Q3 2023 Fossil Group Inc Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to the fossil group third quarter 2023 earnings Conference 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.
Speaker 1: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group third quarter 2020 free earnings conference 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 submission from the company. I'll now turn the call over to Christine Graney of the Blue Shirt Group to begin.
Now I'll turn the call over to Christian Glennie of the Blue shirt group to begin.
Okay.
Hello, everyone and thanks for joining us today with us on the call are coast to coast, So that's chairman and CEO.
Speaker 1: Hello, everyone, and thanks for joining us today. With us on the call are Costa Karcotis, Chairman and CEO , Jeff Boyer, Chief Operating Officer, and Sunil Doshi, Chief Financial Officer. I would like to remind you that information made available during this conference call contains forward-looking information, and actual results could differ materially from those that will be discussed during this call.
Jeff Boyer Chief operating officer, and Sunil Doshi, Chief Financial Officer, I would like to remind you that information made available during this conference call.
Forward looking information and actual results could differ materially from those that will be discussed during this call.
Speaker 1: fossil groups policy on forward-looking statements, and additional information concerning a number of factors that could cause actual results to differ materially from such statements.
The 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.
Speaker 1: is readily available in the company's Form 8.
Is readily available in the company's form eight.
Speaker 1: 10Q and 10K reports filed with the SEC.
K 10-Q, and 10-K reports filed with the SEC.
Speaker 1: In addition, BOSO assumes no obligation to publicly update or revise any forward-looking statement.
In addition, fossil assumes no obligation to publicly update or revise any forward looking statements.
Speaker 1: whether as a result of new information, future events, or otherwise, except as required by law.
Whether as a result of new information future events or otherwise, except as required by law.
Speaker 1: During today's call, you will, excuse me, during today's call, we will refer to constant currency results.
During today's call you will.
Gives me 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.
Speaker 1: Please note that you can find a reconciliation of actual results to constant currency results.
Speaker 1: And other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8K and is available in the Investors section of Fossil Groups.com. Now I'll turn the call over to Costa to begin. Thanks, Christine.
And other information regarding non-GAAP financial measures discussed 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 dotcom.
Now I'll turn the call over to Kosta to begin.
Thanks, Christine good afternoon, everyone and thanks for joining us today.
Speaker 2: The third core proved more difficult than expected, mostly because of headwinds in the wholesale channel in Europe , and because of soft consumer spending in China.
Third quarter proved more difficult than expected, mostly because of headwinds in the wholesale channel in Europe, and because of soft consumer spending in China from a high level perspective, we are facing challenging category consumer and channel dynamics.
Speaker 2: From a high level perspective, we are facing challenging category, consumer and channel dynamic.
Speaker 2: While working against these headwinds, including tough macro conditions globally, we remain focused on our objectives, most notably the execution of our Transform and Grow Plan, which we are making solid progress on. Pre-quarters into the tag.
While working against these headwinds, including tough macro conditions globally, we remain focused on our objectives, most notably the execution of our transform <unk> grow plan, which we are making solid progress on them.
Three quarters into the tax plan, which we announced in February we are tracking to deliver the cost of goods and operating expense savings. We previously outlined which are expected to drive approximately $300 million in annualized operating income benefit by the end of 2025.
Speaker 2: We are tracking to deliver the cost of goods and operating expense savings we previously outlined, which are expected to drive approximately 300 million in annualized operating income benefit by the end of 2020.
Speaker 2: Your today in 2023, we have captured approximately 80 million in annualized expense.
Year to date in 2023, we have captured approximately $80 million in annualized expense savings.
Speaker 2: Under the extended plan we announced last quarter, we are advancing our strategies to improve our sourcing practices.
Under the extended plan, we announced last quarter, we are advancing our strategies to improve our sourcing practices and to further streamline roles and responsibilities across the organization.
Speaker 2: and to further streamline roles and responsibilities across the organization.
Speaker 2: Both of these initiatives are laying the groundwork to help us generate improved operating margins in 2020.
