Fossil Group (FOSL) Earnings Report: Q4 2015 Conference ... · PDF fileWe will take this time to review the strategic objectives that we laid out for you coming into 2015 and update

CompanyName:FossilGroupIncCompanyTicker:FOSLSector:ConsumerGoodsIndustry:ConsumerNon-Durables

EventDescription:Q42015EarningsCallMarketCapasofEventDate:1.60BPriceasofEventDate:34.46

©2014TheStreet,Inc.Al l R ightsReserved Page1of24

FossilGroup(FOSL)EarningsReport:Q42015ConferenceCallTranscriptThefollowingFossilGroupconferencecalltookplaceonFebruary16,2016,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

EricCerny;FossilGroupInc;IRKostaKartsotis;FossilGroupInc;ChairmanandCEODennisSecor;FossilGroupInc;CFOGregMcKelvey;FossilGroupInc;ChiefStrategyandDigitalOfficer

OtherPart icipants

OmarSaad;EvercoreISI;AnalystIkeBoruchow;Sterne,Agee&Leach,Inc;AnalystEdYruma;KeyBancCapitalMarkets;AnalystSilaRiginous;CowenandCompany;AnalystSimeonSiegel;NomuraSecuritiesIntl;AnalystBettyChen;MizuhoSecurities;AnalystShreyaJawalker;StephensInc;AnalystErinnMurphy;PiperJaffray&Co;AnalystLindsayDruckerMann;GoldmanSachs;AnalystDorothyLakner;TopekaCapitalMarkets;AnalystDanaTelsey;TelseyAdvisoryGroup;AnalystLaurentVasilescu;MacquarieResearchEquities;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheFossilGroupfourth-quarter2015earningsconferencecall.

Today'sconferenceisbeingrecorded.

Atthistime,I'dliketoturntheconferenceovertoEricCerny,InvestorRelations.Pleasegoahead,sir.

EricCerny(IR):

Thankyou.Goodafternoon,everyone.

Thankyouforjoiningus.WelcometoFossilGroup'sfourth-quarter2015earningsconferencecall.

I'dliketoremindyoutheinformationmadeavailableduringthisconferencecallcontainsforward-lookinginformation,andactualresultscoulddiffermateriallyfromthosethatwillbeprojectedduringthiscall.

FossilGroup'spolicyonforward-lookingstatementsandadditionalinformationconcerninganumberoffactorsthatcouldcauseactualresultstodiffermateriallyfromsuchstatementsisreadilyavailableinourform10-Kand10-QreportsfiledwiththeSEC.Inaddition,theCompanyassumesnoobligationtopubliclyupdateorreviseanyforward-lookingstatements,whetherasaresultofnewinformation,futureeventsor




otherwise,exceptasrequiredbylaw.

Pleasenotethatyoumaylistentoalivewebcastorreplayofthiscallbyvisitingfossilgroup.comundertheinvestorssection.NowIwouldliketoturnthecallovertotheCompany'sChairmanandCEO,KostaKartsotis.

KostaKartsotis (ChairmanandCEO):

Thankyou.Goodafternoon,everyone.

IwillbeginwithafewpreparedremarksbeforeturningthecallovertoDennisSecor,ourChiefFinancialOfficer.Followinghispreparedremarks,GregMcKelvey,ourChiefStrategyandDigitalOfficerwilljoinusfortheQ&A.Welookbackon2015asayearofbothsignificantchallengesandaccomplishments.

Weanticipatedeconomic,competitiveandconsumerheadwinds,whichallmaterialized,andinsomecases,intensified,puttingpressureonsalesandearnings.Despitedisappointingoperatingresults,ourteamremainedfocusedonourstrategicprioritiestostrengthenourleadershippositioninourcorebusiness,andtoextendthatleadershipfurtherthroughourinvestmentsinwearabletechnology.WesetcoursetorepositiontheCompanywiththenecessaryplatformtoacceleratesalesandprofitabilityinthefutureandmadesignificantprogressagainstourgoals.

Weareveryproudofthededicationandresiliencyourteamdemonstratedastheyrosetomeetthemanychallengesin2015.Theirabilitytoremainnimbleinaquicklychangingenvironmentandthestrategicactionswehavetakenoverthepastyearbetterpositionustoimproveourperformanceinthefuture.Throughthatlens,whileachallengingyear,itwasanenergizingyear;ayearwheretheentireorganizationwaschallengedtoreimaginetheirroleandevaluateprocessesandprocedurestohavemoreofadirectimpactonthebusiness.

Werestructuredouroperationsandteamstobeinthebestpositiontocompeteinthisrapidlyevolvingtimeinretailandlookforwardtobuildingonthoseactionsin2016.

AsImentionedonourcallinNovember,withdisruptioninthemarketplacecomesopportunitytotakeadvantageofgrowthandchangingtrends.Whileourperformanceoverthelastsixorsevenyearshasdeliveredstrongrevenueandearningsgrowth,ourperformancein2015wasbelowourexpectationsandmoreimportantly,belowwhereweseethepotentialofthisbusiness.

ThelasttimeweexperienceddisappointingtrendsintheCompany,weregroupedandrefocusedoureffortsondesignandinnovationandpositionedtheCompanyforstronggrowth.Giventhecurrentenvironment,thathasbeenourobjectiveandwehavemadestridestothatend.Thedeterminationofourteam,thefocusonourstrategicobjectivesandourdriveforinnovationhasuspositionedforfuturegrowthinarapidlychangingworld.

Wewilltakethistimetoreviewthestrategicobjectivesthatwelaidoutforyoucominginto2015andupdateyouonourprogressagainsteach.Theseobjectivesandprioritieswillremainourfocusfortheforeseeablefutureandweintendtobuildonthemomentumwegainedineachduringthispastyear.Weareveryfocusedontheseobjectivestoimproveourperformanceinthefuture.

First,investingandgrowingourownbrands,FossilandSkagen.WebelievethisisveryimportantforthelongtermvaluationofourCompanyandourpositioninthemarketplace.Throughoutourhistory,wehavesuccessfullyleveragedourstrategicandcompetitiveadvantagestobecomethelicenseeofchoiceinthetraditionalwatchspace.

Whilewewillcontinuetoplaythatrole,webelievethelongtermvaluefortheFossilGroupistobeastronglifestylebrandbuilderandleveragethatstrengthtogrowourlicensedbrands.




Thispastyearweinvestedinbrandbuildinganddemandcreationactivitiesforourbrandsandonacomparablebasistolastyear,drove4%growthinFossiland15%growthinSkagen.WeadvancedourCRMcapabilitiestobetterunderstandourcustomer,theirshoppingpatternsandpreferences,andestablishadeeperconnectionwiththemtoprovideforcontinueddialogue,allwiththeintenttofacilitaterepeatcustomervisitsandtodriveadditionalsales.

In2015,wecompleteddevelopmentofaglobalcustomerdatabasetoruntargetedCRMcampaignsaroundtheglobewithafocusonunderstandingalldigitalandsocialactivityofourcustomers.Theinsightsgainedallowedustocreatenewsocialactivationprogramsandin-storeeventsaimedatdrivingtraffictoourwebsitesandourstores.Wecontinuetoworktowardsconvertingcustomersintomulti-categorypurchasersandexpandingourcustomerbasetohelpdrivegrowthgoingforward.

Wewillcontinuetoinvestintheseinitiativesbasedontheinitialsuccesswehaveseen.Youcanexpectmorecross-channelevents,alongwithtestingofadditionalsocial-basedengagementprograms.Webelievetheseeffortswillprovecrucialasconsumershoppingpatternscontinuetoevolveand,ofcourse,strategic,giventheprofitabilityassociatedwithgrowingourownbrands.

Wealsohavemadegreatstridesinincreasingbrandawarenessthroughproductinnovationbothintraditionalcategories,aswellastheconnectedaccessoryspace.I'lltalkmoreabouttheconnectedaccessoriesinitiativeinamoment,butweknowthatinnovationacrosswatches,jewelryandaccessorieswillcontinuetobeasourceofgrowth.Wesawthisforfossilleathersinourwholesalepartnersinthefourthquarterasimprovedproduct,betterdesignsandthequalityofourproductsresonatedwithcustomers.

Weintendtobuildonthecategory'smomentumin2016.Additionally,ourcollaborationwithOpeningCeremonyisagreatexampleofinnovationandnewnessthatcancreateconsumerdemand.

Second,investinginourdigitalcapabilitiestoimprovetheonlineexperienceforthecustomerandincreaseouromni-channelcapabilities:withchangesinconsumershoppingpreferencesandcontinueddeclinesinmalltraffic,thisisacriticalcomponenttocapturingthecustomerinthecurrentretailenvironment.Weneedtobewhereverthecustomerisandprovidethemadifferentiatedanduniquelybrandedexperiencebeyondthetraditionaltriptothemallandstoreexperience.

Followingthelate2014relaunchoftheSkagenwebsite,were-launchedtheFossilwebsitein2015intimefortheholidayshoppingperiod.Thenewwebsiteisalsoakeycomponenttoadvancingouromni-channelcapabilities,providingustheopportunitytofurtherdeveloptheirrelationshipwiththebrandinanefforttodrivesales.

Withthenewwebsite,wehavegiventhecustomeranimprovedshoppingexperience,addedcompellingbrandcontentandstories,andcarriedthesecapabilitiesacrossanupgradedmobileplatform.Allofthisfunctionalityissupportedbyaworld-classcontentmanagementsystem,whichenablesustoupdateourbrandedexperiencesmoreefficientlyandscalegloballyaswegrowourinternationaleCommerce.

Ourinvestmentsandeffortsinthisareaprovedsuccessful,drivingdoubledigitgrowthacrossoureCommercechannelin2015.Giventhereturnsontheseinvestmentsandensuringwecontinuetoevolvewiththecustomer,welooktobolsterourdigitalcapabilitiesthroughcontinuedinvestmentsinourplatformandshoppingexperience.

E-functionalitycomingin2016includesmoreflexibilityfulfillmentoptions,socialintegrationandreferralprograms,andcontinuedimprovementsformobile.Additionally,wehaveinitiativestargetedtosupportourFossilbrandfocusongiftingandpersonalization,includingcustomwatchbuildingcapability,aswellasembossing/engravingcapabilityonline,somethingweexecutedinthefirstquarterintimeforValentine'sDaygifting.




