Fossil 3Q16 Earnings Call Notes

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Fossil Group (FOSL) Q3 2016 Results
Kostas Kartosis

There’s old world and new world merchandising companies

“So it’s really a process to reinvent the entire company, basically. And if you look at how the consumer market has changed and continues to change, I mean, it’s not going back. We want to make sure we adjust our model to the realities today. And we have a lot of opportunities do that. We have been – if you look at the market today, you could say there’s old world merchandising companies and new world. We are very quickly moving into the new world. We spent a lot of time over the last couple of years talking to our teams about thinking differently, reinventing, being a New World company, especially as it comes to technology both on bringing out technology products and wearables, et cetera, but also getting better at all things digital retailing, social media, omnichannel, e-commerce, et cetera. And as you know, we’ve made a number of investments in both of those.”

Our goal is to gain share in watch and it just happens that you have to do that with tech

“First of all, I’d just say remember that our overall mission is to gain share in the traditional watch business. It just so happens the way to do that is with innovation and differentiation with technology. So in the process of reducing SKU count in all our brands and all our distribution globally, we think we have a lot of opportunity to do that.

Because of complexity of tech have to have fewer SKUs

We actually – if you look at our wearables launches, we’ve launched – we’re going to launch over a 100 units, but our sales per unit are much higher than the rest of our company. So wearables because of the technology involved and the complexity of the apps and the execution is really kind of forcing us to have fewer SKUs that mean more, and that – we’re trying to the rest of the company learn from that.

Pleased to see increases in Asia

” as far as Asia goes, yes, we are very pleased to see us getting increases there. We’ve seen a – over the last couple years, as you know, I think the market has been somewhat dormant, especially in China. We have seen growth in India over the past couple years, and that’s continued, but we are gratified to see that we’re increasing spending and sell-through in the market. We do think that wearables can turbo-charge that to a certain degree, and we’re looking forward to seeing some results of that in the fourth quarter.”

Dennis Secor

Traffic challenging in retail channels

“Traffic continues to be challenging in our retail channels, as double-digit traffic declines continue to pressure performance.”

Margins have been declining, but expect those headwinds to narrow

“Sure. So the overall margins, the margins have been declining over this past year, more severely in the first part of the year, we’re expecting those headwinds to narrow somewhat. Currency should become less of a headwind as in the fourth quarter, certainly compared to where it was at the beginning of the year. We did go deeper on promotions and really turned those on last fourth quarter. So the fourth quarter comparisons should get easier assuming we don’t – aren’t compelled to drive even more.”