Both of these initiatives are laying the groundwork to help us generate improved operating margins in 2024.
Our third quarter net sales decline of 21% primarily reflects ongoing headwinds in the wholesale channel in both the Americas, and Europe, and a slower than expected recovery in greater China.
Speaker 2: Our third quarter net sales decline of 21%, primarily reflects ongoing headwinds in the wholesale channel in both the Americas and Europe , and a slower than expected recovery in greater chunks.
The overall decline includes approximately five points of headwinds related to declines in our smartwatch business and due to store closures.
Speaker 2: The overall decline includes approximately five points of headwinds related to declines in our smartwatch business and do this doorclose.
Speaker 2: Importantly, we are seeing some encouraging signs in our core fossil brand, where our product and marketing initiatives are bolstering our traditional watch sales, which are up 2% and up 11% in the US and India, respectively.
Importantly, we are seeing some encouraging signs in our core fossil brand, where our product and marketing initiatives are bolstering our traditional watch sales, which were up 2% and up 11% in the U S and India respectively.
Speaker 2: To address the industry-wide pressure in the wholesale channel, we have put a dedicated team in place that is focused on driving sales through in Kia County School.
To address the industry wide pressure in the wholesale channel we have put a dedicated team in place that is focused on driving sell through in key accounts globally.
Speaker 2: We also have a number of initiatives underway to improve performance in third party e-commerce.
We also have a number of initiatives underway to improve performance and third party E. Commerce. We are using are increasing digital capabilities to collaborate with our largest digital accounts in order to optimize their holiday sales on our products.
Speaker 2: We are using our increasing digital capabilities to collaborate with our largest digital accounts in order to optimize their holiday sales on our
Speaker 2: In our Direct to Consumer Channel, our own e-commerce platform continues the drive results with sales up 8% in the court.
And our direct to consumer channel our owned E. Commerce platform continues to drive results with sales up 8% in the quarter.
Speaker 2: Our investments in people and technology are paying off, as our teams were able to increase their capability to drive sales and margin in the channel.
Our investments in people and technology are paying off as our teams were able to increase our capability to drive sales and margin in the channel.
Overall, we are aggressively addressing the challenges impacting our business in order to improve performance, we're taking actions to strengthen our operating model right size, our cost structure and to restore growth.
Speaker 2: Overall, we are aggressively addressing the challenges that impact in our business in order to improve performance.
Speaker 2: We are taking actions to strengthen our operating model, right size our cost structure, and to restore growth.
The key pillars under our growth plan include revitalizing the fossil brand maximizing our licensed brand portfolio for watches and jewelry and expanding our premium watch offerings.
Speaker 2: Keep pillars under our growth plan include revitalizing the fossil brand, maximizing our licensed brand portfolio for watches and jewelry, and expanding our premium watchoff.
Speaker 2: Under our possible brand revitalization strategy, we are making highly targeted investments in marketing to support our key initiatives across traditional watches, jewelry and love.
Under our fossil brand revitalization strategy, we are making highly targeted investments in marketing to support our key initiatives across traditional watches jewelry and leathers.
Speaker 2: Over the past year, we have conducted extensive consumer insight work to better understand our target consumer.
Over the past year, we have conducted extensive consumer insight work to better understand our target consumer.
Speaker 2: The results of this deep dive led to the successful launch of our global brand campaign in early September , which debuted with a special fashion week advance in both Paris and New York.
The results of this deep dive led to the successful launch of our global brand campaign in early September which debuted with a special fashion week advanced in both Paris, and New York.
The campaign revealed a broad based overhaul of creative expression across all our touch points in both traditional and digital media.
Speaker 2: The campaign revealed a broad-based overhaul of creative expression across all our test points in both traditional and digital meets.
Early reads tell us, it's driving more consumers into the funnel evidenced by global traffic increases to our web site in the United States and in Europe.
Speaker 2: Early reads tell us it's driving more consumers into the funnel, evidenced by global traffic increases to our website in the United States and in Europe .
Speaker 2: In India, our wholesale partners and consumers also respond well to the brand's campaign and over all.