Third,extendingourleadershippositioninthetraditionalwatchmarketbycontinuingtooptimizeandenhanceourportfoliooflifestylebrands:2015provedtobeachallengingyearforthetraditionalwatchcategorywithtechnologyandnewfunctionalitytakingmindshareandlikelyimpactingcustomerpurchases.Giventhosepressures,performanceinthecategorywaschoppyacrossregionsandgloballyactuallyshoweddeclinestowardstheendoftheyear.

However,ourexternaldatasourcescontinuetoforecastgrowthinthecategoryforthecomingyearsandwebelieveourportfolioofhighlydesirablelifestylebrandswillenableustocontinuetotakeshareinthespace.Thispastyear,weaddedtwonewbrandstotheportfoliothatwillbenefitusgoingforward:KateSpade,NewYorkandChaps,whichisaRalphLaurenbrand.

Thesenewbrandscomplementtheexistingbrandsintheportfolioandrepresentnewopportunitiesforpricepointsanddistributionchannels.WhileweinheritedanexistingbusinesswithKateSpade,NewYork,immediatelyreapingthebenefitin2015,mostoftheyearwasspentbringingthebrandontotheFossilGroupplatform.

Theteamshavebeendesigningandproducingnewstylestotakeadvantageofourglobaldistributionnetworkinanevenmoremeaningfulwayin2016.WealsolookforwardtolaunchingtheChapslinelaterthisyear.

Managingaportfolioprovidesanaturalelementofdiversification,butasallbrandsexperienceebbsandflows,itisourresponsibilitytoensureourportfolioincludesthebestbrandsinthefashionlifestylecategory.

Theportfolioisalwayschangingandevolving,trimmingandadding.SoevenasagreatbrandlikeBurberrydecidestonolongerpursuethecategoryandtofocusontheirsoftgoodsofferings,wehavemanyotherbrandsthatcandrivegrowth.Wewillalwaysdirectourresourcestotheareasofthebusinessthatgeneratethehighestreturnsandwillnowredeploythoseresourcestootherbrandsingrowthareasofthebusiness,whilekeepinganeyeonthepotentialforbringingnewbrandsintotheportfolio.

WebelievethenewbrandsImentionedearlierareverycapableofdrivingfuturegrowth.Innovationanddesignarekeyelementstodrivinggrowthandourteamisfocusedonelevatingourplatformofbrandswithnewdesigns,materialsandfunctionalitytocapitalizeonwhatistrendinginourspace,allinanefforttoputthetraditionalwatchcategorybackonapathtoachievesustainedgrowth.

Technologyisanotherformofinnovationandweareveryfocusedonbuildingourpresenceintheconnectedaccessoryspace,ourfourthobjective.Withconsumerinterestinthecategorydrivingthetrendandourretailpartnersseekingtoaddmoretechnology-infusedproducttotheirassortments,weareputtingresourcesbehindthisinitiativeinaverymeaningfulway.PerhapsnoothercategoryofourBusinessismovingasquicklyasthisone.

Wespent2015designing,developing,producingandlaunchingtheFossilQassortmentintimefortheholidayshoppingperiod.Wearebringingfashionintotechnology,fillingavoidwithinthewearabletechnologyspacethatwillenableincreasedfunctionalitywithauniquefashionandbrandedexperience.

Webelievetechnologyhastheabilitytobethenextcatalystintheaccessoryspaceandwearepositioningourselvestotakeadvantageofthetrendunlikeanyofourpeers.OnthehealsofourFossilQproductlaunch,wemadeasignificantinvestmentbehindthisinitiativewiththeacquisitionofMisfit.Withtheirscalablecloudandappplatformandworldclassengineeringteam,wearedevelopingcuttingedgetechnology-infusedproductsforourbrandsandareontracktodeliverthesethroughout2016.

Wefindourselvesattheepicenteroftheconvergenceoffashionandtechnologyandarefocusedon




continuedinnovationinthisspace.Ourbrandinganddesigncapabilities,combinedwithourproductionandglobaldistributionnetwork,haveenabledustobecomeacategoryleaderintraditionalwatches.

Now,combinedwithoureffortsthispastyearinlaunchingFossilQandacquiringMisfit,wehavedifferentiatedourselvesfromthecompetitionandfurtherenhancedourcompetitiveadvantages.

TheresponsetoourFossilQlineoftheconnecteddeviseswasstronginthefourthquarter.OurretailpartnershavegivenusincreasedplacementandwehaveplanstointroducemorestylesundertheFossilbrandin2016,includingtheFossilPilotthatlaunchedinthefirstquarter.

ThestrategicacquisitionofMisfitacceleratesourabilitytobecomeaforceinthewearabletechnologyspaceandinsuresaconsistentflowofnewproductwithtechnology,innovationandincreasedfunctionality.

Misfitfurtherbroadensourcapabilitiesandallowsustoleveragetheircloudandappplatformtoprovideauniquebrandedexperienceforourportfolioofbrands.Weintendtobringfashiontoafunctionalcategory,muchlikewedidinthetraditionalwatchcategory.Earlierthisyear,inconjunctionwiththeconsumerelectronicsshow,weannouncedthatwewillbelaunchingnewproductsintheconnectedspacethroughout2016.

AndMisfitalsoexpandsouraddressablemarketfor2016.ItgivesusnewdoorstodistributeexistingbrandstoandtheopportunitytoleverageourexistingglobaldistributiontobroadentheMisfitbrand,aswell.Denniswillgointomoredetailaboutwhatthismeanstoourbusinessmodelin2016,butwerecognizethisisahugepriorityforus,anditmakessenseforustoinvestinthisareatosupportfuturegrowth.

Ourabilitytocombinethetechnologythatconsumersaredemandingwiththedesign,styleandbrandsthatthey'vealwayslovedattheglobalscalenecessarytodrivetherighteconomicsisunparalleled.Webelieveweareuniquelypositionedtoleadtheconvergenceofstyleandtechnologyandbecomethefashiongatewaytowearabletechnologyandtheconnecteddevicemarkets.Sothroughthelensofthosepriorities,welookat2015asasolidyear,deliveringagainstthestrategicinitiativeswelaidoutatthebeginningoftheyearandwillcontinuetofocusonthesein2016.

Insomeways,thispastyearfeltliketheyearoftheperfectstormgiventheheadwindsandchallengeswefaced.Unfortunately,thoseheadwindsdon'tsimplydisappearwiththestartofanewyear.Infact,someofthosemacrochallengesappeartohaveincreasedwiththeonsetofthenewyear;however,weoperatewithalittlemorevisibilityintothesechallengesandabettertoolsetwithwhichtorespond.

Wefacednewentrantscomingintothewatchspacewiththemust-havefashiontrendoftheyearprovingtobetechnology.Thisisprovingtobeagoodthing,drawingmoreandmoreattentiontotheaccessoriescategoryandconsumersnowhavingmoreoptionstochoosefromthaneverbefore.Butitwasclearlyaheadwindforuspriortothelaunchofourconnectedaccessories.

Ourresultswereimpactedfromprior-yearcomparisonsoftheexceptionalgrowthandoutperformanceofMichaelKors,oneofthemostsuccessfullifestylebrandsinthewatchspace.Whileadifficulthurdletoovercomeinourreportedresults,wearelookingfornewwaystodriveevenfurthergrowthinthebrandwithinnovationanddesign,includingtechnology,leadingtheway.

Consumershoppingbehaviorischangingandevolvingquickly.Asmalltrafficcontinuestodecline,ourdigitalandomni-channelinvestmentsshouldallowustocompeteinthisnewageofretail.

Andofcourse,currenciesmovedagainstusin2015aswell.Whileregionaldiversificationofourbusinessmodelistypicallyapointofstrength,foreigncurrencysignificantlynegativelyimpactedourreported




resultsin2015andwillpersistinto2016.Nearlythreefullpointsofouroperatingmarginerosionintheyearcamefromcurrencyalone.

Macrouncertaintyinmanyofourkeyinternationalgrowthmarkets,particularlyinAsia,alsoputpressureonourbusinesslastyearandthatdoesn'tshowsignsofeasing.Andfinally,restructuringeffortsimpactedourreportedresultsin2015.Theteamembracedourrestructuringeffortsandenduredtoughbutnecessarydecisionsandchangesthatalignourresourceswithnewopportunitiesforgrowthandwillmakeusleanerandmorenimbletopursuethoseopportunities.

Inlightofallthosechallenges,anddespiteayearthatfellshortofouroperationalgoalsandtypicalgrowth,wedeliveredsalesofroughly$3.5billion,excludingtheimpactofforeigncurrencies,andanadjustedEPSof$5.63.

Additionally,wecontinuetoreturnvaluetotheshareholders,repurchasing$229millionworthofstock,justunder3millionshares,whilemaintainingaprudentleverageratio.Specifictothefourthquarter,weareencouragedwiththewayweconcludedtheyear,particularlygiventheperformanceofourbusinesswithinkeyareasoffocusfor2016andbeyond.

Onaconstantcurrencybasis,salesdeclined2%inthequarterwithallthreeofourregionsimprovingsequentiallyfromthethirdquarterandnotablyEuropereturnedtogrowthinthequarter.Ourmulti-brandwatchportfoliodeclined2%inthefourthquartinconstantcurrency,alsoasequentialimprovementfromthethirdquarter.

WithSkagenandFossilbothperformingwellacrosscategoriesandregions,wecontinuedtofocusonhowtoimprovetheperformanceofmanyofthelicensedbrandsintheportfolio.Giventhestrengthanddesirabilityofthelifestylebrandsintheportfolio,wehavetheopportunitytodrivegreatergrowth,ensuringeachbrandreachesitsfullpotential,somethingwearealwaysfocusedonandwherewebelieveinnovationandnewnesscandrivethatdesiredoutcome.

SobeforeIturnitovertoDennistogiveyoumoredetailsonourperformanceandoutlook,Iwanttorecapourprioritiesfor2016.Ourgoalwastodelivercontinuousimprovementaswemovethroughouttheyearandtheteamisveryfocusedontheseinitiatives,giventheirpotentialtodrivefuturegrowth.

Firstistooptimizeourportfoliooflifestylebrandstoextendourleadershippositionintheglobalwatchmarket.SecondistofocusonbuildingoutpresenceintheconnectedaccessoryspacebyleveragingMisfitacrossourportfolioofbrands.Andthirdiscontinuingtobuildontheprogressmadegrowingourownbrands,FossilandSkagen,aswellasadvancingourdigitalandomni-channelcapabilities.

