. intellectual property and (y) $20.0 million, minus (v) the aggregate amount of reserves, if any, established by the ABL Agent; (b) with respect to each non-U.S. borrower (except for the French Borrower), the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible foreign finished goods inventory of such non-U.S. borrower and (y) 65% of the lower of cost or market value of eligible foreign finished goods inventory of such non-U.S. borrower, plus (ii) 85% of the eligible foreign accounts receivable of such non-U.S. borrower, minus (iii) the aggregate amount of reserves, if any, established by the ABL Agent; and (c) with respect to the French Borrower, (i) 85% of eligible French accounts receivable minus (ii) the aggregate amount of reserves, if any, established by the ABL Agent. Not more than 60% of the aggregate borrowing base under the Revolving Facility may consist of the non-U.S. borrowing bases. The above advance rates (other than the advance rates 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.
The Revolving Facility also includes a commitment fee, payable quarterly in arrears, of 0.250% or 0.375% determined by reference to the average daily unused portion of the overall commitment under the Revolving Facility. The ABL Borrowers will pay the ABL Agent, on the account of the issuing ABL Lenders, an issuance fee of 0.125% for any issued Letters of Credit.
The ABL Borrowers have the right to request an increase to the commitments under the Revolving Facility or any subfacility in an aggregate principal amount not to exceed $75.0 million in increments no less than $10.0 million, subject to certain terms and conditions as defined in the Revolving Facility.
The Revolving Facility is secured by guarantees by the Company and certain of its domestic subsidiaries. Additionally, the Company and such subsidiaries have granted liens on all or substantially all of their assets in order to secure the obligations under the Revolving Facility. In addition, the Swiss Borrower, the Hong Kong Borrower, the French Borrower, the German Borrower and the Canadian Borrower, and the other non-U.S. borrowers from time to time party to the Revolving Facility are
required to enter into security instruments with respect to all or substantially all of their assets that can be pledged under applicable local law, and certain of their respective subsidiaries may guarantee the respective non-U.S. obligations under the Revolving Facility.
The Revolving Facility contains customary affirmative and negative covenants and events of default, such as compliance with annual audited and quarterly unaudited financial statements disclosures. Upon an event of default, the ABL Agent will have the right to declare the revolving loans and other obligations outstanding immediately due and payable and all commitments immediately terminated or reduced, subject to cure periods and grace periods set forth in the Revolving Facility.
As of October 1, 2022,September 30, 2023, the Company had $150.0 million and $151.0$111.5 million outstanding under the Notes and Revolving Facility, respectively. The Company had net borrowings of $44.2$12.5 million and $151.0$38.5 million under the Revolving Facility during the Third Quarter and Year To Date Period, respectively. Amounts available under the Revolving Facility were reduced by any amounts outstanding under standby Letters of Credit. As of October 1, 2022,September 30, 2023, the Company had available borrowing capacity of $50.4$23.4 million under the Revolving Facility. As of September 30, 2023, the Company had unamortized debt issuance costs of $5.5 million recorded in long-term debt and $2.6 million recorded in intangible and other assets-net on the Company's consolidated balance sheets. The Company incurred approximately $2.6 million and $7.9$7.8 million of interest expense related to the Notes during the Third Quarter and Year To Date Period, respectively. The Company incurred approximately $0.9$1.6 million and $1.1$3.8 million of interest expense related to the Revolving Facility during the Third Quarter and Year To Date Period, respectively. The Company incurred approximately $0.9$0.6 million and $2.6$1.8 million of interest expense related to the amortization of debt issuance costs during the Third Quarter and Year To Date Period, respectively. At October 1, 2022,September 30, 2023, the Company was in compliance with all debt covenants related to its credit facilities.
16. RESTRUCTURING
In the first quarter of fiscal year 2019,2023, the Company launchedannounced its Transform and Grow plan ("TAG") designed to reduce operating costs, improve operating margins, and advance the Company’s commitment to profitable growth. The Company has now expanded the scope and duration of TAG to focus on a more comprehensive review of its global business operations. The expansion of TAG will put greater emphasis on initiatives to exit or minimize certain product offerings, brands and distribution, and to strengthen gross margin and increase the level of operating expense efficiencies. TAG is estimated to generate approximately $300 million of annualized operating income benefits by the end of 2025. The previously announced TAG plan was expected to generate $100 million of annualized cost savings by the end of 2024. The Company estimates approximately $100 million to $120 million in total charges over the duration of TAG and estimates approximately $50 million of charges in fiscal year 2023. Aided by these measures, the Company's long-term goal is to achieve adjusted gross margins in the low to mid 50% range and adjusted operating margins of approximately 10%.
The following table shows a summary of TAG plan charges (in thousands):
| | | | | | | | | | | | | | | |
| For the 13 Weeks Ended September 30, 2023 | | | | For the 39 Weeks Ended September 30, 2023 | | |
Cost of sales | $ | (1,347) | | | | | $ | 6,827 | | | |
Selling, general and administrative expenses | 16,003 | | | | | 27,732 | | | |
Consolidated | $ | 14,656 | | | | | $ | 34,559 | | | |
The following table shows a rollforward of the accrued liability related to the Company’s TAG plan (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended September 30, 2023 |
| Liabilities | | | | | | | | Liabilities |
| July 1, 2023 | | Charges | | Cash Payments | | Non-cash Items | | September 30, 2023 |
Stores and facilities closures | $ | — | | | $ | 4,730 | | | $ | — | | | $ | 4,730 | | | $ | — | |
Professional services | 898 | | | 3,298 | | | 2,268 | | | — | | | 1,928 | |
Severance and employee-related benefits | 4,813 | | | 7,975 | | | 6,424 | | | 318 | | | 6,046 | |
Charges related to exits of certain product offerings | 7,474 | | | (1,347) | | | — | | | — | | | 6,127 | |
Total | $ | 13,185 | | | $ | 14,656 | | | $ | 8,692 | | | $ | 5,048 | | | $ | 14,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 |
| Liabilities | | | | | | | | Liabilities |
| December 31, 2022 | | Charges | | Cash Payments | | Non-cash Items | | September 30, 2023 |
Stores and facilities closures | $ | — | | | $ | 4,730 | | | $ | — | | | $ | 4,730 | | | $ | — | |
Professional services | — | | | 4,300 | | | 2,372 | | | — | | | 1,928 | |
Severance and employee-related benefits | — | | | 18,702 | | | 12,338 | | | 318 | | | 6,046 | |
Charges related to exits of certain product offerings | — | | | 6,827 | | | 700 | | | — | | | 6,127 | |
Total | $ | — | | | $ | 34,559 | | | $ | 15,410 | | | $ | 5,048 | | | $ | 14,101 | |
TAG plan restructuring charges by operating segment were as follows (in thousands):
| | | | | | | | | | | |
| For the 13 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended September 30, 2023 |
Americas | $ | (488) | | | $ | 4,005 | |
Europe | (368) | | | 6,973 | |
Asia | 2,556 | | | 8,510 | |
Corporate | 12,956 | | | 15,071 | |
Consolidated | $ | 14,656 | | | $ | 34,559 | |
In fiscal year 2022, the Company completed its New World Fossil 2.0 - Transform to Grow Program (“NWF 2.0”), which was focused on optimizing the Company’s operating structure to be more efficient, with faster decision-making and a more customer-centric focus. In addition to optimizing the way the Company goes to market, the Company pursued additional gross margin expansion opportunities. The Company has taken a zero-based budgeting approach to adjust its business model to enable more investment in digital capabilities and marketing, move closer to the consumer and react more quickly to the ever-evolving consumer shopping patterns. The Company also changed its overall business processes and resources, creating a more centrally directed operating model, reducing complexity and redundancy, and operating at a lower cost base. The NWF 2.0 restructuring program was expanded to address additional challenges posed by COVID-19, including a number of cost saving measures such as store closures. The Company estimates NWF 2.0 total charges of $6.0 million for fiscal year 2022, which will conclude this program.
it launched in 2019. The following table shows a rollforward of the accrued liability related to the Company’s NWF 2.0 restructuring plan (in thousands):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended September 30, 2023 |
| | Liabilities | | Liabilities | | Liabilities | | | | | Liabilities |
| | July 2, 2022 | | Charges | | Cash Payments | | Non-cash Items | | October 1, 2022 | | July 1, 2023 | | | Cash Payments | | | September 30, 2023 |
Store closures | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
| Professional services | Professional services | 130 | | | — | | | 43 | | | — | | | 87 | | Professional services | 47 | | | | 47 | | | | — | |
Severance and employee-related benefits | Severance and employee-related benefits | 3,616 | | | — | | | 885 | | | — | | | 2,731 | | Severance and employee-related benefits | 260 | | | | 124 | | | | 136 | |
Total | Total | $ | 3,746 | | | $ | — | | | $ | 928 | | | $ | — | | | $ | 2,818 | | Total | $ | 307 | | | | $ | 171 | | | | $ | 136 | |
| | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 1, 2022 |
| Liabilities | | | | | | | | Liabilities |
| July 2, 2022 | | | | Cash Payments | | | | October 1, 2022 |
| | | | | | | | | |
Professional services | 130 | | | | | 43 | | | | | 87 | |
Severance and employee-related benefits | 3,616 | | | | | 885 | | | | | 2,731 | |
Total | $ | 3,746 | | | | | $ | 928 | | | | | $ | 2,818 | |
| | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 |
| Liabilities | | | | | | | | Liabilities |
| December 31, 2022 | | | | Cash Payments | | | | September 30, 2023 |
| | | | | | | | | |
Professional services | 74 | | | | | 74 | | | | | — | |
Severance and employee-related benefits | 2,821 | | | | | 2,685 | | | | | 136 | |
Total | $ | 2,895 | | | | | $ | 2,759 | | | | | $ | 136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 2, 2021 |
| Liabilities | | | | | | | | Liabilities |
| July 3, 2021 | | Charges | | Cash Payments | | Non-cash Items | | October 2, 2021 |
Store closures | $ | 19 | | | $ | 244 | | | $ | 201 | | | $ | 47 | | | $ | 15 | |
Professional services | 2,076 | | | 1,405 | | | 2,264 | | | — | | | 1,217 | |
Severance and employee-related benefits | 5,756 | | | 3,798 | | | 4,667 | | | — | | | 4,887 | |
Total | $ | 7,851 | | | $ | 5,447 | | | $ | 7,132 | | | $ | 47 | | | $ | 6,119 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 |
| Liabilities | | | | | | | | Liabilities |
| January 1, 2022 | | Charges | | Cash Payments | | Non-cash Items | | October 1, 2022 |
Store closures | $ | 300 | | | $ | 405 | | | $ | 613 | | | $ | 92 | | | $ | — | |
Professional services | 643 | | | 135 | | | 691 | | | — | | | 87 | |
Severance and employee-related benefits | 4,388 | | | 4,898 | | | 5,770 | | | 785 | | | 2,731 | |
Total | $ | 5,331 | | | $ | 5,438 | | | $ | 7,074 | | | $ | 877 | | | $ | 2,818 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 2, 2021 |
| Liabilities | | | | | | | | Liabilities |
| January 2, 2021 | | Charges | | Cash Payments | | Non-cash Items | | October 2, 2021 |
Store closures | $ | 240 | | | $ | 1,913 | | | $ | 391 | | | $ | 1,747 | | | $ | 15 | |
Professional services | 2,280 | | | 4,812 | | | 5,875 | | | — | | | 1,217 | |
Severance and employee-related benefits | 7,741 | | | 11,991 | | | 14,845 | | | — | | | 4,887 | |
Total | $ | 10,261 | | | $ | 18,716 | | | $ | 21,111 | | | $ | 1,747 | | | $ | 6,119 | |
| | | | | | | | | |
NWF 2.0 restructuring charges by operating segment were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | |
Americas | $ | — | | | $ | 737 | | | $ | 83 | | | $ | 2,116 | | |
Europe | — | | | 1,828 | | | 1,531 | | | 8,872 | | |
Asia | — | | | 1,484 | | | 1,204 | | | 3,289 | | |
Corporate | — | | | 1,398 | | | 2,620 | | | 4,439 | | |
Consolidated | $ | — | | | $ | 5,447 | | | $ | 5,438 | | | $ | 18,716 | | |
| | | | | | | | | | | | |
| | | | | | | For the 39 Weeks Ended October 1, 2022 | |
Americas | | | | | | | $ | 83 | | |
Europe | | | | | | | 1,531 | | |
Asia | | | | | | | 1,204 | | |
Corporate | | | | | | | 2,620 | | |
Consolidated | | | | | | | $ | 5,438 | | |
17. SUBSEQUENT EVENT
Credit Agreement. On November 8, 2022, the Company and its subsidiaries party to the Revolving Facility as borrowers and guarantors entered into Amendment No. 4 (the “Amendment”) to the Revolving Facility. The Amendment, among other things, (i) extended the maturity date of the Revolving Facility to November 8, 2027 (provided, that if the Company has any indebtedness in an amount in excess of $35.0 million that matures prior to November 8, 2027, the maturity date of the Revolving 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 the Company’s intellectual property in such methodology and to provide for seasonal increases to certain advance rates.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the financial condition and results of operations of Fossil Group, Inc. and its subsidiaries for the thirteen week periods ended October 1, 2022September 30, 2023 (the “Third Quarter”) and October 2, 20211, 2022 (the “Prior Year Quarter”), and the thirty-nine week periods ended October 1, 2022September 30, 2023 (the "Year To Date Period") and October 2, 20211, 2022 (the "Prior Year YTD Period"). This discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto.
