Fossil Group, Inc. - Quarter Report: 2023 September (Form 10-Q)

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: September 30, 2023


☐			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 October 31, 2023: 52,477,538

FOSSIL GROUP, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2023

INDEX


		Page
PART I
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Results of Operations	33
	Liquidity and Capital Resources	44
	Forward-Looking Statements	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 5.	Other Information	49
Item 6.	Exhibits	51
	SIGNATURES	52

Trademarks, service marks, trade names and copyrights

We use our FOSSIL, MICHELE, RELIC, SKAGEN and ZODIAC trademarks, as well as other trademarks, on watches, 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


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	116,132	$	198,726
Accounts receivable - net of allowances for doubtful accounts of $13,857 and $14,647, respectively	193,975		206,133
Inventories	326,718		376,028
Prepaid expenses and other current assets	148,114		164,413
Total current assets	784,939		945,300
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	154,479		156,947

Intangible and other assets-net	55,244		55,999
Total long-term assets	278,305		292,828
Total assets	$	1,063,244	$	1,238,128
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	158,028	$	191,141
Short-term debt	455		342
Accrued expenses:
Current operating lease liabilities	43,762		49,702
Compensation	41,067		44,259
Royalties	13,628		20,875
Customer liabilities	40,505		41,996
Transaction taxes	7,395		14,303
Other	35,161		40,424
Income taxes payable	8,588		22,878
Total current liabilities	348,589		425,920
Long-term income taxes payable	21,126		22,603
Deferred income tax liabilities	600		616
Long-term debt	255,935		216,132
Long-term operating lease liabilities	142,128		150,188
Other long-term liabilities	16,115		19,660
Total long-term liabilities	435,904		409,199
Commitments and contingencies (Note 13)
Stockholders’ equity:
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	310,603		306,241
Retained earnings	46,638		175,491
Accumulated other comprehensive income (loss)	(76,666)		(76,318)
Total Fossil Group, Inc. stockholders’ equity	281,100		405,932
Noncontrolling interests	(2,349)		(2,923)
Total stockholders’ equity	278,751		403,009
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 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	$	344,121	$	436,271	$	991,123	$	1,183,292
Cost of sales	182,458		216,651		512,076		588,010
Gross profit	161,663		219,620		479,047		595,282
Operating expenses:
Selling, general and administrative expenses	191,433		196,530		569,493		591,521

Other long-lived asset impairments	622		608		838		1,060
Restructuring expenses	16,003		—		27,732		5,438
Total operating expenses	208,058		197,138		598,063		598,019
Operating income (loss)	(46,395)		22,482		(119,016)		(2,737)
Interest expense	5,760		5,127		16,110		13,445
Other income (expense) - net	(3,093)		(1,859)		6,813		(1,915)
Income (loss) before income taxes	(55,248)		15,496		(128,313)		(18,097)
Provision (benefit) for income taxes	5,561		9,214		(34)		15,904
Net income (loss)	(60,809)		6,282		(128,279)		(34,001)
Less: Net income (loss) attributable to noncontrolling interests	253		433		574		738
Net income (loss) attributable to Fossil Group, Inc.	$	(61,062)	$	5,849	$	(128,853)	$	(34,739)
Other comprehensive income (loss), net of taxes:
Currency translation adjustment	$	(3,801)	$	(13,465)	$	(1,994)	$	(37,437)
Cash flow hedges - net change	4,623		3,668		1,646		7,836

Total other comprehensive income (loss)	822		(9,797)		(348)		(29,601)
Total comprehensive income (loss)	(59,987)		(3,515)		(128,627)		(63,602)
Less: Comprehensive income (loss) attributable to noncontrolling interests	253		432		574		738
Comprehensive income (loss) attributable to Fossil Group, Inc.	$	(60,240)	$	(3,947)	$	(129,201)	$	(64,340)
Earnings (loss) per share:
Basic	$	(1.16)	$	0.11	$	(2.47)	$	(0.67)
Diluted	$	(1.16)	$	0.11	$	(2.47)	$	(0.67)
Weighted average common shares outstanding:
Basic	52,466		51,825		52,219		51,843
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 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
	Shares	Par value
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	31	1				—		—		—		1		—		1

Acquisition of common stock for employee tax withholding	—	—		—		(14)		—		—		(14)		—		(14)
Retirement of common stock	(5)			(14)		14		—		—		—		—		—


Stock-based compensation	—	—		1,849		—		—		—		1,849		—		1,849
Net income (loss)	—	—		—		—		(61,062)		—		(61,062)		253		(60,809)
Other comprehensive income (loss)	—	—		—		—		—		822		822		—		822




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 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
	Shares	Par value
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	22	—		—		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(13)		—		—		(13)		—		(13)
Retirement of common stock	(2)			(13)		13		—		—		—		—		—


Stock-based compensation	—	—		(264)		—		—		—		(264)		—		(264)
Net income (loss)	—	—		—		—		5,849		—		5,849		433		6,282
Other comprehensive income (loss)	—	—		—		—		—		(9,797)		(9,797)		—		(9,797)



Balance, October 1, 2022	51,827	$	518	$	304,498	$	—	$	184,909	$	(96,876)	$	393,049	$	(2,816)	$	390,233



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
	Shares	Par value
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	800	8		(8)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(529)		—		—		(529)		—		(529)
Retirement of common stock	(164)	(1)		(528)		529		—		—		—		—		—


Stock-based compensation	—	—		4,898		—		—		—		4,898		—		4,898
Net income (loss)	—	—		—		—		(128,853)		—		(128,853)		574		(128,279)
Other comprehensive income (loss)	—	—		—		—		—		(348)		(348)				(348)




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 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
	Shares	Par value
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	896	9		(9)		—		—		—		—		—		—

Acquisition of common stock	—	—		—		(12,443)		—		—		(12,443)		—		(12,443)
Retirement of common stock	(1,215)	(12)		(2,947)		12,443		(9,484)		—		—		—		—

