fosl-20230701

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: July 1, 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 August 1, 2023: 52,464,539

FOSSIL GROUP, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED JULY 1, 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	48
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	50
	SIGNATURES	51

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, KATCHIN 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


	July 1, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	132,107	$	198,726
Accounts receivable - net of allowances for doubtful accounts of $11,575 and $14,647, respectively	162,700		206,133
Inventories	323,914		376,028
Prepaid expenses and other current assets	178,836		164,413
Total current assets	797,557		945,300
Property, plant and equipment - net of accumulated depreciation of $416,987 and $415,172, respectively	75,881		79,882
Operating lease right-of-use assets	144,949		156,947

Intangible and other assets-net	54,976		55,999
Total long-term assets	275,806		292,828
Total assets	$	1,073,363	$	1,238,128
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	139,842	$	191,141
Short-term debt	446		342
Accrued expenses:
Current operating lease liabilities	45,041		49,702
Compensation	43,297		44,259
Royalties	9,092		20,875
Customer liabilities	28,565		41,996
Transaction taxes	7,078		14,303
Other	41,401		40,424
Income taxes payable	6,774		22,878
Total current liabilities	321,536		425,920
Long-term income taxes payable	20,602		22,603
Deferred income tax liabilities	612		616
Long-term debt	243,027		216,132
Long-term operating lease liabilities	135,062		150,188
Other long-term liabilities	15,622		19,660
Total long-term liabilities	414,925		409,199
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, 52,446 and 51,836 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively	524		518
Additional paid-in capital	308,768		306,241
Retained earnings	107,700		175,491
Accumulated other comprehensive income (loss)	(77,488)		(76,318)
Total Fossil Group, Inc. stockholders’ equity	339,504		405,932
Noncontrolling interests	(2,602)		(2,923)
Total stockholders’ equity	336,902		403,009
Total liabilities and stockholders’ equity	$	1,073,363	$	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 July 1, 2023		For the 13 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Net sales	$	321,966	$	371,168	$	647,002	$	747,021
Cost of sales	165,299		179,819		329,618		371,359
Gross profit	156,667		191,349		317,384		375,662
Operating expenses:
Selling, general and administrative expenses	187,187		199,233		378,060		394,991

Other long-lived asset impairments	161		165		216		452
Restructuring expenses	4,632		2,887		11,729		5,438
Total operating expenses	191,980		202,285		390,005		400,881
Operating income (loss)	(35,313)		(10,936)		(72,621)		(25,219)
Interest expense	5,345		4,322		10,350		8,318
Other income (expense) - net	7,172		(1,674)		9,906		(56)
Income (loss) before income taxes	(33,486)		(16,932)		(73,065)		(33,593)
Provision (benefit) for income taxes	(7,198)		2,003		(5,595)		6,690
Net income (loss)	(26,288)		(18,935)		(67,470)		(40,283)
Less: Net income (loss) attributable to noncontrolling interests	241		139		321		305
Net income (loss) attributable to Fossil Group, Inc.	$	(26,529)	$	(19,074)	$	(67,791)	$	(40,588)
Other comprehensive income (loss), net of taxes:
Currency translation adjustment	$	(4,090)	$	(16,087)	$	1,807	$	(23,972)
Cash flow hedges - net change	(191)		3,070		(2,977)		4,168

Total other comprehensive income (loss)	(4,281)		(13,017)		(1,170)		(19,804)
Total comprehensive income (loss)	(30,569)		(31,952)		(68,640)		(60,087)
Less: Comprehensive income (loss) attributable to noncontrolling interests	241		139		321		305
Comprehensive income (loss) attributable to Fossil Group, Inc.	$	(30,810)	$	(32,091)	$	(68,961)	$	(60,392)
Earnings (loss) per share:
Basic	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)
Diluted	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)
Weighted average common shares outstanding:
Basic	52,349		51,707		52,095		51,853
Diluted	52,349		51,707		52,095		51,853

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 July 1, 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, April 1, 2023	51,841	$	518	$	307,592	$	—	$	134,229	$	(73,207)	$	369,132	$	(2,843)	$	366,289
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	762	8		(8)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(504)		—		—		(504)		—		(504)
Retirement of common stock	(157)	(2)		(502)		504		—		—		—		—		—


Stock-based compensation	—	—		1,686		—		—		—		1,686		—		1,686
Net income (loss)	—	—		—		—		(26,529)		—		(26,529)		241		(26,288)
Other comprehensive income (loss)	—	—		—		—		—		(4,281)		(4,281)		—		(4,281)




Balance, July 1, 2023	52,446	$	524	$	308,768	$	—	$	107,700	$	(77,488)	$	339,504	$	(2,602)	$	336,902


For the 13 Weeks Ended July 2, 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, April 2, 2022	51,157	$	511	$	302,583	$	—	$	198,134	$	(74,062)	$	427,166	$	2,298	$	429,464
Common stock issued upon exercise of stock options, stock appreciation rights and restricted stock units	873	9		(9)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(2,430)		—		—		(2,430)		—		(2,430)
Retirement of common stock	(223)	(2)		(2,428)		2,430		—		—		—		—		—


Stock-based compensation	—	—		4,629		—		—		—		4,629		—		4,629
Net income (loss)	—	—		—		—		(19,074)		—		(19,074)		139		(18,935)
Other comprehensive income (loss)	—	—		—		—		—		(13,017)		(13,017)		—		(13,017)

Distribution of noncontrolling interest earnings	—	—		—		—		—		—		—		(5,686)		(5,686)

Balance, July 2, 2022	51,807	$	518	$	304,775	$	—	$	179,060	$	(87,079)	$	397,274	$	(3,249)	$	394,025



For the 26 Weeks Ended July 1, 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	768	8		(8)		—		—		—		—		—		—

Acquisition of common stock for employee tax withholding	—	—		—		(516)		—		—		(516)		—		(516)
Retirement of common stock	(158)	(2)		(514)		516		—		—		—		—		—


Stock-based compensation	—	—		3,049		—		—		—		3,049		—		3,049
Net income (loss)	—	—		—		—		(67,791)		—		(67,791)		321		(67,470)
Other comprehensive income (loss)	—	—		—		—		—		(1,170)		(1,170)				(1,170)




Balance, July 1, 2023	52,446	$	524	$	308,768	$	—	$	107,700	$	(77,488)	$	339,504	$	(2,602)	$	336,902



For the 26 Weeks Ended July 2, 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	874	9		(9)		—		—		—		—		—		—

Acquisition of common stock	—	—		—		(12,430)		—		—		(12,430)		—		(12,430)
Retirement of common stock	(1,213)	(12)		(2,934)		12,430		(9,484)		—		—		—		—

Stock-based compensation	—	—		6,870		—		—		—		6,870		—		6,870
Net income (loss)	—	—		—		—		(40,588)		—		(40,588)		305		(40,283)
Other comprehensive income (loss)	—	—		—		—		—		(19,804)		(19,804)		—		(19,804)

Distribution of noncontrolling interest earnings	—	—		—		—		—		—		—		(5,686)		(5,686)

Balance, July 2, 2022	51,807	$	518	$	304,775	$	—	$	179,060	$	(87,079)	$	397,274	$	(3,249)	$	394,025

See notes to the unaudited condensed consolidated financial statements.

