Fossil Group, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group first quarter 2022 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 Greene of the Blue Shirt Group to begin.

Hello, everyone, and thank you for joining us. With us today on the call are Costa Kartsotis, Chairman and CEO, Jeff Boyer, Chief Operating Officer, Sunil Doshi, Chief Financial Officer, and Greg McKelvey, EVP and Chief Commercial Officer. I'd 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 the 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, FOSL 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. Now I'll turn the call to Costa to begin the formal remarks.

Thanks, Christine. We are pleased to report strong first quarter results in line with our expectations, which includes 4% worldwide net sales growth or 6% on a constant currency basis. This was against a backdrop of an increasingly challenging macro environment in our Europe and Asia geographies. The quarter was highlighted by growth of 10% in traditional watches and growth of 38% in jewelry. Broadly speaking, the U.S. consumer is generally considered healthy and more people are getting back to work. while Europe and Asia are being pressured by the Ukraine crisis and China's COVID situation, all with a backdrop of increased energy costs and rising global inflation. We are all disheartened by the ongoing humanitarian crisis that has unfolded in Europe and continues to worsen. At a high level, the watch category also continues to be healthy and is showing positive underlying trends. Consumer spending remains stronger in higher price tiers, where affordable luxury, fashion, and innovation have driven more excitement in the category. We are also creating brand heat through new marketing collaborations and limited editions, which create outsized awareness and broaden our consumer reach. We think these activities are positive signs for the category as a whole. And now turning to the first quarter results. In the Americas, sales were up 6% in constant currency, led by 22% growth in traditional watches, and 14% growth in jewelry. Demand in the category was driven by a strong U.S. and European consumer returning to more normalized activities after the Omicron surge in late December and early January. Store traffic growth in the quarter was strong, as was average spend levels. Wholesale sell-in was also strong in the quarter, although we did see a softening in sell-out trends later in the quarter, which we attribute to rising inflation and geopolitical uncertainty and some signs from lapping last year's stimulus in the United States. In Europe, constant currency sales increased 20% as we lapped considerable COVID closures from a year ago, and consumers returned to brick and mortar more broadly. We saw strong performance in both wholesale and retail, where traditional watches and jewelry were up 20% and 38% respectively, with notable strength among key brands like Fossil, Coors, Emporia Armani and Armani Exchange. We are cognizant of how the war in Ukraine, coupled with inflation in food and energy, may be weighing on the European consumer, and we have seen some uneven demand levels there. However, early indicators are showing that our increased marketing efforts in the region are paying off, with market share gains in traditional watches and jewelry, and we are confident that our product newness planned for later this year will continue to build category heat. Turning now to Asia, Constant currency sales declined 10% as the COVID situation in mainland China dampened sales across all channels and also impacted other key markets that historically benefit from Chinese tourists. While predicting the length of the lockdowns and their effect on consumer shopping patterns is difficult, we anticipate that impacts will be felt in our top-line trends throughout the year, with some sequential improvement in the second half. Broadly speaking, we believe long-term opportunity for growth in mainland China remains intact while we work through the current environment. In India, our second largest market in the region, we are seeing renewed sales momentum and strong sellout trends as that country emerges from a prolonged period of COVID restrictions. Smaller markets in the region are all recovering as well as COVID situations have generally improved. Looking at the business by channel in the first quarter, Wholesale and retail both improved on a year-over-year basis. Sales in our company-owned stores grew 25%, while sales in wholesale increased 9%, reflecting pent-up consumer demand and a return to brick-and-mortar shopping. Our digital sales declined in the quarter, largely reflecting the impact of the rolling lockdowns in China, which is a significant digital market for us. Additionally, the return to retail, which is driving in-store traffic industry-wide, was also a driver, particularly in the Americas and Europe. While digital sales were down for the quarter, they are up 60% to 2019 levels. While our outlook for the balance of this year is more cautious, we are confident that our strategies and growth investments that we've shared with you over the past several quarters will be important catalysts for driving longer-term sustainable revenue growth. We are progressing well this year on our core growth pillars of accelerating our digital platform and building brand heat, through product innovation and marketing, driving operating efficiency, and pursuing our long-term growth objectives in China and India. We have built a strong foundation of digital capabilities and continue to prioritize our digital investments, which remain on track. These initiatives will enhance our omni-channel and marketing capabilities and leveraging our growing customer file size to improve our customer lifetime value relative to customer acquisition costs. we're in the early innings on what we view as a significant long-term opportunity. We are also investing to drive more brand heat into our core brands and categories. Product collaborations from our recent Batman collection, Fossil, and our Razor smartwatch create outsized awareness for our brands. From a media lens, we are tapping into new social media channels and platforms where customers are increasingly spending their time. And with improved test and learn tools, we are driving better outcomes. We also remain on track with introducing our SmartWatch app later this year, which will bring existing and new consumers into our customer data platform and enable new pathways for communication and engagement. Importantly, we are confident that our digitally-led model, ongoing product innovation, and global reach and scale position us well to drive profitable growth in the coming years. However, as we look at the balance of 2022, We are managing to a more conservative outlook to reflect the external factors affecting our international business and keeping a disciplined focus on executing the fundamentals. More on that from Sunil in a minute. We are grateful to our teams and associates worldwide for their hard work and dedication to Fossil. We're committed to growing the top line, improving profitability, and building shareholder value over the long term. Now I'll turn the call over to Sunil to review the financials and discuss our 2022 outlook.