FOSL 10-K & 10-Q changes, risk factors and insider trading

Our success depends upon our ability to anticipate and respond to changing fashion, functionality and product trends and consumer preferences in a timely manner. The purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs, functionality, and product features and design. Our success depends, in part, on our ability to anticipate, gauge and respond to these changing consumer preferences in a timely manner while preserving the authenticity and the quality of our brands. Although we attempt to stay abreast of emerging lifestyle and fashion trends affecting accessories, any failure by us to identify and respond to such trends could adversely affect consumer acceptance of our existing brand names and product lines, which in turn could result in inventory valuation reserves and adversely affect sales of our products. If we misjudge the market for our products, we may be faced with a significant amount of unsold finished goods inventory, which could adversely affect our results of operations. In recent years, weWe have experienced decreasing net sales across certain of our product categories; in particular, net sales of watches have declined, reflecting the decline in the traditional watch market. If we are unable to adjust our product offerings and reverse the decrease in net sales, our results of operations and financial condition could be adversely affected.

Our ability to grow our sales is dependent on the successful implementation of our business strategy. ThisBeginning in 2026, this includes prioritizing(i) driving profitable growth, (ii) optimizing our coreoperating brands, marketsmodel, and channels,(iii) rightsizingbuilding ourshareholder organizational structure and improving our balance sheet.value. If we are not successful in the expansion or development of our product offerings, our new products are not profitable or do not generate sales comparable to those of our existing businesses, we are unable to successfully execute our business strategy or our restructuring and savings program does not achieve our desired results, our results of operations could be negatively impacted.

We also operate FOSSIL brand stores and other watch stores globally to further strengthen our brand image. As of DecemberJanuary 28,3, 2024,2026, we operated 248199 stores worldwide. The costs associated with leasehold improvements to current stores and the costs associated with opening new stores and closing low performing stores, particularly those stores that have seen a significant reduction in traffic, could materially increase our costs of operation and result in impairment charges.

Rapidly changingchanging, and in some cases diverging, sustainability-related regulatory requirements and political scrutiny of ESGsustainability matters could result in additional costs or risks and adversely impact our reputation.

Many jurisdictions in which we and our suppliers operate have begunenacted or are considering enacting new environmental, social and governance ("ESG") or “sustainability” legislation and regulations. While certain jurisdictions in which we operate have challenged or rolled-back sustainability legislation and regulations, others have become more prescriptive. These developments have resulted in a fragmented and, at times, conflicting compliance environment. Such proposed and/or enacted regulations include new or expanded disclosure requirements regarding sustainability, recycling, emissions and other climate-related information, including disclosure of climate-related risks, and may also require third-party assurance (e.g., through independent auditors) to provide some level of attestation to the accuracy of such disclosures. Our ability to comply with any such new ESG, sustainability and/or climate laws and regulations may lead to increased costs and operational complexity and/or we may be required to divert costs and resources away from other business priorities in order to comply with any such requirements. In addition, it may become increasingly difficult to navigate differing political viewpoints around ESG and sustainability matters in the U.S.U.S., EU and many of the international locations in which we operate. Our failure or inability to comply with ESG-relatedthese regulations, to navigate heightened scrutiny of these matters in the ESGcurrent political landscape or to meet the standards included in any sustainability report we publish or disclosures we make could negatively impact investor decisions, our reputation, employee retention and/or the willingness of our customers and suppliers to do business with us, as well as expose us to government enforcement action and/or private litigation.

Our business is susceptible to risks associated with climate change, including through disruption to our supply chain, potentially impacting the production and distribution of our products and availability and cost of raw materials. Increased frequency and intensity of severe weather events due to climate change could increase the risk of a significant disruption to our operations, including at our global offices and warehouses and transportation and manufacturing partners. While we are addressing climate-related issues impacting our business,business through our enterprise risk management framework, there can be no assurance that we will be successful in achieving our goals.climate-related goals and targets, including reducing our emissions. These goals and targets are based on a number of assumptions and estimates, and their achievement is subject to risks and uncertainties, including the availability and cost of lower-carbon alternatives and other inputs, the actions of our suppliers and partners and evolving (and in some cases, diverging) regulatory requirements across jurisdictions in which we operate. In addition, concern over climate change may result in new or additional legal, legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment. FailureFailure, or perceived failure, to implement our strategy or achieve our goals could expose us to heightened regulatory scrutiny and/or damage our reputation, causing our investors, consumers or employees to lose confidence in our Company and brands, and negatively impact our operations.operations, including through increased operating costs.

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 similar 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.

NewThe 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. ThisThese wouldtrade policies may have a material adverse impact on our business and results of operations.

We have entered into multi-year, worldwide exclusive license agreements for the manufacture, distribution and sale of products bearing the brand names of certain globally recognized fashion brands. We sell products under certain licensed brands, including, but not limited to, ARMANI EXCHANGE, DIESEL, EMPORIO ARMANI, KATE SPADE NEW YORK, MICHAEL KORS, SKECHERS and TORY BURCH. Sales of our licensed products accounted for 44.5%47.3% of our consolidated net sales for fiscal year 2024,2025, including MICHAEL KORS product sales, which accounted for 17.4%19.2% of our consolidated net sales, and ARMANI product sales, which accounted for 11.5%10.1% of our consolidated net sales.

