Fossil Group, Inc.: Form 10-Q for the period ended Oct 4, 2025

The Company’s fiscal year periodically results in a 53-week year instead of a normal 52-week year. The current fiscal year ending January 3, 2026 is a 53-week year, with the additional week being included in the quarter ended April 5, 2025. The following is a discussion of the financial condition and results of operations of Fossil Group, Inc. and its subsidiaries for the thirteen week periods ended October 4, 2025 (the “Third Quarter”) and September 28, 2024 (the “Prior Year Quarter”), and the forty week period ended October 4, 2025 (the "Year To Date Period") and the thirty-nine week period ended September 28, 2024 (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:

Tariffs Exposure: Most of our products are assembled or manufactured overseas, with the substantial majority of our products imported from China during fiscal year 2024. In fiscal 2024, we generated 25% of our net sales within the U.S. In early 2025, the current U.S. presidential administration announced significant new tariffs on foreign imports into the U.S., including from China. In April 2025, the U.S. government announced additional tariffs on various goods imported into the U.S., which was followed by several months of rapid changes in U.S. trade policies including recent sweeping tariff increases, as well as retaliatory tariffs by foreign countries. As of early August 2025, following multiple delays and pauses in implementation, higher tariff rates went into effect for most products imported into the United States from most of the major trading partners of the U.S. A pause on significantly increased rates for products from China continues to be in effect. However, it continues to be reasonably possible that new or additional tariffs will be periodically announced given the current highly volatile and reactionary global trade environment. We continue to monitor and evaluate the direct and indirect impacts of these tariffs and heightened global trade disputes. Incremental tariffs negatively impacted our gross margin by approximately 320 basis points and 143 basis points for the Third Quarter and Year To Date Period, respectively. Future adverse effects on our financial results will likely continue if tariff levels continue to rise, especially for goods imported from China. We are currently developing and implementing mitigation strategies such as price increases and sourcing changes among others, and determining future implementation timelines.

Economic Environment Impacting Consumer Spending Ability and Preferences: We continue to monitor macroeconomic trends and uncertainties and changes in international trade relations and trade policy, including those related to tariffs. As a result of the recent U.S. tariff announcements, potential tariff increases or other adverse modifications or the imposition of retaliatory tariffs by other countries, we anticipate increased supply chain challenges, economic uncertainty, and economic pressures on customers and consumers as a result of the challenges of high inflation combined with the effects of increased tariffs and possible recessionary conditions in the U.S. and global economy.

Inventory Levels: Slower consumer demand across a wide array of discretionary goods has translated in some cases to excess inventory levels in key accounts and overall cautious buying patterns across our wholesale customers. With the challenging global macro environment, we expect many customers to continue to manage to leaner inventory levels than historically across our key categories to reduce inventory carrying risk. We will continue to proactively manage our inventory purchases to mitigate our cash flow and inventory risks.

World Conflicts: We continuously monitor the direct and indirect impacts from the military conflicts between Russia and Ukraine and in the Middle East. Our operations in Russia and Israel consist of sales through third-party distributors, and our sales in Russia and Israel are not material to our financial results. We have no other operations, including supply chain, in Israel, Palestine, Russia or Ukraine. However, the continuation of the current military conflicts or an escalation of the conflicts beyond their current scope may continue to weaken the global economy, negatively impact consumer confidence, and could result in additional inflationary pressures and supply chain constraints.

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: Our goal is to drive shareholder value. We operate in a very challenging business environment for our product offerings, which is complicated by the dynamic global trade environment as a result of U.S. tariffs.

In March 2024, we announced that we would undertake a strategic review of our current business model and capital structure. This includes a broader set of efforts to optimize our business model and further reduce structural costs, monetize various assets, and could include additional debt and equity financing options.

In September 2024, we appointed Franco Fogliato Chief Executive Officer and a member of the Board of Directors (the "Board") and moved quickly to implement changes and create a plan to return the Company to profitable growth (the "Turnaround Plan"). Our Turnaround Plan is centered on three key areas: (i) refocusing on our core, (ii) rightsizing our cost structure, and (iii) strengthening our balance sheet.

As part of refocusing on our core we are building an operating model that is brand-led and consumer focused. We are returning to our core businesses with a renewed emphasis on traditional watches on our FOSSIL brand platform, as well as our go-to market execution. We are launching a new FOSSIL brand platform, leveraging our major licensed brands, optimizing our global wholesale footprint and driving channel profitability.

The second key area of our Turnaround Plan is focused on aligning the cost structure to our newly defined strategy. In 2025, we expect to achieve selling, general and administrative ("SG&A") cost savings of approximately $100 million as compared to fiscal 2024 through a series of initiatives including a strategic reduction in force which occurred in late February 2025, reduced costs associated with the transition of smaller international markets to a distributor model, and the closing of underperforming FOSSIL retail stores. We have closed a net 44 retail stores during the Year To Date Period and plan to close six more stores in the remaining part of the year. We also will seek to identify additional cost-reduction opportunities, which may generate incremental savings in 2025.

Under our third key area, strengthening our balance sheet, we are actively pursuing initiatives to improve working capital and strengthen liquidity. During the second quarter of fiscal 2025, we entered into a sale of our European distribution center for $23 million. On August 13, 2025, we entered into the New Revolving Credit Facility, replacing our previous revolving credit facility, and on November 13, 2025, we consummated our previously announced Exchange Offer and concurrent Rights Offering for our notes. See "Item 1. Financial Statement-Notes to Condensed Consolidated Financial Statements-15. Debt Activity" and "-Liquidity and Capital Resources" for more details.

