FOSL - Earnings call transcript Q3 2021

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group Third Quarter 2021 Earnings Call. At this time, all parties are in a listen-only mode. 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 Blueshirt Group to begin.

Christine Greany

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

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

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

I'll to turn Kosta begin. the Now call to

Kosta Kartsotis

afternoon, for thanks everyone, Good joining today. us Christine. Thanks, and

driven pleased and another of are by key quarter We our continued regions. strong deliver across performance, momentum to categories

Our margins of margins XX%. QX in remained XX% we net Gross double-digit sales adjusted operating grew constant strong and currency. XX% or delivered at XX%

focused and a We continuing our of dynamic execution years. nearly deliver remaining priorities on for two proud in are our for has environment teams strategic superior what been to

category focus, favorable fueled has product performance digital-first dynamics. innovation watch been topline Our ongoing our and by

third with company growth positioning organization, successful In a measurable have doubled Sunil notes grew create recently, several XX% shareholder and our effectively value. further in mindset XXXX. quarter, It and financial us become come to $XXX Importantly, from transforming drive digitally-led a much million offering. years, from results profitable condition last our to later. more strengthened this of we over we Most the long-term to great deliver digital senior efficient the sales and to on More is XXXX. see completion our the

XX% digital remains Our penetration our at overall mix. of strong sales sales approximately

reminder, a wholesale.com third-party sites, sales global digital on As sales and our sites. e-commerce platforms own include

another Fossil, quarter, the Salesforce our Michele of Skagen, All of Station, completed global brands. we reside our These on key websites strategic Watch element websites During XX roadmap now our cover platform. and our on Zodiac digital.

to enable term, consumer experiences personalization Specifically, to sites us channels. us more having also digital strategies platform and our one and this deliver scale engagement will to superior on Longer non-digital means. digital drive common our both customer allows effectively through across

inventory the on Looking Better channels in a is regional driving Consumer reduced performance business jewelry. with starting traditional remained region. the from continued watch an which more on our off-price category at healthier, the United Americas. and to channels and be in lens, States by led profitable the demand reliance emphasis strong, management, digital

as to season, we into some inventory were pull selling As the buys. forward our we in holiday are a position good able inventories head

from impact shipping in context, added headwinds not significant and we a have watches For experienced jewelry.

have have we air shipping, In unit. increased our costs experienced historically some accordingly. have cost and freight a since in shipped have these low cube per they plans by a and leathers, calibrated small been We delays size relatively but

despite demand XX% in locations. captured we of by digital in brick-and-mortar quarter the strong a reported Led region growth, traditional continuing watches traffic net affecting pandemic-related EMEA certain closures region. with and Our sales for up jewelry channels,

sales Asia. Mainland factors as notable as the to India see momentum to trends Italy. to pandemic change QX a now China expect key between And open up and build we in ahead, markets. markets including France, Looking to shift countries, in continue Germany turning saw and

XXXX. COVID and India, cities weeks our in and infections ago, increase solid year an a versus China, to rates in several effective two trend China Mainland In in traffic was and marketing across positions compared spending. new key XX% restrictions quarter, to of sales closures wave During in vaccination Conversely, XX% XX% across to the last China up quarter to and improved by compared and provinces. rebounded sales inventory and cases improving travel the resulted an up last X% restrictions. announced quarter And third COVID XXXX. down impacted With Mainland COVID-driven campaigns, due in year new sharply, were up

While strong and region opportunities affinity accessories. are the we sustainable middle we long-term built class we long-term high-growth short invested demographics many term, a enabled for where attractive gives and very the and markets has our our and to us have China as we navigate with in This The disruptions And categories the over branded in compelling brands. significant believe pandemic-driven understanding watches across India sustained in which capabilities both traffic build continue view these advantage. brand and years, this us China in markets, equity a and deepen of strong resources has to consumer India. significant

to performance and Let turn brands now by QX me product categories.

watch Importantly, strengthening healthy signs and remains to continues consumer show demand. of category the traditional

our During and as regions with our resonate the styles strength broad-based three across consumers. quarter, in we and Kors achieved saw double-digit both iconic strong Fossil growth all brands,

quarter. our sales robust economics Amazon's see companion category. performance of and products also leverage to In delivered bring in with Gen channels. now well roadmap. based DTC have to strategy for and distribution represents the in step continues brands X, all to own our consumers latest key versus on through this focus connected September, executed strategy our in launched and against Wear has generation potential the the driving down as on our charging. XX-minute sold momentum improve a With In with Gen resonated primarily our product which This life product Consumers Alexa we will our digital advanced were we year, also forward flexibility to the category, XXXX, device. technology last X XXXX regions battery category, Qualcomm's more We chipset, full the which In continue with meaningful across jewelry app. although best-in-class to is better market OS as