In India, our wholesale partners and in consumers also responded well to the brand campaign and overall positioning.
More recently, we launched our fossil brand collaboration with Disney and celebration of their 100th anniversary.
Speaker 2: More recently, we launched a fossil brand collaboration with Disney in celebration of their 100th anniversary.
In October we unveiled our first release of watches leathers and jewelry, including a capsule of limited edition products made for collectors.
Speaker 2: In October , we unveiled our first release of watches, leather goods, and jewelry, including a capsule of limited-edition products made for collectors.
There is more to come under this collaboration which we're supporting with targeted campaigns leading to the holiday.
Speaker 2: There's more to come under this collaboration, which we're supporting with targeted campaigns leading to the...
We are fortunate to have an experienced team and a strong partnership with Alvarez and marsal underpinned by a highly disciplined operational approach to execution together.
Speaker 2: Together we have laid out a clear path to reduce costs, improve efficiencies and drive sales products.
Together, we have laid out a clear path to reduce cost improve efficiencies and drive sales productivity.
We have taken decisive actions in 2023 to reshape our business model and focus on our most compelling and profitable opportunities to advance our goals and drive the business forward.
The revised guidance, we are providing today reflects the early traction we're gaining under tag offset by a soft consumer spending environment globally.
Speaker 2: The revised guidance we are providing today reflects the early traction we're gaining under tag, offset by a soft consumer spending environment global.
Speaker 2: Looking at 2024, we are confident that we will narrow our sales declines and leverage our tag initiatives to drive year-over-year improvement in operating income performance.
Looking at 2024, we are confident that we will narrow our sales declines and leverage our tag initiatives to drive year over year improvement in operating income performance.
More on this from Neil shortly.
We appreciate the dedication and hard work of our teams throughout the organization and the ongoing support of our shareholders and we remain committed to delivering shareholder value as we continue to deliver against the benchmarks of our tag plan.
Speaker 2: We appreciate the dedication and hard work of our teams throughout the organization and the ongoing support of our show.
Speaker 2: And we remain committed to delivering shareholder value as we continue to deliver against the benchmarks of our tag plan and now turn the call over to Neil.
I'll now turn the call over to Neal to discuss the financials.
Yes.
Thanks, Kosta and good afternoon, everyone. There are three topics I'd like to review as part of our Q3 update first our Q3 results were below our expectations with headwinds similar to those we shared on our Q2 call.
Speaker 2: Thanks, Costa, and good afternoon, everyone. There are three topics I'd like to review as part of our Q3 update. First, our Q3 results were below our expectations with headwinds similar to those we shared on our Q2 call.
Speaker 2: We are updating our forecast for Q4 based on current ordering levels and wholesale and trends in our retail stores.
We are updating our forecast for Q4 based on current ordering levels in wholesale and trends in our retail stores and a slower than planned response to peak selling events in key markets like China.
Speaker 3: in a slower-than-planned response to peak selling events in key markets like China.
We are making solid progress on our transform and grow plan, capturing operating expense reductions that we outlined at the beginning of the year and executing against the initiatives that will drive benefits into the next couple of years.
Speaker 3: We are making solid progress on our transform and grow plan, capturing operating expense reductions that we outlined at the beginning of the year and executing against initiatives that will drive benefits into the next couple of years.
Speaker 3: As a reminder, our transform and grow plan outlined a total of $300 million in annualized benefits to be realized by fiscal year 2020.
As a reminder, our transform and grow plan outlined a total of $300 million in annualized benefits to be realized by fiscal year 2025.
We are on track to capture $50 million of expense reductions in fiscal year, 2023, and now estimate to capture $135 million to $150 million of benefits in fiscal year 2024.
Speaker 3: We are on track to capture $50 million of expense reductions in fiscal year 2023 and now estimate to capture $135 to $150 million of benefits in fiscal year 2020.
Speaker 3: With that, let me step through our third quarter results in more detail.
With that let me step through our third quarter results in more detail.
