FOSL - Earnings call transcript Q1 2021

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Operator

Good afternoon, ladies and gentlemen. Welcome to the Fossil Group First Quarter 2021 Earnings Call. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.

Now, I'll turn the call over to Christine Greany of The Blueshirt Group to begin.

Christine Greany

Hello, everyone, and thank you for joining us. and the Chief Kosta Chief Financial and McKelvey, on CEO; Chairman Operating today Greg Doshi, Officer. Sunil Officer; EVP us call Kartsotis, are and Officer; With Commercial Chief Jeff Boyer, would during conference contains differ this this materially call. to available results that those and call you information forward-looking that I made like will during from actual information, could remind be discussed differ a materially policy XX-Q Fossil SEC. such Form actual statements number concerning of forward-looking information cause company's factors on readily Group's results reports is additional to from statements the the available could that and filed in with and X-K

information in was discussed addition, In unless as reconciliation fossilgroup.com. measures otherwise to law. reflect regarding you to All With a no as section and financial find of on result results update today that, publicly of during in that constant filed references new currency earnings can Fossil's is to the required or by sales events Form X-K Investors to today's begin. will except revise Fossil information, call indicated. forward-looking call turn otherwise, other over a whether assumes the any note available statements, non-GAAP future Please Kosta now and obligation call release, I this on which or

Kosta Kartsotis

well. everyone, afternoon, staying We and is Good thank everyone you today. for us hope joining

impacted easing by have humanitarian restrictions is most been tragic several those which in of another in wave crisis. countries, are the being a COVID experiencing While India, thoughts notably our with pandemic,

remains we're safety local the being Because communities. and flexibility large our with and continuing and prayers community partners partners team the dynamic, affected of prioritizing at and to are the thoughts members, and out operate by and to tragedy. concern we health our associates, Our go global environment the

Turning our quarter first now performance. to

pleased feel positioned. is good are how start and to year particularly our the the with strong We about business

both in favorable traditional market addressable the and segments. are operating trends are watch in a large connected We seeing and

net Americas sales mix in own dominated XX%, to of underscoring came a grew our our more our from a in by and ahead Total the expectations, sales region. of quarter represented wholesale dramatic driven in demand business model shift revenue websites XX% First digital global digital-first our improving organization. consumer the than

delivered also margins continue strong to in the operating positive and EBITDA us gross which improve to We allowed XX% above adjusted quarter. efficiency, generate

re-sizing cost We X.X World million against also $XXX New driving our which structure, reduction us our than target progress going further cost program remain initiatives, Fossil allowed to focused efficiency we and reach the under organization After successfully on earlier made planned. the forward. operating

outsized economics Additionally, to in improve business ongoing and the structural continue of growth with our digital.

at quarter regional from a Looking first lens. the

in We The growth XX% China, business EMEA of Asia with XXXX. continue the to Pacific ago pandemic. the Mainland our region, drive since robust and growth In year restrictions sales impacted pressured in XX% and sales quarter. more a was closures negatively pandemic-related versus growth the sales balance by

conditions restrictions as markets, U.K., Italy to select in remain in we beginning France. challenging countries are such easing and see While the several some

of term, bear our pleased single-digit emphasis region. improving Emporio assortments Mainland the strategic product we product Fossil a captured is a In our and largest Kors sequential initiatives and low Longer see is in core restrictions and QX, confidence to return teleco watches share. brands our in categories channels, category, by and With our in our in In broadens to driven strong by those growth restrictions tailored to on demand the significant. in platform margin. the drove delivered set X connected across brands. are saw recovery all seeing In in focused Gen China, the Sales X world LTE easing by of strengthening saw functionality. broad-based categories. during and Globally, growth brands Gen product, our growth and with response we traditional underway, fruit. In remain our our U.S. we and driven Armani more are brands consumer grew and in and positive we growth and category consumer jewelry region, that on sales both positive markets pressured closures and consumer opportunity officially electronics for distribution of in and sales Americas growth Canada that capabilities SKUs the Within an the expanded In and for were is America in QX, period. our where the growth Latin platform confidence. which U.S., e-commerce, parts

innovation roadmap and software Our will to capability brand that enable our innovation to remains and bring consumers. excitement robust, hardware fueled further us by

