Q4 2021 Fossil Group Inc Earnings Call

March 9, 2022

Okay.

Good afternoon, ladies and gentlemen, and welcome to the fossil group fourth quarter and full year 2021 earnings call. At this time all parties are in a listen only mode. This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company now I will turn the call over to.

Christine Greening the Blue shirt group you may begin.

Hello, everyone and thank you for joining us.

With us today on the call are close to <unk>, <unk>, Chairman and CEO , Jeff Boyer Chief operating officer.

Sunil Doshi, Chief Financial Officer, and Greg Mckenzie, EVP and Chief commercial officer.

I would like to remind you that information made available.

This conference call contains forward looking information.

Actual results could differ materially from those that will be discussed during this call.

Fossil group's policy on forward looking statements.

Additional information concerning a number of factors that could cause actual results to differ materially from such statements.

Is readily available in the company's form 8-K, and 10-Q reports filed with the SEC.

In addition, fossil assumes no obligation to publicly update or revise any forward looking statements.

Whether as a result of new information future events or otherwise, except as required by law.

During today's call we will refer to constant currency results. Please note that you can find a reconciliation of actual results.

Encouraging results and other information regarding non-GAAP financial measures.

Scott on this call and fossils earnings release, which was filed today on form 8-K and is available in the investors section of fossil group Dot com.

With that I'll now turn the call over to Kosta can begin.

Thanks, Christine good afternoon, everyone and thanks for joining us today.

Before we begin we would like to acknowledge the unfortunate circumstances in Ukraine as well as the pandemic is still affecting the significant number of people around the world.

During these challenging times, we are grateful to our teams for their unwavering focus and commitment agility and strong execution as a global company with associates around the world, We must always strive to make the world a safer and healthier place to live and grow.

Despite various global and macro challenges over the past year. We are pleased to report a significant improvement in our results for 2021, reflecting strength across key categories and regions as well as excellent execution by our teams globally we.

We delivered double digit top line growth of 16% expanded adjusted EBITDA margins to eight 5% and.

And achieved adjusted diluted earnings per share of $1 12.

Early in 2021, we achieved our $250 million new world fossil cost savings target.

With a more streamlined organizational structure and a stronger balance sheet, we were able to accelerate investments in our growth initiatives and also to increase our marketing spend to capitalize on improving consumer demand, particularly for traditional watches.

These initiatives contributed to growing sales and expanding margins, which was particularly helpful. As we navigated a number of macro headwinds, including ongoing pandemic impacts in a challenging supply chain environment.

Investments in our growth initiatives, primarily our digital strategy marketing and analytics and brand building are paying off we.

We are deepening our customer engagement with our brands improving customer lifetime value and creating a strong pathway for sustained revenue growth.

It is gratifying to see that are digitally led mindset drove meaningful results in 2021.

We increased our customer file size by 40% and grew our digital sales by 20%.

And with increased marketing investment and product newness, we created stronger brand heat in our core brands product offerings.

And now turning to the fourth quarter, we achieved net sales growth of 14% and 16% on a constant currency basis.

Grew adjusted EBITDA by 15% versus the prior year and achieved adjusted EBITDA margins of nine 5% in the quarter.

In the Americas sales were up 26% in constant currency.

Growth in our traditional watch category was a robust 39% as we capitalize on consumer demand across digital and non digital channels and our largest brands.

Traffic and sales in our own stores was better than plan and key performance indicators like our sellout and wholesale channels was strong.

In Europe constant currency sales were up 21%.

The omicron surge created some headwind in December resulting in a loss of momentum in brick and mortar traffic and international tourism has remained below pre pandemic levels in certain markets.

Traditional watch and jewelry growth was very strong in the quarter up 24% and 48% respectively.

As effective marketing investments and a healthy inventory position drove category growth in our largest brands in key markets.

Offsetting the strong double digit growth in Americas, and Europe sales declined modestly in Asia, resulting in total company sales growth below the expectations. We provided in November .

Performance in Asia was mostly impacted by quarterly results in mainland, China, which were down significantly in constant currency versus last year, primarily reflecting COVID-19 policies and travel restrictions.

