Fossil 4Q16 Earnings Call Notes

Kosta N. Kartsotis

We were advantaged now we’re disadvantaged

“To step back for a second, as you know, the global watch market has experienced significant disruption over the last couple of years. Prior to that, we were clearly positioned as the competitively advantaged leader in a growing category. However, with the introduction of technology into wrist devices, traditional watches came under pressure and we were disadvantaged. We didn’t have the technology capabilities to compete with smartwatches, leading to a decline in our addressable market.”

Kors exceeded expectations

“What we learned is, first of all, Kors by far exceeded expectations at full-price. We weren’t even testing prices on Kors, because we were chasing inventory and are still chasing inventory to a certain extent right now. So complete blowout at that price and what we perceived is a huge amount of demand out there, very significant for overall smartwatches, as well as hybrids.”

Traditional watches continue to be soft

“On traditional watches in the fourth quarter, the traditional watches continue to be soft. But what we said earlier, on the brands that have wearables, so mostly Fossil and Kors, we were able to offset most of the decline with wearable sales. So that’s where we are on that.”

Dennis Secor

Operating margins have declined by 11 points

“To begin, I want to first review the recent changes in our model. Between 2014 and 2016, currency has eroded our sales by $250 million and our operating income by $150 million. In that same period, operating margins have declined by roughly 11 points, from 16% in 2014 to 2016’s 5%, which excludes restructuring charges. Roughly four of those points reflect the negative impact of currency.”

Sold 1.5m wearables in 2016

“For 2016, we sold more than 1.5 million wearables devices and generated sales of almost $170 million. The majority of those sales were fourth quarter smartwatch sales for Fossil and Michael Kors. We did roll out more brands in a more limited way late last year for a total of eight brands, and we’re excited to build on the momentum for 2017.”

Gregory A. McKelvey – Fossil Group, Inc.

We think we understand pricing sweet spots

And I’ll just add, now that we understand sweet spot price points that drive real volume, we then translate that onto the supply side of our business. So we’ve got technology costs in components and manufacturing that were negotiated and really reflect the low volume we had prior to Q4 last year. We’ve also completed an extensive benchmarking study. So we understand where those costs will go as we get scale and are able to drive to increasing levels of automation with all our major component suppliers, and just also just generate the benefits of scale.

Fossil 3Q16 Earnings Call Notes

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.”

Fossil 2Q16 Earnings Call Notes

Fossil Group (FOSL) Kosta N. Kartsotis on Q2 2016 Results

Wearables launch will be the biggest we’ve ever done

” the wearables launch we’re doing there is one of the biggest launches we’ve ever done. There’s going to be huge amount of awareness, PR, advertising, celebrity input, social media, digital, video. It’s going to be very significant, and we’re expecting that could change the direction pretty quickly.”

The smart watches are going to get better

“One other thing to keep in mind is not only on display smartwatches but on hybrids and also trackers, because the technology is going to get better and better, it’s going to get smaller, more efficient, better battery life. The display smartwatches will get smaller which will enable them to fit on a female brand. They’re going to be untethered at some point, a huge amount of innovation and technology is going to make these products even more compelling to more brands, and it’s a very significant opportunity.”

Gregory A. McKelvey – Executive Vice President, Chief Strategy Officer & Chief Digital Officer

Launching a large number of wearables over the next three months in two waves

“The next three months are really going to amount to unprecedented launch in wearables. So we’ll have eight brands across three product categories, 100 SKUs, 40 countries, 20 languages, all launching in the next three months. You’ll see that in two waves. The first wave will be Fossil and Michael Kors smartwatches on Google’s Android Wear platform. Those will hit the market at the very end of August and early September.”

“Our wave two comes later in September and in October, some early November. And what we’ll see there is hybrid smartwatches and trackers across eight brands, so Fossil, Michael Kors, kate spade new york, Armani, Diesel, Misfit and Chaps by Ralph Lauren. And what we’re doing there is with hybrid smartwatches we’re adding the Misfit technology into traditional watches that people love today. ”

Fossil 1Q16 Earnings Call Notes

Fossil Group (FOSL) Kosta N. Kartsotis on Q1 2016 Results

Challenging environment in the traditional watch category

“Specific to the first quarter, as we expected, results trailed last year, reflecting the challenging environment for the traditional watch category, foreign currency headwinds, and last year’s relatively strong first quarter performance in the multi-brand portfolio. As pressure on the traditional watch category intensified during the quarter, our wholesale partners, both in the U.S. and Europe, experienced a noticeable step-down in sales trends from the last few quarters, leading to conservative inventory management for the category in anticipation of technology products delivering later this year.”