FOSSIL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

IN THOUSANDS


	For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Operating Activities:
Net income (loss)	$	(67,470)	$	(40,283)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and accretion	9,868		11,947
Non-cash lease expense	37,848		40,976
Stock-based compensation	3,049		6,085
Decrease in allowance for returns and markdowns	(11,017)		(12,181)

Property, plant and equipment and other long-lived asset impairment losses	215		452

Non-cash restructuring charges	—		876
Bad debt (recovery) expense	(19)		3,917

Other non-cash items	(3,473)		7,250


Changes in operating assets and liabilities:
Accounts receivable	48,337		70,745
Inventories	52,814		(107,449)
Prepaid expenses and other current assets	(17,854)		(16,277)
Accounts payable	(49,890)		(17,339)
Accrued expenses	(23,960)		(62,676)
Income taxes	(17,722)		(3,979)
Operating lease liabilities	(43,774)		(47,843)
Net cash used in operating activities	(83,048)		(165,779)
Investing Activities:
Additions to property, plant and equipment and other	(4,569)		(4,462)
(Increase) decrease in intangible and other assets	(176)		637


Net cash used in investing activities	(4,745)		(3,825)
Financing Activities:

Acquisition of common stock	(516)		(12,431)
Distribution of noncontrolling interest earnings and other	—		(6,069)
Debt borrowings	75,142		177,906
Debt payments	(49,008)		(71,221)
Payment for shares of Fossil Accessories South Africa Pty. Ltd.	(2,316)		—

Net cash provided by financing activities	23,302		88,185
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2,648)		(3,798)
Net decrease in cash, cash equivalents, and restricted cash	(67,139)		(85,217)
Cash, cash equivalents, and restricted cash:
Beginning of period	204,075		264,572
End of period	$	136,936	$	179,355

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 July 1, 2023 (“Second Quarter”) as compared to the thirteen-week period ended July 2, 2022 (“Prior Year Quarter”), and the twenty-six week period ended July 1, 2023 ("Year To Date Period") as compared to the twenty-six week period ended July 2, 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 July 1, 2023, and the results of operations for the Second 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 Second 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 July 1, 2023		For the 13 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Numerator:
Net income (loss) attributable to Fossil Group, Inc.	$	(26,529)	$	(19,074)	$	(67,791)	$	(40,588)
Denominator:
Basic EPS computation:
Basic weighted average common shares outstanding	52,349		51,707		52,095		51,853
Basic EPS	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)
Diluted EPS computation:

Diluted weighted average common shares outstanding	52,349		51,707		52,095		51,853
Diluted EPS	$	(0.51)	$	(0.37)	$	(1.30)	$	(0.78)

At the end of the Second 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 0.4 million and 0.3 million weighted average performance-based shares at the end of the Second Quarter and Year To Date Period, respectively.

At the end of each of the Prior Year Quarter and Prior Year YTD Period, approximately 2.3 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 0.3 million weighted average performance-based shares at the end of each of the Prior Year Quarter and Prior Year YTD Period.

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 July 1, 2023 and July 2, 2022 that are presented in the condensed consolidated statement of cash flows (in thousands):


	July 1, 2023		July 2, 2022
Cash and cash equivalents	$	132,107	$	167,067
Restricted cash included in prepaid expenses and other current assets	107		110
Restricted cash included in intangible and other assets-net	4,722		12,178
Cash, cash equivalents and restricted cash	$	136,936	$	179,355

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 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 July 1, 2023
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	108,875	$	59,411	$	65,889	$	1,927	$	236,102
Smartwatches	8,443		5,263		4,073		—		17,779
Total watches	$	117,318	$	64,674	$	69,962	$	1,927	$	253,881
Leathers	20,963		4,986		7,373		—		33,322
Jewelry	6,223		15,380		5,755		—		27,358
Other	2,147		3,239		1,033		986		7,405
Consolidated	$	146,651	$	88,279	$	84,123	$	2,913	$	321,966

Timing of revenue recognition
Revenue recognized at a point in time	$	146,496	$	88,084	$	84,009	$	2,638	$	321,227
Revenue recognized over time	155		195		114		275		739
Consolidated	$	146,651	$	88,279	$	84,123	$	2,913	$	321,966


	For the 13 Weeks Ended July 2, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	118,736	$	70,436	$	69,524	$	—	$	258,696
Smartwatches	15,377		10,261		7,783		—		33,421
Total watches	$	134,113	$	80,697	$	77,307	$	—	$	292,117
Leathers	22,593		5,320		8,034		—		35,947
Jewelry	9,260		18,639		6,031		—		33,930
Other	2,306		3,235		1,210		2,423		9,174
Consolidated	$	168,272	$	107,891	$	92,582	$	2,423	$	371,168

Timing of revenue recognition
Revenue recognized at a point in time	$	167,899	$	107,690	$	92,441	$	1,058	$	369,088
Revenue recognized over time	373		201		141		1,365		2,080
Consolidated	$	168,272	$	107,891	$	92,582	$	2,423	$	371,168


	For the 26 Weeks Ended July 1, 2023
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	200,231	$	131,215	$	128,155	$	1,927	$	461,528
Smartwatches	20,933		11,885		9,361		—		42,179
Total watches	$	221,164	$	143,100	$	137,516	$	1,927	$	503,707
Leathers	48,074		11,758		13,753		—		73,585
Jewelry	11,642		33,880		10,880		—		56,402
Other	3,703		5,214		2,110		2,281		13,308
Consolidated	$	284,583	$	193,952	$	164,259	$	4,208	$	647,002

Timing of revenue recognition
Revenue recognized at a point in time	$	284,259	$	193,568	$	164,036	$	3,658	$	645,521
Revenue recognized over time	324		384		223		550		1,481
Consolidated	$	284,583	$	193,952	$	164,259	$	4,208	$	647,002


	For the 26 Weeks Ended July 2, 2022
	Americas		Europe		Asia		Corporate		Total
Product type
Watches:
Traditional watches	$	234,638	$	151,584	$	133,887	$	13	$	520,122
Smartwatches	32,649		22,947		15,808		2		71,406
Total watches	$	267,287	$	174,531	$	149,695	$	15	$	591,528
Leathers	41,829		12,689		15,614		—		70,132
Jewelry	17,195		39,775		11,656		—		68,626
Other	3,888		5,447		2,385		5,015		16,735
Consolidated	$	330,199	$	232,442	$	179,350	$	5,030	$	747,021

Timing of revenue recognition
Revenue recognized at a point in time	$	329,493	$	231,991	$	179,049	$	2,222	$	742,755
Revenue recognized over time	706		451		301		2,808		4,266
Consolidated	$	330,199	$	232,442	$	179,350	$	5,030	$	747,021

Contract Balances. As of July 1, 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) $0.7 million and $0.8 million as of July 1, 2023 and December 31, 2022, respectively, related to remaining performance obligations on licensing income, (ii) $1.8 million and $3.7 million as of July 1, 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 July 1, 2023 and December 31, 2022, respectively, related to gift cards issued.