Other select markets in our Asia region saw a modest improvement versus Q3, but continue to see tourist sales well below pre pandemic levels.

From a category perspective worldwide traditional watch sales grew 18% growth rates in the Americas, and Europe , 39% and 24%, respectively offset a decline in Asia.

Growth was highlighted by global demand in key brands like fossil Kors and Armani exchange and.

<unk> watches we showed growth in key markets and channels and our largest brand also while we are reporting an overall decline in sales due to the closure of some less desirable distribution.

Our investments and capabilities in digital channels continue to drive growth, even though our traffic rebounded in brick and mortar.

Our digital channels grew 7% in the quarter and are up 37% versus 2019.

The combination of digital sales growth in traffic rebound in our own stores help fuel incremental growth in our customer file size and important asset as we execute our longer term growth strategy to deepen customer engagement in our brands and categories.

Looking forward, we have a fundamentally more robust business model and are encouraged by the global opportunity in our core categories. We see a healthier watch market where category demand signals for both traditional and smart watches are positive.

And even larger overall addressable markets like jewelry and leathers continue to reflect strong global demand.

More specifically into 2022, while we recognize the challenges in the macro environment will certainly have some impact on consumer spending tourism and confidence in the near term, we anticipate that discretionary spending we will continue to rebound in many markets and improved throughout the year.

With that context, we remain focused on our four strategic growth pillars that we outlined in 2021.

Accelerating our digital platform building brand heat through product innovation and marketing.

Driving operating efficiency and pursuing our long term growth objectives in China and India. These.

These core pillars have driven our return to profitable growth and provide a pathway for sustainable growth into the future.

On the digital front some of our key action plans for 2022 will be centered around our DTC capabilities, including investing in our consumer data platform.

In addition to growing our customer file size on top of last year's 40% growth. We are also investing in better tools and analytics to more effectively communicate our brand stories to new and existing customers.

In the Smartwatch category, we will also launch our own smartwatch App later, this year, which will bring existing or new customers onto our consumer data platform, enabling new pathways for communication and engagement.

We're also investing in our largest brands leveraging our creativity and supply chain to bring exciting products to market with both iconic designs and platforms and limited edition products on collaborations.

In 2022, we plan to increase our marketing spend and key brands like fossil Kors Armani to drive higher customer engagement in key markets.

Reflecting back on the past several years, we have executed a successful transformation.

And navigated an unprecedented pandemic.

All while building a digitally led model that positions us for the long term.

Our digital foundation and streamline cost structure combined with our global reach and scale provides us with a path forward to sustainable growth and a return to double digit operating margins in the coming years.

We are grateful to our teams and associates throughout the organization for the energy and dedication they bring to work every day, we are all committed to driving excellence in building shareholder value over the long term.

And now I'll turn the call over to Sunil to review the financials and discuss our 2022 outlets.

Thanks, Kosta and good afternoon, everyone. We finished the year with a solid quarter, which saw us achieve double digit sales growth. Despite the COVID-19 surge in December maintained strong gross margins and deliver adjusted EBITDA margins of nine 5%.

First let me walk you through net sales.

Q4, net sales came in at $604 million up 14% year over year up 16% on a constant currency basis, and a sequential improvement from Q3, 11% constant currency growth.

From a regional perspective net sales in the Americas were up 26% in constant currency.

Strong consumer demand in traditional watches and jewelry traffic growth in brick and mortar and ongoing growth in digital channels fueled the results.

During the quarter, we did experience some delays in deliveries that impacted our ability to maximize sales in our leathers category.

In Europe Q4, net sales were up 21% in constant currency, reflecting strong digital execution and easing pandemic restrictions.

The consumer responded well to our offerings across all channels.

Notable notable strength in traditional watches and jewelry across our owned and licensed brands, including fossil Kors Armani and diesel.

Digital sales were up double digits and traffic and sales comps in our own stores were also strong.

With the Covid surge in the later weeks of the quarter, we saw a slowdown in brick and mortar traffic and experienced temporary store closures in some markets, which impacted our December topline growth rate.