Our significantmain third-party fashion brand license agreements have various expiration dates between the years 20252027 and 2029. In addition, many of these license agreements require us to make minimum royalty payments, spend minimum amounts on marketing, subject us to restrictive covenants or require us to comply with certain other obligations and may be terminated by the licensor if these or other conditions are not met or upon certain events. For example, our license agreement with MICHAEL KORS provides the licensor with a right to terminate some or all of the licensing rights if we fail to meet certain net sales thresholds for two consecutive years. For fiscal year 2024, we met the net sales thresholds for MICHAEL KORS. If we are unable to achieve the minimum net sales thresholds, minimum marketing spend, restrictive covenants and/or other obligations of a license, we would need to seek a waiver offor the non-compliance from the applicable licensor or amend the agreement to modify the thresholds, covenants or obligations or face the possibility that the licensor could terminate the license agreement before its expiration date. Though waivers may be obtained for non-compliance, we, or the licensor, may instead elect to modify or terminate the license agreement.

During fiscal year 2024,2025, our global comparable retail store sales decreased 14.5%.23.3%. During fiscal year 2025,2026, we anticipate closing a significant number of stores globally that have expiring lease terms. The success of our retail business depends, in part, on our ability to close low performing stores and to renew existing leases for better performing stores on terms that meet our financial targets. Our ability to close low performing stores and to renew leases for better performing stores on favorable terms and to operate them on a profitable basis will depend on various factors, including our ability to:

Fluctuations in the price, availability and quality of the raw materials used in our products could have a material adverse effect on our cost of sales or ability to meet our customers' demand. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including natural resources, increased freight costs, increased labor costs, especially in China, increased component costs and weather conditions. Recently inflationInflation rates in the U.S. and certain international markets reachedhave levelsbeen not seenelevated in decades.recent years. While we have recently increased the prices of a number of our products as a result and may implement other price increases in the future, we may not be able to pass on all, or a significant portion of, such higher raw materials prices to our customers or such price increases may not be accepted by our customers, which could impact our margins or result in lost revenues.

We rely on third-party assembly factories and manufacturers; and problems with, or loss of, our assembly factories or manufacturing sources could harm our business and results of operations.

There is intense competition in each of the businesses in which we compete. In all of our businesses, we compete with numerous manufacturers, importers and distributors who may have significantly greater financial, distribution, advertising and marketing resources than us. Our competitors include distributors that import watches and accessories from abroad, U.S. companies that have established foreign manufacturing relationships and companies that produce accessories domestically. In addition, we face strong competition in the watch category from technology companies that offer alternatives to our traditional watches, such as Apple, GarminGarmin, Google and Samsung. Many of these technology competitors have significantly greater financial, distribution, advertising and marketing resources than us. Our results of operations and market position may be adversely affected by our competitors and their competitive pressures in the watch and fashion accessory industries.

We are increasingly dependent on information systems to operate our websites, process transactions, store customer information, manage inventory, monitor sales and purchase, sell and ship goods on a timely basis. We utilize SAP ERP in our U.S. operations and throughout most of our European operations to support our human resources, sales and distribution, inventory planning, retail merchandising and operational and financial reporting systems of our business, and Navision in our Asian operations to support many of the same functions on a local country level. We also use tools provided by salesforce.com,Salesforce, inc.Inc. in our CRM initiatives. We have implemented a new global point of sale system for our retail stores. We may experience operational problems with our information systems as a result of system failures, viruses, ransomware, cyber attack, computer "hackers" or other causes. These risks may be heightened as a result of our workforce that works remotely. In addition, as artificial intelligence (“AI”) technologies, including generative AI models, develop rapidly, threat actors are using these technologies to create new sophisticated attack methods that are increasingly automated, targeted and coordinated and more difficult to defend against. Any material disruption or slowdown of our systems could cause information, including data related to customer orders, to be lost, unavailable or delayed, which could result in delays in the delivery of merchandise to our stores and customers or lost sales, which could reduce demand for our merchandise and cause our sales to decline. Moreover, the failure to maintain, or a disruption in, financial and management control systems could have a material adverse effect on our ability to respond to trends in our target markets, market our products and meet our customers' requirements.

During fiscal year 2024,2025, we generated 65.1%67.4% of our net sales from outside of the U.S. Our international operations are directly related to, and dependent on, the volume of international trade and foreign market conditions. International commerce and our international operations are subject to many risks, some of which are discussed in more detail, including:

We depend on our senior management and other key personnel. We do not have "key person" life insurance policies for any of our personnel. Competition for qualified personnel in the fashion industry is intense. Our ability to attract and retain employees is influenced by our ability to offer competitive compensation and benefits, employee morale, our reputation, our financial performance, recruitment by other employers, perceived internal opportunities and macro unemployment rates. We appointed a new Chief Executive Officer in September 2024 and haveadded experienceda significant turnovernumber of new members on our executive team recently.in 2025. The loss of any of our executive officers or other key employees could harm our business.

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.financing.

As of DecemberJanuary 28,3, 2024,2026, we had $168.1$205.1 million of outstanding indebtedness, not including $3.3$18.5 million of debt issuance costs,costs and we paid $23.8$8.8 million of interestoriginal duringissuance fiscal year 2024.discount.

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

•theywe are more highly leveraged than some of our competitors, which may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;

•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.needed;

Our ability to meet our cash requirements, including our debt service obligations,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, legislative, regulatory, 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 liquiditydebt requirements,service obligations, 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.

Our debt agreements subject us to certain covenants,covenants whichand other provisions that may restrict our ability to operate our business and to pursue our business strategies. Our failure to comply with the covenants contained in our debt agreements, including as a result of events beyond our control, could result in an event of default which could materially and adversely affect our operating results and our financial condition.

