Fossil Group said the main focus of the New World Fossil 2.0 initiative — Transform To Grow – is aimed at improving operational efficiencies and reinvest in digital and consumer facing activities.
Fossil will invest in digital capabilities and marketing, move closer to the consumer and react more quickly to the evolving consumer shopping patterns as per the New World Fossil 2.0 strategy.
Fossil is taking a zero-base budgeting approach and working with a major consulting firm to create organizational opportunities and efficiencies and reallocate resources to the most critical parts of our business. Fossil said it completed the process in revenue management, supply chain transformation, procurement and zero based budgeting.
Store closures negatively impacted total sales comparisons by 160 basis points. Fossil closed 59 stores since the first quarter last year and ended the quarter with 461 stores. Retail comp sales decreased 9 percent as a 7 percent positive e-commerce comp, was more than offset by declines in retail stores.
Fossil Group, which has generated significant revenue from its e-commerce business, posted significant drop in revenue at $465 million in Q1 2019 vs $569 million in Q1 2018.
Gross margin of Fossil Group rose 280 basis points to 53.3 percent, driven by decreased off-price sales mix with improved margins, favorable region and product mix from higher margin Asia sales and lower promotional activity and markdowns, as well as benefits generated by the New World Fossil margin improvement initiatives.
Fossil’s operating expenses were $267.9 million, including $10.2 million of restructuring costs, primarily related to employee costs, professional services and a warehouse closure. Fossil reduced selling, general and administrative expenses by $37 million due to lower store expenses and infrastructure reductions driven by the NWF initiatives.
Fossil Group has gained from digital marketing and consumer experience focus. Full price retail comps, which include full price retail stores and owned e-commerce sites, were roughly flat for the quarter.
The New World Fossil program delivered profitability enhancements by delivering better-than-expected gross margins and a significant reduction in operating expenses. Gross margin of Fossil Group was 53.3 percent.
Fossil Group said the watch and accessories business is changing and consumer shopping patterns are shifting. Product innovation in watches has expanded the overall category, but has caused a move away from traditional watches to connected product.
Fossil said its new product innovation efforts support its strategy to maximize sales growth across multiple channels. Digital engagement is now the first critical step in attracting and engaging customers.
“We will complete the rollout of a new e-commerce and marketing technology platform. This platform will provide better insights and targeted support across both our direct and wholesale channels, and will expand direct e-commerce sites to more countries,” Fossil Group CEO Kosta Kartsotis said in an earnings call with analysts.
Rajani Baburajan
