FOSL - Earnings call transcript Q2 2024

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group Second Quarter 2024 Earnings Call. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.

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

Christine Greany

Thank you. for thanks and everyone, joining us. Hello, today CEO; and us on the Interim Boyer, Jeff are Andy call With Skobe, CFO. Interim

conference in X-K, like those from from would discussed available and to you results call statements actual results policy this cause and actual that information, contains Fossil factors that differ that this such will I is on could forward-looking filed SEC. forward-looking and statements call. could information remind during during with materially made Group's additional Form information concerning a the readily reports XX-K available differ XX-Q number materially company's of the to be

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

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

With I'll now Jeff. call turn to that, over the

Jeffrey Boyer

good for I'd to appointed has a transition quickly joining Andy our allowing Thanks, everyone. on like business, joined newly Christine, into the for Interim seamless Skobe, July us. our call. to X role. and afternoon, welcome CFO the Andy and on Thanks us ramped CFO up

to a I'll return our a it the Then look and financial confident a performance, financials. of why detailed and pass profitability. Plan to the for high-level dive to position I'll with TAG more deeper overview Fossil will I'll at our begin do results Andy then on call business we're

progress trends include expansion, quarter for out XX% in of in meaningful our expectations margin Second margin within operating gross deliver this reduction our in line remaining XXX TAG continue expansion, loss. ongoing backdrop, with our gross The reduction line loss. of costs an to our quarter nearly the constant allowed Plan and adjusted to operating narrow year-to-date. substantially a results us business Against relatively top with XX% were basis adjusted the highlights points and SG&A take

provide me store of XX% present a sales strategic high related portfolio. basis, actions to a which on X currency constant significant trends. and sales approximately continued declined color Net includes to At Let optimize impact smartwatch and the dynamics category headwind. to around retail our some points level, macro our category a exit

and consumption the have the As U.S. sentiment consumer remains challenging other the soft companies segment and in remains noted, in Europe channel China. in wholesale

traditional globally are double growth to last discussed flat we digits this watches, dynamics As quarter, strong Fossil we're of our about stabilization, a X%. virtually about QX QX in where with basis; all where India, results approximately and seeing on to sales base notable signs compared are of across beginning and last brands. the down reflecting positive flat performance of approximately business The comp most emerge which sales half increased is areas show sector year,

leathers, represent as trends brand that contraction and overall half efforts pressure we be an licenses our base due brands The traced soft of Encouragingly, the a small or demand begin early The watch key our the more in about Though or strengthen to traction. we China. view boutiques. our started can sales in starting quarter. noted I watch ongoing to gain repositioning see are sign in this brand in brands to as business, experiencing to licensed and sales, jewelry as our our challenging license of of licensed watch consumer repositioning the to areas revenue we're well percentage

and increased the our to consumer our we repositioning product the enhanced new to response assortment are softer-than-anticipated result of value offerings, functionality consumer. Fossil category, leathers In to as a deliver

and times, return second, to first, on to model. our these growth conducting and a our strategic During Transform third, strengthening priorities challenging profitability: our company advancing of X core the position Plan; the and fourth, Grow business review focused to stabilizing sheet; business; we're balance

work strategies. model and Our encouraged execution tirelessly we're Standing foundational and of our teams consistency, is A continuing Plan. reduction rightsizing our size and delivering operational a of consolidated in strong financial led we're are execution the working of expected this This opportunities this on to additional our under and and critical to organizational the expansion we actions coming streams and the structure strategic as shift better year, model, model reflected with TAG the drive some to greater is new of cost the brand element in evaluate with progress year-to-date regional first multiple seeing, globally in the by operating margin evolve aligned objectives. year. up as long-term which TAG We're business our efficiency accountability, our included is quarters. half

of our from in we're capturing benefits significant total plan expected million. achieve XXXX efficiencies least to margin Importantly, on in Year-to-date, under to track gross expense. $XXX remain Plan we're TAG at $XXX operating achieve million annualized TAG and driving the improvement are benefits tracking of and

optimization. benefits promotional capturing lens, margin our workforce savings, structure. and second continue we realizing rationalization of generate XXXX the cost indirect store a perspective, several initiatives. to benefits expected actions outlined in continue and closures, include From just we're cost rent as SG&A and negotiations gross significant From reductions, into gross from expense year. and we're are an half and through and procurement The I These benefits margin next store rightsize labor actions SKU to pricing operating

strengthen balance progressing. sheet is Our work the to

our QX, with refund providing tax incremental liquidity call, $XX on and during position. a we of U.S. we million, us our last discussed received As strengthening cash

XX% Second to quarter QX, capital. ending year a inventory compared improved ago XX% declined driving and working versus

