Fossil Group, Inc.

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 Jeff Boyer, Interim CEO, and Sunil Doshi, Chief Financial 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 8 10Q, and 10K reports filed with the SEC. In addition, FOSA listens 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 FASO's earnings release, which was filed today on Form 8K and is available in the Investors section of FASOgroup.com. With that, I will now turn the call over to Jeff Boyer to begin.

Thanks, Christine. I'm pleased to be taking on the role of interim CEO. Having spent nearly 17 years with Fossil on both the board of directors and the executive leadership team, I have a deep working knowledge of the operating model, the organization, and our underlying profitability potential. As chief operating officer, I was one of the key architects of our Transform and Grow plan and have played a critical role in driving execution of those initiatives, which remain on track. Importantly, I've worked side by side with Costa for nearly two decades, which will make for a seamless transition in the coming months. Together with our experienced leadership team, we're going to ensure continuity as we continue to advance our tag plan in order to lay the foundation for a profitable business model. In connection with the earnings released today, we also announced that the company is conducting a strategic review of its business model, considering additional debt and equity financing options and pursuing actions to strengthen the balance sheet. What we want to make clear today is that we are taking steps to maximize shareholder value, and we have sufficient liquidity to operate the business for the foreseeable future. This past year has been more challenging than we anticipated, reflecting three key factors. One, macro-driven economic conditions globally. Two, wholesale channel dynamics. And three, persistent pressure on consumer spending in China one of our most important markets. Against this difficult backdrop, we took aggressive actions to rationalize unprofitable segments of our business. This included exiting our smartwatch business and closing underperforming stores. Excluding these actions, we ended 2023 with core top-line trends contracting approximately 10%. The most important thing we want you to hear from us today is that we're committed to improving performance and we're all hands on deck to further advance our TAG plan and strengthen liquidity. As interim CEO, I'm prioritizing the following. Stabilizing the business, advancing our TAG plan, strengthening our balance sheet, and conducting a broader strategic review of our operating model. I'll discuss each of these in greater detail. First and foremost, we're taking steps to stabilize the business and improve our financial position. In 2023, we closed 45 underperforming stores, and in Q4, we made the strategic decision to exit the smartwatch category. While these actions contributed to our top-line headwinds, they did not materially contribute to operating margins. More importantly, these actions helped us refocus the company on our most profitable and productive core categories, enable us to further streamline our operations. In 2024, we expect to close approximately 50 retail doors as we exit underperforming locations through natural lease expirations. And we expect to fully exit our smartwatch inventory in the first half of 2024. These actions will also enable us to refocus our inventory investments into higher margin, faster turning categories like traditional watches and jewelry. Regarding this reinvestment in core categories, note that the fourth quarter execution of our revitalization strategy for Fossil Brand drove some of the best results within our portfolio. Global traditional watch sales for the Fossil Brand grew in Q4 of last year, and our direct-to-consumer channels' comp sales in traditional watch and jewelry grew mid-single digits. Additionally, we're seeing gross margin growth in the fossil brand continue thus far in 2024 in our core watch and jewelry categories. A second priority is our tag plan, which remains on track to capture $300 million of annualized benefits by 2025. As a reminder, our plan to achieve these benefits is anchored by three core objectives, driving sales productivity, re-engineering end-to-end operations, and streamlining overhead costs and improving capital efficiency. Our team delivered solid execution in 2023, and we captured approximately $125 million in annualized benefits. This was driven primarily by company-wide headcount reductions, where we streamlined our regional and corporate functions to be more centrally led and dramatically reduced our smartwatch cost structure. Additionally, our initiatives on SKU management, inventory management, and price management drove improvements in inventory productivity and traditional watch product margins. We ended 2023 with inventory down 33%, better overall inventory composition, and improved product margin architecture heading into 2024. In 2024, we expect to capture another 100 million, potentially more, in annualized benefits from our tag plan. The largest area of savings is expected to come from our supply chain activities, where we have successfully renegotiated a number of significant sourcing contracts. Cash benefits begin in the first quarter this year, with P&L benefits materializing in the second half. These actions are expected to drive gross margin expansion this year and help us return to historical gross margin levels, which were in the mid-50s, over the next two years. A third priority we are focused on is strengthening our balance sheet. we are pursuing opportunities to better leverage and monetize the company's assets through additional financing and the sale of our European facilities. In addition, we're expecting to receive a US tax refund of approximately $56 million associated with NOL carryback provisions from the CARES Act. More on these efforts from Sunil shortly. Lastly, as we outlined in our earnings press release today, we announced a strategic review of our current business model and capital structure. This review will include efforts to further optimize our business model with appropriate changes to our overall operations, as well as additional structural cost reductions. We expect this effort will further expand on our current CAG plan and could include additional debt and equity financing options, including monetization of various assets. Our action plan for 2024 is focused, with a high sense of urgency, on top-line stabilization and improved profitability. The guidance we're providing for 2024 is based on the underlying trends we saw exiting 2023, as well as the strategic actions we're taking to stabilize the business. Our outlook calls for worldwide net sales of approximately 1.2 billion, which includes about 100 million in year-over-year negative sales impact resulting from store closures and our exit from the smartwatch category. We expect that underlying business trends will continue to be challenged by macro-driven pressures affecting consumer spending, category and channel softness, and brand dynamics among some of our key licensing partners. We're acting quickly to leverage our core strengths and people, implement our tag plan, and improve our financial condition to make Fossil a leaner, stronger, and more durable business. We are fortunate to have incredible teams across the organization who are passionate about the company, committed to our purpose, and dedicated to winning as we continue to execute our tag plan. We appreciate the support of our shareholders and look forward to updating you on our progress throughout the year. Now I'll turn the call over to Sunil to discuss Q4 results and provide more granularity around our financial objectives and outlook.