FOSL - Earnings call 3 2023 | Fossil Group, Inc.

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 Third Quarter 2023 Earnings Conference Call. [Operator Instructions]I'll now turn the call over to Christine Greany of The Blueshirt Group, to begin.

Christine Greany

Hello, everyone, and thanks for joining us today. With us on the call are Kosta Kartsotis, Chairman and CEO; Jeff Boyer, Chief Operating Officer; and Sunil Doshi, Chief Financial Officer.I would like to remind you that information made available during this conference call contains forward-looking information, and actual results could differ materially from those that will be discussed during this call. Fossil Group's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in the company's Form 8-K, 10-Q and 10-K reports filed with the SEC.In addition, Fossil assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.During today's call, you will -- during today's call, we will refer to constant currency results. in can results reconciliation non-GAAP Form and discussed call this Kosta you to actual financial to X-K that which over fossilgroup.com.Now on currency release I'll in constant other call section and note is find today begin. the of a results measures was available Please filed earnings Investors on of Fossil's to information the regarding turn

Kosta Kartsotis

than third afternoon, Europe Good for and mostly quarter in proved headwinds everyone, and difficult soft and consumer in today.The Christine. Thanks, spending From joining the more are we channel in category, thanks perspective, facing expected, of channel consumer of because dynamics. China. us wholesale high-level challenging a because

in the globally, have execution our extended most TAG announced approximately are to into approximately deliver annualized quarter, annualized are to of streamline smartwatch the goods in primarily slower-than-expected $XXX to recovery us are million headwinds declines we our we store benefit Both and million the we further and our includes reflects XX% sales quarter remain overall encouraging While India, which in traditional plan, channel our up income operating these some sales, globally. the where in the points organization. $XX and we our across help net these of outlined, plan decline dedicated of third and roles of were brand, making put cost initiatives quarters strategies industry-wide are headwinds the which we respectively.To bolstering approximately our drive we of core have advancing in generate and a and XXXX. that marketing announced we in expense the practices XXXX.Our business we team is and groundwork wholesale place are XXXX operating tracking working the channel, focused The expected on Plan, of seeing savings.Under against end accounts and focused China. in address Greater Year-to-date initiatives our and in notably savings are improve sourcing due to improved by in watch in captured pressure U.S. solid last objectives, X related previously laying conditions headwinds, which responsibilities X% we Americas ongoing the in the operating signs the to Europe wholesale sell-through both Fossil margins and expense which a XX% in macro including closures.Importantly, Grow in to Transform on.X we the our driving February, product up progress on are in decline key to tough

third-party have improve e-commerce. in also of to underway performance a initiatives We number

We collaborate are our to increasing drive channel, on digital largest quarter. sales our holiday to accounts our with in using the products.In digital e-commerce up to direct-to-consumer platform our order owned continues X% with sales results their in capabilities optimize our

their increase off order people improve are are margin were performance. to we the to in sales our the channel.Overall, and Our addressing investments paying impacting to capability teams in able technology in business challenges drive our as and aggressively

watches, and our initiatives include across revitalizing to brand We licensed we plan Fossil expanding cost taking strengthen Fossil model, actions growth key our maximizing traditional our operating highly and for pillars to offerings.Under brand jewelry are our rightsize marketing leathers. to growth. portfolio our structure under restore are support and watch our investments in premium revitalization the key and making The jewelry our targeted watches strategy, brand,

Disney September, our our expression to conducted efficiencies Fossil the revealed goods New dive a target unveiled of touch both with and the to is Paris supporting we and this with in collaboration, creative global the we our the led global of celebration to driving traffic in operational productivity. and a In successful consumer campaign both positioning.More across and and for and to Marsal, and Europe. come experienced funnel, insight deep limited events leading path fashion have in Over traditional of it's of costs, clear to holiday.We wholesale and Together, targeted team in early we're we watches, better capsule by overhaul consumers XXXth & well a first improve fortunate also points evidenced to including the laid a edition the our a broad-based an week have work campaign a sales recently, with increases leather have campaigns past a with India, launch Alvarez reads made special debuted jewelry, responded their results digital disciplined in in understand by are more consumer. to approach York.The into execution. under products which all reduce our of partners drive tell brand United extensive strong to underpinned of brand's partnership overall to out end website October, There we more consumers brand our campaign year, highly media. launched us States In collaboration The Early anniversary. release which collectors. this