Stock-based compensation	—	—		6,606		—		—		—		6,606		—		6,606
Net income (loss)	—	—		—		—		(34,739)		—		(34,739)		738		(34,001)
Other comprehensive income (loss)	—	—		—		—		—		(29,601)		(29,601)		—		(29,601)

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

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 September 30, 2023		For the 39 Weeks Ended October 1, 2022
Operating Activities:
Net income (loss)	$	(128,279)	$	(34,001)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and accretion	14,487		17,587
Non-cash lease expense	56,515		60,073
Stock-based compensation	4,580		5,821
Decrease in allowance for returns and markdowns	(231)		(8,519)
Gain on disposal of assets	(3,258)		(448)
Property, plant and equipment and other long-lived asset impairment losses	838		1,060

Non-cash restructuring charges	5,048		876
Bad debt expense	2,986		5,611

Other non-cash items	1,385		9,973


Changes in operating assets and liabilities:
Accounts receivable	11,228		22,677
Inventories	45,879		(137,244)
Prepaid expenses and other current assets	16,490		(16,091)
Accounts payable	(31,124)		(19,151)
Accrued expenses	(23,732)		(56,944)
Income taxes	(15,535)		2,470
Operating lease liabilities	(65,239)		(68,533)
Net cash used in operating activities	(107,962)		(214,783)
Investing Activities:
Additions to property, plant and equipment and other	(7,149)		(8,689)
(Increase) decrease in intangible and other assets	(1,247)		993


Net cash used in investing activities	(8,396)		(7,696)
Financing Activities:

Acquisition of common stock	(529)		(12,444)
Distribution of noncontrolling interest earnings and other	—		(6,069)
Debt borrowings	162,615		261,983
Debt payments	(124,013)		(111,237)
Payment for shares of Fossil Accessories South Africa Pty. Ltd.	(2,316)		—

Net cash provided by financing activities	35,757		132,233
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2,751)		(644)
Net decrease in cash, cash equivalents, and restricted cash	(83,352)		(90,890)
Cash, cash equivalents, and restricted cash:
Beginning of period	204,075		264,572
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 September 30, 2023 (“Third Quarter”) as compared to the thirteen-week period ended October 1, 2022 (“Prior Year Quarter”), and the thirty-nine week period ended September 30, 2023 ("Year To Date Period") as compared to the thirty-nine week period ended October 1, 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 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.

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 December 31, 2022 (the “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. Actual results could differ from those estimates. The Company has not made any changes in its significant accounting policies from those disclosed in the 2022 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 reduce 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 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:
Net income (loss) attributable to Fossil Group, Inc.	$	(61,062)	$	5,849	$	(128,853)	$	(34,739)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	52,466		51,825		52,219		51,843
Basic EPS	$	(1.16)	$	0.11	$	(2.47)	$	(0.67)
Diluted EPS computation:
Effect of stock options, stock appreciation rights, restricted stock units and performance restricted stock units	—		227		—		—
Diluted weighted average common shares outstanding	52,466		52,052		52,219		51,843
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 Prior Year Quarter and Prior Year YTD Period, respectively. Additionally, 73,500 weighted average performance-based shares were not included in the diluted EPS calculation at the end of the Prior Year Quarter 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 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 that are presented in the condensed consolidated statement of cash flows (in thousands):


	September 30, 2023		October 1, 2022
Cash and cash equivalents	$	116,132	$	162,612
Restricted cash included in prepaid expenses and other current assets	106		106
Restricted cash included in intangible and other assets-net	4,485		10,964
Cash, cash equivalents and restricted cash	$	120,723	$	173,682

Recently Issued Accounting Standards

In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a 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 effective date of the SEC's removal of the related disclosure. ASU 2023-06 will not have an impact on the Company's financial position or results of operation.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination as if they had originated the contracts, as opposed to at fair value on the acquisition date. The standard is effective for business combinations after January 1, 2023. The adoption of this standard did not have an impact on the Company's consolidated financial statements or related disclosures.

2. REVENUE

Disaggregation of Revenue. The Company's revenue disaggregated by major product category and timing of revenue recognition was as follows (in thousands):


	For the 13 Weeks Ended September 30, 2023
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	113,611	$	72,941	$	66,103	$	28	$	252,683
Smartwatches	7,352		5,927		4,034		—		17,313
Total watches	$	120,963	$	78,868	$	70,137	$	28	$	269,996
Leathers	20,815		6,201		5,993		—		33,009
Jewelry	8,797		19,892		5,928		—		34,617
Other	2,034		2,705		995		765		6,499
Consolidated	$	152,609	$	107,666	$	83,053	$	793	$	344,121

Timing of revenue recognition
Revenue recognized at a point in time	$	152,469	$	107,479	$	82,936	$	518	$	343,402
Revenue recognized over time	140		187		117		275		719
Consolidated	$	152,609	$	107,666	$	83,053	$	793	$	344,121


	For the 13 Weeks Ended October 1, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	132,077	$	102,142	$	75,970	$	9	$	310,198
Smartwatches	14,578		10,401		8,327		—		33,306
Total watches	$	146,655	$	112,543	$	84,297	$	9	$	343,504
Leathers	27,262		5,683		8,150		—		41,095
Jewelry	8,353		22,955		6,560		—		37,868
Other	2,056		2,498		1,205		8,045		13,804
Consolidated	$	184,326	$	143,679	$	100,212	$	8,054	$	436,271

Timing of revenue recognition
Revenue recognized at a point in time	$	183,900	$	143,453	$	100,076	$	800	$	428,229
Revenue recognized over time	426		226		136		7,254		8,042
Consolidated	$	184,326	$	143,679	$	100,212	$	8,054	$	436,271