•incur or guarantee additional indebtednessdebt or issue certaindisqualified typesstock ofor preferred stock;

•pay dividends orand make other distributions,distributions repurchaseon, or redeem ouror repurchase, capital stock;

•incur certain liens;

•enter into transactions with affiliates; and

•consolidatemerge or merge.consolidate;

World Conflicts: We continuously monitor the direct and indirect impacts fromof ongoing and emerging military conflicts, including the military conflictsconflict between Russia and UkraineUkraine, as well as heightened tensions and recent military actions in the Middle East.East, Oursuch as U.S. and Israeli strikes on Iran, and subsequent retaliatory actions by Iran. We have no operations in Russia or Iran, and limited operations in Ukraine, Israel consistand the broader Middle East, all of saleswhich are primarily conducted through third-party distributors,distributors. andWhile our salesdirect exposure in Russiathese andregions Israelis arelimited, notnew material to our financial results. We have no other operations, including supply chain, in Israel, Palestine, Russia or Ukraine. However,conflicts, the continuation of the current military conflicts or an escalation of the conflicts beyond their current scope may continuehave toa weakennumber of impacts, including, but not limited to, higher fuel prices, a weakening of the global economy,economy negativelyand impactnegative consumer confidence, and could also result in additional inflationary pressures and supply chain constraints. We will continue to monitor developments and assess any material impacts on our business, operations, or financial results.

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

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 change and create a plan to return the Company to profitable growth (the "Turnaround Plan"). OurDuring 2025, our Turnaround Plan iswas 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 corecore, we are buildingbuilt 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 launchingintroduced a new FOSSIL brand platform, leveragingleveraged our major licensed brands, optimizingoptimized our global wholesale footprint and drivingestablished channela profitability.full price selling model to drive profitability across channels.

The second key area of our Turnaround Plan iswas focused on aligning the cost structure to our newly defined strategy. In 2025, we expect to achieveachieved selling, general and administrative ("SG&A") cost savings of approximately $100 million in fiscal 2025 as compared to fiscal 2024 through a series of initiatives including a strategic reduction in forceforce, whichthe occurredreduction in late February 2025, reduced costs associated with the transition of smaller international markets to a distributor model, and the closing of approximately 50underperforming FOSSIL retail stores. We alsoclosed expecta tonet divest49 certainretail non-corestores assets and will seek to identify additional cost-reduction opportunities, which may generate incremental savings induring 2025.

Property, Plant and Equipment and Lease Impairment. We test for asset impairment of property, plant and equipment and lease assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset. In evaluating long-lived assets for recoverability, we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. When undiscounted cash flows estimated to be generated through the operations of our Company-owned retail stores are less than the carrying value of the underlying assets, the assets are impaired. If it is determined that assets are impaired, an impairment loss is recognized for the amount that the asset's book value exceeds its fair value. Should actual results or market conditions differ from those anticipated, additional losses may be recorded. We recorded impairment losses in long-lived asset impairments of $1.8$0.6 million, $1.7$1.8 million and $2.1$1.7 million in fiscal years 2024,2025, 20232024 and 2022,2023, respectively, related to lease assets. We recorded impairment losses in long-lived asset impairments of $0.4 million, $0.4 million and $0.2 million in each of fiscal years 2024,2025, 20232024 and 2022, respectively,2023 related to property, plant and equipment. We recorded impairment losses in restructuring charges of $5.4 million in fiscal year 2024, and no charges in fiscal yearsyear 2025 or 2023 and 2022 related to lease assets. We recorded impairment losses in restructuring charges of $1.2 million,million $0.0in million,fiscal $0.1year million2024 and no charges in fiscal years 2024, 20232025 and 2022, respectively,2023 related to property, plant and equipment. In fiscal year 2024,2025, an increase of 100 basis points to the discount rate would not have resulted in an increase to property, plant and equipment and lease impairment expense. A 10% decrease in future expected cash flows would not have increased impairment expense by $0.3 million.expense.

Income Taxes. We record valuation allowances against our deferred tax assets, when necessary, in accordance with ASC 740, Income Taxes ("ASC 740"). Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. We have significant deferred tax assets consisting primarily of net operating losses, reserves and interest expense accruals that are not currently deductible for tax purposes. As a result of the three year cumulative loss at a consolidated level and various foreign jurisdictions, the Company recorded a full valuation allowance for its deferred tax assets. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. The recording of a valuation allowance would have an adverse impact on our tax expense and effective tax rate. The valuation allowance for fiscal years 2024,2025, 2024 and 2023 and 2022 was $226.5$273.2 million, $192.6$226.5 million and $143.3$192.6 million, respectively.

The GILTI provisions of the Tax Cuts and Jobs Act of 2017 (the "TCJ Act") requiring the inclusion of certain foreign earnings in U.S. taxable income will continue to have an adverse impact on our effective tax rate. The GILTI impact will beis accounted for as incurred under the period cost method. In addition, our valuation allowance analysis is affected by various aspects of the TCJ Act, including the limitation on the deductibility of interest expense and the impact of the GILTI.

The OECD and over 140 countries have agreed to enact a two-pillar solution to reform the international tax rules to address the challenges arising from the globalization and digitalization of the economy. The GloBE Rules provide a coordinated system to ensure that multinational enterprises with revenues above 750 million euro pay a minimum effective tax rate of 15% tax on the income arising in each of the jurisdictions in which they operate. Many aspects of Pillar Two became effective for tax years beginning in January 2024, with certain remainingadditional impacts to be effective in 2025. Each country must enact its own legislation to apply the Pillar Two rules. Pillar Two did not have a material impact on the Company's financial results, including its annual estimated effective tax rate or liquidity in 2024,2024 and 2025, but will continue to monitor future developments.