While X early consumer Gen as with pleased holiday the season. we are launch, we enter the global in response its to

we to The in Fossil reignite been brand previously investing launched the As we campaigns marketing sales year bringing and heat. shared, fueling growth we global customers have been into this ecosystem. have additional

icons, and We brand with are emphasizing consistent focusing on sustainability. partnerships and a storytelling voice collaborations,

holiday market key with to sellout data are see emphasis We options us fruit an gift-giving you can that efforts by indicate helping This campaigns. brands digital recent are and social and on marketing strong trends, which share. our and us season, expect gain into markets, and lean bearing encouraged

energy focused range We expect to is X.X% teams deliver execution the year sales our expect based and to world. to our in X.X%. full-year adjusted of of growth to and EBITDA a the XX% around outlook strong To on which our end, of and now by finish XX% the we that raising driven momentum, the are current margin

we nature. to expect categories have strong to next we discretionary year, pandemic growth rebounded to ahead look achieve their only due from As topline partially as our

to model. for operations us programs And to We that enable over Sunil and improve the driving more the will efficiencies call our in leverage now, continue to detail. also I'll turn our capture anticipate

Sunil Doshi

afternoon, Kosta, and our third good Thanks, with quarter Starting everyone. results.

which and of better-than-expected ongoing cost of growth, Our solid gross drove topline margins $X.XX. XX% strong, nearly collectively and by third discipline, operating quarter was adjusted margin EPS highlighted

were XX% First, sales Europe, constant net up up million, currency, with U.S. from net sales. sales region continued stronger XX% in net as perspective, demand. let were From constant growth market, In currency the driven Americas by in in on began QX were XX% to me emerge consumer up in in currency QX constant the XX% highlight sales restrictions. net strength pandemic the basis. $XXX a regional or a

reflecting Conversely, In Our pandemic-driven half navigated store our this have overall recover Mainland digital increased as year. in in teams continues QX topline to Australia third reduced XX% that first strong down From not led a of QX the from sales to of sales in quarter digital remained with net conditions sales in lockdowns QX significant closures a X% and to pandemic the channel third impacted a trend. markets Xx were year by ago in the Asia improvement in foot to currency, quarter. region, execution drive trend Other versus country due India slowdown sales have adeptly up strong, China, in perspective, like seen the constant traffic, XXXX. and growth demand Korea strong growth. compared a X%, from accelerating Japan, and

our sales up see XX%, XXXX at levels. digital mix continue we about to significantly Additionally, from

the Americas down Looking with quarter trends with from and e-commerce a own XX% our Europe. flat our with year. ended have quarters We Globally, down DTC comparable in versus company-owned and which last year consistent DTC in stores, encompasses sales at traffic XX% improvement stores, XXXX. both sales XXX recent were traffic and conversion channels, versus remained the and sites ago

category lens, performance. was global in all three business watch strongest to connected that QX traditional currency, And X% growth, versus increased the sales teens. in Turning Overall led contracted up our our Traditional Partly in in a high grew sales which in by year. offsetting regions. watches, constant were Kors. watch from watch last brand Fossil performance and

sales business, in prior XX% As sales the are amount in to of sales. grew three all earlier regions. in year significant year, with the in approximately watch growth category a Jewelry this jewelry related our a QX, we XX% Net from products. liquidation of reminder, represented quarter connected lapping our In generation

P&L. to down Moving

cost at one-time flat year Offsetting to a from and favorable product this reserve our on Gross quarter and in channel margins geographic mix came of less currency better favorable which mix. prior XX.X%, in gross a reductions impact goods sold margin mix, the benefited was period. year. Third inventory last was

expenses. to Turning

cost by to marketing a in XX%, QX which SG&A points expense basis XX.X%. points on slightly a ago. of offset and percentage Operating by operating In SG&A impairments Our of from year. addition prior coming at basis of to points, teams in ago, sales $XXX more the did restructuring XXX last to leveraged were $XXX at increase and basis control, good year operating our year. year dollars expenses. versus XXX which the was sales our as totaled a XXX SG&A ratios costs, flat a Total million improved SG&A percentage SG&A the than total points of in expense, a expenses. million in we compared XXX as did both down spending balance came in includes or by basis $XXX delivering million, quarter, job on up leverage