Aided by our restructuring programs, we achieved gross margins above 50% for fiscal year 2024 and above 55% for the Year To Date Period, which included some adverse effects of the tariffs during the Year to Date Period, as already mentioned. Our goal is to achieve positive adjusted operating margins as we continue to realize improvement across the Turnaround Plan workstreams.

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 28, 2024.

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 97 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.

Europe: The Europe segment is comprised of sales to customers based in European countries, the Middle East and Africa. Sales are generated through diversified distribution channels that include wholesalers, distributors and direct to consumer. Within each channel, we sell our products through a variety of physical points of sale, distributors, and e-commerce channels. In the direct to consumer channel, we had 49 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.

Asia: The Asia segment is comprised of sales to customers based in Australia, greater China (including mainland China, Hong Kong SAR, Macau SAR 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 58 Company-owned stores as of the end of the Third Quarter and an extensive collection of products available through our owned websites.

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

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

As a result, in addition to presenting financial measures in accordance with accounting principles generally accepted in the United States of America ("GAAP"), our discussion contains references to constant currency financial information, which is a non-GAAP financial measure. To calculate net sales on a constant currency basis, net sales for the current fiscal year for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average rates during the comparable period of the prior fiscal year. We present constant currency information to provide investors with a basis to evaluate how our underlying business performed excluding the effects of foreign currency exchange rate fluctuations. The constant currency financial information presented herein should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Reconciliations between constant currency financial information and the most directly comparable GAAP measure are included where applicable.

Adjusted EBITDA, Adjusted Operating Income (Loss), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share: Adjusted EBITDA, Adjusted operating income (loss), Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are non-GAAP financial measures. We define Adjusted EBITDA as our income (loss) before income taxes, plus interest expense, amortization and depreciation, impairment expense, other non-cash charges, stock-based compensation expense, restructuring expense and unamortized debt issuance costs included in loss on extinguishment of debt minus gains on asset divestitures and interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense, restructuring expense and gains on asset divestitures. We define Constant currency adjusted operating income (loss) as operating income (loss) before impairment expense, restructuring expense and gains on asset divestitures and excluding the effects of foreign currency exchange rate fluctuations. We define Adjusted net income (loss) and Adjusted earnings (loss) per share as net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively, before impairment expense, restructuring expense, gains on asset divestitures and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjusted EBITDA, Adjusted operating income (loss), Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share herein because they are widely used by investors for valuation and for comparing our financial performance with the performance of our competitors. We also use these non-GAAP financial measures to monitor and compare the financial performance of our operations. Our presentation of Adjusted EBITDA, Adjusted operating income (loss), Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjusted operating income (loss), Constant currency adjusted operating income (loss), Adjusted net income (loss) and Adjusted earnings (loss) per share are not intended to be used as alternatives to any measure of our performance in accordance with GAAP.

Comparable Retail Sales: Both stores and e-commerce sites are included in comparable retail sales in the thirteenth month of operation. Stores that experience a gross square footage change of 10% or more due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation. Comparable retail sales were adjusted to normalize the 40-week Year To Date Period with the 39-week Prior Year YTD Period. Comparable retail sales also exclude the effects of foreign currency fluctuations.

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

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

Components of Results of Operations

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

Cost of Sales includes raw material costs, assembly labor, assembly overhead including depreciation expense, assembly warehousing costs and shipping and handling costs related to the movement of finished goods from assembly locations to sales distribution centers and from sales distribution centers to customer locations. Additionally, cost of sales includes customs duties, 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 SG&A, other long-lived asset impairments and restructuring charges. SG&A expenses include selling and distribution expenses primarily consisting of sales and distribution labor costs, sales distribution center and warehouse facility costs, depreciation expense related to sales distribution and warehouse facilities, the four-wall operating costs of our retail stores, point-of-sale expenses, advertising expenses and art, design and product development labor costs. SG&A also includes general and administrative expenses primarily consisting of administrative support labor and support costs such as treasury, legal, information services, accounting, internal audit, human resources, executive management costs and costs associated with stock-based compensation. Restructuring charges include costs to reorganize, refine and optimize our Company’s infrastructure and store closures under our Turnaround Plan.

Results of Operations

Quarterly Periods Ended October 4, 2025 and September 28, 2024

Consolidated Net Sales. Net sales decreased by $17.6 million, or 6.1% (7.1% in constant currency), for the Third Quarter compared to the Prior Year Quarter. The decrease was largely driven by the direct channel. Our store rationalization initiatives comprised approximately 260 basis points of the sales decline in the Third Quarter compared to the Prior Year Quarter. Sales decreased in the Americas and Europe and were flat (increased slightly in constant currency) in Asia. Wholesale sales increased by 4.0% (3.0% in constant currency). Direct to consumer sales declined by 26.1% (27.2% in constant currency), due to a smaller store base and declines in our comparable retail sales. We have reduced our store footprint by 18.7% since the end of the Prior Year Quarter. Global comparable retail sales decreased by 21.5%, mostly driven by our e-commerce channel. From a category perspective, traditional watch sales decreased by 0.4% (1.3% in constant currency). Net sales in smartwatches decreased by 5.0% (3.9% in constant currency), as we exited the category. The leathers category decreased by 36.8% (37.2% in constant currency) compared to the Prior Year Quarter, and jewelry sales decreased by 20.3% (23.2% in constant currency), which were both significantly impacted by our smaller store base and decreased promotional activity in our owned e-commerce. From a brand perspective, the most significant sales declines were in the FOSSIL brand, which were partially offset by sales growth in the DIESEL and ARMANI EXCHANGE brands.