In our Asia region, Q4, net sales declined 11% in constant currency.

Primarily driven by ongoing pandemic lockdowns in mainland China.

Other markets, including India, Japan, Korea, and Australia continue to see mixed results due to restrictions.

While sales were down versus last year in mainland China sales versus 2019 were up 22% in the market.

From a channel perspective, Q4, digital sales increased 7% versus a year ago, and 37% compared to 2019.

Additionally, we continue to see our digital sales mix at about 40% up significantly from 2019 levels.

As a reminder, digital sales includes sales on our own E Commerce sites Global third party platforms and wholesale dot com.

Looking at our looking at sales in our DTC channels, which encompasses our own e-commerce sites and stores.

Comparable of DTC sales were up 12% versus last year.

Q4 store traffic growth sequentially improved versus Q3.

<unk> continued its growth trend from Q3.

We ended the quarter with 370 company owned stores down 12% versus a year ago and down 18% from year end 2019, as we continue our program to improve our overall store profitability.

Turning to category performance overall global watch sales in Q4 increased 14% in constant currency led by traditional watches which grew 18%.

Traditional watch sales were up in the Americas, and Europe with continued strength in fossil and strong performance across our licensed brands.

Partly offsetting that growth are smart watches were down slightly versus last year.

As Kosta mentioned during 2020, we rationalized both the distribution and scope of our licensed offerings in order to drive a more focused and profitable smartwatch category in fiscal 'twenty two and beyond.

Q4, net sales growth in our jewelry category increased 69% in constant currency with broad based growth across brands regions and channels.

Moving down the P&L fourth quarter gross margins came in at 51% up 90 basis points to last year.

The year over year increase was primarily driven by reduced promotional activity and favorable currency impact on our cost of goods sold.

Additionally, recall that last year's Q4 included liquidation activity on prior generation smartwatch products.

Partially offsetting these improvements were increased freight costs in the current year and a less favorable regional sales mix.

<unk> the prior year included minimum license or royalty cost reductions.

Turning to expenses costs were well controlled and we delivered improved ratios on both SG&A and total operating expenses in the quarter.

SG&A dollars in Q4 totaled $249 million up 11% versus last year.

It's worth noting that prior year's SG&A included a $12 million noncash gain related to early lease terminations.

As a percentage of sales SG&A was 41, 2% an improvement of 120 basis points versus last year.

While we are planning for additional marketing spend this year as Kosta mentioned, we do expect SG&A as a percentage of sales to remain approximately flat on a full year basis in 2022.

Total operating expenses in the quarter, which in addition to SG&A includes impairments and restructuring costs were $255 million up 6% to last year.

Both impairment and restructuring declined versus last year, as we wound down costs incurred under the thoughtful new world transformation to point out program.

Operating expenses as a percent of sales improved by 350 basis points to 42, 2%.

Despite the COVID-19 impact to our topline performance the combination of gross margin gains and expense control allowed us to deliver a solid operating results in Q4 and for the full year.

Fourth quarter adjusted operating income was $53 million with an adjusted operating margin of eight 8%.

Fourth quarter, adjusted EBITDA totaled $58 million and adjusted EBITDA margin came in at nine 5%.

On a full year basis, adjusted operating income was $124 million with an adjusted operating margin of six 6%.

And adjusted EBITDA grew to $160 million that reflects a margin of eight 5% up nicely from pre COVID-19 levels of seven 6% in 2019.

Our Q4 income tax provision was $7 million for a quarterly effective tax rate of 26, 8% of pre tax income.

Diluted earnings per share was 37 <unk>.

Compared to a diluted loss per share of <unk> <unk> in the prior year period.

On an adjusted basis diluted earnings per share was <unk> 64, compared.

Compared to <unk> 19 in the prior year period.

Looking at the balance sheet and cash flow yearend inventories totaled $347 million up 17% versus last year, driven by timing of inventory receipts and higher levels of in transit inventory, reflecting longer lead times for product shipped via ocean.

We ended the quarter with over $450 million of liquidity that includes cash and cash equivalents of $251 million and $200 million of revolver availability.

