Fossil Group, Inc.

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

Hello, everyone, and thank you for joining us. With us today on the call are Kosta Kartsotis, Chairman and CEO, Jeff Boyer, Chief Operating Officer, Danielle 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 groups 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, 10Q, and 10K 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 online. 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 over to Costa to begin.

Thanks, Christine. Good afternoon and thank you for joining us today. Our net sales for the full year of 2022 were $1.7 billion, down 5% on a constant currency basis. We continue to operate in a difficult environment with significant headwinds, including inflation, the COVID effects in China, and the Ukraine crisis. The sharp rise of the US dollar was also a major headwind, impacting our top line by almost 500 basis points and our operating margin by 160 basis points. While the external environment had an impact on our overall results, we did make solid progress on our key strategies to advance our digital roadmap to significantly grow our addressable customer file size, and to grow and strengthen the Fossil brand, all of which are critical pieces to our long-term business model. In 2022, we grew Fossil brand sales in our core categories by 9% in constant currency. With increased investment in talent, technology, and marketing, we generated some big brand moments driving increased awareness and heat through strategic collaborations and limited editions. Our footprint remains strong globally, and we are accelerating our profits to grow the brand. We concluded the year with mixed fourth-quarter results. Our wholesale business was challenging, especially in the U.S. and Europe, as retailers saw weaker-than-normal sales levels and operated conservatively. At the same time, results in Greater China continued to be impacted by COVID issues that weighed on consumer spending. The impact of these was that our wholesale business was down 24% in the fourth quarter. While shipments into our wholesale channel were challenged, we continued our momentum in our DTC business, which was largely driven by our ongoing digital transformation and by much improved product assortments. We are capitalizing on strong traffic and our digital and marketing initiatives to drive top-line growth. Globally, DTC sales, about 45% of our sales mix in the quarter, were up 8%, and our own stores' comps were up 17%, with double-digit increases in both stores and e-commerce and growth across all regions. While it is gratifying to see our DTC channels grow and our initiatives bear fruit, we continue to have difficult businesses, particularly in smartwatches, which declined 28% in 2022. In response to this, we are continuing to plan the category conservatively and redirecting resources towards wellness features and moderate price points, two areas where the consumer has responded positively in our assortment. As to 2023, we recognize that many of the same challenging factors we saw in 2022 will continue into this year. We believe many wholesalers will be cautious in their plans, especially in the Americas and Europe. Stickier inflation, recessionary signals, and geopolitical risks all contribute to the outlook in these regions. In China, however, we are encouraged by early signs of the consumer coming back, as COVID policy measures have eased. We are seeing signs of improvement in our DTC channels and stronger future order expectations from our wholesale accounts and our travel retail customers. In India, the consumer backdrop remains vibrant, and we are planning growth on top of a record full year 2022. With that in mind, we have taken action to accelerate the transformation of the company. Last month, we announced our updated strategy to transform and grow our business. At a high level, the goals of our strategy are straightforward, to simplify our business, lean into our core capabilities, and distort our most significant growth opportunities, all of which are aimed at creating a more profitable company and maximizing shareholder value over time. Within the transform aspect of our strategy, we have already taken several actions to focus on our core capabilities and simplify our operations across brands and key markets. and outlined a plan to generate at least $100 million in annualized benefits over the next two years. Last month, we began implementing important steps towards this objective, which involves some tough but necessary decisions, including headcount reductions and the acceleration of our store optimization plans. And as we progress through 2023, we are also putting programs in place to reduce focus on non-core activities and to operate the business on lower working capital. We expect to bring our inventory balances well below last year's levels through skew reductions, improved speed in our supply chain, and lower overall inventory purchases. Within the grow aspect of our strategy, we intend to invest in what we view as our most significant opportunities to drive profitable sales growth. This encompasses three key pillars. Revitalizing the fossil brand, growing our core licensed brands in both watches and jewelry, and growing our premium brands. First is revitalizing the Fossil brand, which is our largest revenue brand and enjoys global consumer awareness. In 2022, we made significant progress in updating our brand