	For the 39 Weeks Ended September 30, 2023
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	313,842	$	204,156	$	194,259	$	1,955	$	714,212
Smartwatches	28,285		17,812		13,395		—		59,492
Total watches	$	342,127	$	221,968	$	207,654	$	1,955	$	773,704
Leathers	68,889		17,959		19,746		—		106,594
Jewelry	20,439		53,773		16,808		—		91,020
Other	5,736		7,918		3,104		3,047		19,805
Consolidated	$	437,191	$	301,618	$	247,312	$	5,002	$	991,123

Timing of revenue recognition
Revenue recognized at a point in time	$	436,727	$	301,047	$	246,971	$	4,177	$	988,922
Revenue recognized over time	464		571		341		825		2,201
Consolidated	$	437,191	$	301,618	$	247,312	$	5,002	$	991,123


	For the 39 Weeks Ended October 1, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	366,714	$	253,728	$	209,857	$	23	$	830,322
Smartwatches	47,228		33,347		24,134		—		104,709
Total watches	$	413,942	$	287,075	$	233,991	$	23	$	935,031
Leathers	69,091		18,372		23,763		—		111,226
Jewelry	25,548		62,730		18,217		—		106,495
Other	5,944		7,933		3,592		13,071		30,540
Consolidated	$	514,525	$	376,110	$	279,563	$	13,094	$	1,183,292

Timing of revenue recognition
Revenue recognized at a point in time	$	513,393	$	375,433	$	279,193	$	3,032	$	1,171,051
Revenue recognized over time	1,132		677		370		10,062		12,241
Consolidated	$	514,525	$	376,110	$	279,563	$	13,094	$	1,183,292

Contract Balances. As of 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) $0.5 million and $0.8 million as of September 30, 2023 and December 31, 2022, respectively, related to remaining performance obligations on licensing income, (ii) $1.6 million and $3.7 million as of September 30, 2023 and December 31, 2022, respectively, primarily related to remaining performance obligations on wearable technology products and (iii) $2.6 million and $3.1 million as of September 30, 2023 and December 31, 2022, respectively, related to gift cards issued.

3. INVENTORIES

Inventories consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Components and parts	$	14,137	$	20,998
Work-in-process	211		—
Finished goods	312,370		355,030
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 September 30, 2023		For the 39 Weeks Ended October 1, 2022
Beginning balance	$	13,623	$	19,159
Settlements in cash or kind	(5,266)		(5,465)
Warranties issued and adjustments to preexisting warranties (1)	1,879		(148)
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 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	$	5,561		$	9,214		$	(34)		$	15,904
Effective tax rate	(10.1)		%	59.5		%	—		%	(87.9)		%

The effective tax rate in the Third Quarter differed from the Prior Year Quarter primarily due to a change in the Company’s global mix of earnings. In addition, income taxes were accrued on certain income in foreign jurisdictions and no tax benefit has been accrued on the 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 resolution of income tax audits, changes in uncertain tax positions, and changes in tax law.

As of September 30, 2023, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $23.3 million, of which $23.3 million would favorably impact the effective tax rate in future periods, if recognized. The Company is subject to examinations in various state and foreign jurisdictions for its 2013-2022 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 September 30, 2023, the Company had recorded $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 September 30, 2023, the total amount of accrued income tax-related interest included in the condensed consolidated balance sheets was $5.7 million. There were no accrued tax-related penalties.

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 52,472,039 and 51,836,456 shares issued and outstanding at September 30, 2023 and 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 September 30, 2023 or 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.

At September 30, 2023 and December 31, 2022, all treasury stock had been effectively retired. As of 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 September 30, 2023			For the 39 Weeks Ended October 1, 2022
Fiscal Year Authorized	Dollar Value Authorized		Termination Date	Number of Shares Repurchased	Dollar Value Repurchased		Number of Shares Repurchased	Dollar Value Repurchased

2010	$	30.0	None	—	$	—	1.0	$	10.0

7. EMPLOYEE BENEFIT PLANS

Stock-Based Compensation Plans. The following table summarizes 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 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 rights at September 30, 2023.

Stock Appreciation Rights Outstanding and Exercisable. The following table summarizes information with respect to stock appreciation rights outstanding and exercisable at September 30, 2023:


Stock Appreciation Rights Outstanding					Stock Appreciation Rights Exercisable
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)
$36.73 - $55.09	75	$	46.55	0.3	75	$	46.55



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	Number of Shares	Weighted-Average Grant Date Fair Value Per Share
	(in Thousands)
Nonvested at July 1, 2023	2,235	$	6.25

Vested	(31)	7.72
Forfeited	(191)	6.31
Nonvested at September 30, 2023	2,013	$	6.21

The total fair value of restricted stock units vested was $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 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 may elect to defer receipt of all or a portion of the restricted stock units settled in common stock of the Company 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 September 30, 2023
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(88,874)	$	(580)	$	11,966	$	(77,488)
Other comprehensive income (loss) before reclassifications	(3,801)		3,881		—		80
Tax (expense) benefit	—		59		—		59
Amounts reclassed from accumulated other comprehensive income (loss)	—		(882)		—		(882)
Tax (expense) benefit	—		199		—		199
Total other comprehensive income (loss)	(3,801)		4,623		—		822
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 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 (loss)	—		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)

See Note—10 Derivatives and Risk 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 September 30, 2023				For the 13 Weeks Ended October 1, 2022
	Net Sales		Operating Income (Loss)		Net Sales		Operating Income (Loss)
Americas	$	152,609	$	25,818	$	184,326	$	33,403
Europe	107,666		13,290		143,679		31,076
Asia	83,053		15,951		100,212		17,515
Corporate	793		(101,454)		8,054		(59,512)
Consolidated	$	344,121	$	(46,395)	$	436,271	$	22,482


	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	%

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 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		Contract Currency
Type	Amount	Type	Amount
Euro	91.3	U.S. dollar	100.2
Canadian dollar	41.2	U.S. dollar	31.0
Mexican peso	220.3	U.S. dollar	12.5
British pound	8.1	U.S. dollar	10.2
Australian dollar	7.8	U.S. dollar	5.2
Japanese yen	602.6	U.S. dollar	4.6
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 September 30, 2023, the Company had non-designated forward 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 September 30, 2023		For the 13 Weeks Ended October 1, 2022
Cash flow hedges:
Forward contracts	$	3,940	$	8,211