We and opportunities continuing obtain to working liquidity about pursuing our last asset efficiently, inventory also facility. working utilize business our talked $XXX capital year. opportunities receivables Based credit million non-ABL cash positive in quarter, We're of under quarter focus capital generate and and free full current to needs, Europe, flow sale our anticipated ended the second revolving positioned maintain monetization we're including cash comprised for the of for on of on and opportunities and our more the while borrowings with liquidity to liquidity assets. we leverage ample our available estate real the trends

Our near-term of as store our close expect and the Watch bearing are In and expiration up first store fruit. retail exited to actions to lease initiative. optimization XX of XX XXXX, to now by part at stabilize we natural business year-end half locations Fossil stores Station the

almost Additionally, we've remaining. successfully no exited the smartwatch with inventory category

trend Of X [ own sales stores basis X% and across as up our traditional Fossil in boutiques, watches were our our watches DTC several comp on we brand quarter, second as improvements major the in saw our traditional brands. note, well in of QX. a licensed ] In Fossil channels

upper our focus on additional awareness initiatives heat, campaigns. teams half, ambassador second drive the will and In brand funnel including influencer to and

supermodel Just Graham, partnerships coming this Michele, She'll morning, for expected watch and announced ambassador a the months. our in Similar face latest brand. are women's entrepreneur, new Ashley marketing serve luxury as of the campaign. we Michele's as

of license our brand XXXX. licensed SKECHERS, the From the to agreement expansive extending with signed an agreement perspective, scope a just broadening terms we and

look with years, watch coming global further our fastest-growing X excited one brands by extremely the to in and we've a annually. growth world's forward past XX% our SKECHERS of years. business on to We're grown scale driving the partnership Over continue the

and an working reviews our initiatives, with financing of continue of We of including model, refinement on development comprehensive advisers strategic strategic our plans our financial closely our review, capital ongoing business and our structure analysis of alternatives.

TAG the of flow, and we positive of year minus XXXX, in financial remain of expect on to the million improvement ahead our support shareholder urgently refund. X% cash value. expectation teams committed our acting building improved trends full to We're of dedication of margin remainder $X.X to our and operating appreciate and and to with shareholders. free Looking drive achieve We the remain adjusted and tax see long-term net sales, $XX of the performance reiterate sales gross X% operating We billion, our minus margin across to to adjusted sequential approximately inclusive margin. track Plan

to by financials, led Now I'll some review with conclude call Andy the the call turn Q&A to we'll Christine. the and

Andrew Skobe

great Thanks, and to here, quarters. to in all. It's the know good to Jeff, getting our coming I be look forward shareholders afternoon and

improvement Despite continued top the line rest allowed drive the has across of P&L. pressure, to our us TAG Plan

Second million, smartwatch X quarter to totaled includes that's store currency net $XXX sales down in and related XX% points exit closures. and impact constant our of

be to compared lower benefit that Gross well year, margin resulting can smartwatch to margins basis last TAG initiatives points from improved primarily of as the the as Jeff product traced discussed XXX mix. which expanded

and half ongoing from of We margin expansion and expect sourcing by in to driven initiatives gross continued and rationalization, year, promotion. SKU supply the the chain second achieve benefits pricing

cost year, $XX are million were an fewer that The as continue Jeff representing XX% focus store compensation last expenses decrease SG&A by on lower described. and lower year-over-year we stores, attributable administrative takeout. and to operating costs down driven costs and TAG reductions initiatives to compared to

ending a a reduction compared XX XXX is closed to QX, of stores in which We with quarter the XX% year stores, ago.

the up XX As expect the to Jeff to year exited mentioned, first and half have by locations close of we XX in year-end.

at reminder, lease expiration. natural a occur all As closures

and the The down quarter us enabled adjusted operating QX continued Ongoing double drive a with actions in XX% combination XXXX loss SG&A million. of comparisons anticipated improvement reductions an significantly dollars $XX of versus in second second million year-over-year to gross ago. adjusted remainder of That to reduction low to loss an cost margin reflects the of are in digits. cost narrow expansion $XX year operating through expected half the

down providing the $XX continue $XX was $XX than our the Turning ended by working quarter inventory TAG from brought to improving $XXX with We flexibility operations the the of in refunds Plan. tax which total levels totaled a April. our execute year flow million, balance seasonal offset by to Cash million ago, approximately million to liquidity sheet. receipt with versus of of quarter, million, cash We in XX% capital. use reflecting more us

$X.X outlook net adjusted to Moving loss X%. is be operating are full for expected reiterating are margin to while year. Worldwide to from the we negative sales to negative range expected guidance, our X% approximately billion,

in on guidance an and $XX concession strategic net closures million SG&A related the store annualized from remain year and to impact costs full gross our million are actions, P&L We estimated smartwatches. our of achieve approximately of to margin be benefits for million to assumes at sales $XXX Our including under Restructuring $X.X from TAG XXXX of approximate TAG XXXX. least negative Plan. the across billion exit track and $XXX approximately

flow, in the needs, coupled declines, will at the anticipate cash sales cash operating third we require working continued with Looking seasonal use capital quarter.

to holiday continue flow cash we As and QX. initiatives to take expect period our we enter free positive hold, generate the in

the for of year positive We flow million tax in XXXX, $XX full refund. inclusive be also expect to free cash the

priorities While We potential stabilize the see laser-focused up TAG our business where and the as we showing we're Jeff out, actions to fronts. to is to has remain moving pleased include capital on improve as know the be. possible the initiatives opportunities that quickly not to of in P&L, in the business, exploration it laid we're the structure, which the all

to for the I'll Now call Q&A. Christine turn back

Christine Greany

Thanks, Andy.