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

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

In the Third Quarter, the translation of foreign-based net sales into U.S. dollars increased net sales by $2.9 million, with favorable impacts of $4.2 million in Europe partially offset by unfavorable impacts of $1.2 million and $0.1 million in our Asia 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:

Americas Net Sales. Americas net sales decreased by $11.6 million, or 9.6% (9.5% in constant currency), during the Third Quarter compared to the Prior Year Quarter. Sales decreases were largely in the FOSSIL brand. Sales decreased in store and e-commerce channels and were partially offset by growth in our wholesale channel. Comparable retail sales decreased sharply during the Third Quarter.

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

Europe Net Sales. Europe net sales decreased by $5.8 million, or 6.0% (10.3% in constant currency), during the Third Quarter compared to the Prior Year Quarter. Sales decreases were largely in the FOSSIL brand. Our sales decreased across much of the Eurozone. Sales decreases in our e-commerce and store channels were partially offset by sales growth in our wholesale channel. Comparable retail sales decreased sharply during the Third Quarter, with sales declines in our stores and owned e-commerce.

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

Asia Net Sales. Net sales in Asia were flat (increased 1.7% in constant currency) during the Third Quarter compared to the Prior Year Quarter. Sales increases in India and Japan were offset by sales decreases in Greater China and Australia. The largest sales decreases were in the EMPORIO ARMANI brand and were offset by sales growth in ARMANI EXCHANGE, DIESEL and MICHAEL KORS. Sales increased in our wholesale channel and were offset by decreases in e-commerce and store channels. Comparable retail sales decreased moderately during the Third Quarter with sales growth in our stores more than offset by declines in our owned e-commerce.

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

Gross Profit. Gross profit of $132.4 million in the Third Quarter decreased by 6.9% compared to $142.2 million in the Prior Year Quarter. Our gross profit margin rate decreased to 49.0% in the Third Quarter compared to 49.4% in the Prior Year Quarter, primarily reflecting the impact of increased tariffs and licensed brand minimum royalties. These unfavorable impacts were largely offset by improved product margins in our core categories driven by sourcing initiatives. Changes in foreign currencies resulted in a 30 basis point positive impact.

Operating Expenses. Total operating expenses in the Third Quarter decreased by 7.5% to $154.1 million, or 57.0% of net sales, compared to $166.7 million, or 57.9% of net sales, in the Prior Year Quarter. SG&A expenses were $146.8 million in the Third Quarter compared to $160.9 million in the Prior Year Quarter. As a percentage of net sales, SG&A expenses decreased to 54.3% in the Third Quarter compared to 55.9% in the Prior Year Quarter, primarily driven by cost reductions and efficiencies gained through our restructuring programs. Restructuring expenses were $6.8 million in the Third Quarter, compared to $4.8 million in the Prior Year Quarter. The translation of foreign-denominated expenses during the Third Quarter increased operating expenses by $1.8 million.

Operating Income (loss). Operating loss in the Third Quarter was $21.7 million as compared to an operating loss of $24.5 million in the Prior Year Quarter. As a percentage of net sales, operating margin was (8.0)% in the Third Quarter compared to (8.5)% in the Prior Year Quarter. The operating margin rate in the Third Quarter included a favorable impact of 20 basis points due to changes in foreign currencies.

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

Interest Expense. Interest expense was $4.2 million in the Third Quarter compared to $4.9 million the Prior Year Quarter.

Other Income (Expense)-Net. During the Third Quarter, other income (expense)-net was expense of $6.2 million, compared to income of $3.6 million in the Prior Year Quarter, reflecting net currency losses in the Third Quarter as compared to net currency gains in the Prior Year Quarter. The Third Quarter also included a $1.7 million loss on extinguishment of debt.

Provision for Income Taxes. Income tax expense for the Third Quarter was $8.0 million, resulting in an effective income tax rate of (24.8)%. For the Prior Year Quarter, income tax expense was $6.2 million, resulting in an effective income tax rate of (23.9)%. The effective tax rate in the Third Quarter was unfavorable as compared to the Prior Year Quarter due to income tax accrued on certain foreign income, and no tax benefit accrued on the U.S. tax losses and certain foreign tax losses, due to the uncertainty of whether they can be used in the future.

Net Income (Loss) Attributable to Fossil Group, Inc. Third Quarter net income (loss) attributable to Fossil Group, Inc. was a net loss of $39.9 million, or $0.76 per diluted share, compared to a net loss of $32.0 million, or $0.60 per diluted share, in the Prior Year Quarter. The translation of foreign currencies negatively impacted diluted loss per share by $0.11 in the Third Quarter.

Adjusted Net Income (Loss). Adjusted net income (loss) for the Third Quarter was a net loss of $32.8 million with adjusted loss per diluted share of $0.63 compared to adjusted net loss of $30.0 million with adjusted loss per diluted share of $0.56 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).