3. INVENTORIES

Inventories consisted of the following (in thousands):


	July 1, 2023		December 31, 2022
Components and parts	$	18,633	$	20,998
Work-in-process	278		—
Finished goods	305,003		355,030
Inventories	$	323,914	$	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 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Beginning balance	$	13,623	$	19,159
Settlements in cash or kind	(3,766)		(4,613)
Warranties issued and adjustments to preexisting warranties (1)	2,403		916
Ending balance	$	12,260	$	15,462

_______________________________________________

(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 July 1, 2023			For the 13 Weeks Ended July 2, 2022			For the 26 Weeks Ended July 1, 2023			For the 26 Weeks Ended July 2, 2022
Income tax (benefit) expense	$	(7,198)		$	2,003		$	(5,595)		$	6,690
Effective tax rate	21.5		%	(11.8)		%	7.7		%	(19.9)		%

The effective tax rate in the Second Quarter was favorable as compared to the Prior Year Quarter due to reduced foreign income taxes and favorable discrete items. The overall tax rate is impacted by the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act which requires the inclusion of certain foreign income in the tax return which absorbs the U.S. net operating loss ("NOL"). Foreign income taxes are also paid on this same foreign income, resulting in double taxation.

The effective tax rate can vary from quarter-to-quarter due to changes in the Company's global mix of earnings, the resolution of income tax audits and changes in tax law.

As of July 1, 2023, the Company's total amount of unrecognized tax benefits, excluding interest and penalties, was $23.3 million, all of which 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 July 1, 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

July 1, 2023, the total amount of accrued income tax-related interest included in the condensed consolidated balance sheets was $5.6 million. There was 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 52,446,107 and 51,836,456 shares issued and outstanding at July 1, 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 July 1, 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 July 1, 2023 and December 31, 2022, all treasury stock had been effectively retired. As of July 1, 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 26 Weeks Ended July 1, 2023			For the 26 Weeks Ended July 2, 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 Second 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 April 1, 2023	75	$	46.55	0.9	$	—



Outstanding at July 1, 2023	75	46.55		0.6	—
Exercisable at July 1, 2023	75	$	46.55	0.6	$	—

The aggregate intrinsic value shown in the table above is based on the exercise price for outstanding and exercisable rights at July 1, 2023.

Stock Appreciation Rights Outstanding and Exercisable. The following table summarizes information with respect to stock appreciation rights outstanding and exercisable at July 1, 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	0.6	75	$	46.55



Total	75	$	46.55	0.6	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 Second Quarter:


Restricted Stock Units and Performance Restricted Stock Units	Number of Shares	Weighted-Average Grant Date Fair Value Per Share
	(in Thousands)
Nonvested at April 1, 2023	1,870	$	10.05
Granted	1,367	3.04
Vested	(791)	8.72
Forfeited	(211)	9.96
Nonvested at July 1, 2023	2,235	$	6.25

The total fair value of restricted stock units vested was $2.5 million during the Second 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 July 1, 2023
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(84,784)	$	(389)	$	11,966	$	(73,207)
Other comprehensive income (loss) before reclassifications	(4,090)		(625)		—		(4,715)
Tax (expense) benefit	—		183		—		183
Amounts reclassed from accumulated other comprehensive income (loss)	—		(510)		—		(510)
Tax (expense) benefit	—		259		—		259
Total other comprehensive income (loss)	(4,090)		(191)		—		(4,281)
Ending balance	$	(88,874)	$	(580)	$	11,966	$	(77,488)


	For the 13 Weeks Ended July 2, 2022
	Currency Translation Adjustments		Cash Flow Hedges
			Forward Contracts		Pension Plan		Total
Beginning balance	$	(83,486)	$	5,442	$	3,982	$	(74,062)
Other comprehensive income (loss) before reclassifications	(16,087)		5,843		—		(10,244)
Tax (expense) benefit	—		257		—		257
Amounts reclassed from accumulated other comprehensive income (loss)	—		2,750		—		2,750
Tax (expense) benefit	—		280		—		280
Total other comprehensive income (loss)	(16,087)		3,070		—		(13,017)
Ending balance	$	(99,573)	$	8,512	$	3,982	$	(87,079)



	For the 26 Weeks Ended July 1, 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	1,807		(3,751)		—		(1,944)
Tax (expense) benefit	—		628		—		628
Amounts reclassed from accumulated other comprehensive income	—		(685)		—		(685)
Tax (expense) benefit	—		539		—		539
Total other comprehensive income (loss)	1,807		(2,977)		—		(1,170)
Ending balance	$	(88,874)	$	(580)	$	11,966	$	(77,488)



	For the 26 Weeks Ended July 2, 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	(23,972)		8,201		—		(15,771)
Tax (expense) benefit	—		530		—		530
Amounts reclassed from accumulated other comprehensive income (loss)	—		4,203		—		4,203
Tax (expense) benefit	—		360		—		360
Total other comprehensive income (loss)	(23,972)		4,168		—		(19,804)
Ending balance	$	(99,573)	$	8,512	$	3,982	$	(87,079)

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 July 1, 2023				For the 13 Weeks Ended July 2, 2022
	Net Sales		Operating Income (Loss)		Net Sales		Operating Income (Loss)
Americas	$	146,651	$	23,444	$	168,272	$	30,653
Europe	88,279		(688)		107,891		14,846
Asia	84,123		7,404		92,582		12,351
Corporate	2,913		(65,473)		2,423		(68,786)
Consolidated	$	321,966	$	(35,313)	$	371,168	$	(10,936)


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022
	Net Sales		Operating Income (Loss)		Net Sales		Operating Income (Loss)
Americas	$	284,583	$	36,000	$	330,199	$	54,563
Europe	193,952		6,282		232,442		34,414
Asia	164,259		14,604		179,350		21,291
Corporate	4,208		(129,507)		5,030		(135,487)
Consolidated	$	647,002	$	(72,621)	$	747,021	$	(25,219)

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 July 1, 2023				For the 13 Weeks Ended July 2, 2022
	Net Sales		Percentage of Total		Net Sales		Percentage of Total
Watches:
Traditional watches	$	236,102	73.4	%	$	258,696	69.7	%
Smartwatches	17,779		5.5		33,421		9.0
Total watches	$	253,881	78.9	%	$	292,117	78.7	%
Leathers	33,322		10.3		35,947		9.7
Jewelry	27,358		8.5		33,930		9.1
Other	7,405		2.3		9,174		2.5
Total	$	321,966	100.0	%	$	371,168	100.0	%


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022
	Net Sales		Percentage of Total		Net Sales		Percentage of Total
Watches:
Traditional watches	$	461,528	71.3	%	$	520,122	69.6	%
Smartwatches	42,179		6.5		71,406		9.6
Total watches	$	503,707	77.8	%	$	591,528	79.2	%
Leathers	73,585		11.4		70,132		9.4
Jewelry	56,402		8.7		68,626		9.2
Other	13,308		2.1		16,735		2.2
Total	$	647,002	100.0	%	$	747,021	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 July 1, 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	48.8	U.S. dollar	52.0
Canadian dollar	24.7	U.S. dollar	18.6
British pound	4.2	U.S. dollar	5.1
Japanese yen	596.4	U.S. dollar	4.6
Mexican peso	49.5	U.S. dollar	2.4
Australian dollar	2.8	U.S. dollar	1.9
U.S. dollar	4.1	Japanese yen	530.0

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 July 1, 2023, the Company had non-designated forward contracts of $0.4 million on 7.3 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 July 1, 2023		For the 13 Weeks Ended July 2, 2022
Cash flow hedges:
Forward contracts	$	(442)	$	6,100

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	(442)	$	6,100


	For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Cash flow hedges:
Forward contracts	$	(3,123)	$	8,730