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	3,940	$	8,211


	For the 39 Weeks Ended September 30, 2023		For the 39 Weeks Ended October 1, 2022
Cash flow hedges:
Forward contracts	$	817	$	16,941

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	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	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	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	685	$	1,385
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	29	$	(3)


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	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	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	558	$	2,907
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
	September 30, 2023			December 31, 2022			September 30, 2023			December 31, 2022
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	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	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	Intangible and other assets-net	680		Intangible and other assets-net	112		Other long-term liabilities	—		Other long-term liabilities	318

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
	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
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:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	(1,368)	$	685	$	3,158	$	1,385
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	29	$	—	$	(3)


	Effect of Derivative Instruments
	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
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:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	(1,387)	$	558	$	6,198	$	2,907
Forward contracts not designated as hedging instruments:
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 2025. As of September 30, 2023, a $3.1 million gain 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 September 30, 2023 (in thousands):


	Fair Value at September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	4,467	$	—	$	4,467




Total	$	—	$	4,467	$	—	$	4,467
Liabilities:
Contingent consideration	$	—	$	—	$	593	$	593
Forward contracts	—		698		—		698

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 December 31, 2022 (in thousands):


	Fair Value at December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	2,895	$	—	$	2,895



Total	$	—	$	2,895	$	—	$	2,895
Liabilities:
Contingent consideration	$	—	$	—	$	3,630	$	3,630
Forward contracts	—		2,993		—		2,993

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 September 30, 2023, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $261.9 million and had a fair value of approximately $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.

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 $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.

12. INTANGIBLE AND OTHER ASSETS

The following table summarizes intangible and other assets (in thousands):


		September 30, 2023				December 31, 2022
	Useful	Gross		Accumulated		Gross		Accumulated
	Lives	Amount		Amortization		Amount		Amortization
Intangibles-subject to amortization:
Trademarks	10 yrs.	$	4,051	$	3,316	$	3,728	$	3,243
Customer lists	5 - 10 yrs.	—		—		279		266
Patents	3 - 20 yrs.	909		559		867		537


Trade name	6 yrs.	4,502		3,001		4,502		2,439
Other	7 - 20 yrs.	342		227		342		195
Total intangibles-subject to amortization		9,804		7,103		9,718		6,680
Intangibles-not subject to amortization:
Trade names		8,880				8,876
Other assets:

Deposits		16,144				16,487

Deferred tax asset-net		16,859				17,262
Restricted cash		4,485				5,243





Debt issuance costs		2,649				3,124
Other		3,526				1,969
Total other assets		43,663				44,085
Total intangible and other assets		$	62,347	$	7,103	$	62,679	$	6,680
Total intangible and other assets-net				$	55,244			$	55,999

Amortization expense for intangible assets was $0.2 million and $0.6 million for the Third Quarter and the Prior Year Quarter, respectively, and $0.7 million and $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	Amortization Expense
2023 (remaining)	$	232
2024	$	928
2025	$	737
2026	$	146
2027	$	128
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	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)	SG&A	$	18,108	$	18,445	$	54,599	$	58,001



Short-term lease cost	SG&A	$	302	$	170	$	812	$	570
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	Condensed Consolidated Balance Sheets Location	September 30, 2023		December 31, 2022
Assets
Operating	Operating lease ROU assets	$	154,479	$	156,947


Liabilities
Current:
Operating	Current operating lease liabilities	$	43,762	$	49,702

Noncurrent:
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

September 30, 2023

December 31, 2022

Weighted-average remaining lease term:

Operating leases

6.4 years

5.6 years

Weighted-average discount rate:

Operating leases

14.8

14.1

Future minimum lease payments by year as of September 30, 2023 were as follows (in thousands):


Fiscal Year	Operating Leases
2023 (remaining)	$	19,821
2024	65,741
2025	48,230
2026	37,191
2027	26,782
Thereafter	101,945

Total lease payments	$	299,710
Less: Interest	113,820
Total lease obligations	$	185,890

Supplemental cash flow information related to leases was as follows (in thousands):


	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:
Operating cash flows from operating leases	$	65,239	$	68,182



Leased assets obtained in exchange for new operating lease liabilities	35,507		22,775

As of 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"). On November 8, 2022, the Company entered into Amendment No. 4 (the "Amendment") to the Revolving Facility. The Amendment, among other things, (i) extended the maturity date of the credit facility to November 8, 2027 (provided, that if 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") and a first supplemental indenture (the "First Supplemental Indenture" and, together with the Base Indenture, the "Indenture") with The Bank of New York Mellon Trust Company, N.A., as trustee (the "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. 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.

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

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 September 30, 2023, the Company had $150.0 million and $111.5 million outstanding under the Notes and Revolving Facility, respectively. The Company had net borrowings of $12.5 million and $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 September 30, 2023, the Company had available borrowing capacity of $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 $2.6 million and $7.8 million of interest expense related to the Notes during the Third Quarter and Year To Date Period, respectively. The Company incurred $1.6 million and $3.8 million of interest expense related to the Revolving Facility during the Third Quarter and Year To Date Period, respectively. The Company incurred $0.6 million and $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 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 2023, the Company announced 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 (“NWF 2.0”) restructuring 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 September 30, 2023
	Liabilities				Liabilities
	July 1, 2023		Cash Payments		September 30, 2023

Professional services	47		47		—
Severance and employee-related benefits	260		124		136
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 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

NWF 2.0 restructuring charges by operating segment were as follows (in thousands):


	For the 39 Weeks Ended October 1, 2022
Americas	$	83
Europe	1,531
Asia	1,204
Corporate	2,620
Consolidated	$	5,438

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 September 30, 2023 (the “Third Quarter”) and October 1, 2022 (the “Prior Year Quarter”), and the thirty-nine week periods ended September 30, 2023 (the "Year To Date Period") and October 1, 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.