Inthisrapidlychangingworld,weareveryexcitedabouttheopportunitiesforFossilGroup.Weremainveryoptimisticaboutthefuture,confidentinourlong-termstrategies,andlookforwardtobuildingontheprogresswemadethispastyearregardingourstrategicpriorities.As2015resultedinourfirstEPSdeclineinadecade,werecognizeitwasadifficultyearforourshareholders,butweappreciateyoursupportandthelong-termhorizonwithwhichyouinvest.

Webelieve2016willbeatransformativeyearinfurtheradvancingourwearablesinitiativeandunlockingthepotentialofMisfitandapplyingincreasedfunctionalityandarobustplatformacrossourportfolioofbrands.Thiswillenableustolaunchinnovativenewproductintimeforholidayandtoexpandonthoseeffortsevenmorein2017.

OurrestructuringeffortshaveenabledtheCompanytobeleanerandmorenimblewithincreasedefficienciesthatshouldpositiontheCompanytotacklethenewworldoftechnology.Andwebelievethatourmanygrowthopportunities,combinedwithourdiversifiedbusinessmodel,solidfinancialposition,andcashflowgeneration,setusuptowinoverthelongtermanddrivevalueforourshareholders.




NowIwillaskDennistowalkusthroughtheresultsandtheoutlookfor2016.

DennisSecor (CFO):

Thanks,Kosta.Goodafternoon,everyone.

Wearerelativelypleasedwithourfourth-quarterperformance,asthepotentialforintensifyingheadwindsthatconcernedusgoingintotheholidayseason,givenourlimitedvisibilityandalotofmarketdisruption,didnotmaterializetotheextentwefelttheymight.Overall,fourth-quarternetsalesdecreased2%,andonareportedbasis,declined7%to$993million.

Whilesalesdiddeclineinthequarter,eachofourthreeregionspostedsequentialimprovementsandEuropeturnedtoconstantdollartop-linegrowth.Off-pricesaleswerealsohigherthanweanticipated.WeareencouragedbythecontinuedgrowthinFossilandSkagen,aswellasthecontributionfromnewerbrandsandcategories,whichweintendtobuildonin2016.Forthequarter,wedelivereddilutedearningspershareof$1.46,comparedto$3lastyear.

TheEPScomparisontolastyear'sresultswasnegativelyaffectedbyseveralfactors,including$0.28fromcurrencies,$0.14duetolastyear'sbonusaccrualreversal,$0.13duetoanon-cashimpairmentcharge,$0.12forMisfittransactioncostsand$0.04ofrestructuringcharges.Comparedtolastyear,thecurrentquarterbenefited$0.12fromthelowertaxrateandanother$0.09duetothelowersharebase.

Beyondthesequentialimprovementineachregion,wewereencouragedwiththe3%constantdollargrowthinthequarterforFossil,ledbygrowthinwatches,withleathersandjewelryincreasing,aswell.SalesgrowthwasstrongestinEuropeandAsia,whiletheAmericasexperiencedaveryslightdecline.Globally,theretailstoresperformedwellacrossfullpriceandoutlets,withimprovedconversionoffsettingcontinueddeclinesintraffic,yieldinganoverallcompincreaseof1%.

Ofcourse,ourlaunchoftheFossilQassortmentwasverywell-received,particularlytheFounder,whichisournewsmartwatchwithdisplay.Skagensalesgrew12%inconstantdollars,withgrowthacrossallthreecategoriesledbywatches.GrowthinEuropeandAsiawaspartiallyoffsetbyadeclineintheAmericas.

Inconstantdollars,ourmulti-brandwatchportfoliodeclined2%comparedtolastyear.Despiteasequentialimprovementinperformancefortheportfolio,itisclearthattechnologycontinuedtoputpressureonthetraditionalwatchcategoryduringthebusyholidayperiodandsomeofourstrongerbrandsintheportfoliocontinuedtobehinderedbyanniversaryinghistoricallystronggrowth.ExcludingMichaelKors,ourmulti-brandwatchportfoliowasupslightly,withthebenefitofnewerbrandsintheportfolio.

Overallfortheyear,reportedsalesdecreased8%to$3.229billion.

Onaconstantcurrencyandcalendarbasis,salesdeclined1%,withgrowthinjewelryandleathersoffsetbyadeclineinwatches,andgrowthinEuropeoffsetbydeclinesintheAmericasandAsia.Globalretailcompincreased1%fortheyear,withincreasesinEuropeandtheAmericasoffsetbyadeclineinAsia.

Fossilgrew4%fortheyear,whileSkagengrew15%fortheyear.Ourmulti-brandwatchportfoliodeclined3%asgrowthinFossilandSkagenandtheadditionofKateSpade,NewYorkwereoffsetbydeclinesinmostotherbrandsintheportfolio.

IntheAmericas,fourth-quarterreportedsalesdecreased5%to$518million,a3%constantdollardecrease.Thedecreasewasdrivenbywatchesandjewelry,partiallyoffsetbymodestgrowthinleathers.ExcludingMichaelKors,watchsalesincreasedforthequarterintheregion.Acrossbrands,constantdollarsalesincreasesforArmani,andthebenefitofhavingKateSpade,NewYorkwereoffsetbydeclinesinnearlyallofthebrandsintheportfolio.




Withintheregion,growthinCanadaacrosstheretailandwholesalechannelswasoffsetbyadeclineinbothchannelsfortheUS.Compstoresalesdeclinedslightlyastrafficcontinuedtobedownintheregion.Constantdollarwholesalesalesdeclinedduringthequarter,largelydrivenbyaweakerperformanceinUSdepartmentstores,wheretrafficcontinuestobeachallengeandsoftertrendsinthebusinesspersist.

Overall,forthefullyear,reportedsalesintheAmericasregiondecreased5%to$1.662billion.Onaconstantcurrencyandcomparablecalendarbasis,salesdeclined2%comparedtolastyearasgrowthintheretailchannel,includingpositivecompstoresales,wasoffsetbyaweakerwholesalechannel.

InEurope,reportedsalesdecreased7%to$347million.Constantdollarsalesincreased3%withincreasesinallthreecategoriesledbywatches.GrowthintheregionwasdrivenbyFossilandSkagen,partiallyoffsetbyadeclineinthelicensedportfolio.

Withintheregion,strongconstantdollarcurrencygrowthinFrancewaspartiallyoffsetbyadeclineindistributormarketsandarelativelyflatperformanceinlargermarketsliketheUKandGermany.Intheregion,givencontinuedtractionfromourmarketinginvestments,wedrovegrowthintheretailchannel,supportedbynewstoresandasolidincreasedincompstoresales.

You'reeCommbusinessalsoperformedwellinthequarter,deliveringdouble-digitgrowth.Overallforthefullyear,reportedsalesinEuropedecreased11%to$1.07billion.Onaconstantcurrencyandcomparablecalendarbasis,salesincreased2%comparedtolastyear,asdouble-digitgrowthintheretailchannel,includingsolidpositivecompstoresales,waspartiallyoffsetbyaweakerwholesalechannel.

InAsia,reportedsalesdecreased15%to$127million,whileconstantdollarsalesdecreased9%.Thedecreasewasdrivenbywatchesandjewelry,partiallyoffsetbymodestgrowthinleathers.

GrowthinKoreaandcontinuedsolidgrowthinIndiawasoffsetbydeclinesinmostmarketsintheregion,includingJapan,HongKongandChina,wheregeneraleconomicsluggishnessandmacrouncertaintyhascontinuedtoimpactourBusiness.GrowthinFossil,Skagen,MichaelKorsandtheadditionofKateSpade,NewYorkwereoffsetbydeclinesintheotherbrandsintheportfolio.

Compstoresaleswereflatintheregion.Overall,forthefullyear,reportedsalesinAsiadecreased12%to$497million.Onaconstantcurrencyandcomparablecalendarbasis,salesdecreased4%comparedtolastyearasmodestgrowthintheretailchannel,drivenbynewstores,wasmorethanoffsetforaweakerwholesalechannel.

Fromaglobalperspective,withinourlicensedportfolio,wecontinuedtoanniversarystronggrowthcomparisonsforthelargestbrandinourlicensedportfolio,MichaelKors.Whilestillaveryproductiveandsuccessfulbrand,itsgrowthhassubsidedinrecentquarters.Forboththefourthquarterandfullyear,growthinjewelrywasunabletooffsetdeclinesinwatchesforthebrand.

Regionally,thebranddeclinedintheAmericas,thoughinconstantcurrency,grewinbothEuropeandAsia.Whilerepeatingthetremendoussuccessofthisbrandischallenging,wecontinuetobelievethattherearewidespaceopportunitiestoenergizethebrandwithournewdesigns,wearabletechandmen's,aswell.

Inthequarter,grossprofitdecreasedto$526millionandgrossmargindeclinedto380basispointsto53%,300ofwhichrelatestothestrongerUSdollar.Ourgrossmarginratewaslowerthanwehadanticipated,asourinstorepromotionsprovedverysuccessfulindrivingcustomerstoourstores.

Thatdrovefurthersalesingrossprofit,thoughattheexpenseofourmarginrate.Wealsosoldmorethroughoff-pricepartnersthanwehadplannedandtooksomeadditionalactionstohelpdrivesalesofSwisswatches.Thesesamefactors,partiallyoffsetbythefavorableimpactofourpricinginitiativesand




lowerproductcosts,drovethemarginchangescomparedtolastyear'sfourthquarter.

Fourthquarteroperatingexpenseswerehigher,asplanned,increasing$54million,or14%,to$437million.Thelargestdriverofexpensegrowthrelatedtoourincreasedmarketingandstrategicinvestments.Wewerealsoanniversaryinglastyear'sfourthquarterreversalofincentivecompaccrualsinthequarter.

Thisquarter,wealsorecorded$8millionincostsrelatedtotheMisfitacquisitionandanadditional$9millionnon-cashchargetowritedownthecarryingvalueofourSkagenintangibleassets.Thischargeresultsfromafairlyformulaicaccountingcalculation,butisdrivenbyacomparisonofourmostrecentprojectedSkagenrevenuestoourinitialprojectionsafterthe2012acquisition.GiventhestrongerUSdollar,there'snowagapbetweenthoseprojectionswhichdrivesthisaccountingcharge.