(1) The Prior Year Quarter includes the gain on sale of our building in France

(2) As a result of changes in presentation, certain prior period information has been reclassified to conform to the current period presentation

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

(1) Includes the gain on sale of our building in France

(2) As a result of changes in presentation, certain prior period information has been reclassified to conform to the current period presentation

Fiscal Year To Date Periods Ended October 4, 2025 and September 28, 2024

Consolidated Net Sales. Net sales decreased by $78.8 million, or 9.8% (9.7% in constant currency), for the Year To Date Period compared to the Prior Year YTD Period, with most of the sales declines occurring in our direct to consumer channels. Global comparable retail sales decreased by 22.1% on a 40-week calendar basis due to sales decreases in our retail stores and owned e-commerce websites. Declines in smartwatch sales and our store rationalization initiatives comprised approximately 430 basis points of the sales decline in the Year To Date Period compared to the Prior Year YTD Period. Sales declines in leathers and jewelry categories were primarily driven by the smaller store base and decreased promotional activity in our owned e-commerce. Sales were favorably impacted by 210 basis points as a result of the Year To Date Period including 40 weeks, compared to 39 weeks in the Prior Year YTD Period. From a brand perspective, sales decreased primarily in FOSSIL and EMPORIO ARMANI.

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

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

During the Year To Date Period, the translation of foreign-based net sales into U.S. dollars decreased reported net sales by $1.3 million, including unfavorable impacts of $4.1 million and $2.7 million in our Americas and Asia segments, respectively, partially offset by a favorable impact of $5.5 million in our Europe segment, compared to the Prior Year YTD Period.

Americas Net Sales. Americas net sales decreased by $47.8 million, or 13.6% (12.5% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. The sales declines were primarily in the FOSSIL brand and across all major channels. Comparable retail sales decreased sharply during the Year To Date Period.

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

Europe Net Sales. Europe net sales decreased by $14.9 million, or 5.9% (8.1% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. Sales decreased across much of the Eurozone, with the largest declines in the FOSSIL brand. Sales increases in our wholesale channel were more than offset by declines in e-commerce and store channels. Comparable retail sales in the region decreased sharply during the Year To Date Period.

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

Asia Net Sales. Asia net sales decreased by $16.0 million, or 8.0% (6.7% in constant currency), during the Year To Date Period compared to the Prior Year YTD Period. Net sales increases in our wholesale channel were more than offset by decreases in our stores and e-commerce channels. Sales growth in India was more than offset by declines in Greater China and the rest of Asia. Sales declines were predominantly in the EMPORIO ARMANI brand and were partially offset by increases in MICHAEL KORS and ARMANI EXCHANGE. Comparable retail sales declined moderately for the Year To Date Period.

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

Gross Profit. Gross profit of $402.1 million in the Year To Date Period decreased by $10.4 million, or 2.5%, compared to $412.6 million in the Prior Year YTD Period. The gross profit margin rate increased to 55.6% in the Year To Date Period compared to 51.4% in the Prior Year YTD Period. The increase in gross profit margin primarily reflects improved product margins as a result of sourcing benefits, exiting the smartwatch category, and reduced freight costs. Changes in foreign currencies resulted in a 10 basis point positive impact.

Operating Expenses. For the Year To Date Period, total operating expenses decreased to $422.1 million compared to $500.2 million in the Prior Year YTD Period. SG&A expenses were $391.6 million in the Year To Date Period compared to $466.7 million in the Prior Year YTD Period. As a percentage of net sales, SG&A expenses decreased to 54.1% in the Year To Date Period, compared to 58.1% in the Prior Year YTD Period, primarily driven by cost reductions and efficiencies gained through our restructuring programs. SG&A expenses for the Year To Date Period also benefited from an $11.0 million gain on the sale of a building during the second quarter. During the Year To Date Period, we incurred restructuring costs of $29.9 million, compared to restructuring costs of $31.6 million in the Prior Year YTD Period. We incurred other long-lived asset impairment charges of $0.6 million in the Year To Date Period compared to charges of $1.9 million in the Prior Year YTD Period. The translation of foreign-denominated expenses during the Year To Date Period increased operating expenses by $0.6 million when compared to the Prior Year YTD Period, as a result of the weaker U.S. dollar.

Operating Income (Loss). Operating income (loss) was loss of $19.9 million in the Year To Date Period as compared to a loss of $87.7 million in the Prior Year YTD Period. As a percentage of net sales, operating margin was (2.8)% in the Year To Date Period as compared to (10.9)% in the Prior Year YTD Period. Operating margin in the Year To Date Period was not significantly impacted by changes in foreign currencies.

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

Interest Expense. Interest expense was $13.0 million during the Year To Date Period compared to the $14.1 million in the Prior Year YTD Period.

Other Income (Expense)-Net. During the Year To Date Period, other income (expense)-net was expense of $9.5 million in comparison to income of $9.0 million in the Prior Year YTD Period. The change in other income (expense)-net was primarily due to net currency losses in the Year To Date Period compared to net currency gains in the Prior Year YTD Period. The Year To Date Period also included a $1.7 million loss on extinguishment of debt.

Provision for Income Taxes. Income tax expense for the Year To Date Period was $17.6 million, resulting in an effective income tax rate of (41.4)%. The Prior Year YTD Period income tax expense was $2.3 million, resulting in an effective income tax rate of (2.4)%. The Year to Date Period effective tax rate was unfavorable to the Prior Year YTD Period due to income tax accrued on certain foreign income and no tax benefit accrued on the U.S. tax losses and certain foreign tax losses, due to the uncertainty of whether they can be used in the future.