Inventory Levels: A 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 a rapidly changing economic environment, retailers are rationalizing their inventory needs. We continue to proactively 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 economy and could result in additional inflationary pressures and supply 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 expect fewer impacts from international transit times and transportation costs in the 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 decrease our profits.

Data: 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. 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: We 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 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 intend 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 expanded TAG plan, we have established a Transformation Office and have partnered with a leading strategic consulting firm. We have also established an informal Transformation Office Committee comprised of members of our Audit Committee to oversee and guide the Company's strategic transformation initiatives. In addition to the program outlined above, the Transformation Office will focus on the “Growth” aspect of our TAG plan which consists of investing in three key growth pillars to drive sustained and profitable revenue growth. These growth pillars are: (1) revitalizing the Fossil Brand, (2) maximizing our licensed brand portfolio in watches and jewelry and (3) growing our premium 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 improve 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 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 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 143 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 87 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 73 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, 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. 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.

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: While 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. Both 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. Our product returns provision is accounted for as a reduction to revenue and cost of sales and increases 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, inventory shrinkage and 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

Consolidated Net Sales. Net sales decreased $92.2 million, or 21.1%, for the Third Quarter as compared to the Prior Year Quarter, with sales declines 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 the wholesale channel, and to a lesser extent, softness in smartwatch sales and our store 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 sales decreased 11.4% (11.9% in constant currency), mainly due to a smaller store base. We have reduced our store footprint by 41 stores (12%), since the end of the Prior Year Quarter. Global comparable retail sales decreased 6% due to sales decreases in our retail stores and partially offset by sales increases in our owned e-commerce websites. From a category perspective, traditional watch sales decreased 18.5% (19.4% in constant currency). Sales of smartwatches declined 48.0% (49.1% in constant currency) reflecting lower consumer demand across geographies and channels and reduced marketing as compared to the Prior Year Quarter. Leathers declined 19.7% (20.2% in constant currency). Jewelry declined 8.7% (11.3% in constant currency) primarily due to declines in EMPORIO ARMANI, FOSSIL and MICHAEL KORS jewelry. From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines in FOSSIL, MICHAEL KORS and EMPORIO ARMANI.

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


	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
Americas	$	152.6	44.3	%	$	184.3	42.2	%	$	(31.7)	(17.2)	%	(17.6)	%
Europe	107.7		31.3		143.7		32.9		(36.0)		(25.1)		(29.6)
Asia	83.0		24.1		100.2		23.0		(17.2)		(17.2)		(14.2)
Corporate	0.8		0.3		8.1		1.9		(7.3)		(90.1)		(90.1)
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 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
Watches:
Traditional watches	$	252.7	73.4	%	$	310.2	71.1	%	$	(57.5)	(18.5)	%	(19.4)	%
Smartwatches	17.3		5.0		33.3		7.6		(16.0)		(48.0)		(49.1)
Total watches	$	270.0	78.4	%	$	343.5	78.7	%	$	(73.5)	(21.4)		(22.3)
Leathers	33.0		9.6		41.1		9.4		(8.1)		(19.7)		(20.2)
Jewelry	34.6		10.1		37.9		8.7		(3.3)		(8.7)		(11.3)
Other	6.5		1.9		13.8		3.2		(7.3)		(52.9)		(54.3)
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 increased reported net sales by $4.4 million, including favorable impacts of $6.5 million and $0.8 million in our Europe 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 1, 2022	Opened	Closed	September 30, 2023
Americas	153	0	10	143
Europe	111	2	26	87
Asia	80	2	9	73
Total stores	344	4	45	303

Americas Net Sales. Americas net sales decreased $31.7 million, or 17.2% (17.6% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. Sales decreases were largely in the FOSSIL, MICHAEL KORS and MICHELE brands. Sales decreases in wholesale and stores were partially offset by sales increasing in our e-commerce channel. Comparable retail sales were moderately negative during the Third Quarter.

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


	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
Watches:
Traditional watches	$	113.6	74.4	%	$	132.1	71.7	%	$	(18.5)	(14.0)	%	(14.6)	%
Smartwatches	7.4		4.8		14.6		7.9		(7.2)		(49.3)		(50.0)
Total watches	$	121.0	79.3	%	$	146.7	79.6	%	$	(25.7)	(17.5)		(18.1)
Leathers	20.8		13.6		27.3		14.8		(6.5)		(23.8)		(23.4)
Jewelry	8.8		5.8		8.4		4.6		0.4		4.8		4.8
Other	2.0		1.3		1.9		1.0		0.1		5.3		5.3
Total	$	152.6	100.0	%	$	184.3	100.0	%	$	(31.7)	(17.2)	%	(17.6)	%

Europe Net Sales. Europe net sales decreased $36.0 million, or 25.1% (29.6% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. Our sales across much of the Eurozone decreased. From a brand perspective, sales decreased throughout most of our brand portfolio, with the largest 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 wholesale and stores channels were partially offset by e-commerce sales increases. Comparable retail sales increased slightly during the Third Quarter.

