FOSL - Earnings call transcript Q2 2021

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group’s Second Quarter 2021 Earnings Call. All parties are in a listen-only mode. This conference 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 Operating and McKelvey, on CEO; Chairman Financial today Greg Boyer, Officer. Jeff Officer; EVP us call Kartsotis, are and Officer; With Commercial Chief Sunil Doshi, 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

addition, In as law. a no as result update publicly of new required or by events to except revise Fossil information, forward-looking otherwise, whether assumes any statements, future obligation or

currency non-GAAP we note discussed today actual which results call, the will Please can a call and on this of constant turn results financial that, now call regarding Kosta. filed currency to refer Investors I’ll other the available reconciliation results. fossilgroup.com. in find X-K release, today’s information With section over Fossil’s was measures to of you is in and that on During earnings to constant Form

Kosta Kartsotis

for thanks everyone us Thanks, afternoon, everyone, and staying Christine. Good and today. hope well We joining is safe.

with gross strong controls. and We delivered achieved categories. maintain which pleased exceeded sales across regions our of our and our XX%, performance, are second quarter solid growth reported We of guidance and all reflected margins growth cost net

$XX levels. outpaced XXXX result, As million, income adjusted which we a significantly of delivered operating our

us is to focus our growth. enabling QX begin and importantly, results sales our More that traction strategic highlight driving profitable gaining

sales wholesale.com includes sales has and XX%, opportunities sales first digital results. sites. all XX% to Digital versus grow deliver turning and global own In which region’s QX, XXXX. relationships. our to to QX, indications deepen point exciting were since mix penetration digital Now XXXX on up and and platforms versus sites, e-commerce substantially further grown continues sales third-party digital XX% to Each focus increased was customer sales our XXXX

region, in while Asia. up we’re triple-digit versus Growth the at due in XXXX. China prior India, to growth in QX prior levels second very quarter by versus up Looking with still at remained starting XX% Performance year positive and XX% strong, with conditions. versus Mainland pandemic depressed year,

sustained We continue as across in with versus our all channels. to continued primarily view e-com our Americas high business. and XX% watch traditional driven category currency, constant saw strengthening our delivered particularly by markets long-term up categories. of brands and as we XXXX U.S. our growth strongest strong growth China and India the region growth, out The in in pure-play Sell was owned wholesale opportunities

this of Stepping a is category into we of made growth as this which result of on growth on while Our outcome the model. of net EMEA brand a the year. had transforming sell-on region to quarter. distribution in the closures building a a We returned path key considering trends market with are market the back sales positive up encouraging heat, progress we digital in as have during our lot in the United our quarter driving and the XX%, half teams head are the back, market significant States

open in pleased transformation good a we there are business We feel the as up. are with the overall markets and position of the

triple-digits in designs, versus which versus were regions achieved of seeing iconic almost sustainable with brands. both XXXX. localized was It’s in and are consumers. for that year performance category, sales product portfolio top strong Turning and products well our our in up materials all also last growth our tailored three line XX% brands categories. and geographic celebrated now noting watches we worth owned performed jewelry We to Traditional positive and

it’s sales, for our of distribution XX% where approximately growth. great capabilities ongoing a margin a adjacency design is category, make high jewelry and this our While

we global campaigns In initiatives driving heat. brand into leaned brands Now key a scale. on are that’s turning heat generated that to QX, for significant our brand

global multiple eco-friendly and channels. across brands, metrics products pro-planet significant our materials the own media seen customer impressions highlighted generated campaign our which of highest we’ve in and created First, engagement e-commerce some

customer Second, helped our our drove these campaign ago. collaborations edition a drive XX% also and engagement, limited database global over of sell-out resulted the featured that but year in campaigns Both pride products growth not only in collections. our versus of

vintage end was of Fossil date The watch of with one Space to addition Space the movie. collaborations ability best release marked highlighted with Jam the our Fossil Jam worldwide Jam brands bring in of of limit Finally, our our DNA launches launch Disney the Space iconic brands QX collection the of to Fossil brands. through and most and characters successful life to the media conjunction

this are new bring While the seeing campaign in still ongoing, we customers to brand.

