Fossil CEO says turnaround is ahead of plan as sales return to growth

Fossil Group posted quarterly results on Tuesday that could point to early signs of a turnaround for the legacy watchmaker.

The company, which has struggled to compete with new gadgets in the years since its sales and stock price peaked in the 2010s, has been quietly undertaking a comeback strategy under CEO Franco Fogliato. The company's fiscal third-quarter earnings indicate the strategy is beginning to bear fruit.

The company said Tuesday that it returned to profitability in the third quarter, posting operating income of $25.3 million, compared to an operating loss of $21.7 million last year. It also returned to sales growth, with net sales up 0.4% to $271.2 million. The company last reported a year-over-year sales increase in the first fiscal quarter of 2022.

"We're excited about improving dramatically the profitability of the company through a very strong and disciplined management of full-price sales as well as cost management," Fogliato told CNBC in an exclusive interview.

For the quarter ended Oct. 3, Fossil reported net income of $11.7 million, or 19 cents per share, compared to a net loss of $39.9 million, or 76 cents per share, the year prior. The company also said its operating expenses fell 11.1% to $137 million. The company last posted quarterly net income in the third fiscal quarter of 2022.

With the signs of growth, the retailer also raised its full-year outlook, guiding for full-year net sales of between $980 million and $990 million, which would mark a slight decline from just over $1 billion in net sales in the prior year. That compares to a previous expectation of net sales falling between 3% and 5%. Fossil also said it's expecting positive free cash flow by the end of the year.

Fogliato said Fossil had previously not expected sales growth for another year and a half.

The stronger quarter comes after the company saw slumping sales and financial losses over the past few years. It struggled with the rise of smartwatches, mounting debt and the decline in mall foot traffic.