Overview
We are a global design, marketing and distribution company that specializes in consumer fashion accessories. Our principal offerings include an extensive line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, and sunglasses. In the watch and jewelry product categories, we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed.
Our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence, direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence. Our products are offered at varying price points to meet the needs of our customers, whether they are value-conscious or luxury oriented. Based on our range of accessory products, brands, distribution channels and price points, we are able to target style-conscious consumers across a wide age spectrum on a global basis.
Known or Anticipated Trends
Based on our recent operating results and current perspectives on our operating environment, we anticipate the following trends will continue to impact our operating results:
Economic Environment Impacting Consumer Spending Ability and Preferences:We believe macroeconomic factors, including inflation and increased interest rates, are impacting customer behavior, such as cautiousness in placing advance orders for merchandise. While the impact of these macroeconomic factors are difficult to quantify, we expect continued pressure on consumer discretionary spending during the fourth quarter of fiscal year 2023 in many of our major markets.
COVID-19Inventory Levels: Our business operationsA slowing of consumer demand in our core categories, in part due to macro economic factors such as higher inflation, has resulted in excess inventory with many of our wholesale customers. With higher marketplace inventories and financial performancea rapidly changing economic environment, retailers are rationalizing their inventory needs. We continue to be materially impacted by COVID-19. The COVID-19 pandemic has negatively affectedproactively manage our inventory purchases to mitigate our cash flow and inventory risks.
World Conflicts:We continuously monitor the direct and indirect impacts from the military conflicts between Russia and Ukraine and Israel and Hamas. 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 economies, disrupted globaleconomy and could result in additional inflationary pressures and supply chains and financial markets, and led to significant travel and transportation restrictions, including periodic mandatory closures of non-essential businesses and orders to shelter-in-place. The lockdowns and travel restrictions, particularly in China, have had a significant adverse impact on our sales throughout the Year To Date Period, and we expect that to continue. We remain focused on protecting the health and safety of our employees, customers and suppliers to minimize potential disruptions and supporting the community to address challenges posed by the global COVID-19 pandemic.chain constraints.
Supply Chain: Our business is subject to the risks inherent in global sourcing supply. We rely on domestic and foreign suppliers to provide us with merchandise in a timely manner and at favorable prices. Certain key components in our products come from limited sources of supply, which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products. Any interruption or delay in the supply of key components could significantly harm our ability to meet scheduled product deliveries to our customers and cause us to lose sales.
Among our foreign suppliers, China is the source of a substantial majority of our imports. We have experienced, and expect to continue to experience, increasedfewer impacts from international transit times particularly for our leathers products and packaging. A disruptiontransportation costs in the flow of our imported merchandise from China may significantly decrease our profits.
Inflation: We have encountered inflation on our shipping costs for a majority of our products.current fiscal year compared with the prior fiscal year. A material increase in the cost of our products or transportation without any offsetting price increases or a disruption in the flow of finished goods from China may significantly reducedecrease our profits. In addition, recent historic high rates of inflation, including increased fuel and food prices, has led to a softening of consumer demand and increased promotional activity in our categories and may lead to further challenges to grow our sales. Ongoing inflation may also negatively impact our cost structure and labor costs in the future.
Foreign CurrenciesData::The rapid strengthening of the U.S. dollar relative to major foreign currencies unfavorably impacted our net sales and profitability in the Year To Date Period, and we expect foreign currency translation will continue to negatively impact our financial results in fiscal year 2022 when compared with fiscal year 2021.
Inventory Levels: A slowing of consumer demand has resulted in excess inventory in the marketplace in fiscal year 2022. With higher marketplace inventories and a rapidly changing economic environment, retailers are rationalizing their inventory needs. Because we expect marketplace inventories to remain elevated, we are reducing future inventory purchases.
Russia-Ukraine Conflict:Our operations in Russia consist of sales through a third-party distributor. Sales to this distributor are currently on hold. Our sales in Russia are not material to our financial results. We have no other operations,
including supply chain, in Russia or Ukraine. However, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may weaken the global economy and could result in additional inflationary pressures and supply chain constraints.
Data Security: We depend on information technology systems, the Internet and computer networks for a substantial portion of our retail and e-commerce businesses, including credit card transaction authorization and processing. We also receive and store personal information about our customers and employees, the protection of which is critical to us. In the normal course of our business, we collect, retain, and transmit certain sensitive and confidential customer information, including credit card information, over public networks. Despite the security measures we currently have in place, our facilities and systems and
those of our third party service providers have been, and will continue to be, vulnerable to theft of physical information, security breaches, hacking attempts, computer viruses and malware, ransomware, phishing, lost data and programming and/or human errors. To date, none of these risks, intrusions, attacks or human error have resulted in any material liability to us. While we carry insurance policies that would provide liability coverage for certain of these matters, if we experience a significant security incident, we could be subject to liability or other damages that exceed our insurance coverage, andcoverage. In addition, we cannot be certain that such insurance policies will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Business Strategies and Outlook: NotwithstandingWe have expanded our Transform and Grow Plan (“TAG”), to undertake a more comprehensive review of our business operations, in order to create a more profitable company and to enable investment in our growth strategies.
Our goal in expanding TAG is to put additional emphasis on initiatives to exit or minimize certain product offerings, brands and distribution, and to strengthen gross margin and increase the COVID-19 pandemic,level of operating expense efficiencies. The Company estimates it can generate approximately $300 million of annualized operating income benefits by the end of 2025. The previously announced TAG program was designed to generate annualized cost savings of approximately $100 million by the end of fiscal year 2024. In connection with TAG, the Company expects to incur charges of approximately $100 million to $120 million over the duration of TAG and estimates approximately $50 million of charges in fiscal year 2023.
The “Transform” aspect of TAG focuses on optimizing our core categories, brands, geographies and channels. Through this more focused lens, we planintend to restructure our operations to achieve improved gross margins, lower operating expenses and to reduce our working capital, primarily through lower inventory purchases in fiscal year 2023 and improved inventory efficiency through better assortment strategies and inventory management. Key focus areas under the expansion of TAG include pricing and promotion, manufacturing and supply chain.
To execute the following strategies to enhance our brands, grow our revenueexpanded TAG plan, we have established a Transformation Office and improve profitability. The firsthave partnered with a leading strategic initiative is to increase brand excitement by crafting compelling stories that build upon brand equities for both owned and licensed brands across our product categories. Key to this strategy is our ongoing effort in innovation in our product categories and marketing capabilities, where we aim to build larger communitiesconsulting firm. We have also established an informal Transformation Office Committee comprised of brand loyalists. Our second strategic initiative is to increase digital engagement and online sales over the long-term. While digital sales have trended down year-over-year, we continue to invest in our owned e-commerce sites around the world and in third party marketplaces to enhance our direct to consumer engagement, which we believe can build long-term customer value. Our third strategic initiative is to optimize our operations. We initiated the New World Fossil – Transform to Grow ("NWF 2.0") initiative in 2019 aimed to further simplify our operations and to reallocate resources toward growth, and we achieved our $250 million run-rate savings goal in 2021. Although we are nearing completionmembers of our NWF 2.0Audit Committee to oversee and guide the Company's strategic transformation initiatives. In addition to the program we will continue to optimize our operations with further reductions to our store footprint, expense reductions and increased focus on inventory management and supply chain efficiency. Our fourth strategic initiative is to expand our opportunity in mainland China and India. In these countries, we are continuing to execute against a strategy centered around localized marketing and segmented assortments. Althoughoutlined above, the impact of COVID-19 is likely to disrupt our growth trajectory in the short to intermediate term, we continue to view mainland China and India as compelling long-term opportunities. With the current headwinds, including inflation and recessionary pressures, weTransformation Office will focus on managingthe “Growth” aspect of our working capitalTAG plan which consists of investing in three key growth pillars to drive sustained and inventory levels. This will include selling downprofitable revenue growth. These growth pillars are: (1) revitalizing the Fossil Brand, (2) maximizing our current inventorylicensed brand portfolio in watches and possibly reducingjewelry and (3) growing our openpremium watch offerings. We believe that these growth pillars are best enabled by our digital transformation, marketing capabilities and technology investments. As we execute against our three core growth pillars, we have an opportunity to buyimprove our operating fundamentals and right size our cost structure to be more closely aligned with the realities of the external environment. Aided by these measures, our long term goal is to achieve adjusted gross margins in early 2023.the low to mid 50% range and adjusted operating margins of approximately 10%.
For a more complete discussion of the risks facing our business, see “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022.
Operating Segments
We operate our business in three segments which are divided into geographies. Net sales for each geographic segment are based on the location of the selling entity, and each reportable segment provides similar products and services.
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 153143 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.
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 11187 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.
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 8073 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.
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. The constant currency 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 constant currency financial information and the most directly comparable GAAP measure are included where applicable.
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 and restructuring 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 expense. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively, before impairment expense, and restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt.expense. 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.
Digital Sales: We continue to accelerate our investments and capabilities in our global digital platform, and digital sales provide an important metric for our company. The digital space provides unique ways of engaging our customers. Digital sales include sales on our own e-commerce sites, global third party platforms, and wholesale dot com sites.
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 also exclude the effects of foreign currency fluctuations.
Store Counts: StoreWhile macro economic 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, andBoth the size and quality of our store fleet have a direct impact on our sales and profitability. Over time, we have made progress right-sizing our fleet of stores by focusing on closing our least profitable stores.
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. ProductOur product returns provision is accounted for as a reduction to revenue and cost of sales and an increaseincreases to customer liabilities and other current assets to the extent the returned product is expected to be 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, product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling, and inventory shrinkage and damages.damages and restructuring charges.
Gross Profit and 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 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.
Operating Expenses include selling, general and administrative ("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 TAG and New World Fossil initiatives.
Results of Operations
Quarterly Periods Ended September 30, 2023 and October 1, 2022 and October 2, 2021
Consolidated Net Sales. Net sales decreased $55.5$92.2 million, or 11.3%21.1%, for the Third Quarter as compared to the Prior Year Quarter, with sales declines in all three regions. CurrencyCorporate revenue decreased sales by 6.1% compareddue to the Prior Year Quarter with the most notable impactdecreases in Europe. In constant currency, sales declined 5.2% compared to the Prior Year Quarter with declines in Americas and Asia while Europe was flat. Net sales in mainland China, captured in our Asia segment, were down significantly. The sales declines in the three regions were partly offset by increases in corporate revenue recognized over time, due tobased on the timing of progress in completing performance obligations under a licensing agreement. From a channel perspective, declines in ourThe sales decrease was largely driven by the wholesale channel, offset growthand to a lesser extent, softness in smartwatch sales and our directstore rationalization initiatives. Wholesale sales declined 24.2% (25.4% in constant currency), reflecting lower purchases by wholesale accounts due to tighter management of inventories and lower end-consumer demand. Direct to consumer channels. Withinsales decreased 11.4% (11.9% in constant currency), mainly due to a smaller store base. We have reduced our direct to consumer channels, globalstore footprint by 41 stores (12%), since the end of the Prior Year Quarter. Global comparable retail sales grew 15.2% primarilydecreased 6% due to increased store sales decreases in all three regions, whileour retail stores and partially offset by sales increases in our owned e-commerce websites increased 3%. In the Third Quarter, digital sales, which include sales from our owned e-commerce channels, third party e-commerce platforms and wholesale dot com, were 37% of worldwide net sales and decreased 19.5% (12.0% in constant currency) compared to the Prior Year Quarter.websites. From a category perspective, traditional watch sales decreased 10.3% (4.2%18.5% (19.4% in constant currency) driven by sales declines in EMPORIO ARMANI in China.. Sales of smartwatches declined 38.3% (33.5%48.0% (49.1% in constant currency) partly due to lapping the prior year's gen 6 launch and due toreflecting lower consumer demand across geographies and channels.channels and reduced marketing as compared to the Prior Year Quarter. Leathers declined 19.7% (20.2% in constant currency). Jewelry declined 18.1% (9.1%8.7% (11.3% in constant currency) primarily due to declines in EMPORIO ARMANI, FOSSIL and MICHAEL KORS jewelry. Partially offsetting theseFrom a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines was growth in leathers of 12.9% (17.4% in constant currency) primarily due to greater inventory availability as compared to the Prior Year QuarterFOSSIL, MICHAEL KORS and new designs that are resonating with customers.EMPORIO ARMANI.