vision and the brand's positioning. The updated framework holistically pulls together the best of what we've created over decades with a clear vision of where we want to go, laying the foundation to galvanize Fossil's place as a global lifestyle accessories brand. The framework for this revitalization is comprehensive, anchored more deeply in consumer insights and brand positioning. The revitalization strategy has already driven benefits by pivoting more resources to the brand's jewelry and leather assortments to better complement our sizable traditional watch business. And both of those categories achieved double-digit revenue growth in 2022. Our upcoming plans for 2023 will pull together more aspects of the overall brand strategy to accelerate growth in these categories. More specifically, we will continue elevating our designs and product assortments and further refine our mainline and outlet segmentation. Notably, a more robust and comprehensive marketing strategy will create both in-year and longer-term brand heat as we develop plans to reach consumers with more engaging communication leveraged by our digital capabilities. Turning now to our second growth strategy, to grow watches and jewelry in our core licensed brands. Our top three licenses, Coors, Armani, and Diesel, represent another sizable mix of our global revenue, with roughly 70% of these brands' sales taking place through regions outside the Americas. These brands all showed growth outside the Americas region, with the exception of Armani, where we discussed the impact that China had on the brand's top line in full year 2022. Our strategy will distort the marketing and distribution of these brands with particular growth potential in emerging markets. In addition, we will also allocate an increasing level of resources toward jewelry, an attractive category with strong organic growth, more frequent purchase cycles, and attractive product margins. Our third strategy is to expand in premium watches. It is clear to us that higher-priced watches and the Swiss watch market have been driving category heat. We plan to leverage our expertise across design, manufacturing, marketing, and distribution to take advantage of opportunities in both men's and women's in select brands owned and licensed to capture higher average selling prices. This strategy will take some time to develop, but with brands like Michelle, we have a strong and profitable business to grow in 2023. We believe these growth pillars provide a runway for sustainable growth. Our ability to advance these brand and product strategies is underpinned by three core capabilities. Our digital roadmap, modernized marketing, and foundational technology capabilities. We started building our digital infrastructure several years ago, and over the past 18 months, we have significantly advanced our capabilities in talent and technology. We've made structural improvements in our e-commerce and social commerce capabilities, and substantially improved our customer data platforms. All are foundational to an increasing digitally-enabled commerce world, and our efforts have positive impacts on our overall 2022 results. Looking at 2023, our roadmap is clear. We intend to create new pathways for digital commerce and leverage our growing consumer file to build closer connections within consumers. Earlier this year, we recently backed the launch of Catchen, our global marketplace created specifically for jewelry and watches, which has partnered with over 70 brands to date. Catching comes to life first in the UK with expansion and other European markets planned. Our advances in digital are enabling us to modernize our marketing, which means getting closer to the consumers and analytically measuring our investments. With better analytical tools and integrations to third-party channels, and with our recent talent hires, and a better defined core set of brand strategies, We plan to increase our marketing investment to drive more sustainable revenue growth. In 2023, our targeted marketing increases will come to life through more impactful collaborations through social media and PR. This will complement our performance marketing capability, which are increasingly more productive. Lastly, our foundational technology stack remains a core enabler of the business. Over the next several years, investments in this stack will further drive efficiency in our global sales, operations, and in our back office functions. We are in the initial innings of our Transform and Grow plan, and there is excellent work going on all across the organization. Our people, our culture, and our strong sense of purpose are critical assets and reinforce our confidence as we embark on a new chapter. We are confident that our TAG strategy focuses on our best growth opportunities while also providing the framework to optimize our costs and reduced reliance on non-core parts of the business. Getting an earlier start on reducing costs was important as the environment in many parts of our operations remains choppy. We will keep a cautious outlook and chase our best growth opportunities in the near term as we aim to return to healthier levels of DAELS growth and profitability over time. We appreciate the support of our shareholders and look forward to creating meaningful value for all of our stakeholders in the years ahead. With that, I'd like to turn over the call to Sunil to walk you through our results and our outlook for 2023.