Fossil Group, Inc.

Welcome to the Fossil Group fourth quarter and full year 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 Greene of the Blue Shirt Group. You may begin.

Hello, everyone, and thank you for joining us. With us today on the call are Costa Kartsotis, Chairman and CEO of Jeff Boyer, Chief Operating Officer, Sunil Doshi, Chief Financial Officer, 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. During today's call, we will refer to constant currency results. Please note that you can find a reconciliation of actual results to constant currency results 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'll now turn the call over to Costa to begin.

Thanks, Christine. Good afternoon, everyone, and thanks for joining us today. Before we begin, we would like to acknowledge the unfortunate circumstances in Ukraine, as well as the pandemic that is still affecting a significant number of people around the world. During these challenging times, we are grateful to our teams for their unwavering focus and commitment, agility, and strong execution. As a global company with associates around the world, we must all strive to make the world a safer and healthier place to live and grow. Despite various global and macro challenges over the past year, we are pleased to report a significant improvement in our results for 2021, reflecting strength across key categories and regions, as well as excellent execution by our teams globally. We delivered double-digit top-line growth of 16%, expanded adjusted EBITDA margins to 8.5%, and achieved adjusted diluted earnings per share of $1.12. Early in 2021, we achieved our $250 million New World Fossil cost savings target. With a more streamlined organizational structure and a stronger balance sheet, we were able to accelerate investments in our growth initiatives and also to increase our marketing spend to capitalize on improving consumer demand, particularly for traditional watches. These initiatives contributed to growing sales and expanding margins. which was particularly helpful as we navigated a number of macro headwinds, including ongoing pandemic impacts and a challenging supply chain environment. Investments in our growth initiatives, primarily our digital strategy, marketing analytics, and brand building are paying off. We are deepening our customer engagement with our brands, improving customer lifetime value, and creating a strong pathway for sustained revenue growth. It is gratifying to see that our digitally-led mindset drove meaningful results in 2021. We increased our customer file size by 40% and grew our digital sales by 20%. And with increased marketing investment and product newness, we created stronger brand heat in our core brand's product offerings. And now turning to the fourth quarter, we achieved net sales growth of 14% and 16% on a constant currency basis. grew adjusted EBITDA by 15% versus the prior year, and achieved adjusted EBITDA margins of 9.5% in the quarter. In the Americas, sales were up 26% in constant currency. Growth in our traditional watch category was a robust 39% as we capitalized on consumer demand across digital and non-digital channels in our largest brands. Traffic and sales in our own stores was better than planned, and key performance indicators, like our sellout in wholesale channels, was strong. In Europe, constant currency sales were up 21%. The Omicron surge created some headwind in December, resulting in a loss of momentum in brick-and-mortar traffic, and international tourism has remained below pre-pandemic levels in certain markets. Traditional washing jewelry growth was very strong in the quarter, up 24% and 48% respectively, as effective marketing investment and a healthy inventory position drove category growth in our largest brands in key markets. Offsetting the strong double-digit growth in Americas and Europe, sales declined modestly in Asia, resulting in total company sales growth below the expectations we provided in November. Performance in Asia was mostly impacted by quarterly results in mainland China, which were down significantly in constant currency versus last year, primarily reflecting COVID policies and travel restrictions. Other select markets in our Asia region saw modest improvement versus Q3, but continue to see tourist sales well below pre-pandemic levels. From a category perspective, worldwide traditional watch sales grew 18%. Growth rates in the Americas and Europe of 39% and 24%, respectively, offset a decline in Asia. Growth was highlighted by global demand in key brands like Fossil, Coors, and Armani Exchange. In smartwatches, we showed growth in key markets and channels in our largest brand, Fossil, while we are reporting an overall decline in sales due to the closure of some less desirable distributions. Our investments and capabilities in digital channels continue to drive growth, even though our traffic rebounded in brick and mortar. Our digital channels grew 7% in the quarter and are up 37% versus 2019. The combination of digital sales growth and traffic rebound in our own stores help fuel incremental growth in our customer file size, an important asset as we execute our longer-term growth strategy to deepen customer engagement in our brands and categories. Looking forward, we have a fundamentally more robust business model and are encouraged by the global opportunity in our core categories. We see a healthier watch market where category demand signals for both traditional and smartwatches are positive. And even larger overall addressable markets like jewelry and leathers continue to reflect strong global demand. More specifically into 2022, while we recognize the challenges in the macro environment will certainly have some impact on consumer spending tourism, and confidence in the near term, we anticipate that discretionary spending will continue to rebound in many markets and improve throughout the year. With that context, we remain focused on our four strategic growth pillars that we outlined in 2021, accelerating our digital platform, building brand heat through product innovation and marketing, driving operating efficiency, and pursuing our long-term growth objectives in China and India. These core pillars have driven our return to profitable growth and provide a pathway for sustainable growth into the future. On the digital front, some of our key action plans for 2022 will be centered around our DTC capabilities, including investing in our consumer data platform. In addition to growing our customer file size on top of last year's 40% growth, We are also investing in better tools and analytics to more effectively communicate our brand stories to new and existing customers. In the smartwatch category, we will also launch our own smartwatch app later this year, which will bring existing and new customers onto our consumer data platform, enabling new pathways for communication and engagement. We are also investing in our largest brands, leveraging our creativity and supply chain to bring exciting products to market with both iconic designs and platforms and limited edition products and collaborations. In 2022, we plan to increase our marketing span in key brands like Fossil, Coors, and Armani to drive higher customer engagement in key markets. Reflecting back on the past several years, we have executed a successful transformation and navigated an unprecedented pandemic environment, all while building a digitally-led model that positions us for the long term. Our digital foundation and streamlined cost structure, combined with our global reach and scale, provides us with a path forward to sustainable growth and a return to double-digit operating margins in the coming years. We are grateful to our teams and associates throughout the organization for the energy and dedication they bring to work every day. We are all committed to driving excellence and building shareholder value over the long term. And now I'll turn the call over to Sunil to review the financials and discuss our 2022 outlets.