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


	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
Watches:
Traditional watches	$	72.9	67.7	%	$	102.1	71.1	%	$	(29.2)	(28.6)	%	(32.6)	%
Smartwatches	5.9		5.5		10.4		7.2		(4.5)		(43.3)		(47.1)
Total watches	$	78.8	73.2	%	$	112.5	78.3	%	$	(33.7)	(30.0)		(34.0)
Leathers	6.2		5.8		5.7		4.0		0.5		8.8		1.8
Jewelry	19.9		18.5		23.0		16.0		(3.1)		(13.5)		(19.1)
Other	2.8		2.6		2.5		1.7		0.3		12.0		—
Total	$	107.7	100.0	%	$	143.7	100.0	%	$	(36.0)	(25.1)	%	(29.6)	%

Asia Net Sales. Net sales in Asia decreased $17.2 million, or 17.2% (14.2% in constant currency), during the Third Quarter in comparison to the Prior Year Quarter. Sales increased in India, and decreased across the rest of the Asia region, with the largest sales decreases in the EMPORIO ARMANI brand. FOSSIL branded sales decreased moderately, largely driven by declines in smartwatches while traditional watches increased 11% in constant currency. Comparable retail sales decreased strongly during the Third Quarter, driven by store sales declines, partially offset by increased 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 currency basis from period to period for the Asia segment (dollars in millions):


	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
Watches:
Traditional watches	$	66.1	79.6	%	$	76.0	75.8	%	$	(9.9)	(13.0)	%	(10.0)	%
Smartwatches	4.0		4.8		8.3		8.3		(4.3)		(51.8)		(49.4)
Total watches	$	70.1	84.5	%	$	84.3	84.1	%	$	(14.2)	(16.8)		(13.9)
Leathers	6.0		7.2		8.2		8.2		(2.2)		(26.8)		(24.4)
Jewelry	5.9		7.1		6.6		6.6		(0.7)		(10.6)		(6.1)
Other	1.0		1.2		1.1		1.1		(0.1)		(9.1)		(9.1)
Total	$	83.0	100.0	%	$	100.2	100.0	%	$	(17.2)	(17.2)	%	(14.2)	%

Gross Profit. Gross profit of $161.7 million in the Third Quarter decreased 26.4% in comparison to $219.6 million in the Prior Year Quarter. Our gross profit margin rate decreased to 47.0% in the Third Quarter compared to 50.3% in the Prior Year Quarter. The year-over-year decrease primarily reflects timing of licensor minimum royalty costs, increased revenue recognized over time in the Prior Year Quarter, due to the timing of progress in completing performance obligations under a licensing agreement and net foreign currency hedging contract losses in the Third Quarter as compared to gains in the Prior Year Quarter. These costs were partially offset by decreased freight costs.

Operating Expenses. Total operating expenses in the Third Quarter increased by 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 the Prior Year Quarter. SG&A expenses were $191.4 million in the Third Quarter as compared to $196.5 million in the Prior Year Quarter. As a percentage of net sales, SG&A expenses increased to 55.6% in the Third Quarter as compared to 45.0% in the Prior Year Quarter due to decreased sales. Restructuring expenses were $16.0 million in the Third Quarter, compared to zero in the Prior Year Quarter. We incurred other long-lived asset impairment charges of $0.6 million in both the Third Quarter and Prior Year Quarter. The translation of foreign-denominated expenses during the Third Quarter increased operating expenses by $2.4 million as a result of the weaker U.S. dollar.

Operating Income (loss). Operating loss in the Third Quarter was $46.4 million as compared to an operating income of $22.5 million in the Prior Year Quarter. As a percentage of net sales, operating margin was (13.5)% in the Third Quarter compared to 5.2% in the Prior Year Quarter. Operating margin rate in the Third Quarter included an unfavorable impact of 10 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 September 30, 2023		For the 13 Weeks Ended October 1, 2022		Change				Operating Margin %
					Dollars		Percentage		2023		2022
Americas	$	25.8	$	33.4	$	(7.6)	(22.8)	%	16.9	%	18.1	%
Europe	13.3		31.1		(17.8)		(57.2)		12.3		21.6
Asia	16.0		17.5		(1.5)		(8.6)		19.2		17.5
Corporate	(101.5)		(59.5)		(42.0)		(70.6)
Total operating income (loss)	$	(46.4)	$	22.5	$	(68.9)	(306.2)	%	(13.5)	%	5.2	%

Interest Expense. Interest expense increased by $0.6 million during the Third Quarter compared to the Prior Year Quarter, primarily driven by increased interest rates.

Other Income (Expense)-Net. During the Third Quarter, other income (expense)-net was an expense of $3.1 million in comparison to an expense of $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%. The effective tax rate in the Third Quarter was unfavorable as compared to the Prior Year Quarter due to income tax

accrued 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, 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 loss of $61.1 million, or $1.16 per diluted share, in comparison to a net income of $5.8 million, or $0.11 per diluted share, in the Prior Year Quarter. During the Third Quarter, currencies unfavorably affected loss per diluted share by approximately $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 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 September 30, 2023				For the 13 Weeks Ended October 1, 2022
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(55.2)	(16.1)%		$	15.5	3.6	%
Plus:
Interest expense	5.8				5.1
Amortization and depreciation	4.5				5.6
Other long-lived asset impairments	0.6				0.6
Other non-cash charges	(0.2)				(0.4)
Stock-based compensation	1.5				(0.3)
Restructuring expense	16.0				—

Restructuring cost of sales	(1.3)				—
Less:
Interest income	1.0				0.1
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 September 30, 2023
($ in millions, except per share data):	As Reported			Restructuring Cost of Sales		Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(46.4)		$	(1.3)	$	0.6	$	16.0	$	(31.1)
Operating margin (% of net sales)	(13.5)		%							(9.0)		%
Interest expense	$	(5.8)		$	—	$	—	$	—	$	(5.8)
Other income (expense) - net	(3.1)			—		—		—		(3.1)
Income (loss) before income taxes	(55.2)			(1.3)		0.6		16.0		(39.9)
Provision (benefit) for income taxes	5.6			(0.3)		0.1		3.4		8.8
Less: net income attributable to noncontrolling interest	(0.3		)	—		—		—		(0.3		)
Net income (loss) attributable to Fossil Group, Inc.	$	(61.1)		$	(1.0)	$	0.5	$	12.6	$	(49.0)
Diluted earnings (loss) per share	$	(1.16)		$	(0.02)	$	0.01	$	0.24	$	(0.93)