Adjusted EBITDA, Adjusted Operating Income (Loss), Constant Currency Adjusted Operating Income (Loss, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share: Adjusted EBITDA, Adjustedadjusted operating income (loss), Adjustedconstant currency adjusted operating income (loss), adjusted net income (loss) and Adjustedadjusted earnings (loss) per share are non-GAAP financial measures. We define Adjustedadjusted EBITDA as our income (loss) before income taxes, plus interest expense, amortization and depreciation, impairmentother expense,long-lived asset impairments, other non-cash charges, stock-based compensation expense, restructuring cost of salesexpenses and expense and unamortized debt issuance costs included in loss on extinguishment of debt minus gains on asset divestitures and interest income. We define Adjustedadjusted operating income (loss) as operating income (loss) before impairmentother expenselong-lived asset impairments, restructuring expenses, loss on extinguishment of debt and restructuringgains coston ofasset sales and expense.divestitures. We define Adjustedconstant currency adjusted operating income (loss) as adjusted operating income (loss) excluding the effects of foreign currency exchange rate fluctuations. We define adjusted net income (loss) and Adjustedadjusted earnings (loss) per share as net income (loss) attributable to Fossil Group, Inc. and diluted earnings (loss) per share, respectively, before impairmentother expense,long-lived asset impairments, restructuring costexpenses, ofgains saleson asset divestitures and expense and unamortized debt issuance costs included in loss on extinguishment of debt. We have included Adjustedadjusted EBITDA, Adjustedadjusted operating income (loss), Adjustedconstant currency adjusted operating income (loss), adjusted net income (loss) and Adjustedadjusted 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 Adjustedadjusted EBITDA, Adjustedadjusted operating income (loss), Adjustedconstant currency adjusted operating income (loss), adjusted net income (loss) and Adjustedadjusted earnings (loss) per share may not be comparable to similarly titled measures other companies report. Adjusted EBITDA, Adjustedadjusted operating income (loss), Adjustedconstant currency adjusted operating income (loss), adjusted net income (loss) and Adjustedadjusted 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 53-week fiscal year 2025 with the 52-week fiscal year 2024. Comparable retail sales exclude the effects of foreign currency fluctuations.

Operating Expenses include SG&A, 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,Turnaround and TAG and New World Fossil initiatives.

Consolidated Net Sales. Net sales decreased $267.4$140.6 million, or 18.9%12.3% (18.6%12.7% in constant currency), for fiscal year 2024,2025, as compared to fiscal year 2023. Sales declined in all three regions. The sales decrease was2024, largely driven by overallthe category,return consumerto a full-price selling model in our direct-to-consumer channels, partially offset by strength in traditional watches in the wholesale channel. Global comparable retail sales decreased by 23.3% on a 53-week calendar basis due to sales decreases in our owned e-commerce websites as we were less promotional and, to a lesser extent, retail stores. Our store rationalization initiatives and channeldeclines softness.in Oursmartwatch exitsales comprised approximately 410 basis points of smartwatches and store closures as part of our TAG initiatives negatively impactedthe sales decline in fiscal year 2024 by $95 million as2025 compared to fiscal year 2023.2024. WholesaleSales saleswere declinedfavorably 15.0%impacted (14.6%by 150 basis points as a result of fiscal year 2025 including 53 weeks as compared to 52 weeks in constantfiscal currency),year reflecting lower purchases by wholesale accounts due to tighter management of inventories and lower end-consumer demand. Direct to consumer sales decreased 24.4% (24.1% in constant currency), partially due to a smaller store base.2024. We have reduced our store footprint by 5449 stores (17.9%19.8%), since the end of fiscal year 2023. Comparable retail sales decreased 14.5% during fiscal year 2024, compared to fiscal year 2023, with declines in both e-commerce and store sales, as we became less promotional.2024. From a category perspective, traditional watch sales decreased 14.0%6.6% (13.6%6.9% in constant currency). Sales of smartwatches declined 69.2%52.6% (same53.0% in constant currency), as we exited the category. Leathers declined 29.9%37.1% (29.6%37.6% in constant currency), and jewelry declined 12.9%20.4% (12.4%22.1% in constant currency)., both primarily driven by the smaller store base and decreased promotional activity in our owned e-commerce. From a brand perspective, the sales decreaseddecrease throughoutwas mostprimarily ofdriven ourby brandFOSSIL portfolio,and withEMPORIO theARMANI, mostand predominantwas declinespartially offset by sales growth in FOSSIL,ARMANI EMPORIO ARMANIEXCHANGE and MICHAELTORY KORS.BURCH.

Americas Net Sales. Americas net sales decreased $125.6$84.3 million or 19.6%16.4% (19.1%15.8% in constant currency) for fiscal year 20242025 as compared to fiscal year 2023.2024. Sales decreased in almost all brands with the biggest decreases in FOSSIL and MICHAEL KORS.FOSSIL. Sales decreased in our wholesale,owned e-commerce, stores and owned e-commercewholesale channels. Comparable retail sales declined moderatelysharply during fiscal year 2024,2025 with declines in both store and owned e-commerce as we were less promotional, and to a lesser extent, store channels.

Europe Net Sales. During fiscal year 2024,2025, Europe net sales decreased $79.8$24.3 million or 18.2%6.8% (18.7%10.0% in constant currency) in comparison to fiscal year 2023.2024. TheSales greatest sales decreases weredecreased in the FOSSILmajority andof MICHAELour KORSbrand brands.portfolio with the most predominant decline in FOSSIL. Sales declineddeclines in our wholesale, stores and owned e-commerce channels.and store channels were partially offset by sales growth in wholesale. Comparable retail sales decreaseddeclined moderatelysharply during fiscal year 2024,2025 with declines in both store and owned e-commerce as we were less promotional, and to a lesser extent, store channels.