Thebrandwithitsuniqueaestheticcontinuestodrivestrongconstantcurrencygrowth,includinga15%gainfor2015andweremainveryoptimisticaboutitsfuture.Wealsorecorded$3millionofrestructuringcostsinthequarter.Offsettingalltheseincreaseswasthefavorableimpactofcurrencies.Ourfourth-quarteroperatingexpenseratewas44%comparedto35.9%.

Operatingincomedecreasedto$89million,includinga$39-millionunfavorablecurrencyimpact,andoperatingmargindecreasedto9%,includinga320-basispointheadwindfromcurrency.MostoftheadditionaloperatingmarginheadwindwasdrivenbytheexpensefactorsIjustdiscussed,alongwithan80-basispointheadwindfromgrossmargin.Interestexpenseincreasedto$6milliongivenourhigherdebtlevel.Fourth-quarterotherincomeincreased$5millionto$12millionduetonetgainsonforeigncurrencycontractsandaccountbalances.

Oureffectiveincometaxrateforthefourthquarterwas24.2%,lowerthanlastyear's30.4%,duetothefavorableimpactofforeigntaxcreditsrecognizedduringthequarter.Fourth-quarternetincomedecreasedto$70million,largelyduetolowersalesandoperatingincome,partiallyoffsetbylowertaxes.

Nowturningtoourcashflowsandbalancesheet,forthefullyear,wegeneratedoperatingcashflowof$361millionanddrewdownanet$180milliononourrevolver.Weusedthosefundstoinvest$231millioninsharerepurchases,anet$220milliontoacquireMisfitand$80millioninCapEx.

Weendedtheyearwithroughly$289millionincashcomparedto$276millionlastyearanddebtof$808millioncomparedto$630millionayearago.

Weendedtheyearwithinventoryof$625million,a5%increaseoverlastyear.Theprimarydriverofthegrowthisnewbusinessesandbrandswherewedidn'thaveaninventorypositionayearago.Excludingthose,ourinventorieswouldhavebeenflat.Wealsohavebegunusingmoreoceanversusairshipmentsasameanstoreducefreightcosts,thoughthishasmodestlyincreasedourin-transitinventories.

Overall,ourinventoriesarewell-placedinbetter-sellingbrands,andaswehighlightedlastquarter,weareworkingtoreduceourSwissinventories,giventhesluggishnessincertainmarketslikeAsia.Accountsreceivabledecreasedby14%to$371million,andwholesaleDSOsimprovedbyfivedayscomparedtotheprioryear.Depreciationandamortizationexpensetotaled$23millionforthefourthquarterand$84millionforthefullyear.

Asweinvestmoreinouromni-channelinitiatives,wecontinuedtoreduceourstoreopenings.Fortheyear,weopenedanet2stores,including11inAsia,6inEurope,andintheAmericasweclosed30stores,primarilyfull-priceconcepts,andopened15stores,primarilyoutlets,foranetof15closuresfortheregion.Inaddition,weacquired24storesinSouthAfrica,whereweacquiredthatbusinessfromourdistributorearlierin2015.




Nowletmemoveonto2016andsharewithyououroutlookfortheyear.Webegan2015anticipatingmanyoperational,competitiveandfinancialheadwindsandthoseallmaterializedandsomeevenintensified.First,longer-termbrandbuildingandomni-channelinvestmentstosupportFossilandSkagenputpressureonnear-termearnings.

Second,newconsumerdemandfortech-infusedproductsimpactedtraditionalwatchesandwedidnotyethaveanofferingtomeaningfullymeetthatdemand.Theout-sizedhistoricalperformanceofoneofthemostsuccessfullifestylebrandsinourportfolio,MichaelKors,createdstrongpressureonouryear-over-yearcomp.Next,stronggrowthmarketsforus,likeAsia,remainedsluggish,wherebotheconomicandpoliticalfactorsaffectedourbusiness.

Andfinally,thestrongUSdollarcreatedahugetop-andbottom-lineheadwind.Alloftheseheadwindsconvergedon2015anddrovesalesmarginsandearningsdown.AsaManagementTeam,wearecertainlynotsatisfiedwiththeresultsandareworkingdiligentlytoovercomethesechallenges,thoughalwayswithaneyeonthefuture.Aswemoveto2016,whilesomeoftheseheadwindspersistandtheenvironmentremainschallenging,wefeelconditionsaremorestableandwehavestrengthenedourhandinmanyways.

We'regainingtractioninourownbrand,supportedbyourincreasedinvestmentsinthebackhalfoflastyear,bothFossilandSkagenacceleratedinthefourthquarterandarepoisedforcontinuedstronggrowthinmanymarkets.OuracquisitionofMisfitfastforwardsFossilGroupintotheexplosivewearablesmarket,whichisestimatedtogrowata36%CAGRtoreach$45billionby2019.

Misfit'sscalabletechplatformandworldclassengineeringteam,coupledwithourexistingstrategicadvantages,positionusnowtobetheleaderthatcandrivetheconvergenceofthegrowingwatchandwearablesmarket.2016,ourgoalistoexpandourFossilQbusinessandbringsignificantlymorewearablestylestomarketacrossseveralbrands.Theacquisitionalsogivesusanativewearablesbrandandwecandrivegrowthwithit,leveragingourglobaldistributionandoperatingplatform.

Weremainaleaderintraditionalwatches,amarketthatisforecastedforcontinuedgrowth.Thestrategicadvantagesthatwehavealwaysenjoyedinthismarket,ourdesigncapabilities,globaldistributionandoperatingplatform,alongwithbest-in-classsupplychain,continuetomakeusthebestpartnerforthemostattractivelifestylebrandsintheworld.WiththeadditionsofKateSpade,NewYorkandChaps,wecontinuetostrengthenourportfoliotodrivegrowthinourbusiness.

Sowe'veentered2016withanimprovedarsenaltodrivegrowthandhelpmitigateremainingheadwinds.OurhistoricalsuccesswiththeMichaelKorsbrandlikelyrepresentsthelargestvariabilityinourbusinessthisyear,thoughwebelieveournewdesigns,opportunitiesinmen's,jewelry,andinternationalmarkets,alongwithtechnology,canhelpreinvigoratethisbrandandchangeitstrajectory.

Keymarkets,likeChina,whilechanginginthenear-termremainbigopportunitiesforuswithstrongmarketdemographicsworkinginourfavorandtheUSdollarremainsastrongheadwindevenintensifyinglatelastyear.Sobasedonourcurrentplansandassumptions,includingprevailingexchangerates,weexpectfull-yearrevenuesintherangebetweena1%increaseanda3.5%decline.Thisincludesroughlya140-basispointcurrencyheadwindinourgrowthrate.Therefore,inconstantdollars,ourfull-yearrevenueassumptionwouldbetorangebetweena2.5%increaseanda2%decline.

Weexpectrevenueheadwindstobestrongestinthebeginningoftheyearandthentoabateaswemoveintothesecondhalf,givenprior-yeargrowthcomparablesandthestrongercurrencyheadwindsmainlyinthefirstquarter.Ouropportunitytoreturntogrowthwillcomeinthesecondhalfoftheyear,givenprior-yearcomparables,aswellasthetimingofourwearablesrollout,whichweareplannedforthesecondhalfoftheyear,mostnotablytosupportourholidaybusiness.




Webelieveouropportunitytoreturntogrowthinthesecondhalflargelyturnsonourabilitytousethegrowthdriverswejustdescribedtooffsettheremainingheadwindsinourbusiness.

Forthefirstquarter,weareplanningrevenuestodeclinebetween7%and10%.Thatincludesroughlya230basispointheadwindfromcurrencies,resultinginaconstantdollardeclinebetween4.75%and7.75%.

Overallfortheyear,weexpectmodestgrowthmarginexpansioninconstantdollars,thoughgivencurrencyheadwinds,reportedgrossmarginswilllikelydeclineslightlygivenprevailingrates.Weexpectthatthecurrencyimpactwillbemostsevereinthefirstquarterandlessen,thoughnotdisappear,inlaterquarters.

TheimpactofpurchaseaccountingonouracquiredMisfitinventorieswillnegativelyimpactmarginsearlierintheyearuntilthatinventoryissoldthrough.Wecontinuetoexpectthatwearableswillbeadragonourgrossmargins,especiallyasweincreasepenetrationinthesecondhalfoftheyear.

Internationalsalesmixshouldrepresentaslightgrossmargintailwindandweareworkingonanumberofinitiativestooffsetheadwindsanddrivehighermargins.WeexpectourcostreductionandsustainabilityinitiativestobenefitusaswemovethroughouttheyearandwearealsoworkingwithoursupplychainpartnerstoaffectefficiencygainsandtogainbenefitsfromthecurrencyenvironmentinChina.

Wealsodonotexpectthesamelevelofoff-pricesales.Giventimingandhowalltheseinitiativeswillaffectourinventories,themostsignificantoffsets,andthusopportunityfornetmarginexpansion,willbeheavierinthesecondhalfoftheyear.Forthefirstquarter,weexpectamodestdeclineinconstantdollargrossmargin.

Movingtoexpenses,therearemanyunusualitemsinourexpensebase,givenlastyear'sMisfitacquisitionandourrestructuringactivities.Onthiscall,wewillprovidesomeadditionalcommentaryandinsightintoourcoststructure,especiallyinlightoftheMisfitacquisition.We'reprovidingthisinformationtohelpreorientinvestorsandanalyststobetterunderstandourcoststructure,butwedonotundertakeanobligationtoreportontheseitemsinthefuture.

Overall,ourgoalistooperatewithafull-yearexpenseratethatisveryslightlyhigherthanlastyear's,assumingwecandeliveroursalesgoals.Letmestartwiththeunusualitemsfromlastyear.In2015,weinvestedroughly$25millioninrestructuringtooptimizebothourstorefleetandmuchofourcoreinfrastructure.Wearenotcurrentlyplanningasimilarrestructuringchargein2016.

Lastyear,wealsoincurred$8millioninMisfitacquisitioncostsandrecordeda$9millionimpairmentonSkagenintangibles.WeexpecttooperateourcorebusinesswithsignificantlylowerinfrastructurecostsversuslastyearandredeploythosesavingstooffsettheinfrastructureexpensesforMisfit.