China. Our digital our continue strategic key are on efficiency opportunity and will results that working balance reinforced and in the in product operating same strategies; acceleration, for initiatives on our focus of to efforts growth QX these we innovation, the XXXX

entire few a and built infrastructure the mindset our brought digital-first transform organization to model. past years, the business we to Over needed the

years. that past our Our us begin With for ongoing behavior, the acceleration the capabilities our largest now positioned digital to business persisted digital gotten channels we with model. coupled other consumer offsetting of inflection are systems, past an channel, an in investments line and has to has several top and point in pressure in

third is with trends party an key improving and owned markets. that as trending and both in as at We global mix wholesale.com. sales e-commerce our Importantly, digital of we're in XX% well ended sites ongoing seeing higher our strength within QX

also our The the we continues we increasingly already we at that continue do how to of compelling Given to be become in built, are and but we our heart profitable on growth, XX% drives not supports economics sales. everything continue believe ESG business digital this to capabilities expect demonstrated the scale. we its and trajectory we as strategy. robust current build strong Innovation of and exceed only QX, innovation will ultimately total

a organization. being focus encompasses our on Make Time purpose-driven program, Our for Good,

ongoing through we and we that sustainable in I contribute Fossil on invite we possible are and of platform. raw both confirming materials Good aim cactus where people, and e-commerce that sustainability. mutually innovative have lens, leather you excited efforts Our to solar ESG X% social for announce to From product highest reacted communities more innovation beneficial. read will a sustainability initiatives our on to and Make together platform, Relations enhanced to our Time website the sales our our programs From are further impact world. encouraged with is by planet came start about and our Investor lens, Foundation, watches cases, under whose for our our limited-edition In Fossil belief and brands. product consumers Fossil consumer several our helping a favorably, tote in across the the global launched our Despite the key improving markets strong driven underserved the youth year. demand around we the are to our disruption goals by include pandemic, QX,

sales we our EBITDA X%. to to outlook and XX% growth are raising to result, year margins X% to XX% full a As adjusted

teams over financials. we're And the to year, As to to always, energized success. term we discuss Sunil are line opportunity deliver turn grateful the and by of growth improved top for globally, for longer the the continuing now, call while the I'll commitment business and this dedication position all to our and profitability

Sunil Doshi

Thanks, Kosta, everyone. and good afternoon,

the constant e-commerce the control, disruption the over in the X%, primarily and first results in regional perspective, we our the XX-week continued we and stores in and EBITDA above soft pressures quarter, was U.S., U.S., pandemic EBITDA Canada reflecting down Americas European single-digit demand net low the restrictions within our quarter offset due We offset months. America. currency. ongoing channels, Mainland key adjusted in and totaled by delivered strength our million period, in $XXX declined the region in traffic margin countries. Latin the remained channel. careful trailing region, reflecting pandemic-driven improving China despite disruptions From cost in our Asia net the to ongoing in $X resulting are driven by sales which EMEA Fossil Trends both XX%, XX%, XX% sales In other and by than growth for accounted sales. consumer year-over-year worldwide XX% and in third wholesale to of and in QX by a more decline pleased our sales digital of by for the in was by strength sales, QX, offset for party and on $XX Gross increased ongoing ongoing global a region, net strong exercised growth XX In million sales basis saw which report sales XX% and driven pandemic sales globally X% pandemic.Net in conditions. for declines global better-than-expected of came in adjusted million countries or broad-based

wholesale.com. of platforms digital our reminder, channels, e-commerce a party As sales our third owned and e-commerce consist

consistent last versus sites e-commerce more e-commerce Now the year encompasses Comparable on business with DTC declines growth sales our which sales offset own at down perspective, sites own with We the have retail from traffic-driven were XX% XX% looking stores. DTC and stores. year in sales as was than our versus our remained offset improvement from our quarter traffic with EMEA. trends Globally, a recent ago. and traffic XXX some trends with quarters the stores, ended down by in Americas company-owned modest conversion

delivered regions. in performance. sequential of sales and Global XX% category X% X% jewelry increases watch APAC growth the to category, the In grew Americas our with a in XX% XXXX, we from in by region. Turning QX and Americas the globally, improvement decline sales declined QX, in

Moving down to P&L.

which business. strict $XX XX% $XXX reductions reflects million for planned. of million cost have Fossil and as include most realized control. year Cost of the accounted for million pandemic. year basis when across improvement to World expense basis first cost compares XX% the was in million region program, in $XXX expenses. we of operating in not this volume QX, costs by million as program the the $XXX favorable impairments focus of ago, cost restructuring and in channel same down X.X than earlier QX license reductions, we First reduction several now well structural significant our royalties cumulative as actions in goal expenses, of X.X lower comparison. of program's cost together, compared benefited of higher which from QX's QX, decrease to exceeding part in operating Total through freight X,XXX under last these a realized $XXX reductions resulting a was of as generation from margin to actions quarter impact points onset at did also extent gross XXXX as took QX taken product impact older the and the lower that favorable offset prior connected Gross year XXX currency year-over-year came of year product, to move and accounted the year in XX.X%, of due margin mix, Inclusive total, minimum savings through in of were the partially or SG&A million point, we on incurred costs. quarter New areas our $XX inventory sales $XX In and last maintained to approximately million, or XX.X% NWF