Asia Net Sales. In fiscal year 2024,2025, Asia net sales decreased $58.1$31.5 million or 17.7%11.7% (16.4%10.2% in constant currency) in comparison to fiscal 2023.2024. Sales decreased across the majority of the region, most notably in greatermainland China, and were partially offset by sales growth in India and Australia.India. The greatest sales declines were in the EMPORIO ARMANI brand. Comparable retail sales decreased moderately during fiscal year 2024,2025, with growthdeclines in both owned e-commerce moreand thanstore offset by declines in stores sales.channels.

Gross Profit. Gross profit of $563.1 million in fiscal year 2025 decreased $34.1 million, or 5.7%, in comparison to $597.2 million in fiscal year 2024 decreased $82.4 million, or 12.1%, in comparison to $679.6 million in fiscal year 2023,2024, driven mainly by the decrease in sales. The gross profit margin rate increased to 56.1% in fiscal year 2025 compared to 52.2% in fiscal year 2024 compared to 48.1% in fiscal year 2023,2024, primarily due to initiatives under our TAG plan, including improved product margins in our core categories anddriven by benefits from our exitfull-price fromselling themodel smartwatchand category.sourcing These benefits were partially offset by a $7.6 million restructuring charge related to closure of our Swiss manufacturing operations.initiatives.

Operating Expenses. For fiscal year 2024,2025, total operating expenses decreased to $582.2 million or 58.0% of net sales, compared to $701.1 million or 61.2% of net sales, compared to $822.6 million or 58.2% of net sales in fiscal year 2023.2024. SG&A expenses were $540.1 million in fiscal year 2025 compared to $638.8 million in fiscal year 2024 compared to $777.2 million in fiscal year 2023.2024. As a percentage of net sales, SG&A expenses increaseddecreased to 53.8% in fiscal year 2025 as compared to 55.8% in fiscal year 20242024, asprimarily compareddriven toby 55.0%cost inreductions and efficiencies gained through our restructuring programs. SG&A expenses for fiscal year 2023,2025 mainlyalso drivenbenefited byfrom deleveragingan $11.0 million gain on lowerthe sales.sale of a building during the second quarter. During fiscal year 2024,2025, we incurred $59.8$40.6 million in restructuring charges as compared to $43.3$59.8 million in fiscal year 2023.2024. We incurred other long-lived asset impairment charges of $1.5 million in fiscal year 2025 compared to charges of $2.5 million in fiscal year 2024.

Operating Income (Loss). Operating income (loss) was a loss of $103.9$19.1 million in fiscal year 2024,2025, as compared to a loss of $143.0$103.9 million in the prior fiscal year. As a percentage of net sales, operating margin was (1.9)% in fiscal year 2025 as compared to (9.1)% in fiscal year 2024 as compared to (10.1)% in fiscal year 2023 and was negatively impacted by 10 basis points due to changes in foreign currencies.2024.

Interest Expense. Interest expense was $19.0$20.2 million in fiscal year 20242025 compared to $21.8$19.0 million in the prior fiscal year. The decreaseincrease was primarily driven by aan decreasedincreased debt balance in fiscal year 20242025 compared to fiscal year 2023.2024.

Other Income (Expense)—Net. During fiscal year 2024,2025, other income (expense) - net was incomeexpense of $4.9$10.4 million compared to income of $8.7$4.9 million in the prior fiscal year. The change in other income (expense)-net was primarily due to increased net currency losses in fiscal year 20242025 as compared to netfiscal currencyyear gains2024, decreased interest income, and a loss on extinguishment of debt in fiscal year 2023. Net currency losses in fiscal 2024 were more than offset by interest income in fiscal 2024.2025.

Provision for Income Taxes. During fiscal year 2024,2025, there was an income tax benefitexpense of $11.8$28.1 million, resulting in an effective tax rate of 10.0%,(56.5)%, compared to (0.3)%10.0% in fiscal year 2023.2024. The 2025 effective rate was unfavorably impacted by tax accrued on income in certain foreign jurisdictions, cancellation of debt income and increased valuation allowances on deferred tax assets, whereas the 2024 effective rate was favorably impacted by reduced foreign income taxes, release of reserves for uncertain tax positions and the accrual of interest income on tax receivables, whereas the 2023 effective rate was unfavorably impacted by the low level of pre-tax earnings and valuation allowances on deferred tax assets.receivables.

(1) Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility during fiscal 2025, and the gain on sale of our building in France during fiscal 2024 (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), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share. The following tables reconcile Adjustedadjusted operating income (loss), Adjustedconstant currency adjusted operating income (loss), adjusted net income (loss) and Adjustedadjusted 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.as applicable. Certain line items presented in the table below, when aggregated, may not foot due to rounding.

At the end of fiscal year 2024,2025, we had working capital of $227.9$166.1 million compared to working capital of $368.2$227.9 million at the end of the prior fiscal year. At the end of fiscal year 2024,2025, we had $2.2$4.0 million of outstanding short-term borrowings and $162.7$173.8 million in long-term debt including unamortized issuance costs and original issue discount compared to $0.5$2.2 million of short-term borrowings and $207.0$162.7 million in long-term debt including unamortized issuance costs at the end of fiscal year 2023.2024.

Operating Activities. Cash provided by (used in) operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities of $57.9 million in fiscal year 2025 worsened as compared to cash provided by operating activities of $46.7 million in fiscal year 2024 improved as compared to cash used in operating activities of $59.5 million in fiscal year 2023,2024, primarily due to the receipt of a U.S. tax refund of $57.3 million during fiscal year 2024,2024 managementand ofan increase in other working capital items including inventory and a smaller net loss in fiscal year 2024 as compared to fiscal year 2023.2025.