Total debt was $142 million at year end and reflects the repayment of borrowings under our term loan subsequent to the completion of our $150 million unsecured senior notes offering in November .

And now turning to our outlook for fiscal 2022.

For the full year, we expect worldwide net sales growth in the range of 2% to 6%.

Adjusted operating margin of 6% to 7%.

This revenue guidance assumes prevailing currency rates and reflects approximately 200 basis 250 basis points of anticipated currency driven headwinds.

Additionally, as we look at the cadence of 2022, our revenue guidance assumes stronger growth in the second half of the year.

While we're operating in a challenging macro environment right now we believe that strong watch category dynamics are strengthened operating model and our growth initiatives position us to deliver sustainable topline growth over the long term.

Equally important with our improving gross margin profile and right sized cost structure. We believe we are on a measured path to double digit operating margins in the coming years.

Now I'll turn the call back to Christine to take us through some questions.

Thanks Danielle.

Team there are several macro factors foreign investor's minds right now.

First and foremost is the situation in Ukraine.

Perhaps Greg and Jeff can talk about what impact that may have on thoughtful.

Thank you Christine.

First I want to say that our thoughts are with those being impacted by the humanitarian crisis in Ukraine and the ongoing pandemic around the world. We are certainly living in challenging times and we just couldnt be more appreciative of our teams around the world that are staying focused on growth and delivering results.

With regards to the specific impact of the Ukraine crisis on our business I would make two points first is that we have historically had very minimal sales in Ukraine, and Russia through distributors and have excluded those sales from our guidance for the year.

Second is that there is of course, no way to accurately assess the range of potential outcomes.

And impact at this point as a result, we will remain conservative in our planning, but aggressive in our execution of the business and agile and taking necessary actions to address headwinds as they occur.

Christine on the supply chain front, we're not seeing major business impacts from the crisis in Ukraine at this time as our supply chain doesn't include routes through the impacted areas.

That said, we are watching oil prices as freight operators can pass fuel surcharges, along and there could be some credit expense pressure if the conflict continues and oil prices remain elevated.

Thanks Chuck.

A bit on that can you talk more broadly about supply chain headwinds in another key topic on investors' minds as we know and how are you navigating that was in 2022.

Unfortunately, the outlook for the supply chain headwinds that we and many other companies have faced over the past year are not forecast to turn around very quickly.

Most forecasts indicate that the ocean freight CT and trucking issues will remain with us for most of this year.

For us the most important issue is managing our product flow and ensuring product delivery for seasonal peaks and promotions.

<unk> added time to our delivery schedules for both air and Ocean deliveries so for the longer lead times.

Our teams around the world have done an outstanding job of ensuring timely product. So despite the longer lead times and unforeseen disruptions that can happen.

Shipping costs do remain structurally higher than what we saw pre pandemic.

For us we have absorbed about 200 basis points of higher shipping and freight costs as a percent of sales.

Despite that as Sunil mentioned in his remarks, we've been able.

Able to expand our gross margins during this time period.

With the structurally higher shipping costs, though we are looking at all elements of our supply chain end to end to identify efficiencies and improve our supply chain resiliency.

From better forecasting demand planning inventory management to production planning and logistics.

We see improvements in these areas of the supply chain is providing sales opportunities with enhanced inventory availability, while at the same time, providing offsets to the supply chain cost pressures.

However, the most recent wildcard we are facing currently is the fuel increase driven by the increase in the price of oil globally that I mentioned a bit earlier.

If fuel and other raw material prices continue to increase we will consider additional pricing actions similar to what we executed this past year.

That's great color, Jeff. Thank you, let's move to Costar.

Traditional watches had strong performance in 2021 Kosta, how do you keep the momentum going and what can we expect in terms of innovation and brand heat going forward.

Well over the past few years. The overall traditional watch market has stabilized somewhat in our demand signals and some outside consumer research indicate that it will continue to grow for the foreseeable future.

For us, we're seeing particular strength in our largest brands fossil kors Armani, and we see major opportunities for them to continue to grow and gain share in the global marketplace.