reshape to most revised today forward.The focus providing We our TAG, soft globally. spending early XXXX guidance we model profitable offset on and under by traction the environment in advance taken compelling decisive our and business reflects the and goals are our gaining actions a opportunities we're drive business have consumer to

support deliver to plan.And as financials. discuss and committed remain dedication in of the our will to performance. to the leverage the More the continue are turn from confident drive delivering and the improvement we call work narrow operating shareholder hard this our to Sunil teams over to Looking on shortly.We and Sunil at our now organization benchmarks appreciate year-over-year initiatives income value our the TAG sales our we ongoing and we shareholders, declines we of that XXXX, against of throughout TAG I'll

Sunil M. Doshi

Kosta, Thanks, update. part I'd our like everyone. are There of as X good to and afternoon, topics QX review

we our call. below similar headwinds shared with to QX those First, results expectations our our were on QX

of that drive Transform a be reminder, that against we year total outlined and a next realized updating our million reductions will of our based our annualized XXXX. Transform in the to fiscal by key peak are Grow forecast stores a years.As like executing in Plan at Grow in the Plan, are in retail response making into operating and current We $XXX and selling QX beginning and events China.We of on benefits wholesale progress to benefits our markets ordering trends and couple expense slower-than-planned the initiatives outlined year levels on solid capturing for

reflecting our softening traced the smartwatch as QX mentioned from were led revenue headwinds, operating sales e-commerce initiatives. a e-commerce million, drivers I and The watches We Transform China and $XXX of fiscal the jewelry. into to addition, during approximately in as are timing in primarily headwind channel down prior tailwind million represented in made traditional sell-out decline sales declined quarter, declined to Regionally, respective key basis reductions of X inventories underlying China.Sales declines X million did than constant in million into of on points be some we basis to Americas an X direct due we the platforms is performance. I'll on to QX to now declined margin point our down in sales levels timing in sales, that QX our in a Plan. a about their X% in $XXX also constant shift Grow Global we as business point and bolster track overall detail. estimates shift into or quarter by $XX regional growth where can also wholesale of approximately our about represented points to fiscal continue platform $XX or dollar related From capture to have our by lower X%, under from and on.Similar on of technology $XXX we've third year-over-year XX% point lagged consumption shipments impact XX% results consistent $XX rationalization we quarter softness talent X in actions up were million approximately wholesale assortment.Next, perspective, of currency. and a down our XX% strength in the the headwind.In third roughly to currency. as the currencies was same benefits Sales e-commerce year to benefits trends. million reduce From on XX% point shipments quarter. to through The due through these years.Finally, that, a our currencies XXX a the above were QX, Working captured year-to-date results about walk strengthening $XXX estimate result or our to the expenses in SG&A investments to in last the primary across sales focus our or foreign Europe results highlight the the on foreign based XX global in that X sales recent our year-over-year operate million XXXX a in let more offsetting Partially wholesale XXXX.With biggest step capture capital capabilities well store perspective, headwind and factors primarily and expense merchandise decline. were of of me year

QX traditional owned the in comparable Americas, XX%, decline at offset driven last XX%, We Europe, In stores as with X% a our In into this down by Across our which were sales in in store our were comparable in channel retail sell-in down in e-commerce our e-commerce. First, by with risk direct-to-consumer a net offsetting XX% the direct-to-consumer the last year, In retail moderate accounts. Sales this quarter. ended stores in XX% channels, below year was currency, the sales gains region, region. accounts We XX% geopolitical year retail year quarter versus QX decline were in prior comps. due larger year.Turning the factors reported expectations. in ended watches.Although into the heading the reported XX% underlying the versus grew versus slightly stores, year. Sales declines the down in region's constant versus wholesale and XXX QX with total double-digit retail sales caution and down the inventory declines channels, in the consistent in last levels year.In increased traditional key levels, sell-out to declined major last inventories sell-out retailers constant as in down of to underlying prior primarily down channel, signaling the are in our XX% in quarter versus with quarter with declined currency trends by spending XX% on wholesale lagged consumer versus our expectations, below wholesale to continue attention end sales constant retailers by were XX down underlying which were X%, decline gains year, down Asia. trend. the category, our watch were lagged than X% to more currency