$X operating Taken adjusted together, was million, margin substantially narrowed QX loss versus year. EBITDA X% adjusted and the was prior EBITDA

Turning to taxes. income

was and a XXXX the of valuation included was loss diluted an share Fossil Both World and Our losses operating QX a net $X.XX provision reflecting income per diluted increase net in respectively. In diluted per foreign compared $X.XX and share, in charges $X an $X.XX allowances taxes. tax share QX, New on XXXX current of to increase loss for per $X.XX periods restructuring deferred million, year tax withholding ago.

Total amortization million, revolving with term $XXX million. our the cash of credit SKU the productivity which quarterly equivalents light improvements total the needs, and of is and ongoing was year, expenditures managed inventories to driven liquidity approximately perspective, million, of $XXX to flow. $X capital with cash our a total first in of at of capital ended portion closely We have year our QX with down quarter million. of pandemic-driven of million. receipt and including and last inbound included normal XX% impacts and line million, controlled addition $XX From plan of loan, turns. balance of the $XXX end $XXX normal we QX capital use versus the course sheet We a cash pay debt cash in in down overall ended as and in our working totaled allocation facility of approximately full inventory tightly QX's remain Moving

our to now Turning outlook.

anticipate We the XXXX Given increase in second full now the in are better-than-expected sales raising in full will range we to XX% XX%. our that we expect XX% year to In sales XXXX. of of net range outlook. of performance our to net the quarter, compared XX% to year QX QX, increase

of extreme the due year-over-year second As QX a last in reminder, in quarter are the to year. comparisons pandemic of easier impacts 'XX

Additionally, we to now expect Q&A. to of I'll call some margins back us take X% approximately Christine turn With adjusted EBITDA full through year the X%. to that,

Christine Greany

Sunil. Thanks,

questions. move should New World and in $XXX the Jeff, of to you program exceeded the savings to actually under that, what cost some efficiencies? Fossil Let's million achieved further you target further looking where anticipate are X.X terms we capture

Jeff Boyer

Sure, Christine.

few the we past a successfully We'll align the business mentioned model had further have and cost portfolio. our to the years, Kosta efforts overhead transformation of in more store cost structure the profitable more earlier. efficient shifts with lower costs continue better to Over and organization structure through resized fundamental and streamline our our but also smaller, which

appropriate. through gross as addition, are management well improve In we enhancing pricing taking where sourcing select that's also initiatives, margin as to some performance our inventory programs and expanding our actions,

in programs line line strategy, of expect these expanding our invest while We margins benefits growth, digital-first our still to will bottom enable top us drive operating the various

Christine Greany

you. Thank Great.

what view as increasingly the with to looks become your and begins the digital of mix of what going like the taper? to consumer stores, to you As Turning business think is optimal going forward? Kosta, returning out consumers comfortable pandemic do

Kosta Kartsotis

people starting see renewed China, making United pent-up We're with we're see stimulus checks return normal impact a in social about are more and the a activities. There the participate in a and to is the retail. an to out U.S. the by you When in The both doing rebound call obviously and mostly China. very interest and on very strength pleased point, of and United States in timing down. demand encouraged also exact we're of is this consumer accessories. when it's difficult in well States business the the and to the but globally Europe, in We're at to closed size consider

You consumer there the can shopping to ready tell is start again.

mix likely see in digital Regarding the more bricks, to optimal as ready versus things changes buy online to very and business, interesting consumer. it's They up. are the of buy the to even open

and over that our digital as With continue to will invest to in trend of over consumer the channels be years, and digital sales this next need. expansion further few future, continue conducted meet a likely. with expect We will in XX% the the of channels the capabilities landscape shopping we highly

necessary for As is model digital mentioned, improve our Jeff believe we company. we transform be first. operating This the a and can game-changing business digital investments we as to make opportunity the margin our more

Christine Greany

about expenses how headwinds And Thank Great. Sunil, relative puts year? of to you some the seeing around lot you. should big companies what think we talking and and the this takes about? of are labor freight that a are

SunilDoshi

of of we A think kind effort reduce significant took over XXXX benefits that come OpEx lot Yes, part first reduction down of quarter. the to in XXXX, Fossil New that bigger The its program. of on its the years. Christine. couple of -- when through place as World the in and some year. last and this Thanks, of saw company expenses it's helpful about to think Yes. this narrowing about you company's picture undertaken has The

