LE T TE R TO STOCK H O LD E R S
Dear Stockholders,
It was a difficult year for Fossil Group as we were faced with many challenges. We are not pleased with our
overall results, but we feel we made significant progress toward our objectives, including driving growth in
wearables across our portfolio of brands, leveraging our scale to lower supply chain costs, increasing our
digital capabilities and transforming our business model. In the process, we delivered almost $2.8 billion in
sales and generated strong operating cash flows.
Notably, our New World Fossil initiative—the organization-wide program designed to improve financial performance and drive long-term
shareholder value—is already paying off in a big way as we build a more nimble, efficient and responsive operating platform. The initiative
improved profits by $80 million in 2017, positioning us to achieve our multi-year $200 million profit improvement goal.
Our Strategy
Building on the momentum we established in 2017, we are focused
44 percent compared to the fourth quarter of 2016. This focus on
on achieving our 2018 goals by driving increased efficiency gains
wearables, combined with the innovation we’re introducing across
and addressing nine strategic priorities:
our traditional watch styles, sets us up for sustained and stable
Becoming a smaller, more focused company
In our business, it’s critical to evolve with consumer needs. Our
growth over time.
Stabilizing our traditional watch business
ability to recognize and respond to changing consumer dynamics
We sell more than 30 million total watches each year, and this
has helped us focus on growing—and investing in—the right
market remains central to our long-term success. Although
parts of our business. We’re focused on the areas where we see
this business remains difficult due to the dramatic growth
long-term growth potential, rather than opportunities for short-
of wearables in the overall wrist market, we are continuing to
term gain. This has enabled us to improve our margins across
innovate with differentiated new ideas and materials in watches
the entirety of our business—all categories, brands, customers,
that we feel will resonate strongly with consumers this year.
geographies and operations. It has also enabled us to significantly
Therefore, we will continue to focus on fashion-forward traditional
reduce our overhead cost structure as we focus our efforts on our
watches to meet customer demand, even as we place a major
most significant opportunities.
emphasis on advancing our wearables business.
Growing wearables
Slowing the decline in leathers and jewelry
We’re experiencing outstanding demand for wearables that merge
Our leathers and jewelry products declined last year. We expect
the worlds of tech and fashion. We’re bringing a fashion-first
to slow these declines by taking advantage of the distinct market
focus and a never-before-seen variety to the wearables industry,
opportunities we continue to see in these categories and focus on
infusing robust technology into beautiful designs that have broad
the areas that drive healthy growth. Great brands and products
appeal. It’s proving to be a winning formula— more design, more
continue to command significant market share, even in this
diversity, more brands and more fashion. No other company in the
disruptive retail environment.
world is as well positioned as we are to do this.
In 2017, we nearly doubled our wearables business to more than
$300 million—about 14 percent of our total watch sales. In the
process, we introduced new hybrid and display smartwatches
across 14 brands.
The fourth quarter—which encompasses the holiday season—is
our most important, and wearables delivered $142 million in watch
sales, accounting for 20 percent of total watch sales, a growth of
Generating owned brand growth and efficiencies
In 2017, the overall numbers don’t tell the entire Fossil brand story.
While total brand sales declined in the fourth quarter, driven by
leathers and jewelry, Fossil brand watch sales increased by two
percent. In our direct-to-consumer channel, comparative sales for
our retail stores and e-commerce sites increased two percent—
our first positive comp sales since 2015, with watch sales up five
percent in this channel.
By closing unprofitable retail store locations in 2018 and further
refining our wholesale and concession distribution in select
geographies while investing in our retail experience, we believe
our team will be able to focus on the most significant growth
opportunities while improving profitability.
Speeding licensed brand growth
From kate spade new york and Marc Jacobs to Michael Kors and
Emporio Armani, the breadth of our 10 licensed brands remains
an important advantage for Fossil Group. We will continue to find
strategic opportunities to partner with the right brands to attract
new, brand-loyal customers to the watches and wearables category.
And, thanks to wearables launches ahead of the holiday season,
we significantly improved the trajectory for Michael Kors watches
and drove a double-digit increase in Armani watch sales in the
fourth quarter.
Reducing costs
A 20 percent reduction in wearables product costs helped drive
meaningful improvements in our core wearables margin, setting the
stage for gross margin improvement in 2018. We’re also continuing
the successful expense reduction initiatives we began in 2017 by
reducing our spend in less productive areas, such as fixtures and
displays, and redeploying marketing dollars toward higher-return
digital activities.
Maximizing the potential of our digital channels
In 2017, we worked hard to expand our digital sales channels,
driving a 31 percent increase in e-commerce sales in the fourth
quarter alone. We also significantly expanded our growth with pure-
play online retailers by 77 percent. As a result, 17 percent of our
the tone for our innovation efforts, as we work to design products
with the future in mind.
We’re looking for ways we can repurpose, recycle, and identify
new sustainable materials, as well as rethinking our manufacturing
processes. This also involves managing our product lifecycles
and giving our products a second life where it will make the most
impact. We’re committed to challenging the norms of the watch
and accessory industry as we develop a more sustainable product
design process. And, through this effort, we aspire to bring
sustainable design elements to more than half of our global
product assortment by 2025.
Beyond product design, our team is also developing measureable
goals for reducing waste, creating more leadership opportunities
for women, bringing positive change to our communities, and
preparing our global workforce to meet the needs of tomorrow’s
customer today.
