Fossil Group upgraded to ’CCC+’ from ’SD’ by S&P after debt deal

Investing.com -- S&P Global Ratings has upgraded Fossil Group Inc. to ’CCC+’ from ’SD’ following the company’s debt restructuring, while maintaining a negative outlook.

The watchmaker improved its maturity profile by exchanging $150 million in senior unsecured notes due November 2026 for new secured notes due in 2029. The restructuring included $32.5 million in new money and extended Fossil’s earliest debt maturity to January 2029.

Despite these improvements, S&P forecasts Fossil will maintain very high adjusted leverage of nearly 10x this year with a free operating cash flow deficit of $65 million. The rating agency expects leverage to improve to about 4x in fiscal 2026 as one-time costs decrease and cost-saving initiatives take effect.

As of October 4, Fossil had $79 million in cash and $23 million available under its asset-based lending facility. The recent transaction improved its facility availability by approximately $25 million, but S&P warns liquidity will likely reach its lowest point in September 2026 due to seasonal working capital needs.

Fossil has struggled with declining sales and profitability in recent years. Revenue contracted from $1.7 billion in fiscal 2022 to about $1.1 billion in fiscal 2024, while net losses widened from $44 million to more than $100 million during the same period. S&P projects a 15% revenue decline in fiscal 2025, moderating to a low- to mid-single-digit percentage decline in fiscal 2026.

The company has implemented several restructuring programs to address its financial challenges. Its most recent plan, announced in 2024, targets $100 million in additional cost savings through headcount reductions, a less costly distribution model in smaller markets, and 45 store closures.

S&P expects Fossil’s adjusted EBITDA to improve by about $55 million and turn positive in fiscal 2025, with further improvement in 2026. However, the rating agency notes significant execution risks, including tariff costs that reduced gross margins by approximately 320 basis points in the third quarter.

The negative outlook reflects potential for a rating downgrade if Fossil fails to improve profitability and substantially narrow its cash flow deficits, which could increase the likelihood of another restructuring or liquidity shortfall.

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