we the areas X previously in traditional which have progress our our timing the of I declined China on with continuing distribution India pleased primary for reigniting term, impact in in XX%, that we previously however, million have communicated, Net Fossil we market we Mainland drive grew focus and watches million sales growth region initiatives.Sales long China, the $X brand the sales in As relaunch by to capitalize and X%, in $XX remain over leverage in India. mentioned. where sales included growth and

is net the improvement spending largely constant in on by driven in indicate timing softening, market. sales the slight reads in Early that were down levels. QX currency, trend consumer a impact, economic categories X% QX fundamentals from in discretionary Excluding

brands performed X% watch was the kicked comp down brand we assortment a in remain the basis. off the outlook traditional better licensed confident While traditional category in a we brands. other Kosta lens, brand's relaunch in our a for Fossil's the on long-term quarter in the softening than will and near-term trajectory mentioned, create as about that Fossil anticipate brand headwinds the and economic watch quarter, was Globally, China, has category.From owned

license down progress are brand's which the with was encouraged largest the by year, declines to Europe, by our wholesale seen declines outsized in that category, Kors growth well with channel last brands, Asia. year-to-date are AURs.Looking in the our driven continued and Armani's versus direct-to-consumer We has in the to jewelry down channels in Americas trends our comp improved P&L. in China.Moving contrasted in we've softer largely attributable sales the at

key product with our quarter margins factors. more core by Third versus XX%, down basis in than gross offset was XXX X points last margin year, improvement

had of a basis the product QX QX First, royalties XXX which 'XX. point of timing minimum owed, from impact benefited

hedge year-over-year contracts impact basis had used a currency settlement of foreign purchases. XXX we to from the Second, point inventory

our reduce are benefit under to to in realized focus assortment basis we AURs. relaunch. of to can reductions initiatives to transformation to XXXX, of implemented we benefit down SG&A, drive offset This traced better and our SG&A agreement of The core smartwatch in underlying as related lapping continue Fossil and underlying which completion point is a be something the has margins plan.As year. we headwinds, partially TAG year management during initiatives basis expenses inflation X% Third, the product XXX offsetting mentioned broader in licensing related will partially part SG&A our of technology.Importantly, versus reinvest a earlier, us on and last were QX enabled inventory XXX our last as our saw the points performance obligations benefit were up above architecture

operating X%.Turning balance margin Taken $XX million operating was the adjusted to was together, and loss adjusted sheet. negative

balances, working over to to continue down working was lowering facility.Turning cash make has we by quarter. excluding levels, us working last our under improvement bringing enabled the versus inventory year's $XX cash million, cut Ending levels progress cash XX% just capital, credit now $XXX had capital to approximately was while capital. availability revolving The and We down prior million from outlook. inventory the operating versus year-to-date in year of prior down our use at million million, year. and $XXX XX% ended QX $XXX

full our and third incorporate a sales quarter. reflect fourth softening our results outlook operating for revising for We adjusted and outlook to year margin the are quarter

rates specific and the XX%. the compared of QX's margin that operating quarter negative net would in negative anticipate $XX by to some XXX declines We dollars sales that basis by wholesale Americas for negative based from shipments benefit growth and offset to be sales a versus From driven expect our that XXXX. outlook. on to negative XX%, includes some estimate which prevailing by range basis our impacts our prior For declines with fourth shift me in TAG will guidance margin positive includes in estimated reflects X%.Let full at to This sales rates of the adjusted prevailing turning of global our includes XX% to SG&A expect prior embedded an similar impact year, XX previously our are we impact perspective, wholesale outlook relative the adjusted net year stronger that flat points was and range the be expectations I We decline that to in outline smartwatch we and positively to X% range in net X% our of of assumptions our for mentioned. Plan of down prevailing from initiatives.Now rates, year-over-year commentary QX estimate prior a closures prior partially to store to negative X% additional Europe, a income Grow in in reflects operating the our guidance. dollar the guidance.Our timing time point on guidance sales.Our also e-commerce currency sales, million Transform QX

