Fossil 1Q15 Earnings Call Notes

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Fossil digital products in stores for holiday 2015

“When it comes to connected accessories, we feel very strongly about both our progress and our prospects to be a strong catalyst for growth in the category. There’s a lot of consumer interest in the space and a wide diversity of perspectives on the role that smart watches and other connected accessories will play in the market. With our partnerships with Google and Intel, coupled with our ability to create fashion at scale, we believe we have a significant opportunity as the convergence of fashion and technology enables us to bring compelling tech-enhanced accessories to the consumer. We continue to make progress, and we look forward to launching later this year with FOSSIL products in stores for holiday 2015.”

Wholesale trends were mixed in the US

“Our retail business continues to improve with positive comps across the fleet. While wholesale sell-in increase U.S. department store sell-out trends were mixed, with some brands accelerating, while others have not been as strong. There’s a lot of this disruption in this market right now with new entrants and existing brands that are maturing.”

Newcomers (i.e. Apple) are entering our market

“As we said before, nearer-term challenges remain. Newcomers are entering our market, and managing the natural ebbs and flows of brands in the life cycle is an imperfect science. Consumer shopping behaviors are changing at an unprecedented rate, and we continue to be cautious in the United States. This is our most developed market, and we are actively engaged in protecting our position, seeking new opportunities for growth and working to replicate our great success here in international markets.”

Foreign currency volatility means that guidance range needs to be expanded

“The only significant change to our outlook for this year relates to foreign currencies. While the U.S. dollar strengthened further in the quarter, it has weakened significantly in the last couple of weeks. And we are updating our outlook to reflect that volatility using a range that roughly aligns with our initial 2015 guidance rate on the high side and more current prevailing rates on the low side.”

We’re seeing a very disruptive phase. Obviously, there’s a new competitor in the market, so we’re not sure what that means

“the market’s in a very disruptive phase. We’re seeing — in our wholesale partners in the United States, we actually are seeing, as mentioned, their declining business there. Keep in mind also that first quarter is a relatively small part of the year. We still expect, and always have, is that 40% of the retail sales in watches happen in the fourth quarter. So — but having said that, we’re seeing declines in there and also there’s a lot of disruption. Obviously, there’s a new entrant in the market. We’re not sure if there’s some impact on the consumers’ side to see what that new entrant’s products look like, et cetera, but they have yet to be seen.”

Consumers very very interested in convergence of fashion and technology

“We think we’re in a situation where consumers are very, very interested in this convergence of fashion and technology. So our objective is to put some of this technology, which could be notifications, sensors, other types of activity, in our watches that could add value. And when you leverage across the large scale, large numbers of units that we have, we could be in a situation where we could add a lot of value to the products, with not a lot of expense and have another series of disruptive growth in our business and really change the market in the U.S.”

Department stores are very interested in smart watches because the opportunity to grow the category is huge

“One of the things to keep in mind is the department stores are very interested in this because they perceive there to be consumer demand. But there’s another issue here also, which is, if you look at the — the watch business is about $65 billion globally, relatively a small industry, whereas, the tech industry, which includes smartphones, cell service, iPads, all the activity has gone to the technology world. The spending in there is huge. So just a small percentage of that spending and interest, when it comes in the watch business, it could have a huge impact on the watch business and make it much, much larger. A lot of that spending or most of it is not happening in the department store where our customers are. So our mission is really, in a disruptive way, to bring some of these technologies and ideas to the brands and enable us to add additional functionality at not a lot of cost could make the watch category more relevant and could bring a significant amount of sales into the channels that we sell to. And that’s what we’re working on, and we think it’s a pretty big opportunity.”