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	(3,123)	$	8,730

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 July 1, 2023		For the 13 Weeks Ended July 2, 2022
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	(451)	$	2,038
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	200	$	992
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	38	$	61


Derivative Instruments	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	Effect of Derivative Instruments	For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	(19)	$	3,040
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	(127)	$	1,523
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	63	$	7

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
	July 1, 2023			December 31, 2022			July 1, 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	$	635	Prepaid expenses and other current assets	$	2,783	Accrued expenses-other	$	2,985	Accrued expenses-other	$	2,659
Forward contracts not designated as cash flow hedging instruments	Prepaid expenses and other current assets	2		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	—		Intangible and other assets-net	112		Other long-term liabilities	—		Other long-term liabilities	318

Total		$	637		$	2,895		$	2,985		$	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 July 1, 2023				For the 13 Weeks Ended July 2, 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	$	165,299	$	7,172	$	179,819	$	(1,674)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	(451)	$	200	$	2,038	$	992
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	38	$	—	$	61


	Effect of Derivative Instruments
	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 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	$	329,618	$	9,906	$	371,359	$	(56)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	(19)	$	(127)	$	3,040	$	1,523
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	63	$	—	$	7

At the end of the Second Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through June 2024. As of July 1, 2023, a $2.1 million loss 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 July 1, 2023 (in thousands):


	Fair Value at July 1, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	637	$	—	$	637




Total	$	—	$	637	$	—	$	637
Liabilities:
Contingent consideration	$	—	$	—	$	595	$	595
Forward contracts	—		2,985		—		2,985

Total	$	—	$	2,985	$	595	$	3,580

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 July 1, 2023, debt, excluding unamortized debt issuance costs and capital leases, was recorded at cost and had a carrying value of $249.4 million and had a fair value of approximately $201.1 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 $0.8 million were written down to a fair value of $0.6 million, resulting in impairment charges of $0.2 million. During the Prior Year YTD Period, ROU assets with carrying amount of $1.0 million and property, plant and equipment-net with a carrying value of $0.2 million related to retail store leasehold improvements, fixturing and shop-in-shops were written down to a fair value of $0.6 million and $0.1 million, respectively, resulting in impairment charges of $0.5 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 $0.2 million impairment expense in the Year to Date Period, $0.1 million was recorded in other long-lived asset impairments in both the Americas and Europe segments. Of the $0.5 million impairment expense in the Prior Year Quarter, $0.3 million and $0.2 million was recorded in other long-lived asset impairments in the Europe and Asia segments, respectively.

12. INTANGIBLE AND OTHER ASSETS

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


		July 1, 2023				December 31, 2022
	Useful	Gross		Accumulated		Gross		Accumulated
	Lives	Amount		Amortization		Amount		Amortization
Intangibles-subject to amortization:
Trademarks	10 yrs.	$	3,924	$	3,288	$	3,728	$	3,243
Customer lists	5 - 10 yrs.	—		—		279		266
Patents	3 - 20 yrs.	886		552		867		537


Trade name	6 yrs.	4,502		2,814		4,502		2,439
Other	7 - 20 yrs.	341		216		342		195
Total intangibles-subject to amortization		9,653		6,870		9,718		6,680
Intangibles-not subject to amortization:
Trade names		8,888				8,876
Other assets:

Deposits		16,531				16,487

Deferred tax asset-net		17,275				17,262
Restricted cash		4,724				5,243





Debt issuance costs		2,807				3,124
Other		1,968				1,969
Total other assets		43,305				44,085
Total intangible and other assets		$	61,846	$	6,870	$	62,679	$	6,680
Total intangible and other assets-net				$	54,976			$	55,999

Amortization expense for intangible assets was $0.2 million and $0.7 million for the Second Quarter and the Prior Year Quarter, respectively, and $0.5 million and $1.3 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)	$	467
2024	$	919
2025	$	728
2026	$	137
2027	$	119
Thereafter	$	413

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 July 1, 2023		For the 13 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Operating lease cost(1)	SG&A	$	18,614	$	19,465	$	36,491	$	39,556



Short-term lease cost	SG&A	$	295	$	216	$	510	$	400
Variable lease cost	SG&A	$	5,534	$	7,703	$	11,653	$	14,651

_______________________________________________

(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	July 1, 2023		December 31, 2022
Assets
Operating	Operating lease ROU assets	$	144,949	$	156,947


Liabilities
Current:
Operating	Current operating lease liabilities	$	45,041	$	49,702

Noncurrent:
Operating	Long-term operating lease liabilities	$	135,062	$	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

July 1, 2023

December 31, 2022

Weighted-average remaining lease term:

Operating leases

6.5 years

5.6 years

Weighted-average discount rate:

Operating leases

14.7

14.1

Future minimum lease payments by year as of July 1, 2023 were as follows (in thousands):


Fiscal Year	Operating Leases
2023 (remaining)	$	39,481
2024	57,158
2025	40,649
2026	30,712
2027	20,729
Thereafter	101,086

Total lease payments	$	289,815
Less: Interest	109,712
Total lease obligations	$	180,103

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


	For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	43,774	$	47,191



Leased assets obtained in exchange for new operating lease liabilities	18,570		20,506

As of July 1, 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 July 1, 2023, the Company had $150.0 million and $99.0 million outstanding under the Notes and Revolving Facility, respectively. The Company had net borrowings of $8.0 million and $26.0 million under the Revolving Facility during the Second 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 July 1, 2023, the Company had available borrowing capacity of $72.5 million under the Revolving Facility. As of July 1, 2023, the Company had unamortized debt issuance costs of $6.0 million recorded in long-term debt and $2.8 million recorded in intangible and other assets-net on the Company's consolidated balance sheets. The Company incurred $2.6 million and $5.2 million of interest expense related to the Notes during the Second Quarter and Year To Date Period, respectively. The Company incurred $1.3 million and $2.3 million of interest expense related to the Revolving Facility during the Second Quarter and Year To Date Period, respectively. The Company incurred $0.6 million and $1.2 million of interest expense related to the amortization of debt issuance costs during the Second Quarter and Year To Date Period, respectively. At July 1, 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 operating income benefits 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 $35 million of charges in fiscal year 2023. With these measures, the Company's 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 July 1, 2023		For the 26 Weeks Ended July 1, 2023
Cost of sales	$	2,911	$	8,174
Selling, general and administrative expenses	4,632		11,729
Consolidated	$	7,543	$	19,903

The following table shows a rollforward of the accrued liability related to the Company’s TAG Plan (in thousands):


	For the 13 Weeks Ended July 1, 2023
	Liabilities						Liabilities
	April 1, 2023		Charges		Cash Payments		July 1, 2023
Professional services	$	20	$	967	$	89	$	898
Severance and employee-related benefits	4,500		3,666		3,353		4,813
Charges related to exits of certain product offerings	5,264		2,910		700		7,474
Total	$	9,784	$	7,543	$	4,142	$	13,185


	For the 26 Weeks Ended July 1, 2023
	Liabilities								Liabilities
	December 31, 2022		Charges		Cash Payments		Non-cash Items		July 1, 2023
Professional services	$	—	$	1,002	$	104	$	—	$	898
Severance and employee-related benefits	—		10,727		5,914		—		4,813
Charges related to exits of certain product offerings	—		8,174		700		—		7,474
Total	$	—	$	19,903	$	6,718	$	—	$	13,185