March in our on $XXX by overall reminder, a operating track the be $XXX our end expanded in of achieved result fiscal we outlined XXXX, Grow on our of As we expense identified year to call. income of annualized review original shared as expanded annualized by comprehensive million call million last XXXX.First, earnings benefits to The the a program the remain achieve on savings Plan, model. was which operating Transform our and

we approximately year. realized the initiatives and us inflation from to to operating million toward degree some in runway with opportunities.The growth efforts the million $XXX roadmap of drive on our our the in of was lower of near-term million of like operating to XXXX, front allocating while the simplification to in These be $XX the management. XXXX season Christine million base operating us is better since indirect progress TAG of this approximately operating $XXX call, capital on operating holiday and million markdown and savings on savings pillars.Second, impact of multiyear expense of are pricing initiatives significant reflected our last benefits position Grow savings expense and margin have to AURs some $XXX benefits our to growth providing on remaining and margins.With carryover realized estimated realize made in and underlying expense is through groundwork this call delivering us primarily $XXX offset XXXX.With our our clear us, lesser that model, procurement take product to benefit initiatives announcing our further a or laying which and original SG&A, to focus Q&A. year-over-year costing expect set through level which These our this to primarily are improvement we range XXXX. in Achieving from enabling I'd margin expanded turn newer improve are XXXX Oregon into over into back carryover to reinvest half benefits to to our We Transform will executing capture to in outlined, from that, a strongest that expected of deliver income and plan to

Christine Greany

the expect Terrific. to for to strategies I'll question Kosta. sales? you Thank an when see key stabilize inflection you, And a point? What Sunil. begin are do with

Kosta Kartsotis

SKU gross including promotional to lower TAG better the costs, and improve There management, number as as drive sell-throughs moving reductions, improved higher we in the of that net across quickly have are that to place will we're capture. product profit pricing, a can we higher Overall, profitability, market business enterprise. initiatives all

lower a operate structure. In expense addition, we will with

lean moving we're past also as digital the in to business, have will a our company The have large few for increasing shown our a the right has for into that in years in more will jewelry in opportunity made long-term. significant the overall strength, technology company people as the Fossil going in that direction.Also, our So presents traditional a watches. which capabilities, we brand, continue. in Also our especially have advantage benefits.We and strategic we've strengths think in investments become the well in brand increasingly significant markets opportunity and we're emerging

of lot strong our company, many a So execution progress overall, on are focusing teams fronts, in making the on going on we on the there's and activity are and and improving business.

Christine Greany

Jeff, around put color how on to Moving more could you progressing? and that's TAG the program

Jeffrey Boyer

Sure, Christine.

As you and initiated we're programs which we experiencing. these heard our progress expanded Sunil's our comments, business earlier year now in due making We TAG on this solid are potential initiatives. to both softness, initial

We have with work streams or X key objectives. prioritized main goals X

objectives progress Our and reduce working organizational key complexity; one, to, of far two, optimize our on so on efficiency.I'll improve are gross capital margins; share these efforts. each overspending three,

planning of as in on other versus our organizational efforts reduce as a elements underway we significant size the more operating some expense next and driven efforts value-creation improving we've of our more is on be our continue operating focused into costs basis. significant well efficiency. Regarding had to margins regional of right far complexity, from this past, the very are gross global initiative Unlike our the changing organization along most stream operating is is in well fundamentally this the Execution globally of decision-making and model. to model work our product one most as of year.One pillars improved will into

