Fossil smartwatches

The second quarter was not good to Fossil Group Inc., which saw the company swing into the red in a big way.

For the three months ended July 1, the company’s net loss tallied $344.7 million, or $7.11 a diluted share, compared with net income of $6 million, or 12 cents, a year earlier. The loss included non-cash intangible asset impairment charges, a restructuring charge and the negative impact of changes in foreign currency.

Net sales fell 12.9 percent to $596.8 million from $685.4 million.

The company said sales in the Americas down 16 percent, while sales in Europe fell 10 percent and in turnover in Asia declined 9 percent. Watch sales fell 9 percent, although the connected watch business grew. Sales also declined in the company’s leather category, which was down 25 percent, and in the jewelry category, off by 22 percent.

Fossil also said the stronger U.S. dollar negatively impacted net sales by $8.3 million.

Kosta Kartsotis, chief executive officer, said in a conference call to Wall Street analysts, “With the first half of 2017 now behind us, we believe that our traction in wearables, our significant progress in our supply chain evolution and our reduction in infrastructure costs show that we are pursuing strategies that can improve our profitability and return the company to solid growth over time.”

He added that Fossil’s strength in wearable tech, “particularly in key brands, once again demonstrated that wearables have the ability to help mitigate the ongoing softness in the traditional watch category and ultimately, we believe, turn current headwinds into tailwinds.” He said that because technology in wristwear had become increasingly important for many consumers, it is the catalyst for stabilizing and growing the company’s watch business overtime.

“We have a significant number of exciting new products hitting the market over the next few months that are much improved over our current models,” the ceo said. “This next generation of wearables has increased functionality, slimmer cases, brighter screens, more brands and more robust software.”

The company has been focused on its New World Fossil restructuring efforts to improve the profitability of its core traditional watch business, and on advancing its wearables initiatives. On the call, Kartsotis cited the launch of updated touchscreen smartwatches later in the year, which will have better screen resolution, smaller case sizes and branded micro apps.

For fiscal 2017, the company said it expects the diluted loss per share in the range of $6.62 to $7.42, on a net sales decline in the range of 4.5 percent to 8.5 percent. For the third quarter, the company said it expects a diluted loss per share between 11 cents to 44 cents, on a net sales decrease in the range of 8 percent to 14 percent.

Separately, the company said that its chief financial officer Dennis Secor has decided to relocate his family back to Southern California and will be leaving the company. The company said Jeff Boyer, a board member, is slated to join the company on Oct. 16 as its new cfo.

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