RelatedtotheMisfitacquisition,weexpecttorecordupto$26million,splitroughlyevenlybetweenpurchaseaccountingchargestoamortizeacquiredintangibleassetsandthecostofcontingentequitygains,whosevestingwillbedependentonfutureperformance.Thecostoftheseequitygrantswillnotextendbeyondthreeyears.Thebalanceofouryear-over-yearexpensechangeswillbeformarketingandotherstrategicinvestmentstodrivegrowthandcustomerengagement.

ThemajorityofthiswillsupportgrowthstrategiesaroundFossilandSkagen,thecontinuationofouromni-channelstrategy,wherewearegainingtractiononline,andtosupportwearables,includingappdevelopmentthatcanbeleveragedacrossourfullportfolioofbrands.AsubstantialpartofthiswillalsosupportgrowthandawarenessofMisfit,aswelooktoexpanditsdistributionthroughoutourexistingglobalnetworkandintonewchannels.




Basedonourcurrentplans,weexpectthestrongestimpactofthehighermarketingeffortsinthefirstthreequartersuntilweanniversarylastyear'sfourthquarter,whenweenhancedourmarketingefforts.Forthefirstquarter,weexpectreportedoperatingexpenses,includingthefavorableimpactofcurrency,toberoughlyflat,yieldingahigherrategiventheanticipatedsalesdecline.

Therefore,forthefullyear,weexpectreportedoperatingmarginstorangebetween7%and8.5%,givenroughlyaonepointheadwindrelatedtocurrencies,thiswouldresultinroughlyan8%to9.5%constantdollaroperatingmargin.Weareexpectingfull-yearEPSintherangebetween$2.80and$3.60pershare.Forthefirstquarter,weareexpectingoperatingmarginstorangebetween1%and2.5%,whichincludesroughlyatwo-pointheadwindrelatedtocurrencies.

Forthefirstquarter,weexpectEPSintherangebetween$0.05and$0.20.Ourguidanceassumesroughlyprevailingexchangeratesandsomebenefitfromnon-operatingcurrencycontractgains,givenourhedgingprogram.Weareplanningwithataxrateofroughly30%.WeareplanningCapExintherangebetween$75millionand$85million.

Aswementionedonourlastcall,giventheinvestmentwemadeinMisfitandtheadditionalleveragewetookontosupportthat,weplantoreduceoursharerepurchasesthisyear,likelytolevelstooffsetemployeeequitydilution.Weexpectinterestexpensetoincreasecomparedtolastyear,giventheadditionaldebtwetookonlastyear,especiallytocompletetheMisfitacquisition.Wealsowouldnotexpecttorepeatthegainfromlastyear'ssecond-quartersettlementofaninterestrateswap.

Letmetakeamomenttodiscussthesignificantimpactthatcurrenciescontinuetohaveonourearnings.Currenciesaffectourearningsinthreeways.First,thereisatranslationeffect.WhentheUSdollarstrengthens,ourinternationalsalesandearningshavetranslatedintofewerUSdollars.

Secondly,thereisthemargineffect.AstheUSdollarstrengthens,thecostofinventory,whichisgenerallypurchasedinUSdollars,increasesinourforeignbusinesses,drivingtheirmarginsdown.

Finally,therearehedginggainsorlosses.Thesearerecordedbelowoperatingincomeandgenerallymoveoppositetothetranslationandmargineffects,butdonotcompletelyoffsetthembecausewedonothedge100%ofourtransaction.

Basedonprevailingrates,wewouldexpectthecombinedtranslationandmargineffectswouldrepresentroughlya$0.53headwindcomparedto2015.Inaddition,giventhelessseverecurrencyoperatingheadwindsthisyear,wealsoexpectfeweroffsettingnetcurrencycontractgainsthisyear,resultinginanexpected$0.31non-operatingheadwind.Thus,weestimatetheyear-over-yearimpactofcurrenciesonEPSwillberoughly$0.84forthefullyear.

Translationandmarginheadwindswillbestrongestinthefirstquarter,aswillthenethedginggains,yieldingroughlya$0.24netheadwindinthefirstquarter.Assumingprevailingexchangerates,translationandmarginheadwindswouldbecomelesssevereafterthefirstquarter,thoughhedginggainswouldalsodecline,yieldingaroughlyconsistentnetheadwindforeachquarter.

Beforewemovetoyourquestions,Iwanttotakeamomenttoreviewthechangesinouroperatingmodeloverthelastcoupleyearsanddiscussouroperatingmargingoalsforthefuture.Ifwecontrastourexpectedoperatingmarginthisyear,assumingweachievethetopendofoursalesgoals,injusttwoyears,ouroperatingmarginswillhavedeclinedabout7.5points.Wearenotsatisfiedwithouroperatingmargins,butitisimportanttounderstandtheprincipaldriversofthedeclineandactionswearetakingtoregainourpositionoverthelongerterm.

Thefirstdriveriscurrency.AbouthalfofthatmargincompressionistheresultofthestrongUSdollar.Whilewehavemitigatedsomeofthatdeclinethroughhedging,hedgingonlydelaystheEPSimpact,but




doesnothingtomitigatemargin,andevenifandwhencurrenciesstabilizecompletely,therewillalwaysbethefollowing-yearEPSchallengeofanniversaryingnon-operatinghedgegains.We'vealsorespondedtocurrencyfluctuationsthroughtargetedpriceincreasesandwillcontinuetoseekopportunitiestooffsettheimpactofcurrenciesoverthelongerterm,thoughpricingmustalwaysreflectthecompetitiveenvironmentandconsumers'willingnesstopay.

Theotherprincipaldriverofthemargincompressioncomesfromourstrategicgrowthinvestment.Comparedto2014,basedonthisyear'splans,wewillhaveinvestedovertwofullpointsofoperatingmargininbrandbuildingandawarenessaroundFossilandSkagenandinimprovingouromni-channelcapabilities.Theseinvestmentsarealreadydeliveringreturns,asevidencedbyour2015results,thoughsomeofthoseresultshavebeenmaskedbyheadwindsinotherpartsofthebusiness.

Thebalanceofthecomparisonlargelycomesfromourinvestmentsinwearables,mostsignificantlytheimpactofMisfit.WeexpecttodrivegrowthwithMisfitasweinvestinthebrandandexpanditoverourglobaldistribution.Thatwilltakealittletime,though,andaswesaidinourlastcall,weexpectMisfitwillbedilutivetoearningsthroughout2016.Ontopofthat,thepurchaseaccountingandrelatedcontingentequitychargesthatIdescribedearlierwillbefullypartofouroperatingmodelforthenextthreeyears.

Sothat'swherewearenow.Let'spivotandlooktothefuture.Aswesaidearlier,webelievethatwehavestrengthenedourhandsignificantlyin2016todrivegrowth,firstwithourownbrand.We'regainingtractioninbothFossilandSkagen,improvingouromni-channelplatformtodrivesales,andourinitiallaunchofFossilQhadbeenveryencouraging.

Thenthere'sourportfolio.Brandswillcontinuetoebbandflowastheyalwaysdo.Wewerealreadyadvantagedasthebestpartnerforthebestbrandsandwatchesandwebelievethatadvantagewillbecomestrongerwithourtechcapabilities.Overthenextcoupleyears,wewillbringmoreandmoreofourbrandsontoourtechplatform.

Weareattheconvergenceofwatchesandtechnologyandwefeelweareunrivalledinourspacewhenitcomestodeliveringdesignandinnovationacrossthebrandsconsumerswantatscalearoundtheworld.Ontopofthat,wehavenowaddedanownednativewearablesbrand,Misfit,whichwebelievewecangrowboththroughnewandourexistingdistribution.Aswemovethenoverthenextthreeyears,ourgoalistoseeacceleratingconstantdollarsalesgrowth.

Ourbiggestrisk,asalways,willbetouseourgrowthdriverstomorethanoffsettheheadwindsthatwillalwaysbepartofourdiversifiedbusinessmodel.Wewillcontinuetoidentifyopportunitiestodrivegrossmarginexpansionthroughpriceandcostinitiativesandthefurtherbenefitsofscaletooffsetthepotentialheadwindsfromtechnology,givenitsexistinglowermarginstructure.

Thenthere'sourcoststructure;givensubstantialprogresswe'vealreadymade,wefeelourglobalinfrastructureislargelyinplaceforthenextfewyears.Theleveragewecandrivebygrowingourbusinessandmanagingourinfrastructurecostcarefullycanbesignificant.Andfinally,ourmarketinginvestment:ourgoalafterthisyearwouldbetogenerallydrivesufficientgrowthsothatourmarketingandstrategicinvestmentswouldnolongerrepresentheadwindstoouroperatingmargin.

Solookingpast2016,weseeapathtodeliveringacceleratingsalesgrowthandoperatingmarginexpansion.Ourlonger-termgoalistodeliveroperatingmarginsmoreconsistentwithhistoricallevels;however,overthenextthreeyears,wewillhavetoabsorbtheMisfitpurchaseaccountingandcontingentequitycostsandovercomingthecurrencyimpactthroughcommercialactivities,ratherthanasignificantweakeningoftheUSdollar,willlikelytakelonger.

Sowiththat,wewillopenthecalluptoyourquestions.




Tobefairtoeveryone,pleaseaskonlyasingle-partquestion.Ifyouhavemorequestions,pleasere-queueafterothershaveaskedtheirs.

QUESTIONS&ANSWERS

Operator :

Thankyou.

(OperatorInstructions)

OmarSaadwithEvercoreISI.

OmarSaad (Analyst-EvercoreISI):

Thanks,goodafternoon.


Goodafternoon.

OmarSaad (Analyst-EvercoreISI):

Canyoumaybegiveusalittlebitmoredetailandexpandonthewearablesstrategyfor2016andbeyond?Kosta,especiallyifyoucangiveusalittlebitmoredetailaroundthetimingandcadenceoftheMisfitintegrationandwhenyoucanexpecttoandhowyoucanexpecttointegratetheMisfittechnologyintoFossilproductsacrossthedifferenttypesofwearableproducts.Andthen,conversely,thecadence,maybealittlebitmoredetailonthecadenceonhowyoucanapplytheFossilbranding,marketingdistributionnetworktotheMisfitproductsandbrand.


Okay,Omar.Thanks.

Wellfirstofall,recentresearchwe'veseenshowsthatthewatchbusinessactuallydeclinedlastyearbyprobablyabout3%.Butinadditiontothat,wesawtheexplosionofwearabletechnologylastyearandit'sprobablyanywherefrom$10billionto$15billionontopofregularthe$65billionthat'sinwatches.

