Fossil 4Q14 Earnings Call Notes

posted in: Notes | 0

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Fossil’s 8 8 8 plan

“2014 included an 8% top line increase to $3.5 billion, an 8% reduction in our share base as a result of continued execution of our share repurchase program and we delivered $7.10 in earnings per share, an 8% increase over last year. ‘

Not happy with North American business

“we are not entirely satisfied with our fourth quarter performance, particularly as it relates to our North America business.”

Re-signed contracts with Kors and Armani, signed new one with Kate Spade

“We also successfully executed 10-year renewals for our two of our long-standing licenses Emporio Armani and Michael Kors, solidifying our position as the natural partner for the best global fashion brands. And today we announced another exciting development with the addition of Kate Spade. This brand is clearly resonating with consumers globally and is positioned for long-term growth. We are excited to leverage our expertise in design, production and global distribution to grow their watch business and expand their brand around the world.”

50% share of watch market sub $1k

“United States where we already have nearly 50% of the share of the watch market in the under $1,000 price point. ”

Shifting towards investment in growth

“015 is clearly a pivot year for us with investments shifting from infrastructure to driving growth. We expect roughly 75% of our new OpEx investments will be focused on building brand awareness, engaging more with our customers, enhancing our digital presence and developing and launching products in the wearable space. We believe those investments position us well for growth both in the near and long-term. We operate in a growing industry and we believe our design, production and distribution capabilities make us the best partner for global lifestyle brands.”

Currency will impact earnings by 1.20 per share

“Based on prevailing exchange rates, we estimate that the net impact on our 2015 results inclusive of hedging program offset will be roughly $1.20 per share. We will continue to look at pricing as a potential offset though any pricing opportunities we may pursue would have a delayed impact and will primarily be dependent on the market competitive environment.’

Restructuring explanation

“These investments will include the remainder of the store closures that we announced in 2014 that were not completed by last year end. We believe these investments all have compelling near-term paybacks, including some benefits later this year and just as importantly we will support our efforts to create a best-in-class operating platform capable of responding quickly to our many growth opportunities.”

GAAP EPS 5.45-6.05, down 19% at mid point

“We expect full year GAAP EPS in the range between $5.45 and $6.05 per share, which includes the negative impact of the $1.20 currently headwind, the $0.35 negative impact from the restructuring charge and the $0.50 impact from our strategic investment.”

Less promotional activity

“We actually think in the fourth quarter last year there was actually less promotional activity than it was in the prior year. So we are pleased with that trend.”

Inventory in good shape

“On the inventory side when we look at both the inventory in our wholesale partners’ stores and also our own inventory, we think we are in good shape. ”

We can help expand kate spade

“Kate Spade is – it is an existing business. They have been doing watches themselves. They have done a great job. They have got a good business with a strong point of view and we are very excited to work closely with them. Since it’s an existing business, it already has space etcetera, so we will be able to add on that and add additional doors globally and really expand it. ‘

The economics will get better for wearables over time

“One comment, I will add about the economics of wearable technology, one of the exciting things about wearable technology is that over the next couple of years as technology gets better, battery life is going to be better. The size of the objects in regard to functionality is going to be better and the economics will be better because as the quantities grow then the costs, etcetera will come down pretty quickly. So that’s probably why we think it’s very compelling long-term opportunity.’