Fossil 4Q15 Earnings Call Notes

posted in: Notes | 0

Kosta N. Kartsotis – Chairman & Chief Executive Officer

At the epicenter of fashion/tech convergence

“We find ourselves at the epicenter of the convergence of fashion and technology and are focused on continued innovation in the space. Our branding and design capabilities combined with our production and global distribution network have enabled us to become a category leader in traditional watches. Now, combined with our efforts this past year in launching Fossil Q and acquiring Misfit, we have differentiated ourselves from the competition and further enhanced our competitive advantages. ”

Last year felt like a perfect storm for us

“In some ways, this past year felt like the year of a perfect storm given the headwinds and challenges we faced. Unfortunately, those headwinds don’t simply disappear with the start of a new year. In fact, some of those macro challenges appear to have increased with the onset of the new year. However, we operate with a little more visibility into these challenges and a better tool set with which to respond.”

Must have fashion trend of the year is technology

“We face new entrants coming into the watch space with the must-have fashion trend of the year, proving to be technology. This is proving to be a good thing, drawing more and more attention to the accessories category and consumers are now having more options to choose from than ever before, but it was clearly a headwind for us prior to the launch of our connected accessories.”

Wearables are now a 10-15b market

“recent research we’ve seen shows that the watch business actually declined last year by probably about 3%. But in addition to that, we saw the explosion of wearable technology last year and it’s probably anywhere from $10 billion to $15 billion on top of the regular $65 billion that’s in watches. So clearly, there’s a huge amount of consumer interest to this, all the things we’ve been talking about. ”

Lack of technology has been a fashion miss

“Well, the way we look at the watch business in the channel globally is that watch business is relatively soft; and from our perspective, because we have a fashion miss, we don’t have enough technology.”

China obviously very difficult

“Obviously, the China market is very difficult. We not only have stores there and operations in China, but also it’s affecting Macau and Hong Kong as well. So, having said that, we still are operating over there. We have a great team, they’re on a great strategy, we’re continuing to be active in the market in setting up distribution, et cetera. The fact remains that still there’s going to be hundreds of millions of people that join the middle-class at some point. So, we’re continuing to move forward and do the best we can.”

Dennis R. Secor – Executive Vice President, Chief Financial Officer and Treasurer

Hedging gains or losses are recorded below operating income

“hedging gains or losses. These are recorded below operating income and generally move opposite to the translation and margin effects, but do not completely offset them because we do not hedge 100% of our transactions.”

Hedging only delays effects of currency moves

“While we have mitigated some of that decline through hedging, hedging only delays the EPS impact, but does nothing to mitigate margin. And even if and when currencies stabilize completely, there will always be the following year EPS challenge of anniversarying non-operating hedge gain. ”

The Euro has been stable but other currencies have not

“So, the euro actually has been fairly stable, but what we saw at the end of the fourth quarter is the U.S. dollar strengthening against a number of other currencies, a lot of Asian currencies, Canadian dollar, Mexican peso, South African rand. So while you’re right, if we were only impacted by the euro, you’re assumptions would likely be correct, but it’s the larger portfolio of currencies that we operate with.”