TAG Plan restructuring charges by operating segment were as follows (in thousands):


	For the 13 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 1, 2023
Americas	$	1,535	$	4,493
Europe	3,386		7,342
Asia	1,686		5,953
Corporate	936		2,115
Consolidated	$	7,543	$	19,903

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 July 1, 2023
	Liabilities				Liabilities
	April 1, 2023		Cash Payments		July 1, 2023

Professional services	60		13		47
Severance and employee-related benefits	587		327		260
Total	$	647	$	340	$	307


	For the 13 Weeks Ended July 2, 2022
	Liabilities								Liabilities
	April 2, 2022		Charges		Cash Payments		Non-cash Items		July 2, 2022
Store closures	$	264	$	—	$	264	$	—	$	—
Professional services	357		—		227		—		130
Severance and employee-related benefits	4,528		2,887		3,014		785		3,616
Total	$	5,149	$	2,887	$	3,505	$	785	$	3,746


	For the 26 Weeks Ended July 1, 2023
	Liabilities				Liabilities
	December 31, 2022		Cash Payments		July 1, 2023

Professional services	74		27		47
Severance and employee-related benefits	2,821		2,561		260
Total	$	2,895	$	2,588	$	307


	For the 26 Weeks Ended July 2, 2022
	Liabilities								Liabilities
	January 1, 2022		Charges		Cash Payments		Non-cash Items		July 2, 2022
Store closures	$	300	$	405	$	613	$	92	$	—
Professional services	643		135		648		—		130
Severance and employee-related benefits	4,388		4,898		4,885		785		3,616
Total	$	5,331	$	5,438	$	6,146	$	877	$	3,746

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


	For the 13 Weeks Ended July 2, 2022		For the 26 Weeks Ended July 2, 2022
Americas	$	36	$	83
Europe	282		1,531
Asia	40		1,204
Corporate	2,529		2,620
Consolidated	$	2,887	$	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 July 1, 2023 (the “Second Quarter”) and July 2, 2022 (the “Prior Year Quarter”), and the twenty-six week periods ended July 1, 2023 (the "Year To Date Period") and July 2, 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 inflationary pressures, increasing interest rates and recessionary fears are impacting wholesale customer behavior, including cautiousness in placing advance orders for merchandise. In addition, we expect continued pressure on consumer discretionary spending as the U.S. federal funds rate fluctuates and credit markets tighten. We expect inflation to continue in 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.

Russia-Ukraine Conflict: Our operations in Russia consist of sales through a third-party distributor. Sales to this distributor are currently on hold. Our sales in Russia are not material to our financial results. We have no other operations, including supply chain, in Russia or Ukraine. However, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may weaken the global economy and could result in additional inflationary pressures and supply chain constraints.

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 are expanding 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 $35 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. With these measures, our goal is to achieve adjusted gross margins in the low to mid 50% range and adjusted operating margins of approximately 10%.

To execute the expanded TAG plan, we have established a Transformation Office and will partner with a leading strategic consulting firm. 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.

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 146 Company-owned stores as of the end of the Second 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 92 Company-owned stores as of the end of the Second 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 77 Company-owned stores as of the end of the Second 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 July 1, 2023 and July 2, 2022

Consolidated Net Sales. Net sales decreased $49.2 million, or 13.3%, for the Second Quarter as compared to the Prior Year Quarter, with sales declines in all three regions. Wholesale sales declined 18.5% (18.3% in constant currency) while direct to consumer sales decreased 4.9% (3.5% in constant currency). Decreased sales in the wholesale channel reflect lower purchases by wholesale accounts due to tighter management of inventories and lower end-consumer demand. From a category perspective, traditional watch sales decreased 8.7% (8.0% in constant currency). Sales of smartwatches declined 46.7% (46.6% in constant currency) reflecting lower consumer demand across geographies and channels and our deemphasis of the category as compared to the Prior Year Quarter. Jewelry declined 19.2% (same in constant currency) primarily due to declines in MICHAEL KORS jewelry. Leathers declined 7.2% (6.1% in constant currency). From a brand perspective, sales decreased throughout most of our brand portfolio, with the most predominant decline in MICHAEL KORS. FOSSIL branded sales decreased moderately, largely driven by declines in smartwatches and leathers while traditional watches increased 1% in constant currency. Global comparable retail sales increased 3% primarily due to increases in our owned e-commerce websites. We have reduced our store footprint by 34 stores (10%), since the end of the Prior Year Quarter.

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


	For the 13 Weeks Ended July 1, 2023				For the 13 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Americas	$	146.7	45.6	%	$	168.3	45.3	%	$	(21.6)	(12.8)	%	(13.1)	%
Europe	88.3		27.4		107.9		29.1		(19.6)		(18.2)		(19.2)
Asia	84.1		26.1		92.6		24.9		(8.5)		(9.2)		(4.9)
Corporate	2.9		0.9		2.4		0.7		0.5		20.8		20.8
Total	$	322.0	100.0	%	$	371.2	100.0	%	$	(49.2)	(13.3)	%	(12.6)	%

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


	For the 13 Weeks Ended July 1, 2023				For the 13 Weeks Ended July 2, 2022
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	236.1	73.4	%	$	258.7	69.7	%	$	(22.6)	(8.7)	%	(8.0)	%
Smartwatches	17.8		5.5		33.4		9.0		(15.6)		(46.7)		(46.6)
Total watches	$	253.9	78.9	%	$	292.1	78.7	%	$	(38.2)	(13.1)		(12.4)
Leathers	33.3		10.3		35.9		9.7		(2.6)		(7.2)		(6.1)
Jewelry	27.4		8.5		33.9		9.1		(6.5)		(19.2)		(19.2)
Other	7.4		2.3		9.3		2.5		(1.9)		(20.4)		(19.4)
Total	$	322.0	100.0	%	$	371.2	100.0	%	$	(49.2)	(13.3)	%	(12.6)	%

In the Second Quarter, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by $2.4 million, including an unfavorable impact of $4.0 million in our Asia segment and favorable impacts of $1.1 million and $0.5 million in our Europe and Americas segments, respectively, as compared to the Prior Year Quarter.

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


	July 2, 2022	Opened	Closed	July 1, 2023
Americas	157	0	11	146
Europe	113	1	22	92
Asia	79	3	5	77
Total stores	349	4	38	315

Americas Net Sales. Americas net sales decreased $21.6 million, or 12.8% (13.1% in constant currency), during the Second Quarter in comparison to the Prior Year Quarter. Sales decreases were largely in the MICHAEL KORS and FOSSIL brands. Sales decreased in our wholesale channel primarily reflecting lower purchases by wholesale accounts due to tighter inventory management and lower consumer demand, while our direct to consumer channel was flat. Comparable retail sales were slightly positive during the Second Quarter.