The following table sets forth consolidated net sales by segment (dollars in millions):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | Growth (Decline) | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Americas | Americas | $ | 184.3 | | | 42.2 | % | | $ | 193.7 | | | 39.4 | % | | $ | (9.4) | | | (4.9) | % | | (4.4) | % | Americas | $ | 152.6 | | | 44.3 | % | | $ | 184.3 | | | 42.2 | % | | $ | (31.7) | | | (17.2) | % | | (17.6) | % |
Europe | Europe | 143.7 | | | 32.9 | | | 165.9 | | | 33.7 | | | (22.2) | | | (13.4) | | | 0.1 | | Europe | 107.7 | | | 31.3 | | | 143.7 | | | 32.9 | | | (36.0) | | | (25.1) | | | (29.6) | |
Asia | Asia | 100.2 | | | 23.0 | | | 129.5 | | | 26.3 | | | (29.3) | | | (22.6) | | | (17.3) | | Asia | 83.0 | | | 24.1 | | | 100.2 | | | 23.0 | | | (17.2) | | | (17.2) | | | (14.2) | |
Corporate | Corporate | 8.1 | | | 1.9 | | | 2.7 | | | 0.6 | | | 5.4 | | | 200.0 | | | 200.0 | | Corporate | 0.8 | | | 0.3 | | | 8.1 | | | 1.9 | | | (7.3) | | | (90.1) | | | (90.1) | |
Total | Total | $ | 436.3 | | | 100.0 | % | | $ | 491.8 | | | 100.0 | % | | $ | (55.5) | | | (11.3) | % | | (5.2) | % | Total | $ | 344.1 | | | 100.0 | % | | $ | 436.3 | | | 100.0 | % | | $ | (92.2) | | | (21.1) | % | | (22.1) | % |
Net sales information by product category is summarized as follows (dollars in millions):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | | | | | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | | | | |
| | | Growth (Decline) | | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | | | Watches: | | | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 310.2 | | | 71.1 | % | | $ | 345.8 | | | 70.3 | % | | $ | (35.6) | | | (10.3) | % | | (4.2) | % | Traditional watches | $ | 252.7 | | | 73.4 | % | | $ | 310.2 | | | 71.1 | % | | $ | (57.5) | | | (18.5) | % | | (19.4) | % |
Smartwatches | Smartwatches | 33.3 | | | 7.6 | | | 54.0 | | | 11.0 | | | (20.7) | | | (38.3) | | | (33.5) | | Smartwatches | 17.3 | | | 5.0 | | | 33.3 | | | 7.6 | | | (16.0) | | | (48.0) | | | (49.1) | |
Total watches | Total watches | $ | 343.5 | | | 78.7 | % | | $ | 399.8 | | | 81.3 | % | | $ | (56.3) | | | (14.1) | | | (8.2) | | Total watches | $ | 270.0 | | | 78.4 | % | | $ | 343.5 | | | 78.7 | % | | $ | (73.5) | | | (21.4) | | | (22.3) | |
Leathers | Leathers | 41.1 | | | 9.4 | | | 36.4 | | | 7.4 | | | 4.7 | | | 12.9 | | | 17.4 | | Leathers | 33.0 | | | 9.6 | | | 41.1 | | | 9.4 | | | (8.1) | | | (19.7) | | | (20.2) | |
Jewelry | Jewelry | 37.9 | | | 8.7 | | | 46.3 | | | 9.4 | | | (8.4) | | | (18.1) | | | (9.1) | | Jewelry | 34.6 | | | 10.1 | | | 37.9 | | | 8.7 | | | (3.3) | | | (8.7) | | | (11.3) | |
Other | Other | 13.8 | | | 3.2 | | | 9.3 | | | 1.9 | | | 4.5 | | | 48.4 | | | 55.5 | | Other | 6.5 | | | 1.9 | | | 13.8 | | | 3.2 | | | (7.3) | | | (52.9) | | | (54.3) | |
Total | Total | $ | 436.3 | | | 100.0 | % | | $ | 491.8 | | | 100.0 | % | | $ | (55.5) | | | (11.3) | % | | (5.2) | % | Total | $ | 344.1 | | | 100.0 | % | | $ | 436.3 | | | 100.0 | % | | $ | (92.2) | | | (21.1) | % | | (22.1) | % |
In the Third Quarter, the translation of foreign-based net sales into U.S. dollars decreasedincreased reported net sales by $30.1$4.4 million, including unfavorablefavorable impacts of $22.3 million, $6.9$6.5 million and $0.9$0.8 million in our Europe Asia and Americas segments, respectively, and an unfavorable impact of $2.9 million in our Asia segment as compared to the Prior Year Quarter.
Stores. The following table sets forth the number of stores on the dates indicated below:
| | | October 2, 2021 | | Opened | | Closed | | October 3, 2022 | | October 1, 2022 | | Opened | | Closed | | September 30, 2023 |
Americas | Americas | 163 | | 0 | | 10 | | 153 | Americas | 153 | | 0 | | 10 | | 143 |
Europe | Europe | 128 | | 0 | | 17 | | 111 | Europe | 111 | | 2 | | 26 | | 87 |
Asia | Asia | 83 | | 5 | | 8 | | 80 | Asia | 80 | | 2 | | 9 | | 73 |
Total stores | Total stores | 374 | | 5 | | 35 | | 344 | Total stores | 344 | | 4 | | 45 | | 303 |
Americas Net Sales. Americas net sales decreased $9.4$31.7 million, or 4.9% (4.4%17.2% (17.6% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. InSales decreases were largely in the region, salesFOSSIL, MICHAEL KORS and MICHELE brands. Sales decreases in the U.S.wholesale and stores were partially offset by sales increases in Canada and Mexico. Sales decreasedincreasing in our wholesale channel primarily reflecting lower consumer demand in smartwatches and were partially offset by increases in store sales and owned e-commerce.e-commerce channel. Comparable retail sales were moderately positivenegative during the Third Quarter, primarily due to increased store traffic.Quarter.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant-currencyconstant currency basis from period to period for the Americas segment (dollars in millions):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | | | | | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | | | | |
| | Growth (Decline) | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | Watches: | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 132.1 | | | 71.7 | % | | $ | 131.0 | | | 67.6 | % | | $ | 1.1 | | | 0.8 | % | | 1.3 | % | Traditional watches | $ | 113.6 | | | 74.4 | % | | $ | 132.1 | | | 71.7 | % | | $ | (18.5) | | | (14.0) | % | | (14.6) | % |
Smartwatches | Smartwatches | 14.6 | | | 7.9 | | | 25.2 | | | 13.0 | | | (10.6) | | | (42.1) | | | (41.9) | | Smartwatches | 7.4 | | | 4.8 | | | 14.6 | | | 7.9 | | | (7.2) | | | (49.3) | | | (50.0) | |
Total watches | Total watches | $ | 146.7 | | | 79.6 | % | | $ | 156.2 | | | 80.6 | % | | $ | (9.5) | | | (6.1) | | | (5.7) | | Total watches | $ | 121.0 | | | 79.3 | % | | $ | 146.7 | | | 79.6 | % | | $ | (25.7) | | | (17.5) | | | (18.1) | |
Leathers | Leathers | 27.3 | | | 14.8 | | | 23.4 | | | 12.1 | | | 3.9 | | | 16.7 | | | 17.3 | | Leathers | 20.8 | | | 13.6 | | | 27.3 | | | 14.8 | | | (6.5) | | | (23.8) | | | (23.4) | |
Jewelry | Jewelry | 8.4 | | | 4.6 | | | 12.3 | | | 6.4 | | | (3.9) | | | (31.7) | | | (31.7) | | Jewelry | 8.8 | | | 5.8 | | | 8.4 | | | 4.6 | | | 0.4 | | | 4.8 | | | 4.8 | |
Other | Other | 1.9 | | | 1.0 | | | 1.8 | | | 0.9 | | | 0.1 | | | 5.6 | | | 15.1 | | Other | 2.0 | | | 1.3 | | | 1.9 | | | 1.0 | | | 0.1 | | | 5.3 | | | 5.3 | |
Total | Total | $ | 184.3 | | | 100.0 | % | | $ | 193.7 | | | 100.0 | % | | $ | (9.4) | | | (4.9) | % | | (4.4) | % | Total | $ | 152.6 | | | 100.0 | % | | $ | 184.3 | | | 100.0 | % | | $ | (31.7) | | | (17.2) | % | | (17.6) | % |
Europe Net Sales. Europe net sales decreased $22.2$36.0 million, or 13.4% (increased 0.1%25.1% (29.6% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. The weakeningOur sales across much of foreign currencies, predominantly the euro, againstEurozone decreased. From a brand perspective, sales decreased throughout most of our brand portfolio, with the U.S. dollar significantlylargest decline in MICHAEL KORS. FOSSIL branded sales decreased moderately, largely driven by declines in smartwatches and jewelry while traditional watches increased 17% in constant currency. Sales declines in our netwholesale and stores channels were partially offset by e-commerce sales in the Third Quarter. The greatest decreases were located in Germany.increases. Comparable retail sales increased moderatelyslightly during the Third Quarter as growth in store sales was partially offset by decreased owned e-commerce sales.Quarter.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant-currencyconstant currency basis from period to period for the Europe segment (dollars in millions)
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | | | | | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | | | | |
| | | Growth (Decline) | | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | Watches: | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 102.1 | | | 71.1 | % | | $ | 113.5 | | | 68.4 | % | | $ | (11.4) | | | (10.0) | % | | 3.7 | % | Traditional watches | $ | 72.9 | | | 67.7 | % | | $ | 102.1 | | | 71.1 | % | | $ | (29.2) | | | (28.6) | % | | (32.6) | % |
Smartwatches | Smartwatches | 10.4 | | | 7.2 | | | 16.3 | | | 9.8 | | | (5.9) | | | (36.2) | | | (25.4) | | Smartwatches | 5.9 | | | 5.5 | | | 10.4 | | | 7.2 | | | (4.5) | | | (43.3) | | | (47.1) | |
Total watches | Total watches | $ | 112.5 | | | 78.3 | % | | $ | 129.8 | | | 78.2 | % | | $ | (17.3) | | | (13.3) | | | 0.1 | | Total watches | $ | 78.8 | | | 73.2 | % | | $ | 112.5 | | | 78.3 | % | | $ | (33.7) | | | (30.0) | | | (34.0) | |
Leathers | Leathers | 5.7 | | | 4.0 | | | 7.2 | | | 4.3 | | | (1.5) | | | (20.8) | | | (7.9) | | Leathers | 6.2 | | | 5.8 | | | 5.7 | | | 4.0 | | | 0.5 | | | 8.8 | | | 1.8 | |
Jewelry | Jewelry | 23.0 | | | 16.0 | | | 25.6 | | | 15.4 | | | (2.6) | | | (10.2) | | | 3.9 | | Jewelry | 19.9 | | | 18.5 | | | 23.0 | | | 16.0 | | | (3.1) | | | (13.5) | | | (19.1) | |
Other | Other | 2.5 | | | 1.7 | | | 3.3 | | | 2.1 | | | (0.8) | | | (24.2) | | | (12.3) | | Other | 2.8 | | | 2.6 | | | 2.5 | | | 1.7 | | | 0.3 | | | 12.0 | | | — | |
Total | Total | $ | 143.7 | | | 100.0 | % | | $ | 165.9 | | | 100.0 | % | | $ | (22.2) | | | (13.4) | % | | 0.1 | % | Total | $ | 107.7 | | | 100.0 | % | | $ | 143.7 | | | 100.0 | % | | $ | (36.0) | | | (25.1) | % | | (29.6) | % |
Asia Net Sales. Net sales in Asia decreased $29.3$17.2 million, or 22.6% (17.3%17.2% (14.2% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. TheSales increased in India, and decreased across the rest of the Asia region, with the largest sales decrease was largely driven by greater China and predominatelydecreases in the EMPORIO ARMANI brand. COVID-19 policiesFOSSIL branded sales decreased moderately, largely driven by declines in mainland China, which include restrictions on travel abroad, continued to negatively affect sales across all channels and also impacted other key markets that have historically benefited from China tourism.smartwatches while traditional watches increased 11% in constant currency. Comparable retail sales increased significantlydecreased strongly during the Third Quarter, driven by increased store sales in Malaysia and Australia as a result of traffic growth,declines, partially offset by decreasedincreased owned e-commerce sales.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant-currencyconstant currency basis from period to period for the Asia segment (dollars in millions):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | | | | | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | | | | |
| | | Growth (Decline) | | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | Watches: | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 76.0 | | | 75.8 | % | | $ | 101.3 | | | 78.2 | % | | $ | (25.3) | | | (25.0) | % | | (20.2) | % | Traditional watches | $ | 66.1 | | | 79.6 | % | | $ | 76.0 | | | 75.8 | % | | $ | (9.9) | | | (13.0) | % | | (10.0) | % |
Smartwatches | Smartwatches | 8.3 | | | 8.3 | | | 12.5 | | | 9.6 | | | (4.2) | | | (33.6) | | | (26.6) | | Smartwatches | 4.0 | | | 4.8 | | | 8.3 | | | 8.3 | | | (4.3) | | | (51.8) | | | (49.4) | |
Total watches | Total watches | $ | 84.3 | | | 84.1 | % | | $ | 113.8 | | | 87.8 | % | | $ | (29.5) | | | (25.9) | | | (20.9) | | Total watches | $ | 70.1 | | | 84.5 | % | | $ | 84.3 | | | 84.1 | % | | $ | (14.2) | | | (16.8) | | | (13.9) | |
Leathers | Leathers | 8.2 | | | 8.2 | | | 5.8 | | | 4.5 | | | 2.4 | | | 41.4 | | | 48.5 | | Leathers | 6.0 | | | 7.2 | | | 8.2 | | | 8.2 | | | (2.2) | | | (26.8) | | | (24.4) | |
Jewelry | Jewelry | 6.6 | | | 6.6 | | | 8.5 | | | 6.6 | | | (1.9) | | | (22.4) | | | (16.3) | | Jewelry | 5.9 | | | 7.1 | | | 6.6 | | | 6.6 | | | (0.7) | | | (10.6) | | | (6.1) | |
Other | Other | 1.1 | | | 1.1 | | | 1.4 | | | 1.1 | | | (0.3) | | | (21.4) | | | (1.9) | | Other | 1.0 | | | 1.2 | | | 1.1 | | | 1.1 | | | (0.1) | | | (9.1) | | | (9.1) | |
Total | Total | $ | 100.2 | | | 100.0 | % | | $ | 129.5 | | | 100.0 | % | | $ | (29.3) | | | (22.6) | % | | (17.3) | % | Total | $ | 83.0 | | | 100.0 | % | | $ | 100.2 | | | 100.0 | % | | $ | (17.2) | | | (17.2) | % | | (14.2) | % |
Gross Profit. Gross profit of $219.6$161.7 million in the Third Quarter decreased 15.4%26.4% in comparison to $259.5$219.6 million in the Prior Year Quarter. Our gross profit margin rate decreased to 50.3%47.0% in the Third Quarter compared to 52.8%50.3% in the Prior Year Quarter. The year-over-year decrease primarily reflects increased freighttiming of licensor minimum royalty costs, an unfavorable currency impact and increased promotions. These costs were partially offset by increases in revenue recognized over time in the Prior Year Quarter, due to the timing of progress in completing performance obligations under a licensing agreement increasedand net foreign currency hedging contract losses in the Third Quarter as compared to gains in the current year as compared to the prior year and favorable product mix.Prior Year Quarter. These costs were partially offset by decreased freight costs.