Net Income (Loss) Attributable to Fossil Group, Inc. For the Year To Date Period, net loss was $59.7 million, or $1.13 per diluted share, in comparison to a loss of $95.1 million, or $1.80 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 $0.27 per diluted share due to the impact of currency.

Adjusted Net Income (Loss). Adjusted net loss for the Year To Date Period was $43.4 million with adjusted loss per diluted share of $0.83 compared to adjusted net loss of $71.4 million with adjusted loss per diluted share of $1.35 in the Prior Year YTD Period.

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

(1) Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility during the Year To Date Period, and the gain on sale of our building in France during the Prior Year YTD Period

(2) As a result of changes in presentation, certain prior period information has been reclassified to conform to the current period presentation

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

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

(1) Includes the gain on sale of our building in France

(2) As a result of changes in presentation, certain prior period information has been reclassified to conform to the current period presentation

Liquidity and Capital Resources

Our cash and cash equivalents balance at the end of the Third Quarter was $79.2 million, including $69.1 million held by foreign subsidiaries, in comparison to cash and cash equivalents of $106.3 million at the end of the Prior Year Quarter and $123.6 million at the end of fiscal year 2024. 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 and capital expenditures.

At the end of the Third Quarter, we had net working capital of $168.3 million compared to net working capital of $258.3 million at the end of the Prior Year Quarter. At the end of the Third Quarter, we had $7.0 million of short-term borrowings and $169.1 million in long-term debt including unamortized issuance costs compared to $2.3 million of short-term borrowings and $173.4 million in long-term debt including unamortized issuance costs at the end of the Prior Year Quarter.

Operating Activities. Cash from operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities was $73.1 million in the Year To Date Period as compared to cash provided by operating activities of $16.2 million in the Prior Year YTD Period, primarily due to the receipt of $57.3 million of U.S. tax refunds in the Prior Year YTD Period and reductions in accounts payables in the Year To Date Period.

Investing Activities. Investing cash flows increased $17.7 million in the Year To Date Period compared to the Prior Year YTD Period, primarily related to the sale of our European distribution center in the second quarter of fiscal 2025.

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The $31.8 million increase in financing cash flows year-over-year was primarily due to net borrowings during the Year To Date Period compared to net payments in 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 2025, we expect total capital expenditures to be approximately $5 million. Our capital expenditure budget is an estimate and is subject to change.

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 at least the next twelve months. Although we believe we have adequate sources of liquidity, we are assessing our liquidity position and potential sources of supplemental liquidity in light of our operating performance, the timing of the expected benefits of our Turnaround Plan and other relevant considerations, including macroeconomic events, recessionary risks and tariffs. In the event our liquidity is insufficient, we may be required to limit our spending or sell assets. In addition, we may seek additional deleveraging or refinancing transactions, including entering into transactions to exchange debt for other debt securities (including additional secured debt), issuance of equity (including preferred stock and/or convertible securities), repurchase or redemption of outstanding indebtedness, or may otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital structure. Any of these transactions could impact our financial results, including additional expenses, charges and cancellation of indebtedness income. We cannot assure you whether any of such transactions will be consummated, whether we will achieve the benefits of any such transaction, or whether our cost of capital will increase, any of which could have a material adverse impact on our future liquidity.

The following table shows our sources of liquidity (in millions):

(1) On August 13, 2025, we entered into a New Revolving Credit Facility (as defined below)

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 at the following prices: (i) prior to November 30, 2025, at a price equal to $25.25 per $25.00 principal amount of Notes and (ii) 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. See "Notes Exchange" below for information regarding the restructuring of the Notes. On November 13, 2025, as a result of the Restructuring Plan, all $150.0 million aggregate principal amount of the Notes outstanding were cancelled.

Prior 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 “Prior 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").

ABL Credit Agreement: On August 13, 2025, we and certain of our subsidiaries identified therein as guarantors entered into the ABL Credit Agreement with the Lenders, the Administrative Agent and the Company as a borrower to refinance the Prior Revolving Credit Facility. Pursuant to the ABL Credit Agreement, the Lenders have provided new financing commitments to the Company under a new senior secured asset-based revolving credit facility (the “New Revolving Credit Facility”) in an aggregate principal amount of $150 million.

Contemporaneously with entering into the New Revolving Credit Facility, the proceeds of the New Revolving Credit Facility were used to pay off in full the $15.0 million outstanding under the Prior Revolving Facility. We recorded a loss of $1.7 million in other income (expense) - net during the Third Quarter for debt issuance costs and other fees associated with the Prior Revolving Facility.

Borrowings under the New Revolving Credit Facility will bear interest at a rate of 5.00% for term SOFR borrowings and 4.00% for base rate borrowings, payable monthly in arrears. The Lenders will receive an upfront commitment fee equal to 2.00% of the aggregate commitments under the New Revolving Credit Facility. The Company’s obligations under the New Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries, and those obligations and the guarantees are secured by substantially all of the assets of the Company and certain of its subsidiaries. The ABL Credit Agreement includes customary representations and warranties, covenants applicable to the Company and events of default. If an event of default under the ABL Credit Agreement occurs, the Lenders may, among other things, declare the outstanding obligations under the ABL Credit Agreement to be immediately due and payable.

