FOSL - Earnings call transcript Q4 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, ladies and gentlemen. And welcome to the Fossil Group Fourth Quarter and Full Year 2021 Earnings Call. At this time, all parties are in 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 The Blueshirt Group.

begin. may You

Christine Greany

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

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

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

Kosta Kartsotis

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

a pandemic world. Ukraine, would that acknowledge people around as the the as circumstances significant we unfortunate of to in begin, we like number Before is still affecting well the

for focus grateful and During to commitment, are our we agility these their challenging unwavering teams strong execution. and times,

must capitalize contributed target. demand, million investments With our accelerate balance and increase as initiatives to to organizational Fossil particularly a to consumer are and the macro to excellent deliver a live growing pandemic streamlined significant place growth all initiatives XXXX, to adjusted sales report our which various X.X% to growth strategy, savings and a XXXX, in key improvement Investments of in macro company the supply in headwinds, we for $X.XX. year, grow. margins a strength of safer the we in healthier traditional our our pleased ongoing structure chain New and past cost and and challenges our improving We a was are with associates make we we across watches. brand of over for more analytics to and world share World results also reflecting strive global Despite and world, off. were on able by As paying we marketing, topline around global adjusted $XXX particularly initiatives, achieved building execution regions, as number as per a our challenging XX%, EBITDA sheet, digital Early environment. expanded including These expanding and our achieved teams well earnings growth diluted stronger globally. spend categories margins, helpful and marketing to a primarily navigated double-digit impacts

and customer to brand modest COVID of like Europe markets brands. Fossil better to saw a XX%, in we Smartwatches quarter. in [ph]. indicators on sales and remained XX%, Growth turn brick-and-mortar like EBITDA markets. XX%. key offerings. and but X.X% are stores investment Americas grew XXXX. In a and pathway in a a tourism basis, has mindset than grew we was category in XX% China, a We largest our sales margins strong certain respectively, XX% largest And by And down the year, grew sales a and own XX% growth. and largest in XX%, perspective, in Fossil, primarily core very total and Europe, increased modestly restrictions. In watch in increased momentum were now levels. brands and in strong QX, worldwide levels currency the we digital for wholesale XX%, and demand XX% marketing pre-pandemic a key into tourist Traditional in in Offsetting by were quarterly product file constant adjusted constant sales we was in constant up in Americas, below in quarter, resulting Performance quarter, robust which performance sustained marketing and jewelry sales our constant was expectations in our product stronger channels impacted across resulting as Asia double-digit sales traffic, our decline and headwind in mostly with the inventory growth December, offset versus watch well policies prior select channels travel engagement of planned in XX%. versus and and we achieve company and channels the last value up in newness, our in Kors was XX% rates the growth XX% in created From traditional improvement currency growth surge markets. digitally-led by as international respectively, declined growth fourth below brands, Europe, is Americas up in currency key sales adjusted continue currency. growth creating achieved on the the heat brand net below by highlighted created growth our our It Traffic pre-pandemic our our see Omicron meaningful The significantly Asia category strong. up In results our sellout drove key improving traditional capitalize effective results drove markets EBITDA size in customer year deepening and in non-digital lifetime in November. digital customer a gratifying growth, demand in sales was show revenue some that with We and see our our loss in and investment category brands consumer strong Asia. Exchange. in our sales and Growth were in was versus and global position provided watch Asia, region of healthy Other Armani the brands Mainland by reflecting XX%

desirable While sales overall reporting we closure to due in an less are some of the distribution. decline

continue capabilities even our Our in investments digital brick-and-mortar. rebounded and in drive though to traffic growth channels

our deepen fuel incremental our traffic versus are as growth Our execute size we customer digital our channels and growth stores and quarter XXXX. important in combination sales our rebound of own and the file engagement helped in in strategy X% XX% customer grew digital brands up The categories. term to growth in asset longer and

addressable will and on jewelry to XXXX, the pillars competence while global outline focused improve anticipate the a global forward, reflect throughout XXXX, heat markets and by in we on to context, core platform, our near-term. We see continue we operating to strategic through continue core digital we remain accelerating return a innovation future. more smartwatches efficiency business long-term growth where pillars leathers product in in signals categories. positive, four our some will year. for consumer marketing, driven larger More watch into discretionary Looking These and have rebound and category the driving fundamentally we With We have our even macro the are and India. objectives opportunity like markets have strong that provide environment, pursuing are impact our traditional spending, pathway we the and that growth profitable for challenges building certainly spending tourism overall and in and demand demand. recognize and the and a brand in in growth China our sustainable market robust that encouraged growth healthier model both specifically in many