Investing Activities. Investing cash flows primarily consist of capital expenditures and are offset by proceeds from the sale of property, plant and equipment. Investing cash flows increased in fiscal year 20242025 compared to fiscal year 20232024 primarily due to the sale of our buildingEuropean distribution center in Francethe insecond quarter of fiscal year 2024, which generated approximately $7.8 million of net proceeds.2025.

Financing Activities. Financing cash flows primarily consist of borrowings and repayments of debt. The increasedecrease in cash used in financing initiatives in fiscal year 20242025 compared to fiscal year 20232024 primarily resulted from $34.3 million of net debt borrowings in fiscal year 2025 as compared to $43.8 million of net debt payments in fiscal year 2024 as compared to $10.8 million of net debt payments in fiscal year 2023.2024.

Sources of Liquidity. We believe cash flows from operations and proceeds from non-core asset sales, 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, thewe successcontinue to assess our liquidity position and potential sources of oursupplemental operations,liquidity in light of our operating performance, the markettiming volatilityof the expected benefits of our Turnaround Plan and uncertainty, among other factors,relevant couldconsiderations, impactincluding macroeconomic events, recessionary risks and tariffs. In the event our businessliquidity andis liquidity.insufficient, we may be required to limit our spending or sell assets.

The following table shows our sources of liquidity from cash and cash equivalents and our New Revolving Credit Facility availability (in millions):

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 on2025 Form 10-K for the fiscal year ended January 3, 2026 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 on2025 Form 10-K for the fiscal year ended January 3, 2026.10-K.

The IEEPA tariffs on China were originally imposed in two executive actions beginning in February and April 2025, with varying rates over the course of 2025. On February 20, 2026, the Supreme Court of the United States held that all tariffs imposed based on IEEPA were unlawful, including the two IEEPA actions that resulted in higher rates on products of China. As a result, these higher IEEPA rates were terminated as of February 24, 2026. WeThe haveCompany begunis participating in the administrative refund process set upestablished by U.S. Customs and Border ProtectionCBP in response to court orders to requestrecover refundsthese of IEEPA duties paid.funds.

If the tariffs continue or increase, we may be required to raisetake ourfurther mitigation actions, which could result in increased supply chain costs and disruptions and/or increased 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 tariffs under current or future actions, 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.

The following is a discussion of the financial condition and results of operations of Fossil Group, Inc. and its subsidiaries for the thirteen week periodperiods ended AprilJuly 4, 2026 (the “FirstSecond Quarter”) asand compared to the fourteen week period ended AprilJuly 5, 2025 (the “Prior Year Quarter”), and the twenty-six week period ended July 4, 2026 (the "Year To Date Period") and the twenty-seven week period ended July 5, 2025 (the "Prior Year YTD Period"). This discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto.

Tariffs Exposure: Most of our products are assembled or manufactured overseas, with the substantial majority of our products imported from China during fiscal year 2025. In fiscal 2025, we generated 32.6% 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. Throughout 2025, U.S. trade policies experienced rapid changes and significant volatility, including tariff increases imposed under multiple legal authorities and retaliatory actions by foreign countries. In February 2026, the Supreme Court of the United States held that the President of the United States is not authorized to impose tariffs under the International Economic Emergency Powers Act (“IEEPA”), resulting in the elimination of certain higher tariff rates against most major trading partners, including China. Following that ruling, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection ("CBP") to process refunds of the IEEPA tariffs. The CBP is proceeding with a phased rollout of refunds. Any potential recovery of IEEPA tariffs through this established process represents a loss recovery. TheDuring Companythe submittedYear To Date Period, we received refund claims that were accepted under Phase I of the IEEPA refund process in the amount of $5.9$4.9 million and have recorded a corresponding refund receivable wasfor recordedan withinadditional prepaid$1.0 expenses and other current assets in the Company's balance sheets as of April 4, 2026.million. Of the $5.9 million,million $4.0in million,total $0.9claims recorded, $4.9 million and $1.0 million were recorded as reductions of cost of sales,sales and SG&AA, respectively, during the Year To Date Period. $3.6 million in total claims recorded in the Year To Date period relate to tariffs incurred in the prior year and inventories,have respectively.been Thereadjusted isout stillof uncertaintyAdjusted regardingEBITDA, theAdjusted timingOperating Income (Loss), Constant Currency Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and processAdjusted ofEarnings Phase(Loss) IIper of the refund process.Share. As of AprilJuly 4, 2026, the Company has not recognized any receivable or loss recovery related to Phase IIadditional refunds of IEEPA tariffs because the realization of any recovery is dependent on future events, and the Company cannot conclude that recovery is probable as of the date of this quarterly report; however, it is reasonably possible that additional potential refunds of IEEPA tariffs could be material.

Additionally, after the Supreme Court ruling in February, the U.S. administration almost immediately instituted new tariffs against most major trading partners,partners and has previewed future actions that could restore or exceed the level of the IEEPA tariffs. Future adverse effects on our financial results will likely continue if tariff levels persist, continue to rise, or remain volatile, 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.

World Conflicts: We continuously monitor the direct and indirect impacts of ongoing and emerging military conflicts, including the conflict between Russia and Ukraine, as well as heightened tensions and recent military actions in the Middle East, suchwhich asbegan with U.S. and Israeli strikeshostilities onwith Iran,Iran and subsequent retaliatory actions by Iran.Iran, and has subsequently expanded to include neighboring countries. We have no operations in Russia or Iran, and limited operations in Ukraine, Israel and the broader Middle East, all of which are primarily conducted through third-party distributors. While our direct exposure in these regions is limited, new conflicts, the continuation of the current military conflicts or an escalation of the conflicts beyond their current scope may have a number of impacts, including, but not limited to, higher fuel prices, a weakening of the global economy and negative consumer confidence, and could also result in additional inflationary pressures and supply chain constraints. We will continue to monitor developments and assess any material impacts on our business, operations, or financial results.