The New Revolving Credit Facility has a maturity date of August 13, 2030, subject to a springing maturity date if on the date that is the 91st day prior to its scheduled maturity any material indebtedness as defined in the ABL Credit Agreement is outstanding.

Year To Date 2025 Activity: We had net borrowings of $5.1 million under the New Revolving Credit Facility and Prior Revolving Facility during the Year To Date Period at an average interest rate of 7.3%. As of October 4, 2025, we had $150.0 million outstanding under the Notes and $21.0 million outstanding under the New Revolving Credit Facility. We also had unamortized debt issuance costs of $1.9 million recorded in long-term debt and $17.6 million recorded in intangible and other assets-net on the condensed consolidated balance sheets. As of October 4, 2025, we had available borrowing capacity of $22.7 million under the New Revolving Credit Facility. At October 4, 2025, we were in compliance with all debt covenants related to our credit facilities.

During the Year To Date Period and in fiscal year 2024, Fossil India Private Ltd. entered into receivables buyout facilities that are used for working capital purposes (the "Fossil India facilities"). Indian Rupee borrowings, in U.S. dollars, under the Fossil India facilities were approximately $6.3 million as of October 4, 2025.

Notes Exchange: On August 13, 2025, we, Fossil (UK) Global Services Ltd. (“Fossil UK”), and certain direct and indirect subsidiaries of ours identified therein (collectively, the “Parties") entered into a Transaction Support Agreement (the "Transaction Support Agreement") with certain holders (the "Consenting Noteholders") representing ownership of approximately 59% of the aggregate principal of the Notes.

On November 13, 2025, we consummated the previously announced Exchange Offer with respect to our Notes and our concurrent Rights Offering pursuant to the Restructuring Plan. In connection with the consummation of the Transactions:

• Noteholders that participated in the Rights Offering and Exchange Offer (the “New Money Participants”) (i) provided an aggregate of $32,500,000 of incremental, new money financing in exchange for (x) $32,500,000 aggregate principal amount of 9.500% First-Out First Lien Secured Senior Notes due 2029 (the “First-Out Notes”) and (y) 954,070 shares of common stock, par value $0.01 (“Common Stock”), (ii) exchanged $120,229,725 aggregate principal amount of Notes on a dollar-for-dollar basis for $120,229,725 aggregate principal amount of First-Out Notes, and (iii) received $945,946 aggregate principal amount of First-Out Notes as a consent premium pursuant to the terms of the Transactions (the “Consent Premium”).
• Noteholders that did not participate in the Rights Offering (the “Non-New Money Participants”) (i) received $29,770,275 aggregate principal amount of 7.500% Second-Out Second Lien Secured Senior Notes due 2029 (the “Second-Out Notes”) on a dollar-for-dollar basis for $29,770,275 Notes held by such Non-New Money Participants, and (ii) received $53,858 aggregate principal amount of Second-Out Notes as a Consent Premium. Only Non-New Money Participants that tendered their Notes in the Exchange Offer and consented to the Restructuring Plan received the Consent Premium.
• Noteholders also received an aggregate total of approximately 3,000,000 warrants (the “Warrants”), entitling the holders thereof to purchase either (i) one share of Common Stock for each Warrant held, or (ii) one pre-funded warrant (each, a “Pre-Funded Warrant”) for each Warrant held, each such Pre-Funded Warrant entitling the holder thereof to purchase one share of Common Stock.
• As a result of the Restructuring Plan, all $150,000,000 aggregate principal amount of Notes outstanding have been cancelled.

The Consenting Noteholders participated in the Transactions on a private placement basis. In accordance with the terms of the Transaction Support Agreement, the Consenting Noteholders received $1,625,000 aggregate principal amount of First-Out Notes as a backstop premium as consideration for providing a backstop commitment for the Rights Offering.

ABL Amendment: On November 13, 2025, we entered into a First Amendment (the “ABL Amendment”) to the ABL Credit Agreement in order to effectuate certain conforming amendments to the ABL Credit Agreement to the terms of the First-Out Notes Indenture, as further described in the ABL Amendment.

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 28, 2024.

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, liquidity, business, Turnaround Plan, strategic review, financing plans the success and completion of the transactions contemplated by the Transaction Support Agreement and known or anticipated trends found in this "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations," 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: risks related to the success of our restructuring and turnaround plans; risks related to strengthening our balance sheet and liquidity and improving working capital; risks related to the inability to complete and recognize the anticipated benefits of the transactions contemplated by the

Transaction Support Agreement; risks related to unexpected costs related to the transactions contemplated by the Transaction

Support Agreement; risks related to our planned non-core asset sales; increased political uncertainty; the effect of worldwide economic conditions, including recessionary risks; the effect of pandemics; the impact of any activist shareholders; the failure to meet the continued listing requirements of Nasdaq; 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; a data security or privacy breach or information systems disruptions; changes in foreign currency valuations in relation to the U.S. dollar; lower levels of consumer spending resulting from inflation, 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 or failure to attract and retain key employees 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 28, 2024. 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.

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 principal executive officer and principal financial officer have concluded that our Disclosure Controls were effective as of October 4, 2025.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the Third Quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 28, 2024 and in other documents we file with the Securities and Exchange Commission, in evaluating the Company and its business. Except as set forth below, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 28, 2024.