key On for XXXX the plans of our around our some in our centered consumer including platform. will be DTC digital capabilities, data investing front, action

customers. of file stories effectively in analytics In investing brand growth, communicate our new our new year, year’s existing later in for will the enabling pathways new we app own customer bring this smartwatch onto we platform, better are will more engagement. XX% and size to our category, grow to existing on data and In our and also top smartwatch last consumer to communication customers and tools launch addition also which

for brands, collaborations. key our marketing the while key digitally-led Kors creativity successful supply our in higher several transformation bring drive leveraging to executed chain unprecedented and pandemic market model and customer we all also markets. to edition brands and We’re products we our products and era, an navigated Reflecting plan iconic both platforms, and on Armani Fossil, in largest a designs engagement increase us In XXXX, spend a exciting have past positions to to investing that with building the like years, limited in long-term. back and

structure, and to operating our us with growth a with digital and a margins to return Our sustainable forward global the streamline cost foundation in combined years. double-digit reach scale has coming path provides

the to We every the energy they teams dedication throughout and are work associates organization for our grateful to bring and day.

committed and review call Sunil I’ll the turn outlook. XXXX now, to and long-term. We over driving shareholder the And are excellence the to to all financials building our discuss over value

Sunil Doshi

X.X%. and in Thanks, us gross COVID quarter, year December, a deliver despite achieved afternoon, surge saw finished the solid good sales Kosta, EBITDA strong growth margins and which adjusted double-digit everyone. margins of We with the maintain

currency. demand walk through sales. channels net brick-and-mortar, and in at came growth XX% constant in sales in $XXX constant and net ongoing XX% on basis perspective, the net from results. fueled Americas growth XX% regional a improvement currency me you QX’s currency in traffic consumer were growth. a digital traditional year-over-year, Strong QX let million, sequential XX% and in up up First, From sales up constant watches the a in jewelry,

in category. saw currency, our up stores QX channels. sales During our sales XX% our also and traditional Diesel. up quarter, offerings deliveries digits, we and were strength experience execution well own digital strong Europe, and restrictions. that sales and did responded our and consumer maximize pandemic comps were in across in double impacted licensed delays leathers reflecting to in traffic our Kors, We constant owned ability In were sales easing The watches brands, Armani Fossil, some the and jewelry across in all Digital notable to net including strong.

slowdown a quarter, pandemic QX our impacted to currency, ongoing which temporary primarily Other our saw store restrictions. Asia the topline in Japan, India, declined continue in later Korea With closures the China. constant driven sales mixed some to Australia see rate. brick-and-mortar net region, surge COVID the of markets, growth results in experienced weeks due by lockdowns in December and and Mainland traffic XX% including markets we In in

sales digital sales year up versus X% compared year were channel QX last XXXX. XX% down were Mainland versus in a a While the in and sales From XX% to China, increased ago versus market. perspective, XXXX

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

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

-- from from down at XX% XX% DTC our its store QX our sites company-owned and as We sales quarter down QX own traffic versus ended our XXX XX% Looking year in continue sequentially trend versus continued growth QX. versus to and at overall sales looking year. encompasses store we channels, stores, our year-end and improve a were our profitability. XXXX, growth the up program with ago improved AURs e-commerce stores, last comparable DTC which

sales Americas category were slightly strength sales the watches, QX brands. were increased currency versus to fossil strong watch our traditional smartwatches Turning led year. XX% which down watch by Overall licensed offsetting with that across in in continued and last our and constant performance Europe, XX%. grew Partly up and in performance. Traditional growth, global

both category more the jewelry and channels. regions increased Kosta with XX% net sales distribution rationalize licensed drive in currency, profitable and offerings to in a in As fiscal and our constant and beyond. our in growth of growth XXXX, smartwatch mentioned broad based XXXX scope order brands, during we across QX category focused

impact increase on points P&L. reduced last Fourth and driven Moving at goods was activity margins gross by The year. basis XX our up year-over-year cost favorable down to sold. of quarter promotional primarily XX.X%, the currency came in

favorable liquidation Additionally, year’s increased mix. activity that regional on generation prior sales costs freight QX Partially recall the included these less improvements current in products. offsetting a year last were smartwatch and