As a group we are increasing our focus on innovation design and branding we are ramping up our storytelling in the form of new watch ideas and materials sustainability innovations and collaborations and limited editions. In addition, our significant investments in digital capabilities are a game changer and enable us to engage in a more robust.

Thus way with our global watch consumer.

We are also increasing our marketing as a percentage of sales to build greater awareness and help us acquire new customers at a faster rate.

In Asia of course is a very significant long term opportunity for traditional watches as those consumer markets continue to develop.

Costar, that's exciting back in December you announced the appointment of the new fossil brand leader what are some of the initiatives shall be focusing on and how does that change your strategy roadmap going forward.

Yes, a major component of our overall strategy is to build brand heat for the fossil brand by investing in product design and brand building talent and this position was the first step.

We have a new brand leader in a new CMO for the fossil brand.

And we are adding additional creative and all areas of product design visual presentation and communication and marketing.

This new fossil brand story will all be told through our increasing digital capabilities.

In mid 2021, our Chief Digital Officer joined the company and we successfully expanded our digital team globally with additional talent.

We are making significant progress and we will see substantial benefits over the next several months and years.

Great. Thank you, let's move back to Greg.

From a commercial lens, how did you see category and channel performance playing out in each region in Q4, and Greg what are the trends you're seeing in 2022.

Our our customers responding similarly across regions.

The single most important trend is the accelerating momentum in traditional watches where we were up 18% in Q4 versus prior year with 39% growth in the Americas and 24% growth in Europe , partially offset by a decline in APAC, which is being disproportionately impacted by Covid closures.

Traditional watch performance was robust across both digital and brick and mortar channels. Despite the headwinds from Covid Lockdowns in December which caused some loss of momentum in the back half of December and brick and mortar traffic in key markets. We're also taking back share gain in traditional watches in key markets and expect to continue to see solid growth across channels in 2022.

The second category trend to note as jewelry, which grew 48% in Q4 versus prior year and we believe is a long runway of growth ahead of it we are investing more into the category and accelerating the growth with our expanding e-commerce capabilities. The combination of a category with growth tailwind a broad range of owned and licensed brands are bringing to market high margin.

And our ability to leverage our global infrastructure and existing channels of distribution. It makes us a profitable growth category for us.

One call out from a regional perspective as APAC Asia is of course, a very significant long term opportunity as those consumer markets continue to develop especially in China and India.

Although our sales in China were down for the quarter. The fiscal year 2021 business is up 55% versus 2019.

It is about 10% of our total sales with significant upside.

Although we remain conservative in our guidance for APAC in 2022, our teams remain aggressively focused on growth, especially in digital channels in China, and India, and our position to capitalize when markets fully open back up.

To summarize as Kosta mentioned earlier, following our category channel and infrastructure transformation over the last few years.

We have a fundamentally healthier and more robust business model.

And are excited by the momentum and growth trajectory, we're seeing in our core categories.

Along with strength in traditional watches and jewelry I mentioned above and smartwatch as our initiatives to streamline distribution and focus our core brands and smart watches is positioning us to return to growth we have an exciting innovation roadmap ahead.

In fact, we're back to innovating aggressively across all of our categories and have a pipeline of products, we're bringing to market in 2022 that we think our customers and our consumers across the world are going to love.

That's helpful. Thank you Greg.

Now over to Sunil.

Can you help us understand the dynamics around the 2022 outlook and how we should think about the weighting between first half second half.

And then if you could share your thoughts on the longer term outlook and the path to getting to that double digit operating margin that you mentioned that would be helpful. Thanks.

Sure. So first I'll take the current year outlook, when we think about the full year, our revenue guidance assumes that the front half of the year will be at the lower end of the range with stronger growth in the back half of the year from.

From a topline perspective, it's important to note that we expect currency to be a larger headwind in the first half of the year given prevailing currency rates, particularly when we compare the euro the current euro rate to last year.

We estimate the full year impact to be around 250 basis points prevailing rates would suggest that to be closer to 300 basis points in the first half of the year.