Operating Expenses. Total operating expenses in the Third Quarter decreasedincreased by 6.9%5.5% to $208.1 million or 60.5% of net sales, in comparison to $197.1 million or 45.2% of net sales in comparisonthe Prior Year Quarter. SG&A expenses were $191.4 million in the Third Quarter as compared to $211.7$196.5 million or 43.0% of net sales in the Prior Year Quarter. As a percentage of net sales, SG&A expenses increased to 45.0%55.6% in the Third Quarter as compared to 41.8%45.0% in the Prior Year Quarter due to increased compensation costs whichdecreased sales. Restructuring expenses were partially offset by reduced store costs resulting from lower store count. There were no restructuring expenses$16.0 million in the Third Quarter, whilecompared to zero in the Prior Year Quarter included $5.4Quarter. We incurred other long-lived asset impairment charges of $0.6 million in restructuring costs.both the Third Quarter and Prior Year Quarter. The translation of foreign-denominated expenses during the Third Quarter decreasedincreased operating expenses by $10.6$2.4 million as a result of the strongerweaker U.S. dollar.
Operating Income.Income (loss). Operating incomeloss in the Third Quarter was $22.5$46.4 million as compared to an operating income of $47.8$22.5 million in the Prior Year Quarter. As a percentage of net sales, operating margin was 5.2%(13.5)% in the Third Quarter compared to 9.7%5.2% in the Prior Year Quarter. Operating margin rate in the Third Quarter included an unfavorable impact of 19010 basis points due to changes in foreign currencies.
Operating income (loss) by segment is summarized as follows (dollars in millions):
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended October 2, 2021 | | Change | | Operating Margin % | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | | Change | | Operating Margin % |
| | | Dollars | | Percentage | | 2022 | | 2021 | | | Dollars | | Percentage | | 2023 | | 2022 |
Americas | Americas | $ | 33.4 | | | $ | 46.6 | | | $ | (13.2) | | | (28.3) | % | | 18.1 | % | | 24.0 | % | Americas | $ | 25.8 | | | $ | 33.4 | | | $ | (7.6) | | | (22.8) | % | | 16.9 | % | | 18.1 | % |
Europe | Europe | 31.1 | | | 40.5 | | | (9.4) | | | (23.2) | | | 21.6 | | | 24.4 | | Europe | 13.3 | | | 31.1 | | | (17.8) | | | (57.2) | | | 12.3 | | | 21.6 | |
Asia | Asia | 17.5 | | | 24.0 | | | (6.5) | | | (27.1) | | | 17.5 | | | 18.5 | | Asia | 16.0 | | | 17.5 | | | (1.5) | | | (8.6) | | | 19.2 | | | 17.5 | |
Corporate | Corporate | (59.5) | | | (63.3) | | | 3.8 | | | 6.0 | | | Corporate | (101.5) | | | (59.5) | | | (42.0) | | | (70.6) | | |
Total operating income | $ | 22.5 | | | $ | 47.8 | | | $ | (25.3) | | | (52.9) | % | | 5.2 | % | | 9.7 | % | |
Total operating income (loss) | | Total operating income (loss) | $ | (46.4) | | | $ | 22.5 | | | $ | (68.9) | | | (306.2) | % | | (13.5) | % | | 5.2 | % |
Interest Expense. Interest expense decreasedincreased by $1.3$0.6 million during the Third Quarter compared to the Prior Year Quarter, primarily driven by reduced debt issuance costs amortization.increased interest rates.
Other Income (Expense)-Net. During the Third Quarter, other income (expense)-net was an expense of $1.9$3.1 million in comparison to an expense of $0.5$1.9 million in the Prior Year Quarter, reflecting increased net currency losses in the Third Quarter as compared to the Prior Year Quarter.
Provision for Income Taxes. Income tax expense for the Third Quarter was $5.6 million, resulting in an effective income tax rate of (10.1)%. For the Prior Year Quarter, income tax expense was $9.2 million, resulting in an effective income tax rate of 59.5%. For the Prior Year Quarter, income tax expense was $9.0 million, resulting in an effective income tax rate of 22.0%. The effective tax rate in the Third Quarter was unfavorable as compared to the Prior Year Quarter due to a higher level of foreign losses for which noincome tax benefit can be accrued. The Prior Year Quarter’s effective tax rate also benefited from
favorable discrete items. Noaccrued on certain foreign income and no tax benefit has been accrued on the Third Quarter U.S. tax losses and certain foreign tax losses due to the uncertainty of whether they can be used in the future.future, ultimately resulting in a negative effective tax rate.
Net Income (Loss) Attributable to Fossil Group, Inc. Third Quarter net income (loss) attributable to Fossil Group, Inc. was net incomeloss of $5.8$61.1 million, or $0.11$1.16 per diluted share, in comparison to a net income of $31.4$5.8 million, or $0.60$0.11 per diluted share, in the Prior Year Quarter. During the Third Quarter, currencies unfavorably affected incomeloss per diluted share by approximately $0.14.$0.05.
Adjusted Net Income (Loss). Adjusted net income (loss) for the Third Quarter was a net loss of $49.0 million with adjusted loss per diluted share of $0.93 compared to adjusted net income of $6.3 million with adjusted income per diluted share of $0.12 compared to adjusted net income of $36.2 million with adjusted income per diluted share of $0.69 in the Prior Year 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).
| | | For the 13 Weeks Ended | | | | | | | | | | | | | | | | | | | | | | | | |
| | October, 1 2022 | | October 2, 2021 | | | For the 13 Weeks Ended September 30, 2023 | | For the 13 Weeks Ended October 1, 2022 | |
| | Dollars | | % of Net Sales | | Dollars | | % of Net Sales | | | Dollars | | % of Net Sales | | Dollars | | % of Net Sales | |
Income (loss) before income taxes | Income (loss) before income taxes | | $ | 15.5 | | | 3.6% | | $ | 40.9 | | | 8.3 | % | | Income (loss) before income taxes | | $ | (55.2) | | | (16.1)% | | $ | 15.5 | | | 3.6 | % | |
Plus: | Plus: | | | Plus: | | |
Interest expense | Interest expense | | 5.1 | | | 6.4 | | | | Interest expense | | 5.8 | | | 5.1 | | | |
Amortization and depreciation | Amortization and depreciation | | 5.6 | | | 7.0 | | | | Amortization and depreciation | | 4.5 | | | 5.6 | | | |
Other long-lived asset impairments | Other long-lived asset impairments | | 0.6 | | | 0.6 | | | | Other long-lived asset impairments | | 0.6 | | | 0.6 | | | |
Other non-cash charges | Other non-cash charges | | (0.4) | | | (0.6) | | | | Other non-cash charges | | (0.2) | | | (0.4) | | | |
Stock-based compensation | Stock-based compensation | | (0.3) | | | 2.9 | | | | Stock-based compensation | | 1.5 | | | (0.3) | | | |
Restructuring expense | Restructuring expense | | — | | | 5.4 | | | | Restructuring expense | | 16.0 | | | — | | | |
| Restructuring cost of sales | | Restructuring cost of sales | | (1.3) | | | — | | | |
Less: | Less: | | | | | | | Less: | | | | | | |
Interest income | Interest income | | 0.1 | | | 0.1 | | | | Interest income | | 1.0 | | | 0.1 | | | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 26.0 | | | 6.0 | % | | $ | 62.5 | | | 12.7 | % | | Adjusted EBITDA | | $ | (29.3) | | | (8.4) | % | | $ | 26.0 | | | 6.0 | % | |
Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile 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.
| | | For the 13 Weeks Ended October 1, 2022 | | For the 13 Weeks Ended September 30, 2023 |
($ in millions, except per share data): | ($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | As Adjusted | ($ in millions, except per share data): | As Reported | Restructuring Cost of Sales | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted |
Operating income (loss) | Operating income (loss) | $ | 22.5 | | $ | 0.6 | | | $ | 23.1 | | Operating income (loss) | $ | (46.4) | | $ | (1.3) | | $ | 0.6 | | | $ | 16.0 | | | $ | (31.1) | |
Operating margin (% of net sales) | Operating margin (% of net sales) | 5.2 | % | | | 5.3 | % | Operating margin (% of net sales) | (13.5) | % | | | | | (9.0) | % |
Interest expense | Interest expense | $ | (5.1) | | $ | — | | | $ | (5.1) | | Interest expense | $ | (5.8) | | $ | — | | $ | — | | | $ | — | | | $ | (5.8) | |
Other income (expense) - net | Other income (expense) - net | (1.9) | | — | | | (1.9) | | Other income (expense) - net | (3.1) | | — | | — | | | — | | | (3.1) | |
Income (loss) before income taxes | Income (loss) before income taxes | 15.5 | | 0.6 | | | 16.1 | | Income (loss) before income taxes | (55.2) | | (1.3) | | 0.6 | | | 16.0 | | | (39.9) | |
Provision for income taxes | 9.2 | | 0.1 | | | 9.3 | | |
Provision (benefit) for income taxes | | Provision (benefit) for income taxes | 5.6 | | (0.3) | | 0.1 | | | 3.4 | | | 8.8 | |
Less: net income attributable to noncontrolling interest | Less: net income attributable to noncontrolling interest | (0.4 | ) | — | | | (0.4 | ) | Less: net income attributable to noncontrolling interest | (0.3 | ) | — | | — | | | — | | | (0.3 | ) |
Net income (loss) attributable to Fossil Group, Inc. | Net income (loss) attributable to Fossil Group, Inc. | $ | 5.8 | | $ | 0.5 | | | $ | 6.3 | | Net income (loss) attributable to Fossil Group, Inc. | $ | (61.1) | | $ | (1.0) | | $ | 0.5 | | | $ | 12.6 | | | $ | (49.0) | |
Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | 0.11 | | $ | 0.01 | | | $ | 0.12 | | Diluted earnings (loss) per share | $ | (1.16) | | $ | (0.02) | | $ | 0.01 | | | $ | 0.24 | | | $ | (0.93) | |
| | | For the 13 Weeks Ended October 2, 2021 | | For the 13 Weeks Ended October 1, 2022 |
($ in millions, except per share data): | ($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted | ($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | As Adjusted |
Operating income (loss) | Operating income (loss) | $ | 47.8 | | $ | 0.6 | | | $ | 5.4 | | | $ | 53.8 | | Operating income (loss) | $ | 22.5 | | $ | 0.6 | | | $ | 23.1 | |
Operating margin (% of net sales) | Operating margin (% of net sales) | 9.7 | % | | | | | 10.9 | % | Operating margin (% of net sales) | 5.2 | % | | | 5.3 | % |
Interest expense | Interest expense | $ | (6.4) | | $ | — | | | $ | — | | | $ | (6.4) | | Interest expense | (5.1) | | — | | | (5.1) | |
Other income (expense) - net | Other income (expense) - net | (0.5) | | — | | | — | | | (0.5) | | Other income (expense) - net | (1.9) | | — | | | (1.9) | |
Income (loss) before income taxes | Income (loss) before income taxes | 40.9 | | 0.6 | | | 5.4 | | | 46.9 | | Income (loss) before income taxes | 15.5 | | 0.6 | | | 16.1 | |
Provision for income taxes | Provision for income taxes | 9.0 | | 0.1 | | | 1.1 | | | 10.2 | | Provision for income taxes | 9.2 | | 0.1 | | | 9.3 | |
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (0.5) | | — | | | — | | | (0.5) | | Less: Net income attributable to noncontrolling interest | (0.4) | | — | | | (0.4) | |
Net income (loss) attributable to Fossil Group, Inc. | Net income (loss) attributable to Fossil Group, Inc. | $ | 31.4 | | $ | 0.5 | | | $ | 4.3 | | | $ | 36.2 | | Net income (loss) attributable to Fossil Group, Inc. | $ | 5.8 | | $ | 0.5 | | | $ | 6.3 | |
Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | 0.60 | | $ | 0.01 | | | $ | 0.08 | | | $ | 0.69 | | Diluted earnings (loss) per share | $ | 0.11 | | $ | 0.01 | | | $ | 0.12 | |
Fiscal Year To Date Periods Ended September 30, 2023 and October 1, 2022 and October 2, 2021
Consolidated Net Sales. Net sales decreased $82.5$192.2 million or 6.5% (2.1%16.2% (15.5% in constant currency) for the Year To Date Period as compared to the Prior Year YTD Period. Sales declines were primarilydeclined in all three regions. Corporate revenue decreased due to decreases 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 Asia, where declinesthe wholesale channel, and to a lesser extent softness in greater China more than offsetsmartwatch sales growthand our store rationalization initiatives. Sales declined in Indiawholesale and retail store channels, while owned e-commerce sales increased. Global comparable retail sales increased 3% due to the sales increases in our owned e-commerce websites. Sales of smartwatches declined due to lower consumer demand across geographies and channels and reduced marketing as compared to the Prior Year YTD Period. Our netFrom a brand perspective, sales in China have been negatively affected by COVID-19 driven policies duringdecreased throughout most of our brand portfolio, with the Year To Date Period and our most significant sales declines were in EMPORIO ARMANI traditional watches, as compared to the Prior Year YTD Period. Sales of smartwatches declined during the Year To Date Period partly due to lapping the prior year's gen 6 launch and due to lower consumer demand across geographies and channels. In the Year To Date Period, digital sales were 35% of worldwide net sales and decreased 21.1% (16.4% in constant currency) compared to the Prior Year YTD Period. Global comparable retail sales increased 14.5% primarily due to increased store traffic and were partially offset by salespredominant declines in our owned e-commerce websites.MICHAEL KORS, FOSSIL and EMPORIO ARMANI.
