Kanen Wealth Management Sends Letter To Fossil Group Board
Dear FOSL Directors,
Fossil is a $1 bill + co., and a solid brand with ample opportunity, one that enjoys high gross margins in excess of 50%. Judging by the actions of the board and management, there is a lack of urgency in executing its strategic initiatives and returning to profitability.
To date, we have little to show as a result of the Transform and Grow plan (TAG). Fossil shares are down approximately 80% since the plan was announced in February 2023. Despite closing stores and slashing headcount, the company still reported a loss for the year. You routinely miss your own guidance. In our opinion, closing 50 additional stores in 2024 via lease expirations simply isn't going to move the needle. We are concerned that narrowing losses and subsequent profits will continue to be elusive. Management needs to take a faster approach in reducing expenses, identify profitable segments, and implement these measures in a rapid cadence. I question the lack of wisdom in your 3-year implementation of TAG. It's way too long, creates anxiety within the organization and potentially outside the organization (customers, vendors, partners, etc.)… not to mention the long delay in profitability starting in 2025. Instead of "ripping the band-aid off", you have opted for "death by a thousand cuts".
We ended the year with $117M of cash, a $56M tax refund forthcoming in 1H 2024, and roughly $20M of non-core property up for sale by our estimation. We have the liquidity to fix the business! The total being potentially $177M of gross cash. You have hired 2 prominent advisors to assist you which likely is expensive. Why haven't you done the obvious??? You can potentially buy back your baby bonds that have a face value of $150M. They are currently trading in the market for less than $63M. You have a shot on goal to retire $150M of debt at a 40-50% discount yet you behave like a deer staring into the headlights of a truck about to run you over! This is consistent with your decision to implement a painfully slow and long implementation of TAG. You are clearly sluggish and not moving fast enough. We need quick, decisive, and bold actions! The message of your "non-action" is that you do not understand capital allocation.
KWM owns just under 4% of your 7% debt due in 2026. Given the track record and lack of rapid remediation, we believe that KWM can assist the company by having board representation. Sadly, you are likely spending millions of dollars on outside advisors that have little to no skin in the game and have not delivered results yet. We look forward to your response and working with you in a constructive fashion going forward.
Sincerely,
David Kanen
President/CEO
Kanen Wealth Management