Additionally, the year license royalty reductions. or included minimum cost prior

year. SG&A expenses, and It’s quarter. QX both we prior $XX gain terminations. up XX% to and operating that last ratios in were million non-cash million, lease related total well on the improved totaled Turning controlled delivered included to expenses SG&A in early $XXX noting SG&A a year’s dollars costs worth versus

points versus XX.X%, XXX basis percentage As a an last sales, of improvement year. SG&A of was

this year. in year, on million, percentage operating adjusted X.X%. quarter the our topline adjusted SG&A, came spend X.X%, approximately a basis year. While allows costs restructuring million, flat to gross an operating which operating us expenses a Transformation additional Kosta margin QX XX.X%. X.X levels an grew EBITDA $XX adjusted in SG&A as million, for a as a last we margin margin were with sales restructuring year from $XX Despite we up operating deliver Both basis Total versus operating $XXX full million by Fourth totaled And wound performance, X.X%. quarter as Fourth year, expect sales and the at under $XXX On That a of nicely control up with mentioned, X% operating the of was million. and full reflects costs New to the a solid planning World in down to and X.X% EBITDA includes margin of basis, addition incurred in the and as are last Program. EBITDA gains in to in of impairment percent expense income combination X.X%. to full to marketing impact Fossil points for of was results expenses XXXX. remain quarter, and pre-COVID $XXX improved income Operating we to impairments XXXX. COVID adjusted adjusted do margin of declined year adjusted adjusted XXX of

was of basis, the $X.XX, effective tax in diluted $X.XX income. per was a XX.X% year was prior for of $X.XX period. Our share year per earnings loss $X.XX, million tax Diluted share adjusted to earnings prior QX per provision a income compared On in period. the pre-tax an compared of $X rate to quarterly share diluted

revolver $XXX transit quarter ocean. at was our $XXX offering and end subsequent We completion $XXX million availability. of our XX% of cash Total timing liquidity $XXX up to outlook $XXX of equivalents the cash versus totaled reflecting by million borrowings for the fiscal million of of of for Looking reflects repayment million notes last products higher sheet times and turning and November. unsecured under balance in year to term a ended over that longer flow, receipts levels year, our the $XXX and million loan And at now debt XXXX. the and by lead inventory, driven senior million, cash year-end inventory inventories includes of shipped with

rates growth full For This to in headwinds. of year, basis we prevailing revenue currency driven guidance X% approximately -- of XXX expect net operating the range points and X% anticipated sales the worldwide reflects margin XXX currency of adjusted X%. X% and to assumes basis

growth cadence Additionally, year. the assumes our look in we as the the of guidance of XXXX, half revenue stronger at second

and growth initiatives that cost in believe While right-size we operating category on we’re topline over to years. the our right believe coming are profile with model operating our sustainable a Equally watch path measured dynamics, we margin improving the challenging double-digit environment in strengthened now, macro long-term. we operating margins our and gross a growth to strong important deliver positioned structure,

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

Christine Greany

macro there investor’s are Thanks, right minds Sunil. on now. several Teams, factors

and the First Jeff on that Perhaps Ukraine. talk foremost in Greg what about can may situation is have and Fossil? impact

Greg McKelvey

Christine. Thanks,

the around by First, Ukraine that in say are I and the the ongoing with to world. our those impacted being humanitarian pandemic crisis want thoughts

Ukraine of of We With we world times to teams and our make are points. I are focused impact and certainly two crisis on the that the results. more living delivering on just business, the regards our be in appreciative couldn’t challenging specific growth staying would around

very -- year. those have excluded our the from distributors through for in First and minimal and guidance sales occlude Ukraine is we sales have Russia had historically that

range no at Second is impact is way course this to outcomes accurately point. assess that, there of the potential of and

planning, a occur. execution but result, actions taking will business of agile in as we As remain address our in and they in conservative our necessary to aggressive the headwinds

Jeff Boyer

seeing impacted freight front, as pass expense our and prices, time, some continues major supply watching Ukraine the include chain and crisis if are oil we as can could said, impacts the areas. conflict doesn’t operators pressure the remains That freight not route elevated. supply there be surcharges chain along this prices oil fuel from at Christine, on we’re in business the through

Christine Greany

out topic bit talk supply navigating Zooming and you Jeff. key can broadly XXXX? and on chain investor’s that, on a as about you Thanks, another we know, more are headwinds those in minds how

Jeff Boyer

most have forecast year Unfortunately, turned faced the over are port that with outlook other headwinds for for us companies forecasts many will past ocean and chain year. the that not remain we or trucking very around indicate the quickly. of freight, Most issues and the this supply

the is ensuring deliveries added peaks and longer flow product to our seasonal delivery and us, for ocean lead account air for managing time and times. For product to delivery our both important schedules most issue the We’ve for promotions.