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 partythird-party service providers have been, and will continue to be, vulnerable to theft of physical information, security breaches, hacking attempts (including AI-enabled or AI-driven 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.

As part of our driving profitable growth initiative, we plan to further leverage the FOSSIL brand platform to propel innovation, deepen consumer engagement through storytelling, and drive the traditional watch business with focus on icons and collaborations, as well as developing premium products including those assembled in America.products. Driving profitable growth initiatives will also include modernizing point of sale expression, focusing on top customers in key markets, stabilizing our e-commerce business through investments in search and navigation, and reducing the pace of store closures.

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 January 3, 2026.2026 (the "2025 Form 10-K").

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 eachour channel,channels, 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 9290 Company-owned stores as of the end of the FirstSecond 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 eachour channel,channels, 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 4735 Company-owned stores as of the end of the FirstSecond 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 eachour channel,channels, 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 5451 Company-owned stores as of the end of the FirstSecond Quarter and an extensive collection of products available through our owned websites.

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, and restructuring expenseexpense, minus the gain on sale of our subsidiary, gains on asset divestitures, IEEPA refund claims for tariffs incurred in the prior yearyear, and interest income. We define Adjusted operating income (loss) as operating income (loss) before impairment expense, restructuringrestructuring, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year. We define Constant currency adjusted operating income (loss) as operating income (loss) before impairment expense, restructuring expenseexpense, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year 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 expenseexpense, the gain on sale of our subsidiary, gains on asset divestitures and IEEPA refund claims for tariffs incurred in the prior year. 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 14-week27-week Prior Year QuarterYTD Period with the 13-week26-week FirstYear Quarter.To Date Period. Comparable retail sales also exclude the effects of foreign currency fluctuations.

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,duties (net of any applicable refunds), product packaging cost, royalty cost associated with sales of licensed products, the cost of molding and tooling, inventory shrinkage and damages and restructuring charges.

Quarterly Periods Ended AprilJuly 4, 2026 and AprilJuly 5, 2025

Consolidated Net Sales. Net sales decreased $8.5by $10.7 million, or 3.6%4.9% (6.5%4.4% in constant currency), for the FirstSecond Quarter as compared to the Prior Year Quarter,Quarter. The sales decrease was driven by the direct to consumer channel, with sales decreases in all three regions. Sales were unfavorably impacted 690 basis points as a result of the First Quarter including 13 weeks as compared to 14 weeks in the Prior Year Quarter. Ourour store rationalization initiatives and declines in our smartwatch sales comprisedcomprising approximately 280220 basis points of the sales declinedecline. Sales decreases were primarily in our Europe segment as the region is increasingly unfavorably impacted by the geopolitical climate in the FirstMiddle Quarter.East. Wholesale sales increased 7.9%by 0.1% (4.9%0.9% in constant currency). Direct to consumer sales declined by 26.5%14.6% (29.1%same in constant currency)., due to a smaller store base and declines in our comparable retail sales. We have reduced our store footprint by 27 stores (12.3%),17.8% since the end of the Prior Year Quarter.Quarter, including stores converted to franchises with the sale of our South Africa subsidiary. Global comparable retail sales decreased 14.6%,by largely8.0%, primarily due to being less promotional in our ownedfull e-commerceprice channel.selling model. From a category perspective, traditional watch sales increaseddecreased 2.3%by 1.5% (decreased 0.5%0.9% in constant currency). Net sales in smartwatches decreasedwere 57.5%no (57.1%longer in constant currency),significant, as we exited the category. The leathers category decreased 38.4%by 30.8% (40.7%31.4% in constant currency), compared to the Prior Year Quarter, and jewelry sales decreased 9.9%by 11.3% (14.3%11.3% in constant currency). From a brand perspective, the most significant sales growthdeclines were in the EMPORIO ARMANI EXCHANGE, MICHAEL KORS and DIESEL was more than offset by declines in FOSSIL brand sales.brands.

Americas Net Sales. Americas net sales decreasedincreased $0.9by $1.0 million, or 0.9%1.0% (2.8%0.2% in constant currency), during the FirstSecond Quarter in comparisoncompared to the Prior Year Quarter. SalesThe decreaseslargest sales increases were largely in the FOSSILMICHAEL brand,KORS and partiallyTORY offsetBURCH bybrands. otherSales brandsincreased in ourthe portfolio.wholesale Saleschannel declinedand decreased in ourthe store and e-commerce and store channels, while wholesale sales increased.channels. Comparable retail sales decreased moderately during the FirstSecond Quarter, largely due to less promotional activity in our owned e-commerce channel.Quarter.

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

Europe Net Sales. Europe net sales decreased $5.8by $11.4 million, or 7.5%17.0% (14.5%18.2% in constant currency), during the FirstSecond Quarter in comparisoncompared to the Prior Year Quarter. Our sales decreased across much of the Eurozone.Eurozone Sales declinedand in all major channels.distribution channels, primarily due to the increasingly challenging geopolitical environment in the Middle East. The largest sales decreases were in the FOSSIL brand. Comparable retail sales decreased sharply during the FirstSecond Quarter, duewith tosales less promotional activitydeclines in our stores and owned e-commerce business.e-commerce.