Soclearly,there'sahugeamountofconsumerinteresttothis,allofthethingswe'vebeentalkingabout,millennials,especially,overspendontechnologies.Thereisabigmacrointerestontechnologyandhealthandfitness,soforus,whatitmeans,basically,isthere'stwobigthingsforus.

Ournumberoneobjectiveistogainshareinthetraditionalwatchbusiness.Wethinkthebestwaytodothatisbyaddingtechnology,soourlaunchinthefourthquarterincludedthreedifferentcategories.Sotheywerehybridwatches,whicharesmarterwatches;analogwatchesthathaveadditionalfunctionalityandsensors,andthenwelaunchedtrackersanddisplaywatchesandwelearnedquitealot.

Allthosecategoriesdidextremelywell,butthenumberoneobjectiveforusistogainshareinthetraditionalwatchbusinessandtochangethewayitworks.Sobyadding,overthenextseveralyears,additionalchipstowatchesinallbrands,itgivesus,wethink,additionalinnovation.

Wealreadyknowthatconsumerwillspendmoreforwatchesthathaveadditionalfunctionality.Soitshoulddifferentiateusanditcanmakethecategorymorerelevant,largelytomillennialswhohaven'twornwatches,becausetheygrewupwithasmartphone.Sowethinkthatwecaninfusealotmoreexcitementintothetraditionalwatchbusinessandgainshareatthesametime.




Inadditiontotechnology,wealsohavealotmoreothertraditionaltechnologiesgoinginthere,newmaterialandideas,etcetera,thatwe'redistortingacrosstheplatformtogainshareinwatches.Sowethinkourtraditionalwatchbusinesswillcontinuetogrow.

Thenonthewearablesside,wehave,bothindisplaywatchesandtrackers,thelauncheswedidlastyear,onethingwesawwasadisplaywatchinthefourthquarter,especiallyinDecember,wasthenumberonestyleintheCompany.Wealsohadverystrongsalesinhybridaswell.Sowhatwe'velearnedalreadyisthatclearly,youcantellfromalltheinterestintechnology,thatconsumersaregravitatingtoit.Soweknowwehaveaprettyexcitingprospectinfrontofus.Soourobjectiveinwearablesistoaddadditionalfashionandbrandingandtoscaleitacrossourplatform.

Wehavesignificantresourcesfordesignanddistribution,branding.Wehaveaglobalcustomerserviceandrepairnetwork,andnowwithMisfit,wehaveanativewearablesbrandthatwecanexpandandit'llreachfullpotentialunderourplatform.So,thecombinationofbothtraditionalwatches,whichisa$65billionbusiness,andgainingshareandgrowingthatbusiness,makingitmorerelevant,andthewearablesbusiness,whichisexpectedtobe$45billionin2019,wehavealargeraddressablemarketforus.

Soourobjectiveistoinfusetechnologyintotraditionalwatchbusinessandtoinfusefashionandourglobalresourcesintowearablesandwethinkwe'reonaverystrongtrack.

Asfarasthetimingofthecadence,Greg?

GregMcKelvey(ChiefStrategyandDigitalOfficer):

Yes.I'llgiveabitmorecoloronthetimingandtheoverallintegrationeffortwithMisfit.

Overall,I'dsaythatourinvestmentthesisandourgoalsareplayingoutprettymuchexactlyaswethoughtandhoped.We'reaheadofourinternalgoalsonintegrationandbringingproducttomarketpoweredbytheMisfitplatform.

Fourspecificpoints:first,allofthesupplychainsalesandbackofficeintegrationwillbecompleteinthenextsixweeks,sobytheendofQ1.

SecondpointisthatourFossilGroupglobalsalesorganizationsarealreadysellinginMisfitproductsacrosstheworldinover40countries,withafocusonthenewerproductlinesofShine2andRay.Sotheyaretakingnewtechnologyintoglobalscaleandreachinourdistributionnetwork.

Thirdpointisthatbyspring,bytheendofspring,FossilQwillhaveanewproductlinethatwillbethefirstproductlaunchentirelydesigned,developedandsupportedbytheMisfitengineeringteamandappandcloudplatform.Sowhatthatmeansisinapproximatelyfivemonthsfromtheclosingofthedeal,wewillhaveproductinmarketleveragingMisfittechnologyandsoftwareplatform.

Fourthisbyfallandholiday,allofourwearableswillbeengineeredbytheMisfitengineeringteamsandsupportedbytheMisfitappandcloudplatform.Soasignificantexpansioninthenumberofbrandsbothownedandlicensedthatwe'llbebringingtomarketacrossallthreeoftheproductplatforms.Sotrackers,smarterwatchesortraditionalwatcheswithtechintegrated,andsmartwatches.We'llhaveover100skusin40countries,over10languages,aroundtheworld.AndalloftheseproductswillworkonbothApple'siOSmobilephonesandAndroidphones.

Operator :

IkeBoruchowwithWellsFargo.




IkeBoruchow(Analyst-Sterne,Agee&Leach,Inc):

Hi.Goodafternoon,everyone.Thanksfortakingmyquestion.

Dennis,ifwecouldjustgobacktosomeofthecommentsyoumadeattheendofyourpreparedremarks,itsoundslikeyou'restillveryupbeataboutthelongtermpotentialoftheCompanyandweknowtheheadwindsthatyou'redealingwiththisyearwithFXandtheMisfitacquisitionanddilution.

Butsomeofthecommentsyoumadeabout,Ithinkyousaid,thenextthreeyears,notreallytoexpectmuchgrowth.Imean,I'mnot,I'mjusttryingtounderstand,whatexactlydidyoumeanbythat?Wasitsayingthiskindofmarginstructureiswhereyou'regoingtobeforthenextcoupleyearsandthenyou'llgrow?Justanymorecolortherewouldbehelpful.

DennisSecor (CFO):

Yes,Ithinkyoumusthavemisinterpretedwhatwe'resaying.Soasweplanoutoverthenextcoupleyears,ifwestartwiththetopline,wewillbecontinuingtorolloutmoreandmoreofourbrandsontoourplatform.Weareseeingtractionthatwe'regainingwithFossilandSkagen,andweareinvestingmorein2016.

Misfitisanadditiontoourarsenal,aswehaveotherbrandslikeKateSpade,NewYork,Chaps,sowefeelthatwehaveawholelotofdriversforgrowth,recognizingthatthere'salwaysheadwinds.Butwhatwe'resayingisthatweseeapathnowtobeabletoacceleratethegrowthaswemovefrom2016into2017andpast.SoourgoalasaCompanyistodrivegrowthandusetheinvestmentsthatwe'vemadeoverthelastcoupleofyearstodothat.

Now,wehavebeen,in2015and2016,wehavebeeninvestinginmarketingandourstrategicinitiativesandthathasputsomepressureonouroperatingmargins.Whatwe'resayingnowonthebackofthattop-linegrowth,wethinkourinfrastructureislargelyinplace,sothatistheretobesignificantlyleveragedaswedrivegrowthtothetopline.

Intermsofthemarketinginvestments,ourgoaloncewegetpast2016,we'llstillseein2016,somecompressionofmarginstosupportthat.Again,someofthat'sdrivinggrowththat'sbeingmaskedbyotherareas,butbythetimewegetto2017,thegoalwouldbetobegrowingourmarketinginvestmentsroughlyinlinewiththewaythetoplineismoving.Sowhatthatallmeansisthatweseeapathtomarginexpansioncomingoutofthisyear.That'sagoalofours.Wearenothappywiththe7.5pointsofoperatingmargincompressionthatwe'veseen.

ThecouplethingsthoughthatIhighlighted:currencies,currenciesareroughlyhalfofthattwo-yearcompressioninoperatingmargins.Whilewedolookforopportunitiestoexpandthroughtoolslikepricing,theyaremuchhardertodriveandtheyarelargelydependentonhowtheconsumerreacts.SoaweakeningUSdollarwillgetusquicklythere.AbsentaweakeningUSdollar,it'sgoingtotakeusalongerperiodoftime.AndthenIjustwanttoremindpeoplethattheMisfittransactioncreatessomefixedcostsinourcoststructurearoundpurchaseaccountingandthosecontingentgrantsthataregoingtobewithusforaboutthreeyears.


Ifyoulookattheexplosioninawarenessofwearabletechnologyandtheincreaseinsalesfrombothtrackersandsmartwatches,it'sarguablythefastestgrowingbusinessintheworld.Hugeamountofconsumerinterest,soourplayintobothcategoriesoftraditionalwatchesandtowearablesisreallyaboutgrowth.

Operator :




EdYrumawithKeyBancCapitalMarkets.

EdYruma(Analyst-KeyBancCapitalMarkets):

Hi,thankssomuchfortakingmyquestion.

Obviouslythere'sbeenlotsofturmoilinthewholesalechannel,particularlyatmulti-brandretailers.Isityourviewthattheordertrendstherehavebeguntostabilizeandinthemediumterm,arethereanyotherthingsyoucandotoreduceyourrelianceonthischannel?

Thanks.

DennisSecor (CFO):

Wedidn'thearthefirstpartofyour--couldyourepeatthefirstpartofyourquestion?

EdYruma(Analyst-KeyBancCapitalMarkets):

Yes.I'mjusttryingtounderstand.Obviously,wholesalehasbeendifficult,particularlyinmulti-brandwatchretailers.Doyouthinkthatthedestockinghaslargelyoccurredatthisstage,andwhatcanyoudolongertermtomitigaterelianceonthewholesalechannel?

Thanks.


Well,thewaywelookatthewatchbusinessinthechannelgloballyisthatthewatchbusinessisrelativelysoftandfromourperspective,it'sbecausewehaveafashionmiss.Wedon'thaveenoughtechnology.

Soourmissionistoputtechnologyacrosstheplatformandallofourcustomersareveryinterestedinthis.Andwethinkthataswecontinuetoshowproductsandbringoutnewbrandsandnewdevicesontotheprogram,notonlyintraditionalwatches,butalsoinwearabletechnology,inbothtrackers,fashiontrackersandalsodisplaywatches,we'regoingtogetanadditionalamountofspaceandahugeamountofinterest.

Andoneofthethingsaboutthiswholewearabletechnologythingisalotofthestoresweselltohaven'tparticipatedintheexplosionofspendingitontechnology.Soagain,thewatchbusinessisabout$65billion,thetechindustryspendingistrillions,consumers,especiallymillennials,willoverspendontechnologybyalongshot.Thestoresthatweselltolookatitasanopportunityforustogetsomeofthatspendingintheirstore,whichcouldchangethesituationforthemdramatically.