the on India. initiatives, been enter that through ongoing growth opportunity profitable digital second we have building the of our As to year, China and return our innovation strategic we acceleration, brand the heat in the efficiency driving operating product remain growth, marketing, pillars focused and half and

team. drive analytics significant data are Holly digital digital us we’re this will marketing role, built from and initiatives efforts our transformations Holly where and our Briedis pleased scale making customer she on and sales, e-commerce retail capabilities. strategy exceptional to and our addition for Digital to the global centric deepen to our our brands. Officer digital We the expertise In McKinsey, lead driving has Chief of announce progress executive joined customer

marketing sales. greater product Second, to with respect brand lean heat, drive investment top into launches building we fourth will with third line to quarters brand and and in the in markets key

will of initiatives as next year connected bring back continue to the of the we innovation our in generation product half Our market. watches

ongoing to and feel that a in deliver established the careful have significant of well-positioned us. Although, new we poised are still is the a profitable technology, our business world innovation Fossil programs we model transformation ahead to the talent, of on navigating are and transformation investments have global we made progress growth. we capitalize on opportunities pandemic, Through and

result perspective hold, success. to world and will on past us our first focus we the our Their team take the guidance execution a momentum closing, additional to our the year and our XX% Fossil EBITDA raising strategic to and thank during In their would sales of half strong like transform for has his to the the our remarks. relentless years. X% enabled initiatives for long-term set a over all to As few commitment excellence up X%. our over company to we members growth results margin full Sunil outlook are to adjusted range we’re of as and provide outlook XX% seeing for

Now, financials. to the Sunil discuss to over

Sunil Doshi

Thanks, Kosta, afternoon, everyone. and good

which adjusted As in outpaced quarter, and Kosta and QX operating million growth in of XXXX operating of $XX sales. and headlined X% to of all income of deliver mentioned, pleased which XXXX we’re results. regions $XX gross income $XX both or a million margins, three EBITDA solid adjusted strong million, was resulted by net

parts XX% severe impacted constant of year. significantly grew ongoing restrictions strong our Now and our and net growth restrictions sales region, quarter. up the where turning of XX% Europe, currency, restrictions XX% the double-digit XX% to XXXX. up strong some thanks by by the sales in offset or performance constant the growth digital despite digital temporary up net review resulted million, sales we last Recall, sales U.S. and pressures currency, traffic. China, expectations in totaled that throughout In reduced were channels. versus COVID XX% sales with versus were QX which led Americas in to was Asia in to up India net capacity currency of a In growth nearly last up Mainland as were to which in year the sales. and initial currency sales $XXX XX% and QX outpaced QX placing pandemic-driven globe XX%. Compared last constant versus digital regional impacting on XX% XXXX, last QX surge, sales basis. in constant perspective, closures were sales net ongoing in quarter. pressures partially delivered lockdowns our year pandemic-related were plus versus our XXXX brick-and-mortar in was XX% From digital in during net COVID-driven navigated QX that QX year, Results all the in This Canada, experienced up sales a

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

our prior when a year’s business ago and the remained from XXX e-commerce ended down encompasses at DTC with recent traffic with XX% our DTC in Comparable drove the traffic sales XXXX. the by stores, from trends store Globally, last modest global consistent were conversion own perspective, own with brick-and-mortar offset and year, the sites looking XX% improvement trends some up versus levels sales Now from sharp XX% rebound depressed which and year stores. lockdowns closures. company-owned in in Europe. versus We have Americas, quarter down quarters reflecting

Global QX category of by performance. Turning watch across in led regions. more in constant with all traditional In our than sales jewelry our to doubled category, watches. currency, increased sales increases XX%

the P&L. Moving down

came year. down XX%, points in margin gross quarter at basis Second last XX to

reminder, on included one-time gross in As due year’s licensed benefit projected prior a margin products. product to rate minimum royalties for liabilities a reduction

year versus currency, operating improved which gross from period. $XXX impairments were in amount, product as restructuring by Total as mix the year, channel million, to costs favorable region and expenses, this last Excluding prior mix. by driven million include margin and impacts offset $XXX compared well

percentage sales, in expenses of in ago. were QX, operating of year increase an a to ago expenses $XXX year the a As SG&A million compared XX.X% versus period. XX.X% were XX%

coming As substantially year. a XX.X% percentage was lower, SG&A last at compared of sales, XX.X%, in to

and quarter. million operating was gross adjusted an operating was million. Taken $XX basis, in solid together, $XX performance of and margin drive EBITDA On adjusted million strong adjusted $XX sales the income helped income

loss Our tax was also QX on the Fossil loss are net which per valuation of restructuring World QX was $X.XX and charges in that in net allowances share increase restructuring was under foreign the deferred New of U.S. under U.S. In million, income company’s per provisions New World Fossil XXXX, $X.XX $X charges diluted $X.XX, per $X.XX included program. share losses and the share share operating company’s Diluted provision reflecting current of diluted taxed included diluted for tax per taxes program. an

end of cash our Moving at approximately revolving of were operations sheet ago. QX, million, of equivalents availability including generated inventories $XXX with a end, and of flow. flow $XXX We million total million by to $XX at under quarter paid the $XXX QX and Total debt and cash QX million. In down balances of X% was $XX versus the year million $XX credit $XXX Total liquidity debt we cash million facility. from balance ended cash and million. down

to outlook. Now turning our

raising context that Looking at with is With of uneven offsetting our are core previously our in see May. that growth XX% net we to results, that in year-to-date some range expectation our to the sales XX% of remainder to in our XX% to markets strength we than of XX% of a the versus outlook the we responses full year markets prior year, more growth communicated pandemic.