Challenging environment will continue

“ we expect a challenging retail environment and pressure on the traditional watch category to persist. Given those pressures on the business, we will continue to be mindful of our areas of investment and prudently manage our expense structure in order to direct our resources to the areas of greatest opportunity and pull back where we see less compelling opportunity for immediate impact.”

Stores are very interested in wearables

“There’s so much consumer interest in wearables. It’s very top-of-mind. It brings a younger customer in their store. There’s a bunch of excitement around it. We think that there’s an opportunity to change the entire watch department from a typical watch department to a wearable technology department.”

There’s been an overall step down in traffic and consumer activity

“First of all, I’d say, overall, I think in the first quarter this year, there has been a step-down just in overall traffic and consumer activity. So that’s one thing.”

There’s also a malaise in watches

“In addition to that, I think especially in watches, I mean, we attribute this really to all the press and PR and excitement around wearables. I think there seems to be somewhat of a lack of interest in watches relative to last year…So I think there’s just kind of a malaise in watches.”

We want to put new technology in traditional watches

“Our biggest objective in all this technology stuff is really to disrupt the watch business. We think, as Greg mentioned, to put additional functionality in traditional watches. And as we’ve said before, our mission is to eventually we want to put connectivity in every watch we make without adding a lot of additional to the retail price. “

Gregory A. McKelvey – Executive Vice President, Chief Strategy Officer & Chief Digital Officer

Examples of new features

“So some of the features you’ll see this fall, the time will be automatically updated with time zone changes or daylight savings. You’ll have a feature we call Link, which is the ability to control the Internet of Things around you off of your device. So you’ll have a push button on your watch. You’ll be able to push it and it will ring your phone, so it’s a where’s-my-phone feature. We’re getting very strong initial feedback from our initial customer research on even that as a very valuable feature. In addition, activity tracking, sleep, smart notifications.”

We have to get to scale in these products

“ scale matters a lot in these products. More so than our traditional business that’s highly depreciated asset base that supports it. So we’ve got to make a lot of upfront investments in engineering costs to get product to market. That requires for each major product line over 1 million units to really reach scale, we’re investing heavily on the supply side of our business to get our own captive manufacturing facilities to test, assemble, and bring these products to market. And then we’ve got a large fixed cost base in the engineering resources and the software platform we’ve acquired with Misfit. So on all three of those dimensions, we’ve got to get to scale to get to fully-loaded margins, but a really good margins.

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

Sales down 9%

“Overall, first quarter reported net sales decreased 9% to $660 million and on a constant currency basis declined 7%. Sales declined in each of our region which also reflects a relatively strong first quarter performance last year.”

Partners saw meaningful sustained deceleration in wholesale sell throughs

“During the first quarter, the data we received from our wholesale partners indicated a meaningful sustained deceleration in wholesale sell-throughs, not only in the United States, but also with wholesale partners in Europe. Mall traffic remains difficult, and many of our wholesale partners have announced transitions in their own businesses.”

Currency environment has not changed materially

“The currency environment has not changed materially from our initial guidance, so we are still expecting significant translation and margin headwinds as well as far fewer net currency contract gains. We now estimate the net impact of those items is roughly $0.87 per share. “

Fossil 4Q15 Earnings Call Notes

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.”

Fossil 3Q15 Earnings Call Notes

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.”

Fossil 2Q15 Earnings Call Notes

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.”

Fossil 1Q15 Earnings Call Notes

Fossil digital products in stores for holiday 2015

“When it comes to connected accessories, we feel very strongly about both our progress and our prospects to be a strong catalyst for growth in the category. There’s a lot of consumer interest in the space and a wide diversity of perspectives on the role that smart watches and other connected accessories will play in the market. With our partnerships with Google and Intel, coupled with our ability to create fashion at scale, we believe we have a significant opportunity as the convergence of fashion and technology enables us to bring compelling tech-enhanced accessories to the consumer. We continue to make progress, and we look forward to launching later this year with FOSSIL products in stores for holiday 2015.”

Wholesale trends were mixed in the US

“Our retail business continues to improve with positive comps across the fleet. While wholesale sell-in increase U.S. department store sell-out trends were mixed, with some brands accelerating, while others have not been as strong. There’s a lot of this disruption in this market right now with new entrants and existing brands that are maturing.”