From store inflation a given effective market drive that given minimum reductions those is be the wage and COVID-driven As investments hourly break we'll from from sales. seen above impact our still in and cost comparisons already wage year-over-year part were for savings inflation, With low, year's relatively relative rate is the XXXX. store we expenses XXXX to helpful we to through XXXX, years U.S. of impacts a dollar the extreme relative small at begin temporary to will of that result in some the is QX the translate marketing some place put in our But and that variable we sequential infrastructure and standpoint, that it and prior inflation which normal to it haven't On variability down QX. of a wage rate current any to to shutdowns, sales in for this hourly potential for some our rate material respect expense might increases cost while with into SG&A fleet lap from payroll relative to will move business. in expenses well flex leveraging point, to this expect basis, wage. some our last our

side, material other we significant cost raw chain. changes More the to on On productivity throughout goods of in impact the we'll pricing eye to goods, inflation in of do we believe but the whether broadly, cost the offset that in or our keep seen supply overall any pricing that. opportunities would there opportunities are haven't consider that's future,

Christine Greany

could color And provide you you some Okay. commentary that revised today? the additional on provided guidance

Sunil Doshi

deployment it's fourth a to guidance clear some the quarter, market, back, vaccines seeing critical In China. have sure. that largest our a the been of in helpful original was guidance quarter saw revenue original -- XX% demand been momentum -- back yes, in sharing the of which outperformance of the out Yes, the stepping in becoming coming first of our under as to growth, more is was the kind months to pandemic we underlying are through control go XX% maybe vaccine step sharing improvements continued couple reality. What's and in in we Mainland the getting a in and U.S., QX sales

our in lockdowns severe However, we've pandemic in countries some spikes seen in and other the of extensions some the most APAC we've and India experienced region. recent, countries most in EMEA of

with flow to shared. the X% leverage APAC all EBITDA So to taking adjusted we improve and balance to through this sales year reflected the that X% adjusted in U.S., XX% overall we that reflected margins expect EBITDA sales and perspective, year From in some full our from an XX% the in of the of tempering account, and full to of QX, year growth. expectations while for through increase net we results to EMEA. And improvements have of the parts flowed in into that's the the

Christine Greany

Thank Fossil Can of was first wrap just program question of regarding And strategy. a Greg. for about to number for That kind digital We've the helpful. you pillars the you. a with us? of again just key up comments heard talk

Greg McKelvey

Yes.

to-date. rate you investing includes A In value our expect behind. engaged the we're year his with increased cloud-based XX% mentioned year. we we're doubling prepared with adding and growth. become e-commerce unlock and ratio resulted our expanding last we've the combined in store and of case pillars another very scalable having last investments Kosta success digital-first As the cost powerhouse, heat owned that third-party conversion high call, such on order shared digital brand the we're programs. increased XX% direct-to-consumer partners analytics of wholesale.com acquisition seeing concept, key to on accelerating own accelerated and storytelling metrics demand and rest customer database, already meaningful our and and Fossil, customer initiatives. Skagen, a DTC a initiatives as lifetime leading capabilities, to our X, X and well channel, will Salesforce this build e-commerce marketing, On of our that our our with to value. has e-com programs, X, in success business in product is we're brand marketing goal created digital increase our which global our our that CRM are, innovation to compelling scale A highly based world building websites The community where which on performance remarks, to X, as online that seeing those a of platform. brands to new WatchStation made multi-brand in continuing Michele and and our results through underlying I an ROI the digital brand platform which high our And as

initiatives, points wholesale.com our on couple me top across leadership very in share distribution sales companies These spend with additional the two in digital and or gaining Now, up of growth with channels, expansion wholesale while In near-term and digital other efforts. world, establishing category effectively a a our of successful been e-commerce let well. programs third-party driving the the pure-play our as our offerings the the these e-commerce space. scaling marketplace expansion minute significant of are customers also top indirect e-commerce of in we've

a number X to on already expand sites leather Americas, we watches, regions, We jewelry aggressively in second and with ahead. us look and have expand on, APAC. incredibly teams same sharing platforms more in opportunities each the plans We're offering further and in These number of we're the these smartwatches, of plans offerings enter EMEA sales this year the provide quarters time, forward and wholesale.com of marketplaces half the our and results XXXX. at be pleased to our making expansion that the and of positive with will progress our as additional that of traditional on are expanded

Christine Greany

it color. to back Thanks, helpful Greg. to Kosta to out. That was very going I'm close turn this

Kosta Kartsotis

forward Thanks everyone speaking our quarter look call. again on joining for We you to us. to second

Operator

participating. This concludes call. today's conference for Thank you

disconnect. may You now

Fossil (FOSL) 13 May 212021 Q1 Earnings call transcript