to increasing X% of In range previous also addition, for we to X% May. margin our adjusted X% are from our EBITDA in to expectations X% communicated

ahead, expecting Looking versus sales for of one XX% QX, our XXXX. we to net are fiscal X% quarter growth

I’ll Our that, the us some with sales seems it to net through take Christine back outlook questions-and-answers. call prevailing to rates. And currency turn

Christine Greany

Sunil. Thanks,

as years? Let’s category and consumer pandemic. on be Kosta. the understand as view your traditional perspective to relates the helpful particularly see coming talk in as would Can that in well about you watch going demand, general with to where of the start you your the it category It

Kosta Kartsotis

watch are Yes, we three globally. are see it’s things seeing. to the changes consumer interesting that in the very There

it First, pandemic. before States we’re in increased and United was we the earlier, mentioned demand seeing is the business the than healthier as an

accounts some are growth XXXX. have a that We seeing versus double-digit

bigger customer’s what emerging and that and Secondly, especially in was first strong for coming is a China, are in up maybe we opportunity and Keep mind, is Asia, watches affinity that in XXXX. we’re seeing accessories the is that over than which China – hold. to the XX%

the is of demand is in a the increasing for and XX% opportunity. watches and overall class, the the long-term of XX% Asia join middle As more It accessories their sales online. more and is increasing And watches buy significant consumer our in Asia. to total now acceptance third people

enable will Our global and communities. digital to digital activities engagement build enable rich storytelling us

this changer the we long-term investments As a our platform, company. our capabilities accelerate digital global game in for and is

Christine Greany

demand Kosta. and improving consumer on the trend Great in your hear the Thanks, commentary there. U.S. to

holiday, signals see wholesale demand Can move e-com, let’s we about across and of your Greg. Now in as partners? all head to you the and talk you’re that where the And half going particular? third-party into do channels, second seeing you

Greg McKelvey

Yes.

this Space of watches $XXX designs where are in better there newness icons, is is broad-based heat versus the like by seeing sell-on core DNA. important Kors, we comps achieved wholesale, and There inspired brands, creating licensor XXXX signals also boyfriend of Jam. brand boutiques, and new all First, we distorting our example demand traditional Across in heavy in strength channels, in traditional the to watch QX traditional focused authentic than most price celebrates storytelling lifting which is channels, In we’re AUR. moments The is responding others. range, important including and Pride launched positive marketing. and watches across watches e-commerce of existing we which consumer on pave to by brand re-emergence is and the our both QX, addition innovation cultural sustainability, launches designs limit Month digital and about of amplified all like collaborations each meaningfully new no Michael products $XXX and iconic iconic U.S. by product

are we back watches our innovation traditional performance, the half we’ve beginning beyond. year spend, we’re up leveraging at will our believe consumer over we’re of years. into stages that QX us trend the and accelerating carry just built of last capabilities the pleased the and few We started a the ramping Although getting with marketing product the and

is and worth signal this and as demand meaningfully is contributing QX to of even higher rates Globally the the second a up hitting The that’s XX% noting than jewelry in emergence is XXXX growth. versus XXXX versus U.S. growth triple-digits jewelry category

Collectively, the we our jewelry, augment continue leather launch strength growth in expect and opportunities imminent seeing back beyond. believe in year watch of our core into We and goods business. the to smartwatch jewelry new we see GenX will the half nicely we’re in traditional

call where to will growth XX% development investing as from than we years offset signaled channel demand seen and been performance We’ve finally the the several nearing in in we’re strong XXXX for globally in are out up where digital digital consumer and point third similarly headwinds digital, in The believe marketing U.S. and versus the brick-and-mortar. more

the businesses, believe We’re owned been to things. this to delivering, continue healthy to and e-commerce but the like we’ve in our wholesale.com well, into last leverage trend is future. businesses very with pleased poised the to as we structure growth in pure-play channel which we’re margin the in and are our also pleased with three The note thing licensor.com U.S. e-commerce I’d strength due very and is

mix product high-margin traditional businesses. with First jewelry strength is watch in the and