Second we also recognize that the recent geopolitical factors have not fully played out in the zero COVID-19 policies in many Asian markets, which impacted our Q4 trends will carry into this year.

Taking these issues into account. It's also too. It's also important to note as Greg Kosta mentioned that the fundamentals in our categories are positive coming out of 2021. We are pleased with the performance of traditional watches, particularly in Americas, Europe and in India and.

In 2021, the jewelry category grew nicely versus 2020 and 2019.

And in both categories, we are continuing to lean into design and inventory to continue this momentum.

Also in 2021, we missed some top line growth in our leathers category given some of the supply chain challenges that emerged last year and impacted the timing of deliveries as we have adjusted our transit lead times, we have better opportunity to recapture that volume in 2022.

And also it's worth noting our digital distribution is growing nicely in our brick and mortar distribution is much more right sized and a few years ago.

Our investments in 2021 should support digital growth objectives throughout the year with some stronger gains in the second half as we implement these initiatives. So taken together our guidance assumes these near term issues to be more of a headwind on sales growth and one H with stronger growth rates expected in the back half of the year.

On gross margin as Jeff mentioned, we've expanded gross margins, while absorbing increased freight cost in 2021.

For full year 2022, we expect gross margins to be approximately in line with last year with gains in the second half of the year as we lap the increased freight costs that we incurred in the back half of 'twenty one.

To help mitigate the increased freight cost and other inflationary pressures, we have rolled out pricing actions earlier this year and have not seen any pushback from the consumer.

SG&A expenses, which excludes restructuring impairment is expected to be relatively flat as a percent of sales on a full year basis versus 21.

Still down over 300 basis points versus 2019, we expect some deleverage in <unk> with modest leverage in the back half.

And that leads to adjusted operating margin guidance for the full year, which we stated was 6% to 7% with the midpoint. That's approximately in line with 2021 and stronger margin rate growth in the second half of the year.

And I think the second part of your question was on the longer the longer term outlook. I think there are a few things that stand out as to why we get back to double digit margin rates in a measured path.

Having executed our transformation program and rationalizing brick and mortar distribution, we've brought down our cost structure.

This has created capacity to Reaccelerate, our digital and brand building efforts to put the company in a better position for growth.

Second our categories are growing and remain attractive.

The traditional watch market is much healthier and growing.

We have strong positions in key markets in mainland, China, and India are vibrant markets, where we felt strong basis, but much bigger opportunities into the future.

Looking forward, we also like our growth potential and smart watches where our roadmap of product brand and distribution is clear and strong.

Jewelry and leathers are significantly larger markets with higher purchase frequency, where we have ample room to grow and our price points and margin profiles.

Third our digital and brand initiatives are expected to drive margin friendly growth and create better opportunities to expand our customer engagement and improve customer lifetime value.

Finally, with an asset light model and the leverage while cost structure, we expect that expenses will grow slower than sales, creating some expense leverage in the model over the long term.

So with a focused set of brand digital and operational strategies. We believe that we have a balanced roadmap to create revenue growth gross margin expansion and expense leverage that gets us to double digit operating margins.

Terrific. Thanks Danielle.

Thanks, Tim for the Q&A and I'll turn it back to Kosta for any closing comments.

Thanks, everyone for joining us and we look forward to talking to you on our next call. Thank you.

Thank you ladies and gentlemen, your participation in today's conference. This does conclude the program you may now disconnect good day.

Okay.

[music].

Okay.

[music].

<unk> group you may begin.

Hello, everyone and thank you for joining us.

With us today on the call our coast to coast total Chairman and CEO , Jeff Boyer Chief operating officer.

Neil Doshi, Chief Financial Officer, and Greg Mcafee, EVP and Chief commercial officer.

I would like to remind you that information made available. During this conference call contains forward looking information.

Actual results could differ materially from those that will be discussed during this call.

Fossil group's policy on forward looking statements.

And additional information concerning a number of factors that could cause actual results to differ materially from such statements is.

He is readily available in the company's form 8-K.

And 10-Q reports filed with the SEC.

