Fossil Group, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Fossil Group First Quarter 2025 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 Kristen Greeney of the Blue Shirt Group to begin.

Hello, everyone, and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer, and Randy Grevin, Chief Financial Officer. Before we begin, 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-K, 10-Q, and 10-K 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, as well as certain non-GAAP financial measures. 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 on FossilGroup.com. With that, I'll now turn the call over to Franco.

Thank you, Christine. Good afternoon, everyone, and thank you for joining us today. I would like to start by welcoming Rennie, who joined us in March and has been a tremendous asset in his first two months with Fossil Group. As we have heard me say on recent earning calls, We're moving fast and furious over here. Randy has jumped right in. He has ramped quickly, developing sharp proficiency across the operating and financial models in just a matter of weeks. And his high energy and strong desire to win are an ideal fit with our culture. After my remarks, I will turn the call to Randy to provide a detailed review of the financial results and discuss our outlook. We recognize the global trade environment is top of mind for everyone. Our world-class teams have been doing excellent work on scenario planning, balancing near-term cost management with long-term supply chain optimization. Both Randy and I will address this during our remarks today. First, I will discuss our Q1 performance and provide an update on our turnaround initiatives. which are generating strong business momentum. We're pleased to report another quarter of exceptional progress under our turnaround plan. Our teams delivered results ahead of our expectations, both operationally and financially. We recorded a significant improvement in sales performance on a sequential basis, drove another quarter of meaningful gross margin expansion, and generated a second consecutive quarter of profitability. Specifically, we narrowed our core sales decline to just 8%. That represents a sequential improvement of 400 basis points compared to the fourth quarter. Gross margin exceeded 61%, up nearly 9 points from the prior year, and we delivered positive adjusted operating margins of 4.3%. Despite the dynamic macro backdrop, we're not currently seeing any softening in our demand trend and continue to have confidence in our ability to drive growth through our turnaround plan. Our confidence is underpinned by several factors. First and foremost is the immediate attraction and positive result we're seeing from our turnaround effort over the past two quarters. Additionally, we have a number of tailwinds to propel the business forward. A leading market position, favorable industry dynamics, and a core underlying strength including iconic brands, innovative design, talented teams, and a broad global reach. We're incredibly proud of our teams for delivering strong execution under our turn-around plan. As a reminder, the plan is centered on three primary pillars. Refocusing on our core, right-sizing our cost structure, and strengthening our balance sheet. I'll take you through a progress update for each of these areas. Starting with our first pillar, refocusing on our core, our teams are fully aligned on our new brand-led and consumer-focused operating model, which is translating to positive results across the business. Our primary focus under this pillar is twofold, traditional watches on our major brand platforms and go-to-market execution. We're advancing quickly on several fronts. First, we are delivering a robust pipeline of product innovation with core fossil icons, such as our award-winning Wackel line for women and our classic machine series for men. Raquel continues to be among our top sellers, capturing attention from influencer talent and style editors globally. On the men's side, our machine chronograph has been a standout among celebrity stylists, generating social media buzz and press coverage worldwide. In 2025, we're elevating storytelling around major products and brand moments, to strengthen engagement and prioritize winnings with men, while continuing the maximized momentum we're seeing in our women's business. Collaboration remains core to the Fossil brand as we continue to build a foundation of storytelling that connects our rich heritage with today's culture. Among our most highly profiled collaborations this year is the Fossil for Minecraft collection. Just two weeks ago after launch, the watches were sold out on Fossil.com. Organic social performance was also exceptional, with a total reach of 5.5 million. More recently, we held a preview event for our upcoming Fossil for Shoddy collection. This is our most elevated performance-driven chronograph today, which was built to capture the thrilling legacy of Shoddy American racing. Additionally, this week, we introduced a limited edition Superman collection featuring a full range of products from watches and wallet to bracelet and cat links, time to coincide with a father's name. We're supporting our robust pipeline of innovation and brand revitalization efforts with full-funnel marketing initiatives. In 2025, we will be investing more strategically, deploying our spend towards a higher mix of brand marketing versus performance tactics, beginning in Coupes Q2, we will be doubling down on media, influencer and PR to drive brand heat, build awareness and fuel demand. This includes the upcoming introduction of our global fossil brand campaign, featuring Nick Jonas. As our global brand ambassador, Nick has been a fantastic partner to us as we collaborate in preparation for the launch. In March, Fossil was a lead sponsor of JonasCon, a Jonas Brothers fund convention created in celebration of the group's 20th anniversary. Nick wore our machine chronograph throughout the event, providing Fossil with exposure to his most engaged audience while also generating significant press coverage and social engagement. He has a tremendous reach as a musician, actor, and philanthropist who is known worldwide And we believe Nick will help us build increased awareness of the fossil brand and drive resonance among both new and existing customers. At the same time, we will be investing in point-of-sales marketing, rolling out a new fixture and improve the storytelling collateral that beacons to the fossil brand at wholesale. Turning now to our core licensed brands, Armani, Coors, and Diesel. We're investing in point-of-sale and in-store presentation in the wholesale channel to reinvigorate our positioning among this brand. These initiatives are already generating improved performance. The core's brand returned to growth, posting