AURs and product as increasing is reduction and result our a a to a of off-price margins channel. markdowns Second in more controlled approach

We’re reduction channels. seen just healthy we simply delivering while. and in our in step our things these much in healthier infrastructure And U.S. margins third, business our a in Collectively, a are cleaner function haven’t expense.

on are are as While this we be of in year. couldn’t regions margin build commentary other also focused, U.S. of seeing is more a the to our We well. rest teams and expect proud throughout health this the what our momentum accomplishing

Christine Greany

and provide some Could Sunil to today? now. provided color EBITDA you on you Greg. Over guide Thanks, the sales

Sunil Doshi

and in perspective, that we pandemic the expectations, our some fared slower pressures a better outperformance it’s consider of other from When projections, XXXX. looking the net the are trends balance we the globe sales parts the to think of in in helped driven the Americas Hi, by Yes, of sales sure and thing. QX the offset ongoing that versus QX saw Christine. From recovery that at helpful than year pandemic.

Greg XX% to to expectations Americas, XXXX. U.S. regional efforts, recovery underlying as healthy of trends the net were to versus versus XX% minus strength spoke vaccination Asia in Our XXXX the of perspective, our results, which implies is given a These growth down QX of versus well XXXX balance strengths we about. conditions. QX near-term operational China that improvement as From see lower the XXXX, pandemic of consumer, significant Mainland X% XX in XX driven outweigh trends continue sales a range current sequential from in by market, continue to particularly minus the pace which out

through rates to the moving favorable prevailing our slightly But expectations. versus at rates FX point year. had closer quarter are actual been Lastly, last this generally second forward,

the costs a And be down leverage you to the XXXX in expenses year compare XXXX, parts and our XXXX On XXXX. sales still and which our also of beginning an of shy and driven growth XX% some improved is for of guidance and we’ve net better to we a So shifts all versus when QX conditions our guidance operating will percent an timing with QX, of for the by QX. as controls will balance, percent outlook demand guidance a were sales. to increase strong up to sales outlook of EBITDA behind basis, been X% X% X%. most in X% cost to expect the year QX prior Included to our also labor the and factored increased and from persist. in margin, of our as told, to following, in given lift temporary current and the margin able XX%, adjusted environment, signals guidance of projected up we’ve QX to to in as estimate savings expense of leverage however, adjusted a XX% QX EBITDA the beginning year we margin and From EBITDA margin transportation for is expenses the our are estimate of May standpoint while perspective, the XX% the some of full XX%. X% On and some XXXX which also recent our of levels versus versus continued from balance invest the marketing just EBITDA XX% to drive revised stronger on adjusted versus result key margins and and X% some and of up guidance adjusted gross are expenses results consumer markets to of And we globe. an versus in solid increase expense spending pandemic of a X% that trends expected year year-to-date

Christine Greany

last are headwinds Terrific. you you’re planning and Thanks inflation, which granularity Sunil. shipping is Can for Fossil factors, wage provide detail, question that? mentioned for those My how impacting us some for around macro and Jeff. how documented. it’s that well additional around Sunil with

Jeff Boyer

Certainly, Christine.

and ocean point. On to minor but seeing the Asia. containers other shipping out disruptions this material in of companies are disruptions, in are the at shipping front, reporting due are really coming nothing Most ships of the we freight channel imbalances

categories, via air jewelry size Our most freight and relatively product are significant the average in high given our smartwatches retail. shipped watches, small of product unit

Our via leather shipped and some delays. ocean products, freight experienced however, have are

Our size teams to a relatively it goods. are sales XX% These a had on of along leather schedules getting disruptions. for our in have small represents given we the doing That a product of leather had the sizable have few misses of West handbags Asia business, limited But great a and minor said, job results from far. small Coast. so delivery the delays under not impact number our with some

we in Wage channels. and we’re front, the mentioned, more mostly some ocean pressures, shipping freight seeing and freight as are air inflation increases the the seeing cost have what muted been area area. the versus Sunil both in cost in On hikes product

increases we cost category in we However watches. are with are on these largest various our pressures and product experiencing, price planning

to pressures With to expected our impact along accretive with fully net these pricing programs, enhanced planned gross margins. actions cost management offset we inventory with a expect

Christine Greany

turn back and to this Kosta it thanks out. you, thank Q&A. the to the Fossil close for to I’ll Okay, team

Kosta Kartsotis

Have support on Thank and you quarter appreciate today, your forward call. again look you, we for evening. to third updating everyone, a joining our good greatly us and

Fossil (FOSL) 12 Aug 212021 Q2 Earnings call transcript