The following table sets forth consolidated net sales by segment (dollars in millions):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Growth (Decline) | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Americas | Americas | $ | 514.5 | | | 43.5 | % | | $ | 523.0 | | | 41.3 | % | | $ | (8.5) | | | (1.6) | % | | (1.3) | % | Americas | $ | 437.2 | | | 44.1 | % | | $ | 514.5 | | | 43.5 | % | | $ | (77.3) | | | (15.0) | % | | (15.2) | % |
Europe | Europe | 376.1 | | | 31.8 | | | 399.5 | | | 31.6 | | | (23.4) | | | (5.9) | | | 4.5 | | Europe | 301.6 | | | 30.4 | | | 376.1 | | | 31.8 | | | (74.5) | | | (19.8) | | | (20.5) | |
Asia | Asia | 279.6 | | | 23.6 | | | 331.6 | | | 26.2 | | | (52.0) | | | (15.7) | | | (11.8) | | Asia | 247.3 | | | 25.0 | | | 279.6 | | | 23.6 | | | (32.3) | | | (11.6) | | | (7.3) | |
Corporate | Corporate | 13.1 | | | 1.1 | | | 11.7 | | | 0.9 | | | 1.4 | | | 12.0 | | | 12.8 | | Corporate | 5.0 | | | 0.5 | | | 13.1 | | | 1.1 | | | (8.1) | | | (61.8) | | | (61.8) | |
Total | Total | $ | 1,183.3 | | | 100.0 | % | | $ | 1,265.8 | | | 100.0 | % | | $ | (82.5) | | | (6.5) | % | | (2.1) | % | Total | $ | 991.1 | | | 100.0 | % | | $ | 1,183.3 | | | 100.0 | % | | $ | (192.2) | | | (16.2) | % | | (15.5) | % |
Net sales information by product category is summarized as follows (dollars in millions):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Growth (Decline) | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | Watches: | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 830.3 | | | 70.2 | % | | $ | 878.8 | | | 69.4 | % | | $ | (48.5) | | | (5.5) | % | | (1.2) | % | Traditional watches | $ | 714.2 | | | 72.1 | % | | $ | 830.3 | | | 70.2 | % | | $ | (116.1) | | | (14.0) | % | | (13.2) | % |
Smartwatches | Smartwatches | 104.7 | | | 8.8 | | | 150.1 | | | 11.9 | | | (45.4) | | | (30.2) | | | (26.4) | | Smartwatches | 59.5 | | | 6.0 | | | 104.7 | | | 8.8 | | | (45.2) | | | (43.2) | | | (42.6) | |
Total watches | Total watches | $ | 935.0 | | | 79.0 | % | | $ | 1,028.9 | | | 81.3 | % | | $ | (93.9) | | | (9.1) | | | (4.9) | | Total watches | $ | 773.7 | | | 78.1 | % | | $ | 935.0 | | | 79.0 | % | | $ | (161.3) | | | (17.3) | | | (16.5) | |
Leathers | Leathers | 111.2 | | | 9.4 | | | 103.8 | | | 8.2 | | | 7.4 | | | 7.1 | | | 10.5 | | Leathers | 106.6 | | | 10.8 | | | 111.2 | | | 9.4 | | | (4.6) | | | (4.1) | | | (3.1) | |
Jewelry | Jewelry | 106.5 | | | 9.0 | | | 105.0 | | | 8.3 | | | 1.5 | | | 1.4 | | | 9.0 | | Jewelry | 91.0 | | | 9.2 | | | 106.5 | | | 9.0 | | | (15.5) | | | (14.6) | | | (14.3) | |
Other | Other | 30.6 | | | 2.6 | | | 28.1 | | | 2.2 | | | 2.5 | | | 8.9 | | | 13.9 | | Other | 19.8 | | | 2.0 | | | 30.6 | | | 2.6 | | | (10.8) | | | (35.3) | | | (34.9) | |
Total | Total | $ | 1,183.3 | | | 100.0 | % | | $ | 1,265.8 | | | 100.0 | % | | $ | (82.5) | | | (6.5) | % | | (2.1) | % | Total | $ | 991.1 | | | 100.0 | % | | $ | 1,183.3 | | | 100.0 | % | | $ | (192.2) | | | (16.2) | % | | (15.5) | % |
In the Year To Date Period, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by $56.3$8.5 million, including unfavorable impacts of $41.5$12.0 million $12.8in Asia and favorable impacts of $2.5 million and $1.9$1.0 million in our Europe Asia and Americas segments, respectively, compared to the Prior Year YTD Period.
Americas Net Sales. Americas net sales decreased $8.5$77.3 million, or 1.6% (1.3%15.0% (15.2% in constant currency), during the Year To Date Period in comparison to the Prior Year YTD Period. The sales declines were largelyacross brands, but most significantly in the MICHAEL KORS and FOSSIL brands versus the Prior Year YTD Period. We saw growthbrand. Sales declined in our retail store channel while our wholesale and e-commercestore channels declined. Geographically, sales growth in Canada was more than offset by sales declines in the U.S., while Mexico was flat. Comparable retail sales were moderately positive during the Year To Date Period, primarily due to increased store traffic and were partially offset by e-commerce sales declines in our owned e-commerce websites.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Growth (Decline) |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | | | | | | | | | | | | | |
Traditional watches | $ | 366.7 | | | 71.3 | % | | $ | 349.0 | | | 66.7 | % | | $ | 17.7 | | | 5.1 | % | | 5.4 | % |
Smartwatches | 47.2 | | | 9.2 | | | 78.3 | | | 15.0 | | | (31.1) | | | (39.7) | | | (39.5) | |
Total watches | $ | 413.9 | | | 80.5 | % | | $ | 427.3 | | | 81.7 | % | | $ | (13.4) | | | (3.1) | | | (2.8) | |
Leathers | 69.1 | | | 13.4 | | | 63.9 | | | 12.2 | | | 5.2 | | | 8.1 | | | 8.7 | |
Jewelry | 25.5 | | | 5.0 | | | 26.5 | | | 5.1 | | | (1.0) | | | (3.8) | | | (3.1) | |
Other | 6.0 | | | 1.2 | | | 5.3 | | | 1.0 | | | 0.7 | | | 13.2 | | | 8.7 | |
Total | $ | 514.5 | | | 100.1 | % | | $ | 523.0 | | | 100.0 | % | | $ | (8.5) | | | (1.6) | % | | (1.3) | % |
Europe Net Sales. Europe net sales decreased $23.4 million, or 5.9% (increase of 4.5% in constant currency), during the Year To Date Period in comparison to the Prior Year YTD Period. The declines were primarily in FOSSIL brand versus the Prior Year YTD Period. Strong retail stores growth was offset by declines in our e-commerce and wholesale channels as consumers returned to brick and mortar stores.increases. Comparable retail sales in the region also increased stronglywere slightly positive 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-currencyconstant currency basis from period to period for the EuropeAmericas segment (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Growth (Decline) |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | | | | | | | | | | | | | |
Traditional watches | $ | 313.8 | | | 71.8 | % | | $ | 366.7 | | | 71.3 | % | | $ | (52.9) | | | (14.4) | % | | (14.9) | % |
Smartwatches | 28.3 | | | 6.5 | | | $ | 47.2 | | | 9.2 | | | (18.9) | | | (40.0) | | | (40.3) | |
Total watches | $ | 342.1 | | | 78.2 | % | | $ | 413.9 | | | 80.5 | % | | $ | (71.8) | | | (17.3) | | | (17.8) | |
Leathers | 68.9 | | | 15.8 | | | 69.1 | | | 13.4 | | | (0.2) | | | (0.3) | | | 0.6 | |
Jewelry | 20.4 | | | 4.7 | | | 25.5 | | | 5.0 | | | (5.1) | | | (20.0) | | | (19.6) | |
Other | 5.8 | | | 1.3 | | | 6.0 | | | 1.1 | | | (0.2) | | | (3.3) | | | (3.3) | |
Total | $ | 437.2 | | | 100.0 | % | | $ | 514.5 | | | 100.0 | % | | $ | (77.3) | | | (15.0) | % | | (15.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Growth (Decline) |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | | | | | | | | | | | | | |
Traditional watches | $ | 253.7 | | | 67.5 | % | | $ | 266.3 | | | 66.7 | % | | $ | (12.6) | | | (4.7) | % | | 5.6 | % |
Smartwatches | 33.3 | | | 8.8 | | | 43.2 | | | 10.8 | | | (9.9) | | | (22.9) | | | (13.8) | |
Total watches | $ | 287.0 | | | 76.3 | % | | $ | 309.5 | | | 77.5 | % | | $ | (22.5) | | | (7.3) | | | 2.9 | |
Leathers | 18.4 | | | 4.9 | | | 19.9 | | | 5.0 | | | (1.5) | | | (7.5) | | | 2.6 | |
Jewelry | 62.7 | | | 16.7 | | | 62.0 | | | 15.5 | | | 0.7 | | | 1.1 | | | 12.6 | |
Other | 8.0 | | | 2.1 | | | 8.1 | | | 2.0 | | | (0.1) | | | (1.2) | | | 10.5 | |
Total | $ | 376.1 | | | 100.0 | % | | $ | 399.5 | | | 100.0 | % | | $ | (23.4) | | | (5.9) | % | | 4.5 | % |
Europe Net Sales.Sales. AsiaEurope net sales decreased $52.0$74.5 million, or 15.7% (11.8%19.8% (20.5% in constant currency), during the Year To Date Period in comparison to the Prior Year YTD Period. Sales decreased across the Eurozone and in the majority of our brands, with the largest declines were primarily driven by greater China as a result of COVID-19 policies and were partiallyin MICHAEL KORS. Sales growth in our owned e-commerce was more than offset by strong growthdeclines in Indiaother channels. Comparable retail sales in the region also increased moderately during the Year To Date Period as compared to the Prior Year YTD Period. Sales declines were predominantly in the EMPORIO ARMANI brand. For the Year To Date Period, comparable retail sales increased significantly driven by store traffic increases in Malaysia, India and Australia.