Looking Ahead
Taken all together, the strategy I’ve just outlined, aligned with our
New World Fossil initiative, will improve long-term performance and
create shareholder value.
Going forward, we’re focused on delivering innovative wearable
and traditional watch styles, while improving performance in the
handbag and jewelry categories and driving increases in digital
sales. We continue to expect that North America will be a particular
challenge given the dynamics of the regional retail and consumer
environment. But, with our commitment to drive out cost through
our New World Fossil initiative and with our efforts to improve
sourcing costs, we expect to deliver more profit to the bottom line
to further fuel our progress in fiscal 2018.
These are challenging times for Fossil Group but also very exciting
total fourth-quarter sales were from online channels, up from nine
times as we transform the company and position it for future
percent over the comparable quarter.
We focused heavily on developing and growing our brands across
e-commerce platforms, as well as mobile and social media. We
optimized our sales funnel by precisely targeting customers, and, as
a result, more than a third of Fossil brand business started with a
digital interaction—via social, search, digital media, email or other
digital marketing efforts.
This continuing expansion is critical to our future growth and value
creation. As the major disruption in retail continues, more sales and
customer engagement will take place online where Fossil Group is
strongly positioned for success.
Designing a sustainable future
We care about the things that matter: our people, our customers,
our shareholders, our communities and our planet. Our newly-
launched sustainability platform, Make Time for Good, is setting
growth. Our heartfelt thanks go out to all of our Fossil Group team
members all over the world for their relentless focus, energy and
creativity, day-in and day-out, all year long.
Sincerely,
Kosta N. Kartsotis
Chairman and Chief Executive Officer
FI NAN CIAL H I G H LI G HTS
FISCAL YEAR
2017
2016
2015
2014
2013
(in thousands, except per share data)
Net sales ($)
Gross profit ($)
2,788,163
3,042,371
3,228,836
3,509,691
3,259,971
1,358,839
1,578,186
1,753,467
2,001,172
1,861,686
Operating income ($)
<$424,276>
127,146
291,234
566,536
561,596
Net income attributable to Fossil Group, Inc. ($)
<$478,172>
78,868
220,637
376,707
378,152
Earnings per share:
Basic ($)
Diluted ($)
Weighted average common shares and common
equivalent shares outstanding:
<$9.87>
<$9.87>
1.64
1.63
4.52
4.51
7.12
7.10
6.59
6.56
Basic
Diluted
Working capital
Total assets ($)
48,468
48,468
48,136
48,323
48,800
48,924
52,882
53,080
57,401
57,676
—
932,705
953,141
1,008,264
939,573
1,658,372
2,186,897
2,355,661
2,177,460
2,186,251
Total long-term liabilities ($)
568,337
756,874
933,589
747,351
618,978
Stockholders’ equity attributable
to Fossil Group, Inc. ($)
Return on average stockholders’ equity
attributable to Fossil Group, Inc. 1
576,133
1,006,236
921,388
977,860
1,068,677
-62.3%
8.2%
24.7%
37.5%
33.1%
Calculated by dividing net income attributable to Fossil Group, Inc. by five quarter average stockholders’ equity attributable to Fossil Group, Inc.
CO R P O R ATE I N FO R MATIO N
EX EC UT IVE OFFICERS & DIRECTORS
Kosta N. Kartsotis
Chairman of the Board
and Chief Executive Officer
Randy C. Belcher
Executive Vice President, Asia Pacific
Jeffrey N. Boyer
Executive Vice President,
Chief Financial Officer
and Treasurer
Steve Evans
Executive Vice President, Owned Brands
Martin Frey
Executive Vice President, EMEA
Darren E. Hart
Executive Vice President, HR
Greg A. McKelvey
Executive Vice President,
Chief Strategy and Digital Officer
John A. White
Executive Vice President
and Chief Operating Officer
William B. Chiasson
Director
Mauria A. Finley
Director
Diane L. Neal
Director
Thomas M. Nealon
Director
Mark D. Quick
Director
James E. Skinner
Director
Gail B. Tifford
Director
James M. Zimmerman
Director
O U R WEBSITE
CORPORATE I NFORMATI O N
The company maintains a website at www.fossilgroup.com. Certain
event and investor relations information concerning the company are
available at the site.
AN NUA L MEETING
The Annual Meeting of Stockholders will be held on
Wednesday, May 23, 2018, at 9:00a.m. CDT at the company’s
headquarters, 901 S. Central Expressway, Richardson, Texas 75080.
C OMP ANY INFORMATION
A copy of the company’s Annual Report on Form 10-K, as filed with
the Securities and Exchange Commission, and the Annual Report to
Stockholders, in addition to other company information, is available
to stockholders without charge upon written request to Fossil Group,
Investor Relations, 901 S. Central Expressway, Richardson, Texas
75080-7302, or online at www.fossilgroup.com.
Transfer Agent & Registrar
Computershare
P. O. Box 505000
Louisville, KY 40233-5000
Principal Independent Auditors
Deloitte & Touche LLP
2200 Ross Avenue
Dallas, Texas 75201
Corporate Counsel
Akin Gump Strauss
Hauer & Feld LLP
1700 Pacific Avenue | Suite 4100
Dallas, Texas 75201