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


	For the 13 Weeks Ended July 1, 2023				For the 13 Weeks Ended July 2, 2022
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	108.9	74.2	%	$	118.7	70.5	%	$	(9.8)	(8.3)	%	(8.8)	%
Smartwatches	8.4		5.7		15.4		9.2		(7.0)		(45.5)		(45.5)
Total watches	$	117.3	79.9	%	$	134.1	79.7	%	$	(16.8)	(12.5)		(13.0)
Leathers	21.0		14.3		22.6		13.4		(1.6)		(7.1)		(6.2)
Jewelry	6.2		4.2		9.3		5.5		(3.1)		(33.3)		(32.3)
Other	2.2		1.6		2.3		1.4		(0.1)		(4.3)		(8.7)
Total	$	146.7	100.0	%	$	168.3	100.0	%	$	(21.6)	(12.8)	%	(13.1)	%

Europe Net Sales. Europe net sales decreased $19.6 million, or 18.2% (19.2% in constant currency), during the Second 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 7% in constant currency. Sales declines in our wholesale channel were partially offset by e-commerce sales increases. Comparable retail sales increased moderately during the Second Quarter with growth in store sales and 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 Europe segment (dollars in millions)


	For the 13 Weeks Ended July 1, 2023				For the 13 Weeks Ended July 2, 2022
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	59.4	67.3	%	$	70.4	65.2	%	$	(11.0)	(15.6)	%	(16.5)	%
Smartwatches	5.3		6.0		10.3		9.5		(5.0)		(48.5)		(49.5)
Total watches	$	64.7	73.3	%	$	80.7	74.7	%	$	(16.0)	(19.8)		(20.7)
Leathers	5.0		5.7		5.3		4.9		(0.3)		(5.7)		(7.5)
Jewelry	15.4		17.4		18.6		17.2		(3.2)		(17.2)		(18.8)
Other	3.2		3.6		3.3		3.2		(0.1)		(3.0)		(3.0)
Total	$	88.3	100.0	%	$	107.9	100.0	%	$	(19.6)	(18.2)	%	(19.2)	%

Asia Net Sales. Net sales in Asia decreased $8.5 million, or 9.2% (4.9% in constant currency), during the Second Quarter in comparison to the Prior Year Quarter. The sales decreases were across the Asia region, with the largest sales decreases in FOSSIL and EMPORIO ARMANI brands. FOSSIL branded sales decreased moderately, largely driven by declines in smartwatches while traditional watches increased 6% in constant currency. Comparable retail sales decreased moderately during the Second 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 July 1, 2023				For the 13 Weeks Ended July 2, 2022
									Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	65.9	78.4	%	$	69.5	75.1	%	$	(3.6)	(5.2)	%	(0.7)	%
Smartwatches	4.1		4.9		7.8		8.4		(3.7)		(47.4)		(44.9)
Total watches	$	70.0	83.3	%	$	77.3	83.5	%	$	(7.3)	(9.4)		(5.2)
Leathers	7.4		8.8		8.0		8.6		(0.6)		(7.5)		(5.0)
Jewelry	5.8		6.9		6.0		6.5		(0.2)		(3.3)		—
Other	0.9		1.0		1.3		1.4		(0.4)		(30.8)		(15.4)
Total	$	84.1	100.0	%	$	92.6	100.0	%	$	(8.5)	(9.2)	%	(4.9)	%

Gross Profit. Gross profit of $156.7 million in the Second Quarter decreased 18.1% in comparison to $191.3 million in the Prior Year Quarter. Our gross profit margin rate decreased to 48.7% in the Second Quarter compared to 51.6% in the Prior Year Quarter. The year-over-year decrease primarily reflects increased promotions, an unfavorable currency impact, net foreign currency hedging contract losses in the current year as compared to gains in the prior year and restructuring charges related to product offering exits. These costs were partially offset by decreased freight costs.

Operating Expenses. Total operating expenses in the Second Quarter decreased by 5.1% to $192.0 million or 59.6% of net sales, in comparison to $202.3 million or 54.5% of net sales in the Prior Year Quarter. SG&A expenses were $187.2 million in the Second Quarter compared to $199.2 million in the Prior Year Quarter. As a percentage of net sales, SG&A expenses increased to 58.1% in the Second Quarter as compared to 53.7% in the Prior Year Quarter, largely driven by decreased sales. Restructuring expenses were $4.6 million in the Second Quarter, compared to $2.9 million in the Prior Year Quarter. We

incurred other long-lived asset impairment charges of $0.2 million in both the Second Quarter and Prior Year Quarter. The translation of foreign-denominated expenses during the Second Quarter decreased operating expenses by $0.8 million as a result of the stronger U.S. dollar.

Operating Income (loss). Operating loss in the Second Quarter was $35.3 million as compared to an operating loss of $10.9 million in the Prior Year Quarter. As a percentage of net sales, operating margin was (11.0)% in the Second Quarter compared to (2.9)% in the Prior Year Quarter. Operating margin rate in the Second Quarter included an unfavorable impact of 140 basis points due to changes in foreign currencies.

Operating income by segment is summarized as follows (dollars in millions):


	For the 13 Weeks Ended July 1, 2023		For the 13 Weeks Ended July 2, 2022		Change				Operating Margin %
					Dollars		Percentage		2023		2022
Americas	$	23.4	$	30.7	$	(7.3)	(23.8)	%	16.0	%	18.2	%
Europe	(0.7)		14.8		(15.5)		(104.7)		(0.8)		13.8
Asia	7.4		12.4		(5.0)		(40.3)		8.8		13.3
Corporate	(65.4)		(68.8)		3.4		4.9
Total operating income	$	(35.3)	$	(10.9)	$	(24.4)	(223.9)	%	(11.0)	%	(2.9)	%

Interest Expense. Interest expense increased by $1.0 million during the Second Quarter compared to the Prior Year Quarter, primarily driven by an increased debt balance and increased interest rate.

Other Income (Expense)-Net. During the Second Quarter, other income (expense)-net was income of $7.2 million in comparison to expense of $1.7 million in the Prior Year Quarter, reflecting net currency gains in the Second Quarter as compared to net currency losses in the Prior Year Quarter.

Provision for Income Taxes. Income tax benefit for the Second Quarter was $7.2 million, resulting in an effective income tax rate of 21.5%. For the Prior Year Quarter, income tax expense was $2.0 million, resulting in an effective income tax rate of (11.8)%. The effective tax rate in the Second Quarter was favorable as compared to the Prior Year Quarter due to reduced foreign taxes and favorable discrete items. No tax benefit has been accrued on the Second Quarter U.S. tax losses and certain foreign tax losses due to the uncertainty of whether they can be used in the future. The Second Quarter’s effective tax rate is positive because an income tax benefit was accrued on certain foreign losses combined with the favorable discrete items.

Net Income (Loss) Attributable to Fossil Group, Inc. Second Quarter net income (loss) attributable to Fossil Group, Inc. was net loss of $26.5 million, or $0.51 per diluted share, in comparison to a net loss of $19.1 million, or $0.37 per diluted share, in the Prior Year Quarter. During the Second Quarter, currencies favorably affected loss per diluted share by approximately $0.03.