The following table sets forth product net sales and the changes in product net sales on both a reported and constant-currencyconstant currency basis from period to period for the Europe segment (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Growth (Decline) |
| Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | | | | | | | | | | | | | |
Traditional watches | $ | 204.2 | | | 67.7 | % | | $ | 253.7 | | | 67.5 | % | | $ | (49.5) | | | (19.5) | % | | (20.1) | % |
Smartwatches | 17.8 | | | 5.9 | | | 33.3 | | | 8.8 | | | (15.5) | | | (46.5) | | | (47.1) | |
Total watches | $ | 222.0 | | | 73.6 | % | | $ | 287.0 | | | 76.3 | % | | $ | (65.0) | | | (22.6) | | | (23.2) | |
Leathers | 17.9 | | | 6.0 | | | 18.4 | | | 4.9 | | | (0.5) | | | (2.7) | | | (2.7) | |
Jewelry | 53.8 | | | 17.8 | | | 62.7 | | | 16.7 | | | (8.9) | | | (14.2) | | | (15.5) | |
Other | 7.9 | | | 2.6 | | | 8.0 | | | 2.1 | | | (0.1) | | | (1.3) | | | (2.5) | |
Total | $ | 301.6 | | | 100.0 | % | | $ | 376.1 | | | 100.0 | % | | $ | (74.5) | | | (19.8) | % | | (20.5) | % |
Asia Net Sales. Asia net sales decreased $32.3 million, or 11.6% (7.3% in constant currency), during the Year To Date Period in comparison to the Prior Year YTD Period. Net Sales declined across all channels and the majority of the region during the Year To Date Period as compared to the Prior Year YTD Period, with the most significant sales declines in China. Sales declines were predominantly in EMPORIO ARMANI and FOSSIL brands. Comparable retail sales declined moderately for 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 from period to period for the Asia segment (dollars in millions):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Growth (Decline) | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Growth (Decline) |
| | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency | | Net Sales | | Percentage of Total | | Net Sales | | Percentage of Total | | Dollars | | Percentage As Reported | | Percentage Constant Currency |
Watches: | Watches: | | | | | | | | | | | | Watches: | | | | | | | | | | | |
Traditional watches | Traditional watches | $ | 209.9 | | | 75.1 | % | | $ | 262.4 | | | 79.1 | % | | $ | (52.5) | | | (20.0) | % | | (16.7) | % | Traditional watches | $ | 194.3 | | | 78.6 | % | | $ | 209.9 | | | 75.1 | % | | $ | (15.6) | | | (7.4) | % | | (3.0) | % |
Smartwatches | Smartwatches | 24.1 | | | 8.6 | | | 28.5 | | | 8.6 | | | (4.4) | | | (15.4) | | | (9.4) | | Smartwatches | 13.4 | | | 5.4 | | | 24.1 | | | 8.6 | | | (10.7) | | | (44.4) | | | (40.7) | |
Total watches | Total watches | $ | 234.0 | | | 83.7 | % | | $ | 290.9 | | | 87.7 | % | | $ | (56.9) | | | (19.6) | | | (15.9) | | Total watches | $ | 207.7 | | | 84.0 | % | | $ | 234.0 | | | 83.7 | % | | $ | (26.3) | | | (11.2) | | | (6.9) | |
Leathers | Leathers | 23.8 | | | 8.5 | | | 20.1 | | | 6.1 | | | 3.7 | | | 18.4 | | | 23.7 | | Leathers | 19.7 | | | 8.0 | | | 23.8 | | | 8.5 | | | (4.1) | | | (17.2) | | | (14.3) | |
Jewelry | Jewelry | 18.2 | | | 6.5 | | | 16.6 | | | 5.0 | | | 1.6 | | | 9.6 | | | 14.7 | | Jewelry | 16.8 | | | 6.8 | | | 18.2 | | | 6.5 | | | (1.4) | | | (7.7) | | | (2.7) | |
Other | Other | 3.6 | | | 1.3 | | | 4.0 | | | 1.2 | | | (0.4) | | | (10.0) | | | (0.9) | | Other | 3.1 | | | 1.2 | | | 3.6 | | | 1.3 | | | (0.5) | | | (13.9) | | | (8.3) | |
Total | Total | $ | 279.6 | | | 100.0 | % | | $ | 331.6 | | | 100.0 | % | | $ | (52.0) | | | (15.7) | % | | (11.8) | % | Total | $ | 247.3 | | | 100.0 | % | | $ | 279.6 | | | 100.0 | % | | $ | (32.3) | | | (11.6) | % | | (7.3) | % |
Gross Profit. Gross profit of $595.3$479.0 million in the Year To Date Period decreased $68.7$116.2 million, or 10.3%19.5%, in comparison to $664.0$595.3 million in the Prior Year YTD Period. Gross profit margin rate decreased to 50.3%48.3% in the Year To Date Period compared to 52.5%50.3% in the Prior Year YTD Period. The gross profit margin rate declined largely due to increased freight costs,promotions, an unfavorable currency impact, increased licensor minimum royalty costs and a non-recurrence of the prior year's tariff reductions.restructuring charges related to product offering exits. These costs were partially offset by increases in revenue recognized over time, due to the timing of progress in completing performance obligations under a licensing agreement, increased net foreign currency hedging contract gains in the current year as compared to the prior yearreduced freight costs and favorable region and product mix.
Operating Expenses. For the Year To Date Period, total operating expenses decreasedincreased to $598.1 million compared to $598.0 million comparedin the Prior Year YTD Period. SG&A expenses were $569.5 million in the Year To Date Period in comparison to $618.6$591.5 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses increased to 50.0%57.5% in the Year To Date Period as compared to 50.0% in the Prior Year YTD Period, mainly driven by decreased sales. During the Year To Date Period, we incurred restructuring costs of $27.7 million in comparison to restructuring costs of $5.4 million in the Prior
Date Period as compared to 46.9% in the Prior Year YTD Period mainly driven by increased compensation costs which were partially offset by reduced store costs resulting from lower store count. During the Year To Date Period, we incurred restructuring costs of $5.4 million in comparison to restructuring costs of $18.7 million in the Prior Year YTD Period. We incurred other long-lived asset impairment charges of $1.1$0.8 million in the Year To Date Period compared to charges of $6.3$1.1 million in the Prior Year YTD Period. The translation of foreign-denominated expenses during the Year To Date Period decreased operating expenses by $23.4$3.6 million when compared to the Prior Year YTD Period, as a result of the stronger U.S. dollar.
Operating Income (Loss). Operating income (loss) was a loss of $2.7$119.0 million in the Year To Date Period as compared to incomea loss of $45.4$2.7 million in the Prior Year YTD Period. The operating loss in the Year To Date Period was primarily due to deleveraging of expenses with the decline in net sales and margin rate in the Year To Date Period.sales. As a percentage of net sales, operating margin was (0.2)(12.0)% in the Year To Date Period as compared to 3.6%(0.2)% in the Prior Year YTD Period and was negatively impacted by approximately 120140 basis points due to changes in foreign currencies.
Operating income (loss) by segment is summarized as follows (dollars in millions):
| | | For the 39 Weeks Ended October 1, 2022 | | For the 39 Weeks Ended October 2, 2021 | | Change | | Operating Margin % | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | | Change | | Operating Margin % |
| | | Dollars | | Percentage | | 2022 | | 2021 | | | Dollars | | Percentage | | 2023 | | 2022 |
Americas | Americas | $ | 88.0 | | | $ | 109.2 | | | $ | (21.2) | | | (19.4) | % | | 17.1 | % | | 20.9 | % | Americas | $ | 61.8 | | | $ | 88.0 | | | $ | (26.2) | | | (29.8) | % | | 14.0 | % | | 17.1 | % |
Europe | Europe | 65.5 | | | 67.6 | | | (2.1) | | | (3.1) | | | 17.4 | | | 16.9 | | Europe | 19.6 | | | 65.5 | | | (45.9) | | | (70.1) | | | 6.5 | | | 17.4 | |
Asia | Asia | 38.8 | | | 50.6 | | | (11.8) | | | (23.3) | | | 13.9 | | | 15.2 | | Asia | 30.6 | | | 38.8 | | | (8.2) | | | (21.1) | | | 12.4 | | | 13.9 | |
Corporate | Corporate | (195.0) | | | (182.0) | | | (13.0) | | | (7.1) | | | Corporate | (231.0) | | | (195.0) | | | (36.0) | | | (18.5) | | |
Total operating income (loss) | Total operating income (loss) | $ | (2.7) | | | $ | 45.4 | | | $ | (48.1) | | | (105.9) | % | | (0.2) | % | | 3.6 | % | Total operating income (loss) | $ | (119.0) | | | $ | (2.7) | | | $ | (116.3) | | | (4,307.4) | % | | (12.0) | % | | (0.2) | % |
Interest Expense. Interest expense decreasedincreased by $6.8$2.7 million during the Year To Date Period, primarily driven by reducedincreased interest rates and increased debt issuance costs amortization.balance compared to the Prior Year YTD Period.
Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net was a netincome of $6.8 million in comparison to an expense of $1.9 million in the Prior Year toYTD Period. The change in other income (expense)-net was largely reflective of net currency gains in the Year To Date Period as compared to net income of $0.9 millioncurrency losses in the Prior Year YTD Period and increased interest income in the Year to Date Period.
Provision for Income Taxes. Income tax expensebenefit for the Year To Date Period was $15.9less than $0.1 million, resulting in an effective income tax rate of (87.9)%0.03%. The Prior Year YTD Period income tax expense was $19.2$15.9 million resulting in an effective tax rate of 73.8%(87.9)%. The Year to Date Period effective tax rate was unfavorablefavorable to the Prior Year YTD Period due to a higher level ofreduced foreign losses for which no tax benefit could be accrued. income taxes and discrete items. No tax benefit has been accrued on the Year to Date Period U.S. tax losses and certain foreign tax losses due to the uncertainty of whether they can be used in the future. The Year to Date Period effective tax rate is negativepositive because income tax expensebenefit was accrued on certain foreign entitieslosses combined with positive taxable income while the consolidated results were a loss.favorable discrete items.
Net Income (Loss) Attributable to Fossil Group, Inc. For the Year To Date Period, we had a net loss of $34.7$128.9 million, or $0.67$2.47 per diluted share, in comparison to incomea loss of $5.8$34.7 million, or $0.11$0.67 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 negatively impacted by $0.20$0.12 per diluted share due to the currency impact of a stronger U.S. dollar.
Adjusted Net Income (Loss). Adjusted net loss for the Year To Date Period was $101.0 million with adjusted loss per diluted share of $1.94 compared to adjusted net loss of $29.5 million with adjusted loss per diluted share of $0.57 compared to adjusted net income of $25.6 million with adjusted income per diluted share of $0.48 in the Prior Year YTD Period.
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).
| | | For the 39 Weeks Ended | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 1, 2022 | | October 2, 2021 | | | For the 39 Weeks Ended September 30, 2023 | | For the 39 Weeks Ended October 1, 2022 | |
| | Dollars | | % of Net Sales | | Dollars | | % of Net Sales | | | Dollars | | % of Net Sales | | Dollars | | % of Net Sales | |
Income (loss) before income taxes | Income (loss) before income taxes | | $ | (18.1) | | | (1.5)% | | $ | 26.0 | | | 2.1 | % | | Income (loss) before income taxes | | $ | (128.3) | | | (12.9)% | | $ | (18.1) | | | (1.5) | % | |
Plus: | Plus: | | | Plus: | | |
Interest expense | Interest expense | | 13.4 | | | 20.3 | | | | Interest expense | | 16.1 | | | 13.4 | | | |
Amortization and depreciation | Amortization and depreciation | | 17.6 | | | 23.4 | | | | Amortization and depreciation | | 14.5 | | | 17.6 | | | |
Other long-lived asset impairments | Other long-lived asset impairments | | 1.1 | | | 6.3 | | | | Other long-lived asset impairments | | 0.8 | | | 1.1 | | | |
Other non-cash charges | Other non-cash charges | | (1.6) | | | (1.3) | | | | Other non-cash charges | | (0.9) | | | (1.6) | | | |
Stock-based compensation | Stock-based compensation | | 5.8 | | | 7.2 | | | | Stock-based compensation | | 4.6 | | | 5.8 | | | |
Restructuring expense | Restructuring expense | | 5.4 | | | 18.7 | | | | Restructuring expense | | 27.7 | | | 5.4 | | | |
| Restructuring cost of sales | | Restructuring cost of sales | | 6.8 | | — | | | |
Less: | Less: | | | | | | | Less: | | | | | | |
Interest income | Interest income | | (0.4) | | | 0.3 | | | | Interest income | | 2.3 | | | (0.4) | | | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 24.0 | | | 2.0 | % | | $ | 100.3 | | | 7.9 | % | | Adjusted EBITDA | | $ | (61.0) | | | (6.1) | % | | $ | 24.0 | | | 2.0 | % | |
Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile 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.
| | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 |
($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted |
Operating income (loss) | $ | (2.7) | | $ | 1.1 | | | $ | 5.4 | | | $ | 3.8 | |
Operating margin (% of net sales) | (0.2) | % | | | | | 0.3 | % |
Interest expense | $ | (13.4) | | $ | — | | | $ | — | | | $ | (13.4) | |
Other income (expense) - net | (1.9) | | — | | | — | | | (1.9) | |
Income (loss) before income taxes | (18.1) | | 1.1 | | | 5.4 | | | (11.6) | |
Provision for income taxes | 15.9 | | 0.2 | | | 1.1 | | | 17.2 | |
Less: net income attributable to noncontrolling interest | (0.7) | | — | | | — | | | (0.7) | |
Net income (loss) attributable to Fossil Group, Inc. | $ | (34.7) | | $ | 0.9 | | | $ | 4.3 | | | $ | (29.5) | |
Diluted earnings (loss) per share | $ | (0.67) | | $ | 0.02 | | | $ | 0.08 | | | $ | (0.57) | |
| | | For the 39 Weeks Ended October 2, 2021 | | For the 39 Weeks Ended September 30, 2023 |
($ in millions, except per share data): | ($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted | ($ in millions, except per share data): | As Reported | Restructuring Cost of Sales | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted |
Operating income (loss) | Operating income (loss) | $ | 45.4 | | $ | 6.3 | | | $ | 18.7 | | | $ | 70.4 | | Operating income (loss) | $ | (119.0) | | $ | 6.8 | | $ | 0.8 | | | $ | 27.7 | | | $ | (83.7) | |
Operating margin (% of net sales) | Operating margin (% of net sales) | 3.6 | % | | | | | 5.6 | % | Operating margin (% of net sales) | (12.0) | % | | | | | (8.4) | % |
Interest expense | Interest expense | $ | (20.3) | | $ | — | | | $ | — | | | $ | (20.3) | | Interest expense | $ | (16.1) | | $ | — | | $ | — | | | $ | — | | | $ | (16.1) | |
Other income (expense) - net | Other income (expense) - net | 0.9 | | — | | | — | | | 0.9 | | Other income (expense) - net | 6.8 | | — | | — | | | — | | | 6.8 | |
Income (loss) before income taxes | Income (loss) before income taxes | 26.0 | | 6.3 | | | 18.7 | | | 51.0 | | Income (loss) before income taxes | (128.3) | | 6.8 | | 0.8 | | | 27.7 | | | (93.0) | |
Provision for income taxes | Provision for income taxes | 19.2 | | 1.3 | | | 3.9 | | | 24.4 | | Provision for income taxes | — | | 1.4 | | 0.2 | | | 5.8 | | | 7.4 | |
Less: Net income attributable to noncontrolling interest | (1.0) | | — | | | — | | | (1.0) | | |
Less: net income attributable to noncontrolling interest | | Less: net income attributable to noncontrolling interest | (0.6) | | — | | — | | | — | | | (0.6) | |
Net income (loss) attributable to Fossil Group, Inc. | Net income (loss) attributable to Fossil Group, Inc. | $ | 5.8 | | $ | 5.0 | | | $ | 14.8 | | | $ | 25.6 | | Net income (loss) attributable to Fossil Group, Inc. | $ | (128.9) | | $ | 5.4 | | $ | 0.6 | | | $ | 21.9 | | | $ | (101.0) | |
Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | 0.11 | | $ | 0.09 | | | $ | 0.28 | | | $ | 0.48 | | Diluted earnings (loss) per share | $ | (2.47) | | $ | 0.10 | | $ | 0.01 | | | $ | 0.42 | | | $ | (1.94) | |
| | | | | | | | | | | | | | | | |
| For the 39 Weeks Ended October 1, 2022 |
($ in millions, except per share data): | As Reported | Other Long-Lived Asset Impairment | | Restructuring Expenses | | As Adjusted |
Operating income (loss) | $ | (2.7) | | $ | 1.1 | | | $ | 5.4 | | | $ | 3.8 | |
Operating margin (% of net sales) | (0.2) | % | | | | | 0.3 | % |
Interest expense | $ | (13.4) | | $ | — | | | $ | — | | | $ | (13.4) | |
Other income (expense) - net | (1.9) | | — | | | — | | | (1.9) | |
Income (loss) before income taxes | (18.1) | | 1.1 | | | 5.4 | | | (11.6) | |
Provision for income taxes | 15.9 | | 0.2 | | | 1.1 | | | 17.2 | |
Less: Net income attributable to noncontrolling interest | (0.7) | | — | | | — | | | (0.7) | |
Net income (loss) attributable to Fossil Group, Inc. | $ | (34.7) | | $ | 0.9 | | | $ | 4.3 | | | $ | (29.5) | |
Diluted earnings (loss) per share | $ | (0.67) | | $ | 0.02 | | | $ | 0.08 | | | $ | (0.57) | |
Liquidity and Capital Resources
Our cash and cash equivalents balance at the end of the Third Quarter was $162.6$116.1 million, including $153.6$114.8 million held in banks outside the U.S., in comparison to cash and cash equivalents of $181.8$162.6 million at the end of the Prior Year Quarter and $250.8$198.7 million at the end of fiscal year 2021. Historically, our business operations have not required substantial cash during the first several months of our fiscal year.2022. 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, strategic investments such as acquisitionsexpenditures and other capital expenditures.
At the end of the Third Quarter, we had net working capital of $586.6$436.4 million compared to net working capital of $418.1$586.6 million at the end of the Prior Year Quarter. The increase in working capital was largely due to an increase in inventory, a reduction in accounts payable as we normalized vendor payment terms in the current year, and decreased accrued expenses. At the end of the Third Quarter, we had $0.5 million of short-term borrowings and $255.9 million in long-term debt including unamortized issuance costs compared to $0.4 million of short-term borrowings and $293.6 million in long-term debt including unamortized issuance costs.costs at the end of the Prior Year Quarter.
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 $108.0 million in the Year To Date Period increaseddecreased $106.8 million from the Prior Year YTD Period, primarily due to cash of $272.8 million used by working capital itemsproactively managing our inventory levels down in the Year To Date Period, and a net loss of $34.0 million, partially offset by net non-cash items of $92.0 million.decreased earnings in the Year To Date Period compared to the Prior Year YTD Period.
Investing Activities. Investing cash flows primarily consist of capital expenditures and are offset by proceeds from the sale of property, plantan increase in intangible and equipment. The investing cash flows were higher in the Prior Year YTD Period, due to the sale of property, plant and equipment, when compared to the Year To Date Period.other assets.
Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The increase$96.5 million decrease in financing cash flows year-over-year was primarily due to less net borrowings during the Year To Date Period compared with net repayments duringto the Prior Year YTD Period under the Revolving Facility. We also repurchased $10.0 million of common stock during the Year To Date Period under our $30.0 million stock repurchase program.
Material Cash Requirements. We have various payment obligations as part of our ordinary course of business. Our material cash requirements include: (1) operating lease obligations (see Note Note—14 Leases within the Condensed Consolidated Financial Statements); (2) debt repayments (see Note 15 15—Debt Activity within the Condensed Consolidated Financial Statements); (3) non-cancellable purchase obligations; (4) minimum royalty payments; and (5) employee wages, benefits, and incentives. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our purchasing requirements are not current obligations and are therefore not included above. For example, some of these requirements are not handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions (see Note 5 5—Income Taxes within the Condensed Consolidated Financial Statements) and other matters.
For fiscal year 2022,2023, we expect total capital expenditures to be approximately $15 million to $20 million.
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 the foreseeable future, not including the maturities of long-termlong term debt. Although we believe we have adequate sources of liquidity in the short-term and long-term, the success of our operations, in light of the market volatility and uncertainty, as a result of the COVID-19 pandemic, among other factors, could impact our business and liquidity. In the event our liquidity is insufficient, we may be required to limit our spending or sell assets or equity or debt securities.
The following table shows our sources of liquidity (in millions):
| | | October 1, 2022 | | October 2, 2021 | | | September 30, 2023 | | October 1, 2022 | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 162.6 | | | $ | 181.8 | | | Cash and cash equivalents | | $ | 116.1 | | | $ | 162.6 | | |
Revolver availability | Revolver availability | | 50.4 | | | 123.6 | | Revolver availability | | 23.4 | | | 50.4 | |
Total liquidity | Total liquidity | | $ | 213.0 | | | $ | 305.4 | | | Total liquidity | | $ | 139.5 | | | $ | 213.0 | | |
Notes: In November 2021, we sold $150.0 million aggregate principal amount of our 7.00% senior notes due 2026 (the "Notes"), generating net proceeds of approximately $141.7 million. On November 8, 2021, we used the majority of the net proceeds from the Notes offering to repay the $122.0 million of outstanding borrowings under the Term Credit Agreement (as defined below). The remaining net proceeds were used for general corporate purposes.
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. Prior to November 30, 2023, the redemption price will be $25.00 per $25.00 principal amount of Notes, plus a “make-whole” premium plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. On and after November 30, 2023, we may redeem the Notes (i) on or 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.
Term Credit Agreement: On September 26, 2019, we, as borrower, entered into a term credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (as amended to date, the “Term Credit Agreement”). On November 8, 2021, we used the majority of the net proceeds from the Notes offering to repay all of the outstanding borrowings under the Term Credit Agreement. In connection with the repayment of the outstanding borrowings under the Term Credit Agreement, we incurred prepayment fees and accrued interest costs of $2.6 million and wrote off $7.1 million of debt issuance costs and $4.6 million of original issuance discount related to the Term Credit Agreement.
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 Revolving Facility expires and is due and payable onAmendment, among other things, (i) extended the maturity date of the credit facility to November 8, 2027 provided(provided, that if onwe have any indebtedness in an amount in excess of $35 million that matures prior to November 8, 2027, the maturity date that isof the credit facility shall be the 91st day prior to the final maturity date of any indebtedness in excess of $35.0 million, such other indebtedness is outstanding onindebtedness) and (ii) changed the calculation methodology of the borrowing base to include the value of certain of our intellectual property in such date, then the maturity datemethodology and to provide for the Revolving Facility shall be such earlier date.
seasonal increases to certain advance rates.
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 $70.0$80.0 million is available under a European facility, $20.0$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 (the "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.
The Revolving Facility is an asset-based facility, in which borrowing availability is subject to a borrowing base equal to:(a) with respect to us, the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible U.S. finished goods inventory and (y) 65% of the lower of cost or market value of eligible U.S. finished goods inventory, plus(ii) 85% of the eligible U.S. accounts receivable, plus (iii) 90% of eligible U.S. credit card accounts receivable, plus (iv) the lesser of (x) 40% of the appraised net orderly liquidation value of eligible U.S. intellectual property and (y) $20.0 million, minus (v) the aggregate amount of reserves, if any, established by the ABL Agent; (b) with respect to each non-U.S. borrower (except for the French Borrower), the sum of (i) the lesser of (x) 90% of the appraised net orderly liquidation value of eligible foreign finished goods inventory of such non-U.S. borrower and (y) 65% of the lower of cost or market value of eligible foreign finished goods inventory of such non-U.S. borrower, plus (ii) 85% of the eligible foreign accounts receivable of such non-U.S. borrower, minus (iii) the aggregate amount of reserves, if any, established by the ABL Agent; and (c) with respect to the French Borrower, (i) 85% of eligible French accounts receivable minus (ii) the aggregate amount of reserves, if any, established by the ABL Agent. Not more than 60% of the aggregate borrowing base under the Revolving Facility may consist of the non-U.S. borrowing bases.
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.
Year To Date 20222023 Activity: We had net borrowings of $151.0$38.5 million under the Revolving Facility during the Year To Date Period at an average interest rate of 2.6%6.5%. As of October 1, 2022,September 30, 2023, we had $150.0 million outstanding under the Notes and
$151.0 $111.5 million outstanding under the Revolving Facility. We also had unamortized debt issuance costs of $7.3$5.5 million recorded in long-term debt and $3.3$2.6 million recorded in intangible and other assets-net.assets-net on the condensed consolidated balance sheets. In addition, we had $4.2$4.5 million of outstanding standby Lettersletters of Creditcredit at October 1, 2022.September 30, 2023. Amounts available under the Revolving Facility are reduced by any amounts outstanding under standby Lettersletters of Credit.credit. As of October 1, 2022,September 30, 2023, we had available borrowing capacity of $50.4$23.4 million under the Revolving Facility. At October 1, 2022,September 30, 2023, we were in compliance with all debt covenants related to our credit facilities.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. On an on-going basis, we evaluate our estimates and judgments, including those related to product returns, inventories, long-lived asset impairment, impairment of trade names, income taxes and income taxes.warranty costs. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no changes to the critical accounting policies and estimates disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022.
