Fossil Group, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group fourth quarter 2020 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 Greeney of the Blue Shirt Group to begin.

Hello, everyone, and thanks for joining us. With us today on the call are Costa Kartsotis, Chairman and CEO, Jeff Boyer, Chief Operating Officer and CFO, and Greg McKelvey, EVP and Chief Commercial 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 8K and 10Q 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. All references to sales during today's call reflect constant currency results unless otherwise indicated. Please note that you can find a reconciliation and other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8K and is available in the Investors section of FossilGroup.com. With that, I will now turn the call over to Costa to begin.

Good afternoon, and thanks for joining us today. We hope everyone is staying healthy and safe. 2020 was an unprecedented year for all of us, and for Fossil, it was also a year of transformation. We are extremely grateful to all our team members across the organization for working through the near-term operational challenges while also continuing to execute against the longer-term strategic priorities that will position the business for sustainable top-line growth. Before we review our fourth quarter results, I wanted to take a few moments to share our perspective on 2020. While the pandemic created significant disruption to our business, in many regards, it validated and accelerated our transformation efforts, particularly the digital acceleration that was already underway. With the loss in sales in 2020 that arose from the pandemic's impact on retail traffic, we doubled down on our digital strategies. As a result, we ended the year with approximately 40% of our global revenues coming from digital channels versus 20% in 2019. We accomplished this by focusing on our new e-commerce platform, completing the U.S. implementation in early 2020, and extending it beyond the U.S. to other markets. We grew our file size significantly and began testing more targeted digital marketing with positive outcomes on conversion, sales, and awareness. We also greatly improved our capabilities to compete on third-party e-commerce platforms like Tmall and Amazon. In addition, we made tremendous progress in transforming the company's operations last year, utilizing our New World Fossil 2.0 initiative as a platform for change. New World Fossil includes streamlining the organization and generating greater efficiency in our processes and work streams. As the pandemic unfolded, We expanded this program to include the reduction of our store count and the optimization of our store operating costs. Our target for New World Fossil 2.0 was expanded from the original $200 million level and is currently on track to capture at least $250 million of operating expense savings before the end of 2021. We are pleased to have concluded 2020 on a stronger operational and financial footing, despite the ongoing macro uncertainty. Our fourth quarter sales came in better than we expected, reflecting solid execution by our teams in a tough environment. We maintained strong gross margins, exercised careful cost control, and delivered $50 million of adjusted EBITDA in the quarter and more than $90 million in the back half. Our cash balances at year-end were $100 million higher than when we started the year. During the fourth quarter, our total digital sales were 43% of our global revenue mix, primarily driven by the performance on our own websites, which grew 50% versus last year. From a regional lens, Asia Pacific demonstrated strong sequential improvement from Q3, reflecting continued growth in China and a return to growth in India. Notably, we had strong sales on 11-11 day, with our Armani traditional watch business coming in as the number one seller among luxury watch brands. Performance in both the Americas and EMEA regions was impacted by pandemic-related restrictions and shutdowns that began in November. From a brand perspective, Armani delivered strong growth in China, and both the Michael Kors and Fossil brands grew share in the Americas region. Turning now to 2021, our teams are focused on a number of strategic priorities, accelerating our digital capabilities, streamlining our operations, driving growth in China and India, and driving product innovation. Our most critical growth priority this year continues to be accelerating our digital capabilities on a global basis. We have been investing in the digitization of fossil for the past few years, and we'll accelerate this by investing in the resources, tools, and teams to further advance and scale our digital footprint. We anticipate that digital sales will exceed 50% of our mix over the long term. In 2021, we will complete the migration of our own websites to the Salesforce platform. Our teams have already begun utilizing more advanced digital capabilities, such as AI-driven cross-sell and up-sell, an AR tool to enable virtual try-on, and a virtual sales assistant. Another important element of our digital agenda is building out more advanced digital marketing and analytics capabilities, which is expected to help us drive customer data acquisition and increase repeat purchasing. In addition to leveraging our robust platform to drive sales on our own websites, we see a significant opportunity to build on the strong foundation with our third-party e-commerce and wholesale.com partners and to extend our reach to new regions and partners. As we drive our digital agenda, we will also continue to streamline our operations to be more asset-light and efficient. In 2021, we will be moving through the final leg of our New World Fossil 2.0 program. We have an opportunity to take advantage of upcoming lease expirations and expect to reduce our own store count this year by approximately 15 to 20 percent. This represents 65 to 75 closures globally. Refining our store count also provides an opportunity to improve our inventory management processes and strengthen our Indian supply chain, necessary steps as we make Fossil a more agile, nimble, and profitable company. As we focus on these major priorities, we also expect to build upon our growth opportunities in China and India. We continue to see a major opportunity in these regions where we have an established infrastructure and great management teams. The rapidly growing middle class in Asia has a strong affinity for aspirational brands in the traditional watch category, like Armani, Coors, and Fossil, and is digitally savvy, creating an additional runway for growth. And finally, product innovation has always been and remains an important focus for Fossil. Our teams are passionate about innovation, and we have a robust product roadmap that will continue to excite the customer. Our mission is to craft compelling product and brand stories and to build communities in key markets by using our new data management and digital analytic tools. In traditional watches, we're doubling down on our flagship brands of Fossil, Armani, and Coors, which continue to perform well. And we also have a strong foundation in connected watches, which includes our feature-rich Gen 5 platform, the Hybrid HR, and our new LTE product that launched earlier this year, and open new channels of distribution. Importantly, we're excited about our innovation roadmap on Connected, including both future product launches and software updates. As we think about the long-term trajectory of the business, we anticipate that top-line growth will be fueled by our relentless focus on being a digitally-led company, on our strength of innovation, and by favorable category and geographic trends. While there is still uncertainty because of the pandemic and its effects, We are better positioned to capture revenue growth in 2021. We expect total sales to increase by 10 to 15 percent from 2020, with EBITDA margins in the mid-single-digit range. Importantly, we believe the business is positioned to deliver sustainable top-line growth in the coming years. We are executing against a large addressable watch market. We're seeing stabilization in the traditional watch category, and the connected segment continues to grow. Additionally, we have an experienced and committed team that is focused on our opportunity. This afternoon, we are pleased to announce the promotion of Sunil Doshi to be our Chief Financial Officer. Sunil has deep institutional knowledge of the FOSSIL organization and 20 years of financial expertise, including prior CFO roles. This natural progression also creates an opportunity for Jeff Boyer to focus on his role as Chief Operating Officer which will be particularly important as we continue to transform the company and position it for ongoing growth and increasing profitability. In closing, we are profoundly grateful to all our fossil associates who have been relentless in helping us reach this inflection point. While there is surely more work to be done, the heavy lifting of our transformation is behind us, and our teams are energized and excited about the opportunity to restore growth and to improve the profitability in the coming years. And now I'll turn the call over to Jeff to discuss the financials.