Christine Greany

shareholders. I'll from through getting take us some been we've questions that

Let me what the you line? start growing Jeff. expect stabilize are top start with you do again? And doing Jeff, to when to

Jeffrey Boyer

Thanks, and important additional increased to a brand on We've demand. most marketing Christine. opportunities. key heat and upper programs our our brands and line funnel generate against directing of We're number programs funding top

ambassador Ashley announced additional for as we brands brand partners. brand, today, Graham endorsers as our watch earlier licensed previously, Michele, planned own new for our and watch the with for luxury well as mentioned our influencers I women's As

and about are we're and showing the inventory substantial are efforts inventory These into drivers traditional traditional half our in front, of markets watch growth markets as the distorting watches that in the the brands, as behind stabilization categories India the emerging primary potential, On most such such business. Mexico. and growth

Christine Greany

and you watch help the us how Can industry performance? tracks traditional Great. what's happening overall that core in understand business to

Jeffrey Boyer

category. and Burch remaining the Michael watch on industry of with This ] including Fossil, [ NPD brands. Exchange, parts and data. is the our traditional based This During QX, performed pressured. our business consistent SKECHERS about Armani business, includes of Diesel, primarily consumer top that Recognize our remain environment the Kors made The Tory is half as due strategic by to to softness ongoing brands. our by decisions and weak well in exit brand position of licensed from China close smartwatch the some as being line stores also our impacted we efforts the resulting

Christine Greany

Got it.

Jeff, liquidity back bonds? are considering buying you Given your equity levels, or

Jeffrey Boyer

however, said, allocation we strengthening maintain given the As business. long-term environment. we potential financial And current at we business, our see highest do our is believe not That under resources of framework, the levels reflective deploying that look important operating current the priority. capital to we believe macro the the for business our flexibility very valuation are it's towards

our U.S.A. this and in at are is operational see can Plan results. And results, ] and you [ time. driving including our of improvements, As financial our line this in the TAG focus primary investments better execution bottom

Christine Greany

Okay.

to Andy. of have many do Plan? to over TAG How runway execute the Moving quarters you

Andrew Skobe

we TAG execute Plan. have believe continue to our We Christine. Thanks, runway ample to

the complete XXXX by will income at of annualized We majority TAG initiatives least this $XXX of the operating materializing benefits million with year.

see benefit additional also XXXX. We XXXX in and

and also additional a model, our structural options. reductions cost optimize to financing initiated which explore we well review XXXX, to March equity find current strategic in efforts business as as debt Also, includes

Christine Greany

debt maturity? What is status of refinancing the upcoming potential of your a out

Andrew Skobe

part strategic we've with potential we are as adviser of As a process. we retained debt to financial our financings assist and and equity review, this discussed, assessing

support reviewing XXXX are in strategy ABL our current place before to a we notes expiration in the senior new of and financing facility options Importantly, XXXX. our well in

Christine Greany

Great.

Just and one cash takes you you, on Could last puts the this question take year? flow us for through Andy.

Andrew Skobe

to first nature compared business near consistent increase collections seasonality on of the free increase to the the half sales operating XXXX QX. the Based to our the decline term, the but and with implied we our based use full of guidance. half projected XXXX. Sure. will the expect anticipated on our strokes, the This in cash year broad are year from for business, positive in remainder require the In of sales generate flow cash to is of cash second first seasonal

also to payments. marketing our increased in be well tax Additionally, and freight partners will there be as sales the inventory, licensing the support will expenditures to higher half. payments as increase second There

to have as we in $XX reduction benefit operating full received continue in of QX, to a tax the year realize for refund From year under the addition perspective, the a we expenses onetime our Plan. TAG anticipated overall benefits million in the

Christine Greany

you the Jeff. Thanks, team end and requests. and follow-ups. earnings next reach quarter. Andy look We is out the everyone today directly me of updating My at to to release, included in with listening e-mail appreciate The available for forward Please is christine@blueshirtgroup.com.

have everyone, a of rest Thanks the again. And good week.

Operator

today's concludes That call.

You may disconnect. now

Fossil (FOSL) 8 Aug 242024 Q2 Earnings call transcript