	For the 13 Weeks Ended October 1, 2022
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		As Adjusted
Operating income (loss)	$	22.5		$	0.6	$	23.1
Operating margin (% of net sales)	5.2		%			5.3		%
Interest expense	(5.1)			—		(5.1)
Other income (expense) - net	(1.9)			—		(1.9)
Income (loss) before income taxes	15.5			0.6		16.1
Provision for income taxes	9.2			0.1		9.3
Less: Net income attributable to noncontrolling interest	(0.4)			—		(0.4)
Net income (loss) attributable to Fossil Group, Inc.	$	5.8		$	0.5	$	6.3
Diluted earnings (loss) per share	$	0.11		$	0.01	$	0.12

Fiscal Year To Date Periods Ended September 30, 2023 and October 1, 2022

Consolidated Net Sales. Net sales decreased $192.2 million or 16.2% (15.5% in constant currency) for the Year To Date Period as compared to the Prior Year YTD Period. Sales declined 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 the wholesale channel, and to a lesser extent softness in smartwatch sales and our store rationalization initiatives. Sales declined in wholesale 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. From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant declines in MICHAEL KORS, FOSSIL and EMPORIO ARMANI.

The following table sets forth consolidated net sales by 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
Americas	$	437.2	44.1	%	$	514.5	43.5	%	$	(77.3)	(15.0)	%	(15.2)	%
Europe	301.6		30.4		376.1		31.8		(74.5)		(19.8)		(20.5)
Asia	247.3		25.0		279.6		23.6		(32.3)		(11.6)		(7.3)
Corporate	5.0		0.5		13.1		1.1		(8.1)		(61.8)		(61.8)
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 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	$	714.2	72.1	%	$	830.3	70.2	%	$	(116.1)	(14.0)	%	(13.2)	%
Smartwatches	59.5		6.0		104.7		8.8		(45.2)		(43.2)		(42.6)
Total watches	$	773.7	78.1	%	$	935.0	79.0	%	$	(161.3)	(17.3)		(16.5)
Leathers	106.6		10.8		111.2		9.4		(4.6)		(4.1)		(3.1)
Jewelry	91.0		9.2		106.5		9.0		(15.5)		(14.6)		(14.3)
Other	19.8		2.0		30.6		2.6		(10.8)		(35.3)		(34.9)
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 $8.5 million, including unfavorable impacts of $12.0 million in Asia and favorable impacts of $2.5 million and $1.0 million in our Europe and Americas segments, respectively, compared to the Prior Year YTD Period.

Americas Net Sales. Americas net sales decreased $77.3 million, or 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 across brands, but most significantly in the MICHAEL KORS brand. Sales declined in our wholesale and store channels and were partially offset by e-commerce sales increases. Comparable retail sales were slightly positive during the Year To Date Period.


	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)	%

Europe Net Sales. Europe net sales decreased $74.5 million, or 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 in MICHAEL KORS. Sales growth in our owned e-commerce was more than offset by declines in other channels. Comparable retail sales in the region also increased moderately during the Year To Date Period.

The following table sets forth product net sales and the changes in product net sales on both a reported and constant currency basis 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 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	$	194.3	78.6	%	$	209.9	75.1	%	$	(15.6)	(7.4)	%	(3.0)	%
Smartwatches	13.4		5.4		24.1		8.6		(10.7)		(44.4)		(40.7)
Total watches	$	207.7	84.0	%	$	234.0	83.7	%	$	(26.3)	(11.2)		(6.9)
Leathers	19.7		8.0		23.8		8.5		(4.1)		(17.2)		(14.3)
Jewelry	16.8		6.8		18.2		6.5		(1.4)		(7.7)		(2.7)
Other	3.1		1.2		3.6		1.3		(0.5)		(13.9)		(8.3)
Total	$	247.3	100.0	%	$	279.6	100.0	%	$	(32.3)	(11.6)	%	(7.3)	%

Gross Profit. Gross profit of $479.0 million in the Year To Date Period decreased $116.2 million, or 19.5%, in comparison to $595.3 million in the Prior Year YTD Period. Gross profit margin rate decreased to 48.3% in the Year To Date Period compared to 50.3% in the Prior Year YTD Period. The gross profit margin rate declined largely due to increased promotions, an unfavorable currency impact, increased licensor minimum royalty costs and restructuring charges related to product offering exits. These costs were partially offset by reduced freight costs and favorable region and product mix.

Operating Expenses. For the Year To Date Period, total operating expenses increased to $598.1 million compared to $598.0 million in the Prior Year YTD Period. SG&A expenses were $569.5 million in the Year To Date Period in comparison to $591.5 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses increased to 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

Year YTD Period. We incurred other long-lived asset impairment charges of $0.8 million in the Year To Date Period compared to charges of $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 $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 $119.0 million in the Year To Date Period as compared to a loss of $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. As a percentage of net sales, operating margin was (12.0)% in the Year To Date Period as compared to (0.2)% in the Prior Year YTD Period and was negatively impacted by approximately 140 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 September 30, 2023		For the 39 Weeks Ended October 1, 2022		Change				Operating Margin %
					Dollars		Percentage		2023		2022
Americas	$	61.8	$	88.0	$	(26.2)	(29.8)	%	14.0	%	17.1	%
Europe	19.6		65.5		(45.9)		(70.1)		6.5		17.4
Asia	30.6		38.8		(8.2)		(21.1)		12.4		13.9
Corporate	(231.0)		(195.0)		(36.0)		(18.5)
Total operating income (loss)	$	(119.0)	$	(2.7)	$	(116.3)	(4,307.4)	%	(12.0)	%	(0.2)	%

Interest Expense. Interest expense increased by $2.7 million during the Year To Date Period, primarily driven by increased interest rates and increased debt balance compared to the Prior Year YTD Period.

Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net was income of $6.8 million in comparison to an expense of $1.9 million in the Prior Year YTD 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 currency losses in the Prior Year YTD Period and increased interest income in the Year to Date Period.

Provision for Income Taxes. Income tax benefit for the Year To Date Period was less than $0.1 million, resulting in an effective income tax rate of 0.03%. The Prior Year YTD Period income tax expense was $15.9 million resulting in an effective tax rate of (87.9)%. The Year to Date Period effective tax rate was favorable to the Prior Year YTD Period due to reduced foreign 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 positive because income tax benefit was accrued on certain foreign losses combined with favorable discrete items.