$XX Taken margin together, margin our of topline deliver to expense of and solid operating and income million XX.X%. us adjusted performance, gross leverage allowed

a in coming at EBITDA is Third million $XXX XX.X%. in quarter EBITDA On nicely and trailing adjusted from reached XX-month came margin EBITDA million, our XXXX. $XX at adjusted adjusted rebounding basis,

higher Fossil reflecting under Diluted income, tax provision that company's per for share in income in provisions million or per QX XX% pretax share the Our included $X $X.XX program. the net taxed New and charges $X.XX World restructuring U.S. also foreign was income taxes of diluted are was

Moving million and of position million healthy last for used under to and flow. the was balance availability. a and over term $XXX senior successfully $XXX of to the end under us with repay puts That the have liquidity. million. $XXX quarter sheet $XXX agreement. million, and loan. million were inventories That's our a million $XXX $XXX ended $XXX includes year credit proceeds up quarter of loan We including and offering end, borrowings cash XX% in our and to debt Total QX we to equivalents holiday. Subsequent Quarter million notes term cash the revolver completed cash

outlook. turning to our Now

This our EBITDA We adjusted to of year the raising anticipated achieve now margin of to growth the and fourth XXXX net expect quarter. XX% and X.X%. sales outlook reflects sales fiscal X.X% to growth XX% XX% of are to for XX% net in

outlook a rates. As reminder, prevailing our currency assumes

priorities and capital XXXX, of to in dynamics, improved structure confidence with profitable growth. provide strategic continue As we execution us approach channel continued driving favorable our an ability our category and

Christine the I'll call Now to turn take us questions. to back through some

Christine Greany

Sunil. Thanks,

watches connected that you with of getting heard remarks Let categories? that outlook Kosta. QX. the watch share investors. I'll we've been from start both We through in on me questions a in traditional run your Can more about these few outpaced prepared

Kosta Kartsotis

Christine. Sure,

have First Asia, strong and The growing in the of regions, increasing quite strong in business that a in activity And drive are significant Asia, believe brands. businesses all, category. given are for our traditional closures a seen accessories. in From Emporio region. categories watches Europe, in our and the speaking, the for showing number India, are In overall consistent traditional varying of up, Broadly a strong in Kors is we're category who inventory doing the especially Smartwatches of product analytics our well We sales. affinity Fossil traditional seeing considering a by has long-term the the to China. all growing brand us, is in Armani three Americas is innovation, surprisingly also performance and especially In potential well with watches brands, the grower emerging a healthy growing. increased with We're category, are awareness holiday geographies. market seeing approaching Fossil product watches, and the market we've in growth market. customers for both also in is and Armani our and Emporio opens near-term the as we been and positioned and business spend fast-growing across perspective, brands, healthy margin category. we levels watch

prioritize and We and brought product market have in XX-plus months, innovation the XXXX. to our key to Over worked year the successfully executed older through brands strategy generation on channels. our digital last past we

positive are improved response Gen September. product, was consumer and performance our seeing functionality We the launched to latest X which of in

Google's So OS we'll year. features good we've more a strategy, in when progress next At and the realigning greater version an well we're high of market improved Wear to our made in on coming positioned we level, drive XXXX and to functionality introduce performance advanced market. have

Christine Greany

thinking the mix years? you do versus digital look the the of do Thanks, you want next percentage sales And optimal Kosta. what how few ultimately brick-and-mortar channel? about What like? in Greg, to wholesale are over does

Gregory McKelvey

Christine. Thanks,

across point, category strong watch has where we've that lift providing which again, First, the inflection I is consumer broad-based engagement, an important channels. reached a believe

performance digital-first strategy, we digital that created as locations is a top on at where Our in point story watches has now particular, in our traditional comp brick-and-mortar growth see combination a plus of also progress sustainable. the positive sales, in

doubling penetration the is growing period digital XX% same As over XXXX. mentioned total sales and of XX% in revenue, earlier, currently year-over-year

sales to We sales over digital technology, time capabilities expect teams we at to as digital in the represent them. our and continue XX% in analytics and support least of content invest to

marketing attention merge is in channels up our digital, compelling remaining in quick include portfolio creating global the products and And now only category brick-and-mortar high interactions experiences our stores can at And last experiences positive how creating just also out us here core to we and is create needed wholesale I'd capabilities sales continue rates online digital capabilities in launch has that about shopping a convert we brands. identify of are our point online combination quickly we've marketplaces talk locations both response our distribution. and supply proprietary in shopping these heat capabilities brick-and-mortar to productive. physical digital and content. together, analytics few stores, digital. for accounts our wholesale referring engaging the through sales. brands, and new we integrate store fashion of The to growth brick-and-mortar more a point social How to the of when with products and with the we is net geared and strategies. on in expect channels supporting we've disciplines In great and with then to digital The over our build and includes instances, build associate continue in Second, aren't to of well with like much to online to online and the own built shopping store. with but digital trends create And future. how use wholesale But respond growth, tools get new the you years we trend for driving last growth own the make that the the both where a enabled engagement to physical foreseeable also on as benefits our customer chain and by that sales brought optimization channel reinvigorating remain digital we e-commerce,

