Fossil 2Q15 Earnings Call Notes

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Changing consumer patterns

“we are adjusting to changing consumer shopping patterns and preferences as well as the natural progression of brands in their lifecycles. We also see technology emerging as the latest trend in fashion, with the growing interest in wearable technology inspiring new entrants into the watch space.”

growth in Americas offset by slight declines in Europe and Asia

“During the second quarter, our multi-brand watch portfolio was flat to last year, a disappointing performance for the quarter as growth in the Americas was offset by slight declines in Europe and Asia compared to last year.”

Germany not as strong, China continues to be tough

“Our business in Germany was not as strong as we expected, while we did see some strong double-digit growth in France. In Asia, our business grew, but did not meet our expectations. The MERS outbreak in South Korea and economic downturns affecting Hong Kong and Macau are putting pressure on our near-term results. China continues to be tough with economic, political and distribution challenges there making it difficult to drive near-term growth. On a positive note, markets like Japan, Australia and India continue to grow, with India posting strong double-digit growth in the quarter.”

Headwinds caused by new entrants and brand lifecycles

“As we entered the year, we identified several disruptive factors that were going to make 2015 challenging. We expected visibility would be difficult with new entrants moving into our market. While we feel this will energize the category in the long-term as we add technology to our products, the near-term implications seem to be playing out. Also, the natural ebbs and flows of brands in their lifecycles can create volatility in sales patterns as consumer preferences evolve around the globe”

We believe that we can be at the intersection of technology and fashion

“We continue to believe that with our great design capabilities, scale and world class portfolio of brands, we can be the point where technology and great fashion come together. We believe that we can win here, where others can’t. ”

Europe’s weakness was the standout for us

“Europe was the standout for us. It was certainly weaker than we expected in the second quarter and that largely drove the second quarter, where our sales missed the top or the bottom of our range. So that’s number one, is that we just missed our sales expectations for the second quarter.”

Kors brand is still extremely productive, but obviously growth has moderated

“we look at Kors globally and the opportunity. If you just look at the pure brand power, the brand is still extremely productive. It’s the most productive brand we have and it’s got the best metrics in terms of sell-through sales per foot. It’s just a huge number. So, obviously, growth has moderated a bit. We did have growth globally in Kors, with jewelry having a big increase and we think that will continue. We do think now that jewelry can be a much larger number than we thought in the past. We also – they are ramping up their activities in men’s and we have got a whole initiative around automatics.”

Handbags are an emotional and aspirational business

“The one thing to keep in mind is the handbags is a very emotional and aspirational business and the category that will benefit the most from the Fossil brand getting stronger is the handbag category.”

Technology and wearables have taken some oxygen out of the swiss business

“I think technology and the whole idea of wearables I think has taken some of the oxygen out of the Swiss business…If you look at the global watch market which we are relatively small share now and want to be a larger share, a very significant portion of the global traditional watch business is Swiss-made. So, long-term, we want to play in that environment. So, it still remains a big white space for us.”

Three categories of wearable technology

“when we talk about wearables it’s not just smart watches. There is actually – it’s kind of crystallized into three different categories. First of all, there is the smart watch, which is the Android digital screen watch, which it looks really good for fall. And we think over the next couple of years, will get better as it gets smaller and more robust, technology gets better. We think that’s got long-term legs as it continues to improve. And we also have non-display items like our bracelets, more like jewelry that are – we think has the capability of creating an entirely new accessories category based around technology.

And then the third, and probably most significant long-term, is what we call smarter watches, which is just adding chips and additional functionality to existing watches. So we are launching that this year, which is to watch it looks just like a regular analog watch but does have a chip in it that gives measures, activity and sleep and also has notifications in it. So to a certain extent, you could say that what we are doing is moving towards we think someday every watch we make will have some type of technology in it.”