Our saw teams product job despite do flow around the longer times the and pre-pandemic. higher Shipping we what costs of world structurally remain that than can outstanding lead have happen. disruptions done unforeseen an ensuring timely

us basis of Despite time higher margins as up shipping Sunil mentioned freight cost absorb a our For in gross sales. will have to able as expand of period. been that, percent to points XXX this remarks, during his and we

see supply to demand shipping costs, the in while chain identify to offsets sales planning the the time with supply these providing our improvements production our providing efficiencies availability, and logistics. inventory areas chain With management at pressures. and we chain From supply to as opportunities higher of the We of supply enhanced improve same looking cost all trend resiliency. chain end-to-end and elements better are forecasting, inventory at structurally

globally increase and in other the prices earlier. we recent fuel year. actions However, I consider the driven additional pricing material currently price are we similar increase, we the to raw facing to past will wildcard the fuel what that continue executed this oil of mentioned by that increase most If is

Christine Greany

That’s Thank great color, Jeff. you.

you Let’s move and performance going innovation what and Kosta, we expect XXXX watches keep strong the traditional can in brand How do going momentum to forward? had of heat Kosta? terms in

Kosta Kartsotis

Well, market some signals and overall for to grow the that somewhat has foreseeable outside future. continue few will over demand watch past traditional years, research stabilized the our and the indicate consumer it

are us, and brands, to in marketplace. gain Armani for seeing global opportunities particular them continue to the major largest and grow and in see strength Kors our we share we For Fossil,

on innovation increasing As focus a group, branding. we are design and our

sustainability up and ramping We and limited new form are materials, our some editions. collaboration in ideas innovations watch storytelling the of

our addition, digital capabilities and engage in way a watch consumer. a in investments In us to with significant are robust changer game a enable global more

We’re also build long-term increasing markets customers new significant Asia, percentage of rate. acquire watches, traditional us as greater our opportunity marketing of at faster consumer those develop. to continue awareness is to help as a a for a sales very and And course,

Christine Greany

are that’s be some Back Kosta, leader. brand a appointment the exciting. focusing strategy you going announced forward? of new in how What on December, does that change initiatives roadmap the and of your fossil she’ll or

Kosta Kartsotis

A is building brand component to for heat the in brand was strategy Yes. by this step. overall Fossil and design talent position build brand and investing major product our of first the

will we additional digital talent. told successfully Officer and and through in areas story globally and company and all have Fossil visual joined This a communication, And brand. our brand new additional brand all the creatives We of product for adding are marketing. team be expanded new Digital design, digital CMO our leader our the a increasing capabilities. In with fossil we mid-XXXX, presentation Chief new

We significant are months years. benefits several substantial we’ll the progress making and next see and over

Christine Greany

Thank you. Great.

and regions? the region also are you commercial to how From responding XXXX, across you’re And move out each performance what in QX? Greg. seeing category trends in a back did channel in are Let’s customers similarly see playing lens, Greg,

Greg McKelvey

up most in watches, in watch which despite which December, channels, is were performance year, key APAC, QX and growth in robust important growth XX% of half in in across was impacted single December some Europe, momentum in back COVID decline Americas by is The digital brick-and-mortar where accelerating momentum traditional versus in lockdowns and by of traffic prior the being XX% COVID loss both offset in with partially brick-and-mortar disproportionately XX% trend these we Traditional caused from the markets. headwinds closures. in

to taking back key see markets growth to also solid and in XXXX. in are We watches share across in expect continue again channels traditional

of to in trend we believe it. long category growth second which note of and XX% ahead QX has jewelry, grew year versus is The prior a runway

owned and We more The and category capabilities. into the are brands expanding with margins category growth infrastructure a and our the to broad growth channels are a investing makes category profitable APAC. One a market, combination regional tailwinds, of distribution with our ecommerce out of call accelerating for bringing from a global licensed of us. ability this in and high our growth leverage perspective is existing range

in a and opportunity, markets develop, continue course, is, Asia those of very as China significant long-term India. consumer especially to

our for sales Although, our year fiscal total and is up in with is quarter, versus sales down XXXX XXXX of XX% the business the about China were XX% significant upside.