Adjusted Net Income (Loss). Adjusted net income (loss) for the Second Quarter was a net loss of $20.4 million with adjusted loss per diluted share of $0.40 compared to adjusted net loss of $16.6 million with adjusted loss per diluted share of $0.33 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 July 1, 2023				For the 13 Weeks Ended July 2, 2022
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(33.5)	(10.4)%		$	(16.9)	(4.6)	%
Plus:
Interest expense	5.3				4.3
Amortization and depreciation	4.8				5.8
Other long-lived asset impairments	0.2				0.2
Other non-cash charges	(0.5)				(0.2)
Stock-based compensation	1.6				3.8
Restructuring expense	4.6				2.9

Restructuring cost of sales	2.9				—
Less:
Interest income	0.8				0.2
Adjusted EBITDA	$	(15.4)	(4.8)	%	$	(0.3)	(0.1)	%

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 July 1, 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)	$	(35.3)		$	2.9	$	0.2	$	4.6	$	(27.6)
Operating margin (% of net sales)	(11.0)		%							(8.6)		%
Interest expense	$	(5.3)		$	—	$	—	$	—	$	(5.3)
Other income (expense) - net	7.2			—		—		—		7.2
Income (loss) before income taxes	(33.5)			2.9		0.2		4.6		(25.8)
Provision (benefit) for income taxes	(7.2)			0.6		—		1.0		(5.6)
Less: net income attributable to noncontrolling interest	(0.2		)	—		—		—		(0.2		)
Net income (loss) attributable to Fossil Group, Inc.	$	(26.5)		$	2.3	$	0.2	$	3.6	$	(20.4)
Diluted earnings (loss) per share	$	(0.51)		$	0.04	$	—	$	0.07	$	(0.40)


	For the 13 Weeks Ended July 2, 2022
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(10.9)		$	0.2	$	2.9	$	(7.8)
Operating margin (% of net sales)	(2.9)		%					(2.1)		%
Interest expense	$	(4.3)		$	—	$	—	$	(4.3)
Other income (expense) - net	(1.7)			—		—		(1.7)
Income (loss) before income taxes	(16.9)			0.2		2.9		(13.8)
Provision for income taxes	2.0			—		0.6		2.6
Less: Net income attributable to noncontrolling interest	(0.2)			—		—		(0.2)
Net income (loss) attributable to Fossil Group, Inc.	$	(19.1)		$	0.2	$	2.3	$	(16.6)
Diluted earnings (loss) per share	$	(0.37)		$	—	$	0.04	$	(0.33)

Fiscal Year To Date Periods Ended July 1, 2023 and July 2, 2022

Consolidated Net Sales. Net sales decreased $100.0 million or 13.4% (11.7% in constant currency) for the Year To Date Period as compared to the Prior Year YTD Period. Sales declined in all three regions. Sales declined in wholesale and retail store channels, while owned e-commerce sales increased. Sales of smartwatches declined due to lower consumer demand across geographies and channels and our deemphasis of the category. Global comparable retail sales increased 8% with sales increases in our owned e-commerce websites and retail stores.

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


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Americas	$	284.6	44.0	%	$	330.2	44.2	%	$	(45.6)	(13.8)	%	(13.8)	%
Europe	194.0		30.0		232.4		31.0		(38.4)		(16.5)		(14.8)
Asia	164.2		25.4		179.4		24.0		(15.2)		(8.5)		(3.3)
Corporate	4.2		0.6		5.0		0.8		(0.8)		(16.0)		(16.0)
Total	$	647.0	100.0	%	$	747.0	100.0	%	$	(100.0)	(13.4)	%	(11.7)	%

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


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	461.5	71.3	%	$	520.1	69.6	%	$	(58.6)	(11.3)	%	(9.5)	%
Smartwatches	42.2		6.5		71.4		9.6		(29.2)		(40.9)		(39.6)
Total watches	$	503.7	77.8	%	$	591.5	79.2	%	$	(87.8)	(14.8)		(13.2)
Leathers	73.6		11.4		70.1		9.4		3.5		5.0		6.9
Jewelry	56.4		8.7		68.6		9.2		(12.2)		(17.8)		(15.9)
Other	13.3		2.1		16.8		2.2		(3.5)		(20.8)		(19.1)
Total	$	647.0	100.0	%	$	747.0	100.0	%	$	(100.0)	(13.4)	%	(11.7)	%

In the Year To Date Period, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by $12.9 million, including unfavorable impacts of $9.2 million and $3.9 million in our Asia and Europe segments, respectively, and a favorable impact of $0.2 million in our Americas segment, compared to the Prior Year YTD Period.

Americas Net Sales. Americas net sales decreased $45.6 million, or 13.8% (same 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 moderately positive during the Year To Date Period.


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	200.2	70.4	%	$	234.6	71.0	%	$	(34.4)	(14.7)	%	(15.0)	%
Smartwatches	21.0		7.3		32.7		10.0		(11.7)		(35.8)		(35.9)
Total watches	$	221.2	77.7	%	$	267.3	81.0	%	$	(46.1)	(17.2)		(17.5)
Leathers	48.1		16.9		41.8		12.7		6.3		15.1		16.3
Jewelry	11.6		4.1		17.2		5.2		(5.6)		(32.6)		(32.0)
Other	3.7		1.3		3.9		1.1		(0.2)		(5.1)		(5.1)
Total	$	284.6	100.0	%	$	330.2	100.0	%	$	(45.6)	(13.8)	%	(13.8)	%

Europe Net Sales. Europe net sales decreased $38.4 million, or 16.5% (14.8% in constant currency), during the Year To Date Period in comparison to the Prior Year YTD Period. Sales decreased across much of 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 our 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 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	131.2	67.7	%	$	151.6	65.2	%	$	(20.4)	(13.5)	%	(11.6)	%
Smartwatches	11.9		6.1		22.9		9.9		(11.0)		(48.0)		(47.2)
Total watches	$	143.1	73.8	%	$	174.5	75.1	%	$	(31.4)	(18.0)		(16.3)
Leathers	11.8		6.1		12.7		5.5		(0.9)		(7.1)		(4.7)
Jewelry	33.9		17.5		39.8		17.1		(5.9)		(14.8)		(13.6)
Other	5.2		2.6		5.4		2.3		(0.2)		(3.7)		(1.9)
Total	$	194.0	100.0	%	$	232.4	100.0	%	$	(38.4)	(16.5)	%	(14.8)	%

Asia Net Sales. Asia net sales decreased $15.2 million, or 8.5% (3.3% 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 slightly 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 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022				Growth (Decline)
	Net Sales		Percentage of Total		Net Sales		Percentage of Total		Dollars		Percentage As Reported		Percentage Constant Currency
Watches:
Traditional watches	$	128.1	78.0	%	$	133.9	74.6	%	$	(5.8)	(4.3)	%	1.0	%
Smartwatches	9.4		5.7		15.8		8.8		(6.4)		(40.5)		(36.1)
Total watches	$	137.5	83.7	%	$	149.7	83.4	%	$	(12.2)	(8.1)		(2.9)
Leathers	13.8		8.4		15.6		8.7		(1.8)		(11.5)		(8.3)
Jewelry	10.9		6.6		11.7		6.5		(0.8)		(6.8)		(0.9)
Other	2.0		1.3		2.4		1.4		(0.4)		(16.7)		(8.3)
Total	$	164.2	100.0	%	$	179.4	100.0	%	$	(15.2)	(8.5)	%	(3.3)	%

Gross Profit. Gross profit of $317.4 million in the Year To Date Period decreased $58.3 million, or 15.5%, in comparison to $375.7 million in the Prior Year YTD Period. Gross profit margin rate decreased to 49.1% 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 an unfavorable currency impact, increased promotions and restructuring charges related to product offering exits. These costs were partially offset by timing of licensor minimum royalty costs, reduced freight costs and favorable region and product mix.