Speaker 3: Global sales were $344 million, down 21%, or down 22% in constant currency.
Global sales were $344 million down, 21% or down 22% in constant currency.
Speaker 3: The impact of foreign currencies in the third quarter was a 100 basis point tailwind to sales, about one point lower than our prior estimates based on the strengthening dollar during the quarter.
The impact of foreign currency in the third quarter with a 100 basis point tailwind to sales about one point lower than our prior estimates based on the strengthening dollar during the quarter.
Speaker 3: From an operating margin perspective, foreign currencies were a 10 basis point headwind.
From an operating margin perspective, foreign currencies were a 10 basis point headwind.
Speaker 3: In addition, we did have approximately a $10 million or roughly 2 point headwind on our revenue results due to a timing shift from Q3 into Q4, primarily related to wholesale shipments in China.
In addition, we did have approximately a $10 million or roughly two point headwind on our revenue results due to a timing shift from Q3 into Q4, primarily related to wholesale shipments in China.
Speaker 3: Sales into the wholesale channel represented our biggest headwind, where sales declined 25% in constant currency.
Sales into the wholesale channel represented our biggest headwind for sales declined 25% in constant currency.
Speaker 3: Regionally, year-over-year declines in wholesale shipments into the Americas and Europe lag their respective sell-out trends.
Regionally year over year decline in wholesale shipments into the Americas, and Europe lagged their respective sellout trends.
Speaker 3: Sales in China declined primarily due to the timing shift that I mentioned and also reflecting a softening in underlying consumption on the primary e-commerce platforms that we operate
Sales in China declined primarily due to the timing shifts that I mentioned and also reflecting a softening in underlying consumption on the primary e-commerce platforms that we operate on.
Similar to last quarter about five points or approximately $21 million of the Q3 sales decline can be traced to softness our smartwatch business as well as our store rationalization initiatives.
Speaker 3: Similar to last quarter, about five points or approximately $21 million of the Q3 sales decline can be traced to softness in our smartwatch business as well as our store rationalization initiatives.
Speaker 3: From a year-to-date perspective, these same two factors also represented about five points of the year-over-year sales.
Year to date perspective. These same two factors also represented about five points of the year over year net sales decline.
Speaker 3: Partially offsetting the above headwinds, global e-commerce sales were up 8% led by growth in traditional watches and jewelry.
Partially offsetting the above headwinds global E. Commerce sales were up 8% led by growth in traditional watches and jewelry.
Speaker 3: The consistent strength of our e-commerce platform is a direct result of the investments we've made to bolster our capabilities across talent and technology in recent years.
The consistent strength of our E. Commerce platform is a direct result of the investments we've made to bolster our capabilities across talent in technology in recent years.
Speaker 3: Finally, SG&A expenses in Q3 declined by 3% as we captured benefits from actions under our transform and grow plan. Working capital levels were down approximately $100 million or 24% as we reduced inventories and continued to focus on our overall merchandise assortment.
Finally, SG&A expenses in Q3 declined by 3% as the captured benefits from actions under our transform and grow plan working capital levels were down approximately $100 million of 24% as we reduced inventories and continue to focus on our overall merchandise assortment.
Speaker 3: Next, I'll walk through some regional results to highlight key drivers of performance.
Next I'll walk through some regional results to highlight key drivers of performance.
Speaker 3: First in the Americas, net sales were down 18% in constant currency, slightly below expectations.
First in the Americas net sales were down 18% in constant currency slightly below expectations sales.
Speaker 3: Sales into the wholesale channel were down 23%, consistent with our Q2 trend.
Sales into the wholesale channel were down 23% consistent with our Q2 trend.
Speaker 3: In our traditional watch category, the underlying sell-in was down 15 percent, which lagged a 6 percent decline in the underlying sell-out as reported by our major wholesale account.
And our traditional watch category the underlying sell in was down 15%, which lagged a 6% decline in the underlying sell out as reported by our major wholesale accounts.
Speaker 3: Across our larger retailers in the region, inventories at the end of the quarter were down 23% versus last year.