Net Income (Loss) Attributable to Fossil Group, Inc. For the Year To Date Period, we had a net loss of $128.9 million, or $2.47 per diluted share, in comparison to a loss of $34.7 million, or $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 $0.12 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 in the Prior Year YTD Period.


	For the 39 Weeks Ended September 30, 2023				For the 39 Weeks Ended October 1, 2022
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(128.3)	(12.9)%		$	(18.1)	(1.5)	%
Plus:
Interest expense	16.1				13.4
Amortization and depreciation	14.5				17.6
Other long-lived asset impairments	0.8				1.1
Other non-cash charges	(0.9)				(1.6)
Stock-based compensation	4.6				5.8
Restructuring expense	27.7				5.4

Restructuring cost of sales	6.8				—
Less:
Interest income	2.3				(0.4)
Adjusted EBITDA	$	(61.0)	(6.1)	%	$	24.0	2.0	%


	For the 39 Weeks Ended September 30, 2023
($ in millions, except per share data):	As Reported			Restructuring Cost of Sales		Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(119.0)		$	6.8	$	0.8	$	27.7	$	(83.7)
Operating margin (% of net sales)	(12.0)		%							(8.4)		%
Interest expense	$	(16.1)		$	—	$	—	$	—	$	(16.1)
Other income (expense) - net	6.8			—		—		—		6.8
Income (loss) before income taxes	(128.3)			6.8		0.8		27.7		(93.0)
Provision for income taxes	—			1.4		0.2		5.8		7.4
Less: net income attributable to noncontrolling interest	(0.6)			—		—		—		(0.6)
Net income (loss) attributable to Fossil Group, Inc.	$	(128.9)		$	5.4	$	0.6	$	21.9	$	(101.0)
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 $116.1 million, including $114.8 million held in banks outside the U.S., in comparison to cash and cash equivalents of $162.6 million at the end of the Prior Year Quarter and $198.7 million at the end of 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 expenditures and capital expenditures.

At the end of the Third Quarter, we had net working capital of $436.4 million compared to net working capital of $586.6 million at the end of the Prior Year Quarter. 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 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 decreased $106.8 million from the Prior Year YTD Period, primarily due to proactively managing our inventory levels down in the Year To Date Period, and partially offset by decreased earnings in the Year To Date Period compared to the Prior Year YTD Period.

Investing Activities. Investing cash flows consist of capital expenditures and an increase in intangible and other assets.

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The $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 to the Prior Year YTD Period under the Revolving Facility.

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—14 Leases within the Condensed Consolidated Financial Statements); (2) debt repayments (see Note 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—Income Taxes within the Condensed Consolidated Financial Statements) and other matters.

For fiscal year 2023, we expect total capital expenditures to be approximately $15 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 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, 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):


	September 30, 2023		October 1, 2022
Cash and cash equivalents	$	116.1	$	162.6
Revolver availability	23.4		50.4
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. 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.

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

The Revolving Facility provides that the ABL Lenders may extend revolving loans in an aggregate principal amount not to exceed $225.0 million at any time outstanding (the “Revolving Credit Commitment”), of which up to $125.0 million is available under a U.S. facility, an aggregate of $80.0 million is available under a European facility, $10.0 million is available under a Hong Kong facility, $5.0 million is available under a French facility, and $5.0 million is available under a Canadian facility, in each case, subject to the borrowing base availability limitations described below. The Revolving Facility also includes an up to $45.0 million subfacility for the issuance of letters of credit (the “Letters of Credit”). The French facility includes a $1.0 million subfacility for swingline loans, and the European facility includes a $7.0 million subfacility for swingline loans. The Revolving Facility is subject to a line cap (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 2023 Activity: We had net borrowings of $38.5 million under the Revolving Facility during the Year To Date Period at an average interest rate of 6.5%. As of September 30, 2023, we had $150.0 million outstanding under the Notes and $111.5 million outstanding under the Revolving Facility. We also 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 condensed consolidated balance sheets. In addition, we had $4.5 million of outstanding standby letters of credit at September 30, 2023. Amounts available under the Revolving Facility are reduced by any amounts outstanding under standby letters of credit. As of September 30, 2023, we had available borrowing capacity of $23.4 million under the Revolving Facility. At 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 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 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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk," constitute "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" 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; the effect of worldwide economic conditions; the effect of a pandemic; risks related to the success of 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 personnel; 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 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, 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 September 30, 2023 and their expiration dates.

Functional Currency

Contract Currency

Type

Amount

Type

Amount

Expiring Through

Euro

91.3

U.S. dollar

100.2

March 2025

Canadian dollar

41.2

U.S. dollar

31.0

March 2025

Mexican peso

220.3

U.S. dollar

12.5

June 2024

British pound

8.1

U.S. dollar

10.2

March 2025

Australian dollar

7.8

U.S. dollar

5.2

September 2024

Japanese yen

602.6

U.S. dollar

4.6

March 2025

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 September 30, 2023, there would have been a $3.8 million gain. As of 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 $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 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 $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 September 30, 2023, a 100 basis point increase in interest rates would increase annual interest expense by $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 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 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

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


Exhibit Number						Document Description

3.1						Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 25, 2010).

3.2						Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 28, 2013).

3.3						Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of Fossil Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 26, 2023).

3.4(1)						Sixth Amended and Restated Bylaws of Fossil Group, Inc.

10.1(1)(3)						Amendment Number Two to the Fossil Group, Inc. 2020 Cash Incentive Plan

10.2(1)(3)						Form of Indemnification Agreement signed by directors and executive officers.

10.3(1)(3)						Severance Agreement, dated as of November 6, 2023, by and between the Company and Sunil M. Doshi.

31.1(1)						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2(1)						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1(2)						Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2(2)						Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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 9, 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)