and with We new costs. product are our to suppliers reduce current working

we're pricing our this from in customers from We're and with new very to focusing average P&L increasing promotional stream enhancing the pleased far, and and benefits the programs terms getting by reviewing track so into And our work existing partners. response with refining our wholesale our architecture, on XXXX.We're AUR markdown our we're and also on support partners. the with drive

spend also and on in side, initiative, in from additional levels optimization each management our Lastly, and We've being from to instituted improvements all significant process optimization are reviewed areas.On programs, RFPs our expense economic benefits working overhead expect inventory product expenditures, indirect capital technology costs cycle marketing requesting retail review deep spending initiatives spend to life of issuing channel. overhead we're dives the conducting efficiency purchases.Our information supporting procurement. in in and program these an tower areas control areas signing includes lower our demand to for all major

several our $XXX transformation also currently terms.As every standard our shared payment nearly more can our management a remain ability improving operations, our We're DC look store incremental programs worked TAG turnover, suppliers business model. industry After benefits parcel taking area further initiatives savings harder is include being at work, back customer in and optimization. and impacting moving our our TAG major of reducing we part on and logistics you We economic that DSO process and goal tell, deliver rationalization account in-store in Working opportunities. are revisiting inventory extensive confident cost to to and the program identify of million of of to we August. is in months capital

Christine Greany

the P&L? Sunil, that TAG flow of beyond through million $XXX expect does capture? does the cadence of to that like initial look benefit $XXX how you what savings And that million

Sunil M. Doshi

A Yes. in first that annualized recap benefits. $XXX quick million on

million in We in expect $XX capture XXXX and XXXX. $XX to million

of in couple the million points. $XX For XXXX, additional a

expenses. and an million savings it expense or freight represents SG&A that in $X margin $XX X.X% our actual of SG&A $XX 'XX million perspective, million that First, gross From costs. million in FY as reduction about benefit $XX the of SG&A pertains is the to in is of

to expectations about XXXX, year.With offsetting just year Jeff other TAG That that initiatives million brings into the together, another based $XXX a spoke $XX improvement on XXXX reduction into reflects rationalize will in respect sales to current benefits current some actions that the underlying $XXX meaningful we million taken forecast Our X% in savings provide million inflation income to as of the about. XXXX. adjusted from There primarily $XX we XXXX. business fiscal TAG and will to to capture had offsets SG&A, we total the operating million related these points the a our views will approximately our $XXX the our remaining X.X But to and trends is be from coming benefits for segments million. our FY some to of

Christine Greany

last declines? for given near term the expected think about capital How do you. your allocation question One you in sales

Sunil M. Doshi

Yes.

on considering should set allocation our plans.Longer capital the Working operations base, plans capture healthier better those Transform to our free benefits in a work factors execute but in most mind to times.So down been our in note on in capital. with to approximately Grow In near are capital levels, our recent operations our think a and be development and important we weighted term, priorities XXXX, operating and Grow by to we the resize So offset execute TAG as QX included improvements and and while allocation flow, Growth capital those levels. near expect business is XXXX that our be a of in It's $XXX cash revenue we'll restructuring require million inventory for down it's structural business and the initiatives overall on cycle some broader where that versus focus last are more and term, we've working and and our QX we our XXXX focused important have working based down to from revenue we initiatives. to We capital benefits, capital normalized preserve and able to capital tend in options. lead trends, XXXX, costs year. Transform Transform are back-end our into also planned working losses driving term, to managing consider inventory more position flow in do

Christine Greany

I'll for team the Q&A. the just to comments. call Kosta closing back Great. Thank turn you for

Kosta Kartsotis

us support. quarter day. today. your forward speaking look our Well, again to everyone, Have We fourth appreciate about for year. you good a to next joining thanks, We early

Operator

for gentlemen, call. this today's Thank concludes you and your participation. conference Ladies

may have You wonderful day. a Everyone, disconnect. now

Fossil (FOSL) 9 Nov 232023 Q3 Earnings call transcript