Across our larger retailers in the region inventories at the end of the quarter were down 23% versus last year.
Speaker 3: In the regions direct to consumer channels, comparable retail sales declined 6% driven by declines in owned retail stores offset by gains in e-commerce.
In the regions direct to consumer channels comparable retail sales declined 6% driven by declines in owned retail stores offset by gains in E. Commerce. We ended the quarter with 143 stores this year down 7% versus last year.
Speaker 3: We ended the quarter with 143 stores this year, down 7% versus last year.
Speaker 3: In Europe , total sales declined 30% versus last year in constant currency and were below our expectations, primarily due to declines in the wholesale channel, which were down 36% and lagged underlying sellout trends in traditional watch.
In Europe total sales declined 30% versus last year in constant currency and were below our expectations, primarily due to declines in the wholesale channel, which were down 36% and lagged underlying sell out trends in traditional watches.
Speaker 3: Although inventory levels as reported by our key accounts continue to decline versus prior year levels, retailers are signaling caution on consumer spending heading into Q4 with increased attention to geopolitical risk factors in the region.
Although inventory levels as reported by our key accounts continued to decline versus prior year levels retailers are signaling caution on consumer spending heading into Q4 with increased attention to geopolitical risk factors in the region.
And our direct to consumer channels comparable retail sales grew in Q3 with double digit gains in e-commerce more than offsetting a moderate decline in retail store comps. We ended the quarter with 87 stores this year down 22% versus last year.
Speaker 3: In our direct-to-consumer channels, comparable retail sales grew in Q3 with double-digit gains in e-commerce, more than offsetting a moderate decline in retail store costs.
Speaker 3: We ended the quarter with 87 stores this year, down 22% versus last year.
Sure.
Speaker 3: Turning to Asia, sales were down 14% in constant currency versus the prior year quarter.
Turning to Asia sales were down 14% in constant currency versus the prior year quarter.
Speaker 3: As we have previously communicated, we have two primary focus areas in the region over the long term. Reigniting sales in China and continuing to drive sales growth in India.
As we have previously communicated we have two primary focus areas in the region over the long term reigniting sales in China, and continuing to drive sales growth in India.
Speaker 3: Net sales in India grew by 6% and we remain pleased with our progress in the market.
Net sales in India grew by 6% and we remain pleased with our progress in the market.
Speaker 3: where we capitalize on distribution growth for traditional watches and leverage our fossil brand relaunch initiative.
We capitalize on distribution growth for traditional watches and leveraged our fossil brand relaunch initiatives.
Speaker 3: Sales in mainland China however to climb 30%, which included $7 million of the $10 million timing impact that I previously meant.
Sales in mainland, China, However, declined 30%, which included $7 million of the $10 million timing impact that I previously mentioned.
Speaker 3: Excluding the timing impact, net sales were down 4% in constant currency, a slight improvement in trend from Q2 levels.
Excluding the timing impact net sales were down 4% in constant currency, a slight improvement in trend from Q2 levels.
Speaker 3: Early reads on Q4 indicate that consumer spending in discretionary categories is softening, driven largely by economic fundamentals in the market.
Early reads on Q4 indicate that consumer spending in discretionary categories as softening driven largely by economic fundamentals in the market.
Speaker 3: While we remain confident about the long-term trajectory for our brands in China, we anticipate that a softening economic outlook will create near-term headwinds in the category.
While we remain confident about the long term trajectory for our brands in China, We anticipate that a softening economic outlook will create near term headwinds in the category.
From a brand lens as Kosta mentioned, the fossil brand relaunch was kicked off in the quarter and the brand's traditional watch assortment has performed better than other owned and licensed brands.
Speaker 3: From a brand lens of CoSIM mentioned, the fossil brand relaunch was kicked off in the quarter, and the brand's traditional watch assortment has to form better than other owned and licensed brands.
Speaker 3: Globally, Fossil's traditional watch category was down 1% in the quarter on accomplishments.
Globally fossils traditional watch category was down 1% in the quarter on a comp basis.