Although, teams trajectory last our positioned return in remain Along we APAC more our is focus mentioned mentioned back as XXXX, in growth, to by summarize, watches and we’re fully transformation Kosta positioning seeing our up. in the and and core To years, India, infrastructure following channels categories. a China healthier streamline jewelry, core especially us we model are guidance our distribution and smartwatches earlier, brands initiatives over and growth. on category, open in markets growth to focused to in aggressively and the our smartwatches when and fundamentally in few momentum with and are to channel have remain in conservative above, capitalize excited traditional digital our business and robust I strength for

exciting an roadmap ahead. We have innovation

products bringing are customers going market our of XXXX all categories across In love. think have in that a aggressively we’re to to fact, world we our and to our back we consumers are innovating across and of pipeline the

Christine Greany

Thank you, helpful. That’s Greg.

you to on and to outlook between Thanks. be your and first that that thoughts the second longer Sunil. And term the helpful. operating around path the XXXX Can us if would how share Kosta and you understand margin you help outlook double-digit we mentioned? That getting then about should over half, the to half? could Now waiting dynamics think

Sunil Doshi

Sure.

the the year in guidance of year, When our outlook. the half stronger will be year we the revenue front full I’ll current First, the that lower assumes the range, of the the back with half topline note important expect be prevailing to rates, euro, a currency headwind when year, the year. to particularly given current of a that it’s we From euro the we to the larger first rate take in at think currency half about growth end last perspective, of year. compare the

estimate be basis the in impact rates full basis we to that points, to While year closer suggest to the would around the of prevailing XXX half be points year. XXX first

impacted we last performance that in grew of and particularly lean XXXX watches, we’re inventory Europe and versus we category, XXXX, -- issues in deliveries. to were XXXX. Second, zero into and will into supply to in both with not in some Also emerged the of in In challenges timing it’s missed policies and carry recognize out the year. momentum. in these are factors Asian many and impacted Coming pleased markets, year given XXXX, as our positive. some important XXXX, out also our QX this also this Americas, the to account, fully into played the of category it’s that trends categories recent design of nicely to growth which important jewelry geopolitical continuing topline India. in traditional and Taking we categories, our have continue the COVID the And also Greg note, leathers Kosta the mentioned, chain fundamentals that

more lead a few brick-and-mortar that than As is our have we noting, volume It our digital times, we much have and adjusted distribution distribution to growing better also in ago. years nicely recapture opportunity transit sized is our XXXX. is right worth

Our year, investments stronger these the gains growth second we objectives implement in throughout half support as in XXXX digital initiatives. the should with some

as in expanded near-term guidance gross year. On expected be the costs freight on the stronger we’ve growth headwind to with back of mentioned, our rates margins, gross in growth more a of increase margins, together, XXXX. XH, in while assumes taken So these half Jeff sales absorbing issues

year, margins mitigate this impairments increased XXXX, the as costs pressures, half in consumer. line out the the earlier restructuring last have -- we not is inflationary in seen but versus For pushback of full and in increase lapped rolled XXXX. be basis XXXX, year freight half gross points and which SG&A that freight approximately expect XXXX. gains a To XXX expected we costs with be other year, the flat full with the the of we back help second excludes sales to freight a we to costs down incurred of have year from percent versus year pricing over basis expenses, relatively actions any on still as

We in half for your in think leverage question with adjusted XXXX of part guidance the rate to modest the in that year And XH growth expect And I some the the leads of margin deleverage margin on which longer the with term line the and with was year. in approximately was that’s full half. operating back we said X% the X%, second stronger midpoint outlook. second to

rates are to in out a get a path. as margin few there I that think to double-digit back why we measured things stand

brought building to capacity, cost position executed growth. reaccelerate having our digital brick-and-mortar the and assess our rationalizing creative down efforts, a we transformation to program company our better distribution, in for First, to and structure, brand put

healthier Second, much watch and growing and market attractive. traditional is growing. remain The our categories are

positions We much Mainland have built are and strong markets into vibrant China the future. India basis, with bigger in opportunities strong key and where we markets

in our and frequency. brand for distribution strong. and product, our also smartwatches, we forward, where with purchase growth clear Jewelry higher leathers potential is and roadmap larger Looking like are markets significantly

our to in grow ample margin have room points price and We profiles.

margin friendly are and brand to opportunities customer engagement value. customer expected drive to expand digital better initiatives our our Third, and and growth lifetime improve create

sales, expense Finally, will that leverageable some over the creating expect we with leverage grow model asset-light model long-term. the slower cost a than in an and structure, expenses

that with So expense brand, that operational and us leverage margin of roadmap create to revenue balanced focused double-digit and digital believe gross a set strategies, operating gets we growth, expansion have margins. to a we

Christine Greany

the for Q&A. to comments. Kosta team Terrific. it And Thanks, I’ll any for back closing Thanks Sunil. turn

Kosta Kartsotis

Thanks next joining to forward look call. us on we you to our everyone Thank talking and you. for

Operator

and gentlemen, conference. the Thank you, today’s program. ladies does for participation This in your conclude

now You day. Good disconnect. may

Fossil (FOSL) 10 Mar 222021 Q4 Earnings call transcript