Christine Greany

Greg. of supply the clear various the Fossil's to in enter This delays disruptions and business, as holiday particularly many amount these the issues deliver congestion ocean Thanks, chain have of to a chain significant How all lack truckers businesses. season? retailers. across is there's we ports from and port onto the impacted to the regarding product happening discussion days Jeff, container supply

Jeffrey Boyer

So the chain we're not you supply Christine. fully immune issues from mentioned,

not as are these nearly are Group they serious issues companies. We as other fortunate many at at here Fossil are

and XX% in is As by and line products Kosta are mentioned relatively and greatly shipped of we means trucking dimensions our actual the largely benefit our small average smartwatches earlier, The product as disruptions vast of air, nearly small air. jewelry of port relatively majority efficiently avoiding our of the size, the and that product mentioned. solid from via packed dimensions AURs, can our of retails, unit you very watches, be much shipped combination and

we our as we've shifted absorb started air have some the added to ocean period last time incremental cost cost We of year at on impact, million XXXX actually put additional have costs year. disruptions and shipping The to to to the the year. some delivery estimated versus shipping several a in schedules, dimension But is freight. cost more for incurred two additional past freight increase

happy these manageable is incremental billion $X low for of never a While of this level nearly we types business. impact expenses, external are about

we And during this feel meet very leathers, ourselves current feel Our the Overall, positioned limited via doubling far. so leather getting not even timing to season. inventory find holiday good primarily most continue challenge consumer about just time, which of flow ocean our is product levels been but in Leather upcoming the significant is our about of we times, regarding has ideal, with with And again, for to delivery risk freight. product and on delivery time business. ships XX% it deliveries. well we very demand our we of manageable the are

Christine Greany

Terrific. Thanks, That's Jeff. helpful.

What Turning And the the capital you are now more to offering? bond color offering go structure the driver on Sunil. forward. Can about us? how thinking bit for behind the a share as was we you

Sunil Doshi

offering. Sure of a balance off offering mature term bonds to thing, $XXX of that public and $XXX the debt loan, pay in We million a quarter. The are been the was used have of end in bonds five-year rate issued X%. proceeds Christine. whose at third The our carry million XXXX the coupon

lowered increased of we to profile leverage capital, with transaction are gross outcome of maturity, reduced cost debt-to- the a Xx pleased while extended covenants We maintaining similar EBITDA as the of our X.Xx and flexibility,

Christine Greany

Terrific. about Sunil. think on should on One last longer-term provided you question growth today? you, we for takes increased How the the thoughts your puts the and you And us? can algorithm for guidance around comment

Sunil Doshi

sure. Yes,

First, under three the quarter. on guidance. obviously quarters fourth the it's With belt, about our

similar For to QX, XX% is the our do prevailing of growth. sales topline XXXX, growth to range, XX% down on our to acceleration XX% is in the headwinds estimate XX% quarter QX's currency the rates. based from QX's tailwind an results. quarter's however, using third Versus fourth of QX expect some We midpoint relative

of XX% lower seasonally In results our that accounting margins, EBITDA assumes for QX. historically guidance full XX.X% to than of a The midpoint. midpoint versus some driven third fourth year gross of X.X% at QX margins quarter quarter X.X% as is are in range are we slightly terms adjusted lower to the our or XX%

our net fully not for sales expect algorithm, levels. longer-term as have XXXX continue we to growth As recovered we to delivering

outlook leverage achieve operating growing, demonstrated cost and the global allow us are and we efficiencies. on categories Also, deliver right key this in continue time. With margins will overall to as favorable. focus combination, expanding driving model size our addition, the to over ability the appears structure this to In we've

quarterly to in finalize sharing QX we look next we specific for off XXXX, plans call. and As our our more guidance forward finish

Christine Greany

back to Thanks, going Q&A. comments. it Kosta Terrific. everyone, over Thanks, the for to I'm for closing Sunil. turn

Kosta Kartsotis

appreciate Thanks year, in for holiday. our good for I you the joining have We call for to call of the Thank and our with the speaking next us look a Fossil. and today, you. interest end forward on

Operator

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

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Fossil (FOSL) 11 Nov 212021 Q3 Earnings call transcript