In addition, fossil assumes no obligation to publicly update or revise any forward looking statement.

Whether as a result of new information future events or otherwise, except as required by law.

During today's call we will refer to constant currency results. Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-GAAP financial measures.

Got on this call in fossils earnings release, which was filed today on form 8-K and is available in the investors section of fossil group dotcom.

With that I'll now turn the call over to Costar to begin.

Thanks, Christine good afternoon, everyone and thanks for joining us today.

Before we begin we'd like to acknowledge the unfortunate circumstances in Ukraine as well as the pandemic that is still affecting a significant number of people around the world.

During these challenging times, we are grateful to our teams further unwavering focus and commitment agility and strong execution as a global company with associates around the world, We must always strive to make the world a safer and healthier place to live and growth.

We delivered double digit top line growth of 16% expanded adjusted EBITDA margins to eight 5%.

And achieved adjusted diluted earnings per share of $1 12.

Early in 2021, we achieved our $250 million new world fossil cost savings target.

Investments in our growth initiatives, primarily our digital strategy marketing and analytics and brand building are paying off we are deepening our customer engagement with our brands improving customer lifetime value and creating a strong pathway for sustained revenue growth.

It is gratifying to see that are digitally led mindset drove meaningful results in 2021.

We increased our customer file size by 40% and grew our digital sales by 20%.

And with increased marketing investment and product newness, we created stronger brand heat in our core brands product offerings.

And now turning to the fourth quarter, we achieved net sales growth of 14% and 16% on a constant currency basis.

Grew adjusted EBITDA by 15% versus the prior year and achieved adjusted EBITDA margins of nine 5% in the quarter.

In the Americas sales were up 26% in constant currency.

Growth in our traditional watch category was a robust 39% as we capitalize on consumer demand across digital and non digital channels and our largest brands.

Traffic and sales in our own stores was better than planned and key performance indicators like our sellout and wholesale channels was strong.

In Europe constant currency sales were up 21%.

The omicron surge created some headwind in December resulting in a loss of momentum in brick and mortar traffic and international tourism has remained below pre pandemic levels in certain markets.

Traditional watch and jewelry growth was very strong in the quarter up 24% and 48%, respectively as effective marketing investments and a healthy inventory position drove category growth in our largest brands in key markets.

Offsetting the strong double digit growth in Americas, and Europe sales declined modestly in Asia, resulting in total company sales growth below the expectations. We provided in November .

Other select markets in our Asia region saw a modest improvement versus Q3, but continue to see tourist sales well below pre pandemic levels.

From a category perspective worldwide traditional watch sales grew 18% growth rates in the Americas, and Europe , a 39% and 24% respectively offset a decline in Asia.

Growth was highlighted by global demand in key brands like fossil Kors Armani exchange and.

And smart watches we showed growth in key markets and channels and our largest brand also while we are reporting an overall decline in sales due to the closure of some less desirable distribution.

Our investments and capabilities in digital channels continue to drive growth, even though our traffic rebounded in brick and mortar.

Our digital channels grew 7% in the quarter and are up 37% versus 2019.

And even larger overall addressable markets like jewelry and leathers continue to reflect strong global demand.

With that context, we remained focus on our four strategic growth pillars that we outlined in 2021.

Accelerating our digital platform building brand heat through product innovation and marketing.

Driving operating efficiency and pursuing our long term growth objectives in China and India. These.

These core pillars have driven our return to profitable growth and provide a pathway for sustainable growth into the future.

On the digital front some of our key action plans for 2022 will be centered around our DTC capabilities, including investing in our consumer data platform.

In 2022, we plan to increase our marketing spend and key brands like fossil Kors Armani to drive higher customer engagement in key markets.

Reflecting back on the past several years, we have executed a successful transformation.

And navigated an unprecedented pandemic.

All while building a digitally led model that positions us for the long term.

And now I'll turn the call over to Sunil to review the financials and discuss our 2022 outlets.

First let me walk you through net sales.

Q4, net sales came in at $604 million up 14% year over year up 16% on a constant currency basis, and a sequential improvement from Q3 is 11% constant currency growth.