We are encouraged by progress in the brand's jewelry category, which has continued to comp well in our direct to consumer channels with improved <unk>.
Speaker 3: We are encouraged by progress in the brand's jewelry category, which has continued to comp well in our direct consumer channels with improved AUR.
Speaker 3: Looking at our largest license prams, cores was down versus last year, driven by the outside sales accrued in our wholesale channel in the Americas and Europe . Contrast through
Looking at our largest licensed brands Coors was down versus last year, driven by the outside sales declines in our wholesale channel in the Americas and Europe.
Contrast that with year to date growth in Asia.
Speaker 3: Armani's declines are largely attributable to the softer trends that we've seen in China.
Our modest declines are largely attributable to the softer trends that we've seen in China.
Moving down the P&L third quarter gross margin was 47% down 330 basis points versus last year with improvement in our core product margins more than offset by three key factors.
Speaker 3: Moving down the P&L, third quarter gross margin was 47%. Down 330 basis points versus last year, with improvement in our core product margins more than offset by three key facts.
Speaker 3: First, Q3 had a 200 basis point impact from the timing of minimum product royalties owed, which benefited Q1 of 23.
Q3 had a 200 basis point impact from the timing of minimum product royalties owed which benefited Q1 of 'twenty three.
Speaker 3: Second, we had a 130 basis point year over year impact from the settlement of foreign currency contracts used to hedge inventory.
Second we had a 130 basis point year over year impact from the settlement of foreign currency contracts used to hedge inventory purchases.
Third we are lapping a 160 basis point benefit in Q3 of last year relates to the completion of performance obligations under our licensing agreement related to our smartwatch technology.
Speaker 3: Third, we are laughing at 160 basis point benefit in Q3 of last year relates to the completion of performance obligations under a licensing agreement related to our smart watch technology.
Speaker 3: Importantly, and partially offsetting the above headwinds, our core product margins were up 120 basis.
Importantly, partially offsetting the above headwinds our core product margins were up 120 basis points as we saw the benefit of inventory management and assortment architecture initiatives drive better realized aur's.
Speaker 3: as we saw the benefit of inventory management and assortment architecture initiatives drive better realized AUR.
Speaker 3: This underlying benefit is something we will continue to focus on as part of our broader transformation plan.
This underlying benefit is something we will continue to focus on as part of our broader transformation plan.
Speaker 3: As mentioned earlier, SG&A expenses were down 3% versus last year. The reductions in SG&A can be traced to our TAG initiatives implemented during 2023, which has enabled us to reduce SG&A, offset underlying inflation, and partially reinvest in our fossil relief.
As mentioned earlier SG&A expenses were down 3% versus last year. The reductions in SG&A can be turned to our tag initiatives implemented during 2023, which has enabled us to reduce SG&A offset underlying inflation and partially reinvest in our fossil relaunch.
Speaker 3: Taken together, adjusted operating loss was $31 million and adjusted operating margin was negative nine.
Taken together adjusted operating loss was $31 million and adjusted operating margin was negative 9%.
Speaker 3: Turning to the balance sheet, we continue to make progress bringing down inventory levels and lowering working capital.
Turning to the balance sheet.
We continue to make progress, bringing down inventory levels and lowering working capital Q3 inventory ended at $327 million.
Speaker 3: Q3 inventory ended at $327 million, down 28% from last year's levels, while working capital, excluding cash balances, was down approximately 24% versus the prior year quarter.
Down 28% from last year's levels, while working capital excluding cash balances was down approximately 24% versus the prior year quarter.
Speaker 3: The improvement in working capital has enabled us to cut operating cash use by just over $100 million year-to-date versus the prior year.
The improvement in working capital has enabled us to cut operating cash use.
By just over $100 million year to date versus the prior year.
Speaker 3: And Nick Cash was $116 million, and we had $23 million of availability under our revolving credit facility. And we had $12 million of availability under our revolving credit facility.
And then cash was $116 million and we had $23 million of availability under our revolving credit facility.