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

Asia Net Sales. Net sales in Asia decreased $1.4 million, or 2.4%1.0% (1.4%increased 3.7% in constant currency), during the FirstSecond Quarter in comparisoncompared to the Prior Year Quarter. TheSales increases in India were more than offset by sales decreases were largely driven byin Greater China and unfavorable currency impacts. Constant currency sales growth in FOSSIL, MICHAEL KORS and DIESEL was partially offset by sales decreases in EMPORIO ARMANI. Sales decreased in our direct channels and were partially offset by sales increases in India. The largest sales decreases were in the EMPORIO ARMANI brand partially offset by MICHAEL KORS brand sales increases. Sales declined in our e-commerce and store channels, while wholesale sales increased.wholesale. Comparable retail sales increased slightlymoderately during the FirstSecond Quarter,Quarter driven bywith sales increasesgrowth in our retail stores largelypartially offset by decreasesdeclines in our e-commerceowned business due to less promotional activity.e-commerce.

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

Gross Profit. Gross profit of $134.7$130.8 million in the FirstSecond Quarter decreasedincreased 5.8%by in3.2% comparisoncompared to $143.0$126.7 million in the Prior Year Quarter. Our gross profit margin rate decreasedincreased to 59.9%62.4% in the FirstSecond Quarter compared to 61.3%57.5% in the Prior Year Quarter. The year-over-year decreaseincrease primarily reflecting improved product margins in theour Firstcore Quartercategories asdriven comparedby tobenefits thefrom Priorour Yearfull Quarterprice primarilyselling reflectsmodel, increasedsourcing tariffsinitiatives and reduced tariffs. This increase was partially offset by the accelerated timing of licensed brand minimum royalty recognition.recognition Theseas headwinds were partially offset by tariff refund claims recorded in the First Quarter, which contributed positivelycompared to the marginPrior byYear $4.0 million, including $2.8 million related to tariffs incurred in fiscal year 2025.Quarter.

Operating Expenses. Total operating expenses in the FirstSecond Quarter decreasedincreased by 7.9% to $122.7$127.6 millionmillion, or 54.6%60.8% of net sales, in comparisoncompared to $149.7$118.2 millionmillion, or 64.2%53.7% of net salessales, in the Prior Year Quarter. Operating expenses in the Prior Year Quarter were favorably impacted by an $11 million gain on the sale of our European warehouse. SG&A expenses were $120.6$123.5 million in the FirstSecond Quarter compared to $133.8$110.9 million in the Prior Year Quarter. As a percentage of net sales, SG&A expenses decreasedincreased to 53.6%58.9% in the FirstSecond Quarter as compared to 57.4%50.3% in the Prior Year Quarter, primarily drivendue byto costthe reductions$11.0 andmillion efficienciesgain gainedon throughthe sale of our restructuringEuropean programs. SG&A also benefited from tariff refund claims recorded during the First Quarter, decreasing SG&A by $0.9 million, including $0.8 million related to tariffs incurred in fiscal year 2025. Operating expenses in the First Quarterwarehouse included $2.0 million of restructuring costs, primarily related to employee costs and professional services, whilein the Prior Year QuarterQuarter. includedRestructuring $15.8expenses were $3.4 million in restructuringthe costs.Second Quarter, compared to $7.3 million in the Prior Year Quarter.

Operating Income (Lossloss). Operating income in the FirstSecond Quarter was $12.0$3.2 million as compared to an operating lossincome of $6.7$8.5 million in the Prior Year Quarter. The operating income improvement was primarily driven by decreased operating expenses and partially offset by decreased sales and a decreased gross profit margin rate. As a percentage of net sales, operating margin was 5.4%1.5% in the FirstSecond Quarter andcompared (2.9)%to 3.9% in the Prior Year Quarter. OperatingThe operating margin rate in the FirstSecond Quarter included aan favorableunfavorable impact of 2060 basis points due to changes in foreign currencies.

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

Interest Expense. Interest expense was $8.5$8.3 million in the FirstSecond Quarter in comparisoncompared to $4.5$4.3 million in the Prior Year Quarter due to increased debt issuance cost amortization, higher debt balances and increased interest rates.

Other Income (Expense)-Net. During the FirstSecond Quarter, other income (expense)-net was income of $1.2 million in comparison toan expense of $3.3$1.7 millionmillion, compared to an expense of $38,000 in the Prior Year Quarter. This change wasQuarter, primarily drivenreflecting by net foreignincreased currency gainslosses in the FirstSecond Quarter as compared to net foreign currency losses in the Prior Year Quarter, and partially offset by a $0.8 million gain on the sale of a subsidiary in the Second Quarter.

Net Income (Loss) Attributable to Fossil Group, Inc. FirstSecond Quarter net income (loss) attributable to Fossil Group, Inc. was a net loss of $0.8$10.6 million, or $0.01$0.18 per diluted share, in comparisoncompared to a net loss of $17.6$2.3 million, or $0.33$0.04 per diluted share, in the Prior Year Quarter. DuringThe thetranslation Firstof Quarter,foreign currencies favorablynegatively affectedimpacted diluted earnings (loss) per share by approximately$0.05 $0.10, when compared toin the Prior YearSecond Quarter.

(2) Includes the gains on sale of our European distribution center and equipment from a Swiss manufacturing facility Adjusted Operating Income (Loss), Constant Currency 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.

Our cash and cash equivalents balance at the end of the FirstSecond Quarter was $81.4$79.0 million, including $63.4$69.6 million held by foreign subsidiaries, in comparison to cash and cash equivalents of $78.3$109.9 million at the end of the Prior Year Quarter and $95.8 million at the end of fiscal year 2025. 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 FirstSecond Quarter, we had net working capital of $182.5$189.3 million compared to net working capital of $219.9$223.8 million at the end of the Prior Year Quarter. At the end of the FirstSecond Quarter, we had $2.3 million$13,000 of short-term borrowings and $193.0$203.0 million in long-term debt including unamortized issuance costs compared to $12.3$13.4 million of short-term borrowings and $167.2$165.6 million in long-term debt including unamortized issuance costs at the end of the Prior Year Quarter.