Risks Related to our Indebtedness

We are highly leveraged. Our substantial indebtedness and the corresponding cash debt service obligations could adversely affect our competitiveness, our liquidity, our operations, and our ability to obtain additional financing if necessary.

As of October 4, 2025, we had $177.9 million of outstanding indebtedness, not including $19.5 million of debt issuance costs, and we paid $23.8 million of interest during fiscal year 2024.

Our high level of indebtedness and corresponding high cash debt service obligations, could have important consequences, including the following:

• they may limit our ability to obtain additional financing or sell stock to fund our working capital, capital expenditures, debt repayments and debt service requirements;
• they may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
• we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
• they may make us more vulnerable to a downturn in our business or general adverse economic, regulatory and industry conditions, including rising tariffs;
• they may increase our cost of borrowing;
• they may limit our ability to reinvest in our business;
• they may limit our ability to refinance our indebtedness;
• they may require us to dedicate a substantial portion of our cash flow to service our debt; and
• there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing as needed.

Our ability to meet our cash requirements, including our debt service obligations, is dependent upon our ability to maintain and improve our operating performance, which is subject to general economic and competitive conditions and to financial, business and other factors, many of which are beyond our control. Although we believe we have sufficient sources of liquidity to meet our anticipated requirements for working capital, debt service and capital expenditures through the next twelve months, if our operating results do not meet our expectations or if we experience adverse financial, business and other factors that we do not currently anticipate, we could face liquidity constraints.

If we are unable to meet our liquidity requirements, we could be forced to sell assets, restructure or refinance our debt or raise additional capital through sales of equity or debt. We may be unable to take any of these actions on satisfactory terms or in a timely manner or at all, due to many factors, including our high level of indebtedness. Any of these actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our existing debt agreements limit our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our debt obligations could have a material adverse effect on us.

On August 13, 2025, we entered into the New Revolving Credit Facility, replacing our Prior Revolving Facility. See “Part I.—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—ABL Credit Agreement” for more details.

The maximum amount that we are permitted to borrow at any time under the New Revolving Credit Facility is limited by a borrowing base that is recalculated monthly or, in some circumstances, more frequently. The borrowing base is a function of, among other things, our eligible accounts receivable, inventory and certain intellectual property. As a result, our access to credit under the New Revolving Credit Facility fluctuates depending on the value of the borrowing base eligible assets as of any measurement date. Because our business is seasonal and generates higher net sales and accounts receivable in the third and fourth quarters, our borrowing base is also seasonal and is typically lower during our second and third quarters, which can adversely affect our liquidity during these quarters.

The New Revolving Credit Facility provides the administrative agent considerable discretion to impose reserves and to determine that certain assets are not eligible for inclusion in our borrowing base, which could materially reduce the maximum amount that we are able to borrow at any one time under the New Revolving Credit Facility. There can be no assurance that the administrative agent will not impose additional reserves or exclude other assets from our borrowing base. If they do so, such actions could materially reduce our availability under the New Revolving Credit Facility, which could materially and adversely impact our liquidity and our ability to operate our business.

The ABL Credit Agreement that governs the New Revolving Credit Facility imposes significant operating and financial restrictions on us and our restricted subsidiaries, which may prevent us from capitalizing on business opportunities.

The ABL Credit Agreement that governs the New Revolving Credit Facility imposes significant operating and financial restrictions on us and our restricted subsidiaries. These restrictions limit our ability and the ability of our restricted subsidiaries to, among other things:

• incur or guarantee additional debt or issue disqualified stock or preferred stock;
• pay dividends and make other distributions on, or redeem or repurchase, capital stock;
• make certain investments;
• incur certain liens;
• enter into transactions with affiliates;
• merge or consolidate;
• enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the Company or the guarantors;
• prepay, redeem or repurchase certain indebtedness that is subordinated in right of payment to the New Revolving Credit Facility; and
• transfer or sell assets.

In addition, we are required to comply with a minimum level of availability under the New Revolving Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – ABL Credit Agreement”.

As a result of the restrictions described above, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

We may be required to repay the New Revolving Credit Facility prior to its stated maturity date under the Credit Agreement if the springing maturity feature is triggered or otherwise reserve amounts for repayment of indebtedness.

The New Revolving Credit Facility has a stated maturity date of August 13, 2030, but includes a springing maturity feature that will cause the stated maturity date to spring ahead to the date that is 91 days prior to the maturity date of material indebtedness (as defined therein) if such material indebtedness remains outstanding on such 91st day. In certain other cases, the Credit Agreement requires the Company to establish, on such 91st day, a reserve in an amount equal to the aggregate principal amount of indebtedness coming due. If such features are triggered, we will be required to pay all amounts outstanding under the New Revolving Credit Facility sooner than they would otherwise be due or establish reserves to repay such maturing indebtedness. We may not have sufficient funds available to pay or reserve such amounts at that time, and we may not be able to raise additional funds to pay or reserve such amounts on a timely basis, on terms we find acceptable, or at all.

Financial Risks

We have a recent history of net losses and negative cash flow and may not achieve consistent profitability or positive cash flow in the future.

