Fossil Group, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group third quarter 2022 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 to begin.

Hello, everyone, and thank you for joining us today. With us on the call are Kosta 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 consists of 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.

Thanks, Christine. Good afternoon, everyone, and thank you for joining us today. We delivered third quarter results in line with expectations in what continues to be a volatile and dynamic global operating environment. Net sales of $436 million decreased 5% on a constant currency basis, while adjusted operating margin came in at just over 5%. Our results largely reflect a continuation of the high-level trends we saw in the second quarter. Specifically, ongoing COVID policies in mainland China continue to pressure sales in the quarter, and wholesale inventories remain elevated. although lower than Q2's peak level. The record strength of the US dollar impacted our top line by over 600 basis points and affected adjusted operating margins by 190 basis points. Remember that 65% of our sales are outside the United States. And finally, record global inflation continues to weigh on the confidence levels of our consumers and wholesale partners. While the level of macro-driven factors significantly impacted our overall financial performance, During Q3, we saw encouraging results from our strategic initiatives. Our digital initiatives are having a positive impact across our direct-to-consumer channels. Improved operational, marketing, and analytical capabilities are driving broad-based improvement in traffic and engagement. In Q3, website traffic was up across our global websites and revenue was up versus Q3 of last year. Our digital marketing efforts are also driving improvements in engagement metrics. leading to better customer lifetime value. We have also leaned further into social commerce capabilities, particularly in China, which has partially offset the significant declines we've experienced in that market since the onset of COVID. Building out our social commerce capabilities is important as we see the potential for significant global growth in this channel for years to come. Progress in our fossil brand strategies is also encouraging. Globally, in Q3, we grew fossil brand sales in traditional watches, jewelry, and leathers, and comp retail sales increased double digits. Our fossil heritage launch has generated strong consumer engagement across our core categories with higher AURs. More importantly, it's an early preview of where elevation in our brand positioning through design aesthetic and marketing capabilities will allow us to reach our desired consumer segments better. In 2022, our brand collaborations have created energy for the brand, bringing traffic to our websites and stores and new customers into our customer file. Our most significant and most recent collaboration with Harry Potter is off to a great start as we approach the holiday season. As we enter Q4, we expect global operating conditions to remain challenging, and we continue to manage the business conservatively in this environment. These are a few of the things affecting us. The watch category is expected to see stronger growth in luxury segments, while the under $500 price segments will remain more challenged. And we know the promotional environment is top of mind for everyone, especially as consumers look for value in today's inflationary environment. The wholesale channel continues to be cautious with open-to-buys and will likely sell down existing inventory before replenishing at historical rates. And globally, we expect some deterioration in consumer confidence in Europe, and ongoing COVID restrictions in China will continue to hinder demand. Although the macro factors are challenging, we are continuing to execute our brand and digital strategies. Notably, in Q4, we will begin leveraging our new consumer data platform. With this initiative, we recently completed a significant re-architecture of our first-party data and implemented best-in-class technology. This marks a major milestone in our 2022 digital roadmap. With this new capability, we are better positioned to capture new consumers, to service our existing consumers, and deepen personalization capabilities. We've also recently completed essential steps and other initiatives from our digital strategy that provide opportunities to drive sales in Q4. These include our revamped outlet.com strategy for the fossil brand and introducing new global payment options. During the past few years, our teams have navigated a challenging external environment and we have become a more focused and nimble organization overall. Looking through Q4 and into 2023, we expect that the global operating environment will remain challenging and take time to improve. We will be taking a hard look at all aspects of our worldwide distribution and have already taken significant steps to reduce our SKU count by over 30% in 2023. These types of actions will drive efficiencies in our product distribution and overhead costs. Further simplification in our business model will allow for sharpened focus and allocation of resources on our core growth strategies. Our 2023 digital roadmap is clear and furthers our objectives to transform into a digital first company that creates category heat and meets our consumers' needs wherever they are. Having conducted a full review of our fossil brand in 2022, Our brand plans are now anchored in an updated strategy, encompassing refreshed demographics, category, channel, and marketing insights. In fiscal 2023, we plan to begin implementing initiatives around this updated strategy to drive top-line growth and brand heat. More to come on that in the next quarter. We have built tremendous brand equity over our nearly 40-year history, and it is clear we have an opportunity to leverage and build upon the hallmarks of our great brand. As we head into our seasonal peak period, we are grateful to our teams and associates around the world for their creativity and dedication to building upon Fossil's legacy of designing and creating products that bring joy to consumers. And now I'll turn the call to Sunil to review the financials and to share our outlook for Q4.