Sotheyalsorecognizethatthewatchbusinessintheirstoreis,althoughit'sbeensoft,andthat'smostlybecauseofthefashionmiss.Buttheystillrecognizethatasoneofthemostproductivedepartmentsinthestore,oneofthemostregular-pricedbusinesses,oneofthehighestgrossmarginpersquarefootbusinesses.Butnot,it'snotashotorrobustasitwas,butit'sstillintermsofproductivity,oneofthebestbusinessesinthestore.

Sowehave,asyoumentioned,seenasthebusinessesdeclined,wehaveseensomedestockingandwethinkthatisgoingtoprobablycontinuethroughthefirstquarterandseconduntilwegetincreasingamountsofwearabletechnologyinthemarketandwe'renotprojecting,asyoucantellfromthefirsthalfoftheyear,strongsales,butwedothinkthatthewearabletechnologyinfluxinthebackhalfoftheyearwillchangethedirectionofthat.

Operator :




OliverChenwithCowen&Co.

SilaRiginous (Analyst-CowenandCompany):

Hi,thisis[SilaRiginus]forO liverChen.Thanksfortakingmyquestion.MyquestionisactuallyonKors.Couldyoujustmaybecommentonwhatyouroutlookismaybeforthefirsthalf?Whendoyouthinktrendscouldstarttostabilize?Andthen,maybecanyoujustpointtosomeexamplesofnewnessthatyou'redrivinginthewatchcollection,andperhapsinjewelryandmen's?Thankyou.


Forthefullyear,ifyoulookattheKorscomplexofwatchesandjewelrycombined,thebusinesswasactuallyminus6bpsfortheyearinconstantcurrencyandreported,it'sminus11bps,whichshowstheimpactonthecurrencyonthatbusiness.Butwhatwe'redoingrightnowiswe'reprobablygoingtohavemorenewnessthanwe'veeverhadinKorsflowingrightnow.We'vealreadytestedsomeofitandithasadifferentlooktoitandwethinkit'sgoingtobeverystrong.

Inadditiontothat,therewillbeawearableslaunchlaterthisyearthatwillbeverysignificant,Korsbusinessisaleaderintheglobalwatchbusiness,andhugeamountofinterestandawarenessandwethinkthatit'sgoingtobeabigplayintermsofwearables.Theotherthingtokeepinmindisthat,althoughthebusinesshascomedownsome,it'sstilloneofthemostproductiveintheindustryanddefinitelyinourportfolioitis,andwe'recontinuingtoopenshops.

Sowehave,atthebeginningofthisyear,wehadabout332watchorjewelryshops,someofthosearewatchandjewelryshops,but332shops.We'regoingtobuildanadditional82thisyear.Alsokeepinmindthatwe'restillintheearlystagesofbothmen'swatchesandthejewelryindustry,thejewelrybusinessforKors.WearegoingtobeaddinganadditionallayerofjewelryfortheKorsboutiques,whichisahigherlevelofjewelry.

Someofit'ssilverorgoldplated,reallytoraisetheaverageunitretail.Ithinkitcouldhavethepotentialofmakingthatbusinesslargeroverthelongterm,becauseespeciallyinEuropeandAsiaandtheseshop-in-shopsandintheKorsboutiquesthemselves,it'saprettysignificantopportunity.

AndalsokeepinmindinKors,we'rejustgettingstartedinAsiaasatotal.It'sstillrelativelynewandwe'reseeingtractionthere.Solongterm,wethinkthebusinesswillcontinuetogrow.

Operator :

SimeonSiegelwithNomuraSecurities.

SimeonSiegel(Analyst-NomuraSecuritiesIntl):

Thanks,goodafternoon.

KostaorGreg,doyouhaveanydataorthoughtsontheretentionorabandonmentrateforthewearablesyet?Areyouseeinganydifferenceinreturnratesforwearablesversusthetraditionalwatches?Andthenjust,Dennis,justtoclarify,Ithinkyou'reprojectinganegative140-basispointimpacttorevsfromcurrencythisyear.Justlookingatthespotrates,Iwouldhavethoughtthatwouldhavebeenflatterforthefullyear,soIcouldbemissingsomethingsimplethere.ButIjustwantedtoconfirmthat.

Thanks.


Yes,thisisGreg.I'llanswerontheabandonmentrate.




Ithinkthe--Iwouldsaywe'reprobablyinlinewithtrackersprobablyinreturnratesrelativetothecategoryandabandonment.ButIwouldsayacrossallthreecategories,wearen'tseeinganythingotherthandatathattellsusthisisgoingtocontinuetobeahigh-growthcategoryforus.Soconsumerinterestandawarenessisincrediblyhigh.

Thosethatarereturning,oftenthey'relookingforbetterfunctionality,sothingslikenon-charging.Sotheyjustdon'tlikethehabitoffrequencyofcharging.Andwe'resolvingthatwithournon-chargingproductthatworkonbatterywatches.Andthensome,especiallyIwouldsayoutsideofourproductsandothercompetitors,theyarejustmissingastyleandabrandingelementtotheproductthat,again,we'resolvingfor.

Sowethinkincrementalfunctionality,betterstyle,betterbranding,allofwhichwearesignificantlyimprovingaswearealreadyengineeringoursecondandthirdgenerationofproduct.Weexpectahighrateofadoptionandlowerabandonmentthanthecategoryhasseen.

DennisSecor (CFO):

Oncurrencies,Iassumewhenyou'retalkingaboutthespotrate,youwerelikelytalking,I'mguessingyou'retalkingabouttheEuro.SotheEuroactuallyhasbeenfairlystable,butwhatwesawattheendofthefourthquarteristheUSdollarstrengtheningagainstanumberofothercurrencies:alotofAsiancurrencies,theCanadiandollar,theMexicanpeso,SouthAfricanrand.Sowhileyou'reright,ifwewereonlyimpactedbytheEuro,yourassumptionwouldlikelybecorrect,butit'sthelargerportfolioofcurrenciesthatweoperatewith.

Operator :

Thankyou.AndournextquestioncomesfromBettyChenwithMizuhoSecurities.

BettyChen (Analyst-MizuhoSecurities):

Oh,thankyou,goodafternoon.

Iwasalsocurious,intermsoftheQbuyers,canyougiveusanysenseofweretheytraditionalwatchwearersupgradingtoawearabletechnology,oraretheycompletelynewtothewatchcategory?Ifyouhavethatdata.Andthencanyoujustremindus,withthewearablesmarginsbeingslightlylower,atwhatpointcanweseethatmarginstarttobecomemorecomparabletoyourfashionwatchbusiness?Isthatsomethingwecouldseesomeimprovementby2017,orreallylookingbeyondthat?

Thanks.


Onthewatchesthatarehybrids,whatwe'reseeingbasicallyis,throughallourlaunchofQ,wegotmorePRandmorepress,morepageviews,moreimpressionsthananythingwe'veeverdonesotheawarenessisveryhigh.Weknowit'sdrivingtraffictoourstoresandwebsite,soit'sprobablyacombinationofboth.

We'regettingnewcustomers,becausethere'salotofawarenessandinterestinwearabletechnologyandthisisauniqueproduct.It'stheentrylevelintowhat'sgoingtobemuchlarger.Andwe'realsogettingsomecustomersthatareinthestorelookingatwatchesandtheygo,oh,thislooksgreat.It'sgottechnologyinit.

Soagain,theissueisnotaboutcannibalizationforus.Thisbusinessisgoingtobemuch,muchlarger,becauseit'ssomuchinterestinbothwatchesthathavetechnologyandalsoinwearabletechnologythatIthinkit'sgoingtofaroffsetanycannibalization.




We'regoingtomakethewatchcategorymorerelevant,especiallyformillennials.Again,largely,millennialsgrewupwithsmartphones.Theyhaven'tnecessarilywornawatchbefore.Sotothem,it'sawholenewthing.Andthenwe'regoingto,inwearabletechnology,we'regoingtohaveamuchlargeraddressablemarket.

Sowethinkthatboththecombinationofthosetwothingsisgoingtoreallyoffsetanycannibalizationgoingforward.ButIthinkboththetraditionalwatchbusinesswillgetmuchlargerandwe'llgainshareandthenwe'llhaveanentreeintothewearabletechnologybusiness.

DennisSecor (CFO):

Asitrelatestomargins,sowhatwedidsayforthisyearis,withtechmarginsarebelowourCompanyaveragemargins,althoughwehaveanumberofinitiativesthatweareexecutingonthatshouldhelpoffsetthoseinthebackhalfoftheyear,andmostofthatimpactisgoingtobesecond-halfloadedbecausethat'swherewewouldexpecttoseegreaterandgreatervolumes.

Aswemovepast2016,ourexpectationoverallis,throughtechnologyimprovingandcostsultimatelycomingdownandthebenefitofourscale,thatwecanseeovertime,wecanseeimprovedmarginsfromwheretheyarerightnow,whetherthat'sa2017impactorbeyond,wewilltalkmoreaboutdetailsin2017whenwegetthere.Westillhavealottolearnhere.Butwedobelievethatthereshouldbeopportunitiesovertime.

Operator :

RickPatelwithStephens.

ShreyaJawalker (Analyst-StephensInc):

Hi,thankyou.ThisisShreyaJawalkerfillinginforRick.CanyoutalkabouttheoutlookinChina?

Obviously,atoughmarketoutthere.Butisthereanythingyoucandofromamerchandising,marketingorpricingperspectivetoweatherthatstorm?Thankyou.


Obviously,theChinamarket'sverydifficult.WenotonlyhavestoresthereandoperationsinChina,butalsoit'saffectingMacauandHongKongaswell.Sohavingsaidthat,westillareoperatingoverthere,wehaveagreatteam,theyareonagreatstrategy,we'recontinuingtobeactiveinthemarketinsettingupdistribution,etcetera.

Thefactremainsthatstillthere'sgoingtobehundredsofmillionsofpeoplethatjointhemiddleclassatsomepoint.Sowe'recontinuingtomoveforwardanddothebestwecan.Andwedothinkthattheentreeofwearabletechnologyintothemarketcouldbeacatalyst.