Operating Expenses. For the Year To Date Period, total operating expenses decreased to $390.0 million compared to $400.9 million in the Prior Year YTD Period. SG&A expenses were $378.1 million in the Year To Date Period in comparison to $395.0 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses increased to 58.4% in the Year To Date Period as compared to 52.9% in the Prior Year YTD Period, mainly driven by decreased sales. During the Year To Date Period, we incurred restructuring costs of $11.7 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 $0.2 million in the Year To Date Period compared to charges of $0.5 million in the Prior Year YTD Period. The translation of foreign-denominated expenses during the Year To Date Period decreased operating expenses by $6.0 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 $72.6 million in the Year To Date Period as compared to a loss of $25.2 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 (11.2)% in the Year To Date Period as compared to (3.4)% in the Prior Year YTD Period and was negatively impacted by approximately 190 basis points due to changes in foreign currencies.

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


	For the 26 Weeks Ended July 1, 2023		For the 26 Weeks Ended July 2, 2022		Change				Operating Margin %
					Dollars		Percentage		2023		2022
Americas	$	36.0	$	54.6	$	(18.6)	(34.1)	%	12.6	%	16.5	%
Europe	6.3		34.4		(28.1)		(81.7)		3.2		14.8
Asia	14.6		21.3		(6.7)		(31.5)		8.9		11.9
Corporate	(129.5)		(135.5)		6.0		4.4
Total operating income (loss)	$	(72.6)	$	(25.2)	$	(47.4)	(188.1)	%	(11.2)	%	(3.4)	%

Interest Expense. Interest expense increased by $2.0 million during the Year To Date Period, primarily driven by an increased debt balance and increased interest rate compared to the Prior Year YTD Period.

Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net was a net income of $9.9 million in the Year to Date Period, primarily driven by net currency gains, and compared to net expense of $0.1 million in the Prior Year YTD Period.

Provision for Income Taxes. Income tax benefit for the Year To Date Period was $5.6 million, resulting in an effective income tax rate of 7.7%. The Prior Year YTD Period income tax expense was $6.7 million resulting in an effective tax rate of (19.9)%. 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 an 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 $67.8 million, or $1.30 per diluted share, in comparison to loss of $40.6 million, or $0.78 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 $0.06 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 $51.9 million with adjusted loss per diluted share of $1.00 compared to adjusted net loss of $35.9 million with adjusted loss per diluted share of $0.69 in the Prior Year YTD Period.


	For the 26 Weeks Ended July 1, 2023				For the 26 Weeks Ended July 2, 2022
	Dollars		% of Net Sales		Dollars		% of Net Sales
Income (loss) before income taxes	$	(73.1)	(11.3)%		$	(33.6)	(4.5)	%
Plus:
Interest expense	10.4				8.3
Amortization and depreciation	9.9				11.9
Other long-lived asset impairments	0.2				0.5
Other non-cash charges	(0.7)				(0.3)
Stock-based compensation	3.0				6.1
Restructuring expense	11.7				5.4

Restructuring cost of sales	8.2				—
Less:
Interest income	1.4				0.3
Adjusted EBITDA	$	(31.8)	(4.9)	%	$	(2.0)	(0.3)	%


	For the 26 Weeks Ended July 1, 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)	$	(72.6)		$	8.2	$	0.2	$	11.7	$	(52.5)
Operating margin (% of net sales)	(11.2)		%							(8.1)		%
Interest expense	$	(10.4)		$	—	$	—	$	—	$	(10.4)
Other income (expense) - net	9.9			—		—		—		9.9
Income (loss) before income taxes	(73.1)			8.2		0.2		11.7		(53.0)
Provision for income taxes	(5.6)			1.7		—		2.5		(1.4)
Less: net income attributable to noncontrolling interest	(0.3)			—		—		—		(0.3)
Net income (loss) attributable to Fossil Group, Inc.	$	(67.8)		$	6.5	$	0.2	$	9.2	$	(51.9)
Diluted earnings (loss) per share	$	(1.30)		$	0.12	$	—	$	0.18	$	(1.00)


	For the 26 Weeks Ended July 2, 2022
($ in millions, except per share data):	As Reported			Other Long-Lived Asset Impairment		Restructuring Expenses		As Adjusted
Operating income (loss)	$	(25.2)		$	0.5	$	5.4	$	(19.3)
Operating margin (% of net sales)	(3.4)		%					(2.6)		%
Interest expense	$	(8.3)		$	—	$	—	$	(8.3)
Other income (expense) - net	(0.1)			—		—		(0.1)
Income (loss) before income taxes	(33.6)			0.5		5.4		(27.7)
Provision for income taxes	6.7			0.1		1.1		7.9
Less: Net income attributable to noncontrolling interest	(0.3)			—		—		(0.3)
Net income (loss) attributable to Fossil Group, Inc.	$	(40.6)		$	0.4	$	4.3	$	(35.9)
Diluted earnings (loss) per share	$	(0.78)		$	0.01	$	0.08	$	(0.69)

Liquidity and Capital Resources

Our cash and cash equivalents balance at the end of the Second Quarter was $132.1 million, including $129.4 million held in banks outside the U.S., in comparison to cash and cash equivalents of $167.1 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 charges, strategic investments such as acquisitions, share repurchases and other capital expenditures.

At the end of the Second Quarter, we had net working capital of $476.0 million compared to net working capital of $543.5 million at the end of the Prior Year Quarter. At the end of the Second Quarter, we had $0.4 million of short-term borrowings and $243.0 million in long-term debt including unamortized issuance costs compared to $0.6 million of short-term borrowings and $248.9 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 $83.0 million in the Year To Date Period decreased $82.7 million from the Prior Year YTD Period primarily due to cash of $52.0 million used by working capital items in the Year To Date Period as compared to cash of $184.8 million used by working capital items in the Prior Year YTD Period. The decrease in cash used for working capital items was primarily a result of proactively managing our inventory levels down.

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

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The $64.9 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):


	July 1, 2023		July 2, 2022
Cash and cash equivalents	$	132.1	$	167.1
Revolver availability	72.5		53.8
Total liquidity	$	204.6	$	220.9

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 $26.0 million under the Revolving Facility during the Year To Date Period at an average interest rate of 6.5%. As of July 1, 2023, we had $150.0 million outstanding under the Notes and $99.0 million outstanding under the Revolving Facility. We also had unamortized debt issuance costs of $6.0 million recorded in long-term debt and $2.8 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 July 1, 2023. Amounts available under the Revolving Facility are reduced by any amounts outstanding under standby letters of credit. As of July 1, 2023, we had available borrowing capacity of $72.5 million under the Revolving Facility. At July 1, 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 Second 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 July 1, 2023 and their expiration dates.

Functional Currency

Contract Currency

Type

Amount

Type

Amount

Expiring Through

Euro

48.8

U.S. dollar

52.0

May 2024

Canadian dollar

24.7

U.S. dollar

18.6

June 2024

British pound

4.2

U.S. dollar

5.1

June 2024

Japanese yen

596.4

U.S. dollar

4.6

June 2024

Mexican peso

49.5

U.S. dollar

2.4

September 2023

Australian dollar

2.8

U.S. dollar

1.9

December 2023

U.S. dollar

4.1

Japanese yen

530.0

November 2023

If we were to settle our forward contracts listed in the table above as of July 1, 2023, there would have been a $2.1 million loss. As of July 1, 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 $8.6 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 July 1, 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 $29.9 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 July 1, 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 July 1, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the Second 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 Second Quarter.

Item 5. Other Information

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 July 1, 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						Fifth Amended and Restated Bylaws of Fossil Group, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on April 3, 2017).

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.

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.

August 10, 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)