Newcomers (i.e. Apple) are entering our market

“As we said before, nearer-term challenges remain. Newcomers are entering our market, and managing the natural ebbs and flows of brands in the life cycle is an imperfect science. Consumer shopping behaviors are changing at an unprecedented rate, and we continue to be cautious in the United States. This is our most developed market, and we are actively engaged in protecting our position, seeking new opportunities for growth and working to replicate our great success here in international markets.”

Foreign currency volatility means that guidance range needs to be expanded

“The only significant change to our outlook for this year relates to foreign currencies. While the U.S. dollar strengthened further in the quarter, it has weakened significantly in the last couple of weeks. And we are updating our outlook to reflect that volatility using a range that roughly aligns with our initial 2015 guidance rate on the high side and more current prevailing rates on the low side.”

We’re seeing a very disruptive phase. Obviously, there’s a new competitor in the market, so we’re not sure what that means

“the market’s in a very disruptive phase. We’re seeing — in our wholesale partners in the United States, we actually are seeing, as mentioned, their declining business there. Keep in mind also that first quarter is a relatively small part of the year. We still expect, and always have, is that 40% of the retail sales in watches happen in the fourth quarter. So — but having said that, we’re seeing declines in there and also there’s a lot of disruption. Obviously, there’s a new entrant in the market. We’re not sure if there’s some impact on the consumers’ side to see what that new entrant’s products look like, et cetera, but they have yet to be seen.”

Consumers very very interested in convergence of fashion and technology

“We think we’re in a situation where consumers are very, very interested in this convergence of fashion and technology. So our objective is to put some of this technology, which could be notifications, sensors, other types of activity, in our watches that could add value. And when you leverage across the large scale, large numbers of units that we have, we could be in a situation where we could add a lot of value to the products, with not a lot of expense and have another series of disruptive growth in our business and really change the market in the U.S.”

Department stores are very interested in smart watches because the opportunity to grow the category is huge

“One of the things to keep in mind is the department stores are very interested in this because they perceive there to be consumer demand. But there’s another issue here also, which is, if you look at the — the watch business is about $65 billion globally, relatively a small industry, whereas, the tech industry, which includes smartphones, cell service, iPads, all the activity has gone to the technology world. The spending in there is huge. So just a small percentage of that spending and interest, when it comes in the watch business, it could have a huge impact on the watch business and make it much, much larger. A lot of that spending or most of it is not happening in the department store where our customers are. So our mission is really, in a disruptive way, to bring some of these technologies and ideas to the brands and enable us to add additional functionality at not a lot of cost could make the watch category more relevant and could bring a significant amount of sales into the channels that we sell to. And that’s what we’re working on, and we think it’s a pretty big opportunity.”

Fossil 4Q14 Earnings Call Notes

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.’

Fossil 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

10% growth isn’t bad

“For the quarter, sales increased 10%, reflecting growth across all regions with Europe and Asia leading the way. Europe’s solid performance for the quarter reflected balanced growth with all major markets increasing over last year. In our most matured market, North America, we were pleased with the sequential improvement in the growth rate for the region.”

Partnering with Intel

“On the wearable technology front, we announced the partnership with Intel during the quarter which will allow us to work with them to identify emerging technologies and to be involved with early-stage development of ideas and concepts that can be used in developing connected fashion accessories. This is a very exciting category that is rapidly evolving and we are very excited about the potential for our brands to be actively involved in this space.’

China is still a compelling opportunity

“The fact remains is that there is literally hundreds of millions of people that are going to join the middle class in the next 10 to 15 years. It’s a very compelling long-term opportunity for us and we’re building it out and someday it will be very significant, just probably will not be linear growth.”

Jewelry is a long term opportunity

“As we’ve always said, jewelry is very similar to our watch business, largely the same characteristics in terms of timing, margin, same distribution channel, it’s actually a way of leveraging our entire global infrastructure and it’s lifestyle branded and it fits into our global profile. So one way to look at it is if the potential size of the Company with just watches is X, with jewelry it’s X+ and that’s the way to look at it, but it is a long-term opportunity for us.”

In position to put more technology into watches

“We do think that the traditional watch business will continue to grow and we are going to gain share, but as the technology gets better we think that we can add more and more technology to our products. So we think our position, especially with our partnership with the Intel and Google, we’re in a place where we can bring well-designed branded smart fashion accessories to market wherever the technology goes, and we think it’s an additional opportunity to us over the long term”