Fossil 3Q15 Earnings Call Notes

posted in: Notes | 0

Fossil Group (FOSL) Kosta N. Kartsotis on Q3 2015 Results

Tech enabled watches and lapping of Michael Kors success are driving declines in watch category

“The data we collect suggest that very recently, the watch category has declined with what we believe are two root causes. First, tech-enabled watches are clearly impacting traditional watches. Some of that may be temporary, but the data clearly support that. Second, the huge success that the Michael Kors brand had in driving interest of the category has not yet translated to other brands.””

This time reminds us of the last time we faced stagnant growth but things are different

“It reminds us of the last time we faced stagnant growth, which is in 2008. We regrouped and refocused our efforts on design and innovation and positioned Fossil Group for strong growth. While today’s source of disruption in the market is different than it was at that time, our sense of determination, focus, and drive for innovation hasn’t changed.”

Affected by general economic sluggishness in Asia

“Strong growth in India was offset by declines in most markets in the region, including Korea, Hong Kong, and China, where general economic sluggishness and changing travel patterns continue to impact our business.”

The fourth quarter could not be as strong as we had anticipated

“we’ve lowered our expectations to accommodate the fact that we think that the fourth quarter could not be as strong as we had anticipated going in. I mean we always operate with a relative limited visibility. So a lot remains to be seen, and most of the business is done in the second half of the quarter, and we don’t operate with backlog. But we’ve left a fairly wide range to accommodate lower sell-in and sell-through.”

It’s increasingly clear that wearables will be a large and growing category

“In terms of the confidence in the size of the category, it’s – I think the first is, we’re seeing the market develop, where it’s increasingly clear to us that wearable technology is and will be a large growing category.”

Wrist devices are definitely selling. And we have a fashion miss in that we don’t have technology

“It’s clear to us that the wrist devices are selling. They’re selling in terms of trackers and also in new entrants in smartwatches. You could say for our overall watch business that we have a fashion miss, which is we don’t have technology across our platform. ”

Our wrist devices with technology are selling extremely quickly

“our wrist devices with technology are selling extremely quickly. So, we think that one of the most important fashion trends right now in the industry is this huge interest on the consumer side of the convergence of fashion and technology.”

Millenials clearly overspend on tech. There seems to be a slowdown in consumer activity overall

“Millennials clearly overspend on technology, there is a – seems to be a slowdown in consumer activity overall, but one thing that’s clear is consumers are still spending on technology, we think that continues.”

There’s a new assortment of Kors watches coming next year with a new look

“you’re going to see a whole new assortment of Kors watches next year, even before the wearable technology comes in. We’re going to totally change the look. It’s more modern, simpler, et cetera. There’s a totally new look for it. It gives the consumers, the Kors fans, reason to buy another watch.”

Misfit acquisition is going to allow us to get better in smart watches

“the expertise we’re going to gain from Misfit is everything is going to get better, battery life is going to get better, chips are going to get better and less expensive. The objects are going to get smaller and we’ll be able to put next year or shortly thereafter, women’s smartwatches out there, our Android smartwatches at some point probably next year will be untethered, which means you don’t need your smartphone with you, but all of this is going to get better”

Google and Intel are still good partners, but this is about owning the cloud and app platform

“In terms of our technology partnerships, Intel and Google, who are both of our announced partnerships, they have been fantastic partners and will continue to be partners with us. The Misfit acquisition is really about owning the cloud on the app platform, given how integral it is now to product and brand and customer experience. So, we’ll own that part of the customer experience through the app and cloud, but we will continue to partner with the leading technology companies across the world to continue to build the right ecosystem of partners to compete in this space”

Smartwatches are male dominated. Females are playing in the activity tracker space.

“the smartwatch market in particular today is still male-dominated. Females are playing in the activity tracker space. So, it’s really not replacing for female fashion-conscious customers anyway. Smartwatches are not having a large overlap today”

The trajectory of our performance in Europe changed very quickly

“the biggest change in the way we’re thinking about the fourth quarter comes from Europe, where going into this last quarter, we had seen one quarter of less favorable performance following about seven or eight of very strong double-digit or so growth coming out of Europe, so the trajectory changed there fairly quickly, so we’ve adjusted our expectations.”