double-digit gains in the first quarter. Our money exchange was also up in the double digits, while the Armani brand remains pressured by the difficult market environment in China. We are particularly pleased with our ability to achieve minimum royalty reduction with our key partners, which speaks to the strength of our long-term relationship and demonstrate their confidence in our turnaround plan and current trajectory. Importantly, these agreements position us to drive profitable growth among our portfolio of licensed brands going forward. Another key initiative is the work we are doing to optimize our global wholesale footprint by prioritizing key geography. Most notably, in the US, our Q1 wholesale business for our core brand grew in the double digit on a year-over-year basis. We also saw continued momentum in other highly scalable markets, such as India, where traditional watch performance across brands remains strong. After transitioning five of our smaller international markets to a distributor model earlier this year, We're continuing to evaluate additional opportunities where we can drive efficient growth and scale through the distributor model. This go-to-market strategy can be very powerful in smaller markets. It simplifies our operating model, allows us to leverage the regional expertise of local partners to a full top-line growth, and lowers our in-region cost to drive increased profitability. Moving to our initiatives around channel profitability, Our actions are generating meaningful results across both WOTCEL and DTC. This is clearly reflected in the strength of our gross margin and improved bottom line results. The WOTCEL channel continues to perform ahead of our expectations, led by fewer promotions as well as fostered brand innovation. In the e-commerce channel, operating results continue to strengthen. After delivering better than expected results in Q4, we saw ongoing momentum in Q1, which has not slowed down thus far in Q2. The strategic decision to reduce our promotional activity is paying clear dividends, higher gross margin, higher quality traffic to our website, and increased average unit at retail. In our retail stores, we're seeing a strengthening trend in our full price location, led by improved performance in our traditional watches. During the quarter, we continue to optimize the store portfolio throughout the closure of 28 additional stores. As we continue to make great progress across the strategic areas of the business, we're also taking action to transform our operating model by right-sizing Fossil Group's cost structure. In fact, we have already taken the steps necessary to align our cost structure to our newly defined strategy scope and scale. This includes a reduction in force in February, moving some of our international markets to a more profitable distributed model, and closing unproductive retail stores. These actions are expected to drive 100 million of SG&E's savings in 2025 versus 2024. We're also continuing to evaluate other opportunities, including the potential sale of non-core assets. Looking at the third key pillar under our turnaround plan, strengthening the balance sheet, we ended the quarter with $100 million of liquidity, and we are actively pursuing initiatives to improve working capital and manage liquidity. Just a few days ago, we signed an agreement for the sole leaseback of our European Distribution Center in a transaction that's expected to close later in Q2. At the same time, we're working with our advisors to address our upcoming debt maturities. Importantly, our better-than-expected financial performance in Q1 provides us with an added flexibility to execute our plans and navigate the dynamic macro environment. I'm tremendously grateful to our teams across the organization for their dedication to Fossil Group. They're putting in their work, and we're seeing the result in the early stage of our tournament. This is inspiring and highly motivating. Including Randy, we have three new executives who joined the company during the first quarter. All of them have hit the ground running. Joe Martin, our chief commercial officer, has overseen all of our global revenue-generating activities. Joe is already implementing a robust commercial strategy designed to drive growth within our global wholesale business. During Q1, Joe and I spent time meeting with our partners around the globe. and we're working in close collaboration on future planning, reinforcing the opportunity in front of us. Another key leader new to the team is Antonio Carriero, our Chief Digital Information Officer and General Manager of EMEA. Antonio is leading our global technology strategy and driving our commercial business in the EMEA region. He is focused on optimizing our existing tech stack while accelerating our use of AI across the organization to drive efficiency and unlock potential growth drives. And while I've already talked about the value Randy has brought to the table, I will add that he has been instrumental in our tariff war room as we assess, plan, and model the business amidst this fluid situation. As we announced today, we also added two new board members to the complement of the strength of our executive team and bring additional thought leadership to Fossil Group. While the year has started differently than we expected, we are seeing continued business momentum, and we are addressing the global tariff environment from a position of strength. First and foremost, we're fortunate to have a team with extensive experience navigating complexity across global markets. Equally important, our diverse global footprint limits our tariff exposure, and we have multiple levers we can pull to protect our strong gross margin profile. We have long-term relationship with our vendor partners. We have the ability to lean into highly scalable market outside the U.S., where our brand already has a strong presence and we have pricing power. While the voting policy changes and market moves make it challenging to predict consumer sentiment for the remainder of the year, we have not seen any slowdown in our business strength year to date. We are reiterating our full year guidance, which contemplates a range of outcomes for China . We also remain confident in the three-year financial framework we have outlined during our March earning call. Our outlook assume there is no material change in macroeconomic condition and broader consumer demand trends. After we have been operating in a tumultuous environment, our turnaround plan is working, and our results are moving in the right direction. We look forward to continuing on our path to restoring growth, delivering long-term profitability, and creating durable shareholder value. Now, I will turn the call over to Randy to review the first quarter financial and discuss our outlook.