Theyobviouslyareveryinterestedintechnology.There'sbeensomeactivitiesovertherethatgiveusindicationthatwecouldprobablydistributewearabletechnologyonaprettybroadbasisthrougheCommerce,etcetera.Sowe'restudyingthat,butagain,longtermit'sstillgoingtobeabigcatalystforgrowthforus.

Operator :

ErinnMurphywithPiperJaffrey.

ErinnMurphy(Analyst-PiperJaffray&Co):




Great,thanks,goodafternoon.

Iwashopingyoucouldelaboratealittlebitmoreonthebusinessthatyoudidintheoff-priceduringthefourthquarter.Itsoundslikeyoudidmorethanyouintended.Howmuchofthatdrivestheimprovedtop-lineresultsinthefourthquarter?Andthenisthisachannelthatyouenvisionhavingtorelyonalittlebitmoreasweroundout2016?

DennisSecor (CFO):

Yes,Imean,weendedupliquidatingmorethroughoff-pricepartners,largelybecausethroughouttheyearinventorieswerehigheraswewereseeingdemandthatwasfalling.And2015overallwasnotasuccessfulyearforusonthetopline.So,wediduse-itwasn'tadramaticamountofadditionalfourth-quarteroff-price.Butwedidsellalittlemoreoff-pricethanwehadplannedgoingintothequarter.

Operator :

LindsayDruckerMannwithGoldmanSachs.

LindsayDruckerMann (Analyst-GoldmanSachs):

Thanks,goodevening.

Ijustwantedtoask,inadditiononthewearablespiece,asyouthinkabouttherolloutin4Qforthebrandswhereyoudoexpecttoaddtechnology,canyougiveusabitofasenseonhowmanyoftheunitsthatyou'llbesellingintodepartmentstoresoryourownretailers,howmanyyouexpectyou'llbeabletoaddtechnologyto?Sohowmuchthiswillreallyaffecttheassortment.

Andthensecondly,asyouthinkaboutpricepointsforthedisplaywatchesinthehigh$200slow$300s,isthataboutwhereweshouldbethinkingpricepointswillbeacrosstheportfolio,orwillyoutierbybrandtomoreorlesspremium?


ThisisGreg.

SoI'dhighlightagainasitrelatestotheassortment,the100skusthatItalkedaboutacrossasignificantexpansionofbothownedandlicensedbrands.You'llseeannouncementsaswegothroughBaselandthenultimately,fashionweek,inournormalannouncementtimeframes,whereourlicensedbrandswillhighlighttheirindividualstrategiesandallcomeintofullfocusforyou.Butagain,prettysignificantexpansionwhenyoustartthinkingabout100plusskus.

Asitrelatestopricepoint,I'dpointyoutoacouplethings.FossilQisaprettygoodbaselineforhowyoushouldthinkaboutpricepointrelativitywhenyoustarttothinkaboutFossilversusMichaelKorsorotherlicensedbrands.Onapercentagebasis,youshouldstarttoseeustierupinasimilarwaythatwetierinourtraditionalwatchcategory.

TheotherthingI'dsayis,asyoulookatourpricingstrategyfortheinnovationwe'rebringingtomarketinthespringhere,you'reseeingusbringoutnewstylesatapremiumtoevenourfallandholidaylaunches,soevenonthesametechnologybase,we'rebringingstyleandinnovationincolorwayandmaterialsthatareallowingustoextractagreaterpremiumevenfortheFossilline.

LindsayDruckerMann (Analyst-GoldmanSachs):

Andthose100skus,couldyouputintocontextlikeacomparisonofhowmanyskusyoumighttotallysell?




DennisSecor (CFO):

Oneofthethingsthatisgoingtobeanadvantageinwearablesandtechwatchesisthatittypically,inthatindustry,it'sverysmallnumberofskusthatdohugequantities,andwe'realreadystartingtoseethat.AsImentioned,ourdisplaywatchinthemonthofDecemberwasthenumberoneunitseller.Sowe'regoingtobenefit,Ithink,fromusbeingabletohavefewerskusinthemarketthatsellasignificantquantity.Andthat'sobviouslyaverygoodthingforourCompany.

Aswementionedbefore,wehavesomethinglike2,700skusinourtotalwatchbusiness,allbrandsthatyieldacouplebilliondollars.This--Ithink,withwearabletechnology,wherewe'veseenalreadybefore,whatwe'restartingtoseenowisthatwe'reactuallygoingtoreduceourskucount,whichisobviouslyagoodthing.

Operator :

DorothyLaknerwithTopekaCapitalMarkets.

DorothyLakner (Analyst-TopekaCapitalMarkets):

Thanksandgoodafternoon,everyone.


Goodafternoon.

DorothyLakner (Analyst-TopekaCapitalMarkets):

Justfollowinguponthewearablessegmentagain,Ijustwondered,you'vesaid100skus.You'vetalkedaboutthatbeingacrossmultiplebrands.Iwonderifyoucouldjust,andyou'vetalkedobviouslyabouttheKorsentry.Iwonderifyoucouldgiveussomeideaoftimetable.Isthisallgoingtooccurinthesecondhalf?Andhowmanybrandswillactuallyyoubeabletobringtomarketin2016?


Soyou'regoingtoseeusdriveasignificantamountofgrowthintheMisfitbrandandinFossilQacrosstheglobalsellingorganizationinthefirsthalfoftheyear,andthenyou'regoingtoseethesignificantexpansioninthenumberofbrandsandskusacrossallthreeoftheproductplatformswehighlightinwearablesinthebackhalf.Sothat'sthe--youshouldseeaback-halffocuswhenyoureallystarttogettothenumberofbrandsandskusthatwe'retalkingaboutfallandholiday.

Operator :

DanaTelseywithTelseyAdvisoryGroup.

DanaT elsey(Analyst-TelseyAdvisoryGroup):

Goodafternoon,everyone.

AsyouthinkabouttheMichaelKorslineandalsotheBurberryline,whichislapsing,whendoessmartwatchtechnologygetinfusedthere?AndalsoonBurberry,howmuchrevenuedoesthatbusinesstakeawayandareyoulookingfornewmulti-brandlicensestolicense?Andjustlastly,Swisswatches,giventhefactthatyou'veinvestedinSwisswatchproduction,issmartwatchesmanufacturedinSwitzerlandandhowshouldwethinkofthatgoingforward?

Thankyou.





Wellfirstofall,ontheMichaelKorswearabletechnologylaunch,that'sgoingtobeintheeitherthirdorfourthquarter.We'reworkingonthetimingrightnow,soitwillbe,asImentionedbefore,it'llbeaprettylargelaunch.Therewillbealotofawarenessaroundit,andwethinkitwillbeverysuccessfulandgainalotoftraction.

Burberry,ourrelativelysmallbusiness,smallsingle-digitpercentofourbusiness,notgrowing,necessarily,sowe'reputtingthoseresourcesonotherbrands.WedohaveKatePaidandChapsarebothnew,ToryBurchisjustgettingstarted.FossilandSkagenaredoingverywell.AndournumberonethingiscontinuingtomakeFossil,ourlargestbusiness,afastgrower.

Andwe'vemadealotofprogresswiththat,buttheincreasedamountthatwespentondemandcreation,we'rehavingalotofgreatthingshappenwiththeFossilbrandthatwethinkcancontinuetogrowatastrongrate.Andthen,havingsaidthat,we'llalsocontinuetolookforotherbigbrandsthatcouldbesignificantinourportfolio.OneotherthingIwouldmentionisthatwedohave,withourlargestlicenses,Kors,Emporio,ArmaniandDiesel,weinthelastcoupleyears,havesigned10-yearlicenseswiththem,sothosewillallcontinue.

OnyourquestionaboutSwiss,oneofthethingsthatwe'vebeenworkingonisrampingupourcapabilityfordesigninourSwissdesigncenter.Andtheyareactuallydoingalotofdesignforusinourentireportfolio,whetherthewatchesaremadeinChinaorSwitzerland.Andtheyareactuallyworkingonwearabletechnologyaswell,anddoingsomegreatstuffoverthere.Incredibledesigntalentinthatofficethere,sowe'llcontinuetousethat.

Wedon'texpectatthispointwewouldhaveanySwiss-madewearabletechnology.Thatdefinitelyissomethingthatwearelookingatbecause,aswe'vesaidbefore,there'snoreasonwhyeventuallyeverywatchwemakeshouldn'thavesometypeoffunctionality,achipinthere,sensors,notifications,etcetera.Sothat'ssomethingwe'relookingat,aswell.

Operator :

LaurentVasilescuwithMacquarie.

LaurentVasilescu (Analyst-MacquarieResearchEquities):

Goodafternoon.Thanksfortakingmyquestion.

Ithinklastquarter,Misfitwasguidedtogenerate$30millionin2015.CanyoutellushowMisfitdidfortheyearandwhatyourexpectationsarefor2016?

Andshouldweassumewearablesoverallwillcontributeamidsingledigitpercentageoftotalrevenuesfor2016?Andthenanycoloronhowthatpercentageshouldshakeoutforthefirsthalfversusthebackhalfwouldbegreat.

DennisSecor (CFO):

Wedidn'tspecificallyguidetoeitherMisfitoroveralltech-infusedrevenues.Butthewaywe'relookingatit,wedidshareonourlastcall,Misfitwasabouta$30millionbusinesslastyear.That'sthebase.Keepinmind,too,thatwasabasesellingalltheproduct.SowehavetheShine2.WehavetheRay.

Ourgoalthisyear,asweweretalkingaboutearlier,istodrivethatthroughourexistingdistribution,driveitthroughnewchannels.So,that'salreadyongoing,asisFossilQ.That'sgoingtobepartofourofferingallyearlong.Laterintheyeariswherewebringmorebrandsontotheplatformanddrivethat.




Soyou'llseegenerallytechnology-infusedproductswillbeheavierinthebackhalfoftheyearthanfronthalfofyear,butwehaveproductsinthemarketallthroughouttheyear.

Operator :

Thatconcludestoday'squestion-and-answersession.Atthistime,I'dliketoturntheconferencebacktoManagementforadditionalorclosingremarks.

EricCerny(IR):

Thankyou,everyone,foryourparticipationonthecall.WelookforwardtotalkingtoeverybodyafterthefirstquarterinMay.Thankyouverymuch.

Operator :

Thankyou.Thisdoesconcludetoday'spresentation.

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Fossil Group (FOSL) Earnings Report: Q4 2015 Conference ... · PDF fileWe will take this time to review the strategic objectives that we laid out for you coming into 2015 and update