We have incurred substantial losses and negative cash flow in recent periods. During the nine months ended October 4, 2025, fiscal years 2024 and 2023, we generated a net loss attributable to Fossil Group, Inc. of $60.0 million, $102.7 million, and $157.1 million, respectively. While our cash flow provided by operating activities was $46.7 million in fiscal year 2024, we used cash in operating activities of $73.1 million, $59.5 million and $110.9 million during the nine months ended October 4, 2025, fiscal year 2023 and fiscal year 2022, respectively. We will need to generate and sustain increased net sales levels in future periods and reduce expenses in order to become profitable and generate consistent positive cash flow, and even if we do, we may not be able to maintain or increase our level of profitability and cash flow. If we cannot become profitable or generate positive cash flow, our business, results of operations and financial condition could be materially and adversely affected.

A significant portion of our cash, cash equivalents and investments are held by our foreign subsidiaries, which could negatively affect future liquidity needs.

As of October 4, 2025, $69.1 million, or approximately 87.2% of our cash and cash equivalents were held by our foreign subsidiaries. While we intend to use some of the cash held outside the U.S. to fund our international operations, when we encounter a significant need for liquidity in the U.S. or other locations that we cannot fulfill through other internal or external sources, our liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries or to the U.S. Some of our subsidiaries are located in jurisdictions that require foreign government approval before a cash repatriation can occur. If we are unable to transfer existing cash balances in such a situation, our business, results of operations and financial condition could be materially and adversely affected.

Operational Risks

Tariffs or other restrictions placed on imports from China and any retaliatory trade measures taken by China could materially harm our revenue and results of operations.

Beginning in July 2018, certain of our products have been subject to additional ad valorem duties imposed by the U.S. government on products of China under Section 301 of the Trade Act of 1974 (“Section 301”) and the International Emergency Economic Powers Act ("IEEPA").

The Section 301 tariffs, were imposed via four successive “Lists” and were first the result of an April 2018 determination by the Office of the U.S. Trade Representative (“USTR”) that China’s acts, practices, and policies with respect to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce. Certain of our packaging and handbag products have been subject to an additional 25% ad valorem tariff since July 2018 (“List 1”). Certain of our handbag and wallet products were subject to an additional 10% ad valorem tariff beginning in September 2018, a rate that was then raised to 25% ad valorem from June 2019 to present (“List 3”). Finally, smartwatches, certain jewelry products, and several of our traditional watch products were subject to an additional 15% ad valorem tariff beginning in September 2019, a rate that was lowered to 7.5% ad valorem from February 2020 to present (“List 4A”).

The IEEPA tariffs on products of China currently take the form of two separate tariff actions, (1) an action relating to illicit drug supply chains as of February 2025, amounting to 10% ad valorem as of November 10 (down from a 20% ad valorem rate imposed since February); and (2) “reciprocal” tariffs of 10% as of May 14, 2025. Our products sourced from China are subject to these IEEPA tariffs in addition to the Section 301 tariffs above.

We continue to monitor tariff developments that pose potential risks. In this fast-paced international trade environment, we also monitor developments for any negotiated resolutions to offset some of the tariff exposure. While certain trade deals have been publicly announced, increased tariff rates generally remain in effect for most U.S. trading partners, and the global trade environment remains volatile.

We have joined litigation before the U.S. Court of International Trade challenging the legality of the Section 301 List 3 and List 4A tariffs and seeking refunds of duties paid on imports that were subject to those tariffs. That litigation is ongoing in the appeal stages. We are also closely monitoring ongoing litigation challenging the legality of the IEEPA tariffs, which was recently heard by the U.S. Supreme Court, and analyzing options for refunds depending on the outcome of the case.

If the tariffs continue or increase, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance. Alternatively, we may seek to shift production outside of China or otherwise change our sourcing strategy for these products, potentially resulting in significant costs and disruption to our operations. Even if the U.S. further modifies these tariffs, it is always possible that new products we introduce could be impacted by the changes, or that our business will be impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing us to raise prices or make changes to our operations, any of which could materially harm our revenue or operating results.

Our supply chain may be disrupted by changes in U.S. trade policy with China or as a result of a pandemic.

We rely on domestic and foreign suppliers to provide us with merchandise in a timely manner and at favorable prices. Among our foreign suppliers, China is the source of a substantial majority of our imports.

We experienced increased international transit times and increased shipping costs for a majority of our products, in association with and primarily as a result of the COVID-19 pandemic. Any future disruption in the flow of our imported merchandise from China or a material increase in the cost of those goods or transportation without any offsetting price increases may significantly decrease our profits.

The ongoing U.S. tariffs or other actions against China and any responses by China, and a continued failure to implement a lasting agreement to more permanently lower tariff rates, could impair our ability to meet customer demand and could result in lost sales or an increase in our cost of merchandise. These trade policies may have a material adverse impact on our business and results of operations.

Certain of the Company’s material contracts may contain termination clauses which could be triggered by the currently contemplated restructuring plan.

The Company may be party to certain material contracts that contain termination provisions which may be triggered by the currently contemplated restructuring plan. Certain of these material contracts might also be terminable as a result of insolvency-related events. There can be no assurance that the Company has identified all contracts material to its business with termination clauses that may be triggered by a restructuring plan or insolvency-related events. If the Company triggers such a termination clause in any of its material contracts (or in a number of contracts that, when looked at together, are material to its business) and a consent or waiver is not obtained from the relevant counterparty, such counterparty may terminate or threaten to terminate the contract, which could have a material adverse effect on the Company’s business, operating results, financial condition or prospects.