Forward-Looking Statements
The statements contained in this Quarterly Report on Form10-Q that are not historical facts, including, but not limited to, statements regarding our expected financial position, results of operations, business and financing plans found in this Item"Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations" and Item"Item 3. Quantitative and Qualitative Disclosures About Market Risk," constitute forward-looking statements"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. The words "may,”" "believes,”" "will,”" "should,”" "seek,”" "forecast,”" "outlook,”" "estimate,”" "continue,”" "anticipate,”" "intend,”" "could,”" "would,”" "project,”" "predict,”" "potential,”" "plan,” "expect”" "expect" or the negative or plural of these words or similar expressions identify forward-looking statements. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: increased political uncertainty and the Ukraine crisis;uncertainty; the effect of worldwide economic conditions; the effect of a pandemic; risks related to the COVID-19 pandemic; the impactsuccess of inflation; results of tax examinations;our TAG Plan; significant changes in consumer spending patterns or preferences; interruptions or delays in the supply of key components or products; acts of war or acts of terrorism; loss of key facilities; data breach or information systems disruptions; changes in foreign currency valuations in relation to the U.S. dollar; lower levels of consumer spending resulting from a general economic downturn or generally reduced shopping activity caused by public safety or consumer confidence concerns; the performance of our products within the prevailing retail environment; customer acceptance of both new designs and newly-introduced product lines; changes in the mix of product sales; the effects of vigorous competition in the markets in which we operate; compliance with debt covenants and other contractual provisions and meeting debt service obligations; risks related to the success of our business strategy; the termination or non-renewal of material licenses; risks related to foreign operations and manufacturing; changes in the costs of materials and labor; government regulation and tariffs; our ability to secure and protect trademarks and other intellectual property rights; levels of traffic to and management of our retail stores; loss of key personnelpersonnel; and the outcome of current and possible future litigation.
In addition to the factors listed above, our actual results may differ materially due to the other risks and uncertainties discussed in our Quarterly Reports on Form 10-Q and the risks and uncertainties set forth in our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022. Accordingly, readers of this Quarterly Report on Form 10-Q should consider these facts in evaluating the information and are cautioned not to place undue reliance on the forward-looking statements contained herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rate Risk
As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. Our most significant foreign currency risk relates to the euro and, to a lesser extent, the Canadian dollar, British pound, Japanese yen, British pound, Mexican peso and Australian dollar as compared to the U.S. dollar. Due to our vertical nature whereby a significant portion of goods are sourced from our owned entities, we face foreign currency risks related to the necessary current settlement of intercompany inventory transactions. We employ a variety of operating practices to manage these market risks relative to foreign currency exchange rate changes and, where deemed appropriate, utilize forward contracts. These operating practices include, among others, our ability to convert foreign currency into U.S. dollars at spot rates and to maintain U.S. dollar pricing relative to sales of our products to certain distributors located outside the U.S. Additionally, we enter into forward contracts to manage fluctuations in Japanese yen exchange rates that will be used to settle future third-party inventory component purchases by a U.S. dollar functional currency subsidiary. The use of forward contracts allows us to offset exposure to rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. We use derivative instruments only for risk management purposes and do not use them for speculation or for trading. There were no significant changes in how we managed foreign currency transactional exposure in the Third Quarter, and management does not anticipate any significant changes in such exposures or in the strategies we employ to manage such exposure in the near future.
The following table shows our outstanding forward contracts designated as cash flow hedges for inventory transactions (in millions) at October 1, 2022September 30, 2023 and their expiration dates.
| Functional Currency | Functional Currency | | Contract Currency | | | Functional Currency | | Contract Currency | | |
Type | Type | | Amount | | Type | | Amount | | Expiring Through | Type | | Amount | | Type | | Amount | | Expiring Through |
Euro | Euro | | 105.1 | | | U.S. dollar | | 113.6 | | | February 2024 | Euro | | 91.3 | | | U.S. dollar | | 100.2 | | | March 2025 |
Canadian dollar | Canadian dollar | | 44.7 | | | U.S. dollar | | 34.9 | | | March 2024 | Canadian dollar | | 41.2 | | | U.S. dollar | | 31.0 | | | March 2025 |
Mexican peso | Mexican peso | | 302.3 | | | U.S. dollar | | 14.7 | | | June 2023 | Mexican peso | | 220.3 | | | U.S. dollar | | 12.5 | | | June 2024 |
British pound | British pound | | 7.9 | | | U.S. dollar | | 10.0 | | | March 2024 | British pound | | 8.1 | | | U.S. dollar | | 10.2 | | | March 2025 |
Australian dollar | | Australian dollar | | 7.8 | | | U.S. dollar | | 5.2 | | | September 2024 |
Japanese yen | Japanese yen | | 847.6 | | | U.S. dollar | | 7.0 | | | March 2024 | Japanese yen | | 602.6 | | | U.S. dollar | | 4.6 | | | March 2025 |
Australian dollar | | 9.6 | | | U.S. dollar | | 6.8 | | | September 2023 | |
U.S. dollar | U.S. dollar | | 13.4 | | | Japanese yen | | 1,730.0 | | | August 2023 | U.S. dollar | | 7.7 | | | Japanese yen | | 1,040.0 | | | July 2024 |
If we were to settle our forward contracts listed in the table above as of October 1, 2022, the resultSeptember 30, 2023, there would have been a net gain of $13.5 million.$3.8 million gain. As of October 1, 2022,September 30, 2023, a 10% unfavorable change in the U.S. dollar strengthening against foreign currencies to which we have balance sheet transactional exposures would have decreased net pre-tax income by $17.3$9.0 million. The translation of the balance sheets of our foreign-based operations from their local currencies into U.S. dollars is also sensitive to changes in foreign currency exchange rates. As of October 1, 2022,September 30, 2023, a 10% unfavorable change in the exchange rate of the U.S. dollar strengthening against the foreign currencies to which we have exposure would have reduced consolidated stockholders' equity by approximately $40.3$26.2 million.
Interest Rate Risk
We are subject to interest rate volatility with regard to debt borrowings. Based on our variable-rate debt outstanding as of October 1, 2022,September 30, 2023, a 100 basis point increase in interest rates would increase annual interest expense by $1.5$1.0 million.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon this evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective as of October 1, 2022.September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the Third Quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings to which we are a party or to which our properties are subject, other than routine matters incidental to our business that is not material to our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022 and in other documents we file with the Securities and Exchange Commission, in evaluating the Company and its business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no shares of common stock repurchased under our repurchase program during the Third Quarter.
Item 5. Other Information
None.Rule 10b5-1 Trading Plans. None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s quarter ended September 30, 2023.
Sixth Amended and Restated Bylaws. On November 6, 2023, the Board of Directors (the “Board”) of the Company approved and adopted the Company’s Sixth Amended and Restated Bylaws (the “Amended and Restated Bylaws”), which became effective the same day. Among other things, the amendments effected by the Amended and Restated Bylaws:
•address the universal proxy rules adopted by the U.S. Securities and Exchange Commission (the “SEC”), by clarifying that no person may solicit proxies in support of a director nominee other than the Board’s nominees unless such person has complied with Rule 14a-19 under the Securities Exchange Act of 1934, as amended, including applicable notice and solicitation requirements;
•require that a stockholder delivering a notice of nomination must include a representation that it intends to solicit proxies from stockholders representing at least 67% of the voting power of shares entitled to vote on the election of directors;
•require that a stockholder directly or indirectly soliciting proxies from other stockholders use a proxy card color other than white, which shall be reserved for exclusive use by the Board; and
•enhance procedural mechanics and disclosure requirements in connection with stockholder nominations of directors and submissions of proposals regarding other business at stockholder meetings, including requiring additional background information and disclosures regarding proposing stockholders, proposed nominees and business, and other persons related to a stockholder’s solicitation of proxies, such as additional information about the ownership of securities and material litigation, relationships and interests in material agreements with or involving the Company.
The Amended and Restated Bylaws also include certain technical, modernizing and clarifying changes.
The foregoing description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws attached hereto as Exhibit 3.4, which is incorporated herein by reference.
Indemnification Agreements. On November 7, 2023, the Company entered into indemnification agreement (the “Indemnification Agreement”) with each of its directors and each of its executive officers (each, an “indemnitee”). Pursuant to the Indemnification Agreements, the Company agreed to provide each indemnitee contractual indemnification meant to supplement the Company’s indemnification obligations contained in the Third Amended and Restated Certificate of Incorporation of Fossil Group, Inc., as amended to date, and as required by Delaware law. The Indemnification Agreement with each indemnitee provides that the Company will indemnify and hold harmless the indemnitee to the fullest extent permitted by law, as may be amended from time to time, against any and all expenses actually and reasonably incurred by indemnitee or on indemnitee’s behalf in connection with any proceeding or claim that indemnitee is a party or is threatened to be made a party by reason of the indemnitee’s corporate status if indemnitee acted in good faith and in a manner indemnitee reasonably believe to be in or not opposed to the best interests of the Company. In addition, the indemnification agreement provides that, where the Company and the indemnitee are jointly liable, the Company shall be obligated to contribute to the liability of indemnitee, as well as provides for the advancement of fees and expenses, including fees and expenses in serving as a witness in any proceeding relating to indemnitee’s corporate status, subject to certain exceptions. The duration of each indemnification
agreement shall continue after the indemnitee has ceased to serve as a director or officer of the Company and shall be binding upon and inure to the benefit of indemnitee's successors and assigns.
The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement attached hereto as Exhibit 10.2, which is incorporated herein by reference.
Severance Agreements. On November 7, 2023, Fossil Group, Inc. (the “Company”) entered into an Executive Severance Agreement (the “Agreement”) with the Company’s Executive Vice President and Chief Financial Officer, Sunil M. Doshi (the “Executive”). Pursuant to the Agreement, the Executive will be entitled to certain benefits (“Severance Benefits”) upon the Executive’s “separation from service” as defined in Section 409A of the Internal Revenue Code (the “Termination of Service”) by the Company without Cause (as defined in the Agreement) or the Executive’s resignation for Good Reason (as defined in the Agreement), provided that the Executive (i) is in compliance with all restrictive covenants in any written agreement between an Executive and the Company, and (ii) has executed and delivered a release of claims prepared by the Company within 50 days following the date of the Termination of Service (the “Termination Date”).
Pursuant to the Agreement, upon Executive’s Termination of Service by the Company without Cause or Executive’s resignation for Good Reason, Executive will be entitled to the following Severance Benefits under the Agreement: (i) 18 months of Executive’s then current base salary in effect as of the Termination Date, payable in a lump sum; (ii) the following cash bonuses under any cash bonus plan for which Executive was eligible on the Termination Date: (x) a pro-rata amount of the target bonus Executive would have received if such Termination of Service had not occurred for the fiscal year under such cash bonus plan, payable in a lump sum, and (y) 1.0 times the full target bonus for which Executive was eligible if such Termination of Service had not occurred for the fiscal year under such bonus plan, payable in a lump sum; (iii) any outstanding non-performance-based restricted stock unit and stock appreciation right awards granted pursuant to the Fossil Group, Inc. 2016 Long-Term Incentive Plan (the “Incentive Plan”), will become fully vested as of the Termination Date; (iv) any outstanding performance-based restricted stock unit awards granted pursuant to the Incentive Plan, will vest pro-rata, as set forth in the Agreement; and (v) all vested stock appreciation rights will be exercisable until the earlier of (x) the expiration date of such award or (y) 24 months from the Termination Date.
In addition, the Agreement provides that the Company will pay Executive on a monthly basis, an amount equal to the Company-paid portion of the health insurance premiums that were paid by the Company on behalf of the Executive immediately prior to the Termination Date to be used by Executive to purchase health coverage for a period of 18 months from the Termination Date or until Executive becomes eligible to participate in another employer’s health care plan, whichever date is earlier.
The Agreement contains non-competition and non-solicitation provisions pursuant to which Executive will be prohibited from competing with, or soliciting clients, manufacturers or suppliers of, the Company and its affiliates and from soliciting any of the Company’s or its affiliates’ employees or independent contractors for 18 months following Executive’s Termination Date.
The foregoing description of the Severance Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Severance Agreement attached hereto as Exhibit 10.3, which is incorporated herein by reference.
The Company previously entered into executive severance agreements with certain other executives, including Messrs. Jeffrey N. Boyer and Darren E. Hart, as more fully described in the Company's Proxy Statement filed with the SEC on April 12, 2023.
Item 6. Exhibits
(a) Exhibits
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Exhibit Number | | Document Description |
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3.1 | | |
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3.2 | | |
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3.3 | | |
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10.13.4(1) | | |
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10.1(1)(3) | | |
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10.2(1)(3) | | |
| | |
10.3(1)(3) | | Severance Agreement, dated as of November 8, 2022, among Fossil Group, Inc., Fossil Partners, L.P., Fossil Intermediate, Inc., Fossil Stores I, Inc., Fossil Trust, Fossil Group GmbH, Fossil Asia Pacific Limited, Fossil (Europe) GmbH, Fossil (UK) Limited, Fossil Canada Inc., Fossil France SAS, Fossil Stores France SAS, FAST Europe SARL,6, 2023, by and JPMorgan Chase Bank, N.A., as administrative agent,between the Company and the other agents and lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 10, 2022).Sunil M. Doshi. |
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31.1(1) | | |
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31.2(1) | | |
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32.1(2) | | |
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32.2(2) | | |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
(1) Filed herewith.
(2) Furnished herewith.
(3)Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| FOSSIL GROUP, INC. |
| |
November 10, 20229, 2023 | /S/ SUNIL M. DOSHI |
| Sunil M. Doshi |
| Executive Vice President, Chief Financial Officer and Treasurer (Principal financial and accounting officer duly authorized to sign on behalf of the Registrant) |