Turning now to our outlook.
Speaker 3: We are revising our full year outlook for sales and adjusted operating margin to incorporate our third quarter result and reflect a softening outlook for the fourth.
We are revising our full year outlook for sales and adjusted operating margin to incorporate our third quarter results and reflect a softening outlook for the fourth quarter.
Speaker 3: For the full year, we expect net sales to decline in the range of 14 to 17%. And we expect adjusted operating margin to be in the range of negative 6 to negative 8%. Let me outline some specific assumptions.
For the full year, we expect net sales to decline in the range of 14% to 17% and we expect adjusted operating margin to be in the range of negative six to negative 8%.
Let me outline some specific assumptions that are embedded in our outlook.
Speaker 3: We anticipate that net sales declines in Q4 will be negative 8% to negative 19%.
We anticipate that net sales declines in Q4 will be negative 8% to negative 19%.
Speaker 3: This includes expectations for wholesale declines in the Americas and Europe , similar year-over-year impacts from our store closures and smartwatch sales, partially offset by growth in e-commerce.
This includes expectations for wholesale declines in the Americas, and Europe, similar a year over year impacts from our store closures and smartwatch sales, partially offset by growth in global ecommerce sales.
Speaker 3: Our guidance reflects prevailing currency rates, which includes a stronger dollar relative to our prior guidance.
Our guidance reflects prevailing currency rates, which includes a stronger dollar relative to our prior guidance.
Speaker 3: We estimate that prevailing rates would positively impact Q4s net sales by 70 basis points compared to our prior estimate of a positive 350 basis point impact that was estimated based on prevailing rates at the time of our prior guidance.
We estimate that prevailing rates would positively impact Q4, as net sales by 70 basis points compared to our prior estimate of a positive 350 basis point impact that was estimated based on prevailing rates at the time of our prior guidance.
Speaker 3: Our fourth quarter guidance also includes the $10 million benefit from the timing shift of wholesale shipment that I previously mentioned.
Our fourth quarter guidance also includes the $10 million benefit from the timing shift of wholesale shipments that I previously mentioned.
From an adjusted operating income margin perspective, our outlook reflects a range of flat to negative five for Q4 with SG&A dollars down versus prior year, driven by our tag initiatives.
Speaker 3: from an adjusted operating income margin perspective, our outlook reflects a range of flats and negative five for Q4 with S-TNA dollars down versus prior year driven by a tag in it.
Now turning to some additional commentary on our transform <unk> grow plan and 2024.
Speaker 3: Now turning to some additional commentary on our Transform and Grow Plan in 2024.
Speaker 3: As a reminder, on our last call, we shared our expanded transform and grow plan, which was the result of a comprehensive review of our operating.
As a reminder, on our last call we shared our expanded transform and grow plan, which was the result of a comprehensive review of our operating model.
Speaker 3: The expanded program identified $300 million in overall annualized operating income benefits to be achieved by fiscal year 2021.
The expanded program identified $300 million in an overall annualized operating income benefits to be achieved by fiscal year 2025.
Speaker 3: First, we remain on track to achieve the original $100 million in annualized expense savings by the end of 2024, as outlined on our March earnings
First we remain on track to achieve the original $100 million in annualized expense savings by the end of 2024 as outlined on our March earnings call, we expect to capture approximately half of that or $50 million of expense savings this year.
Speaker 3: We expect to capture approximately half of that or $50 million of expense savings this year.
Speaker 3: These expense savings are primarily reflected in lower SG&A, which is enabling us to offset underlying inflation that was in our expense base and to a lesser degree reinvested into our growth.
These expense savings are primarily reflected in lower SG&A, which is enabling us to offset underlying inflation that was in our expense base and to a lesser degree reinvested into our growth pillars.
Second since announcing the expanded plan on our last call. We have made significant progress on the newer initiatives, we outlined which range from simplification of our Oregon operating model savings and product costing and indirect procurement.
Speaker 3: Second, since announcing the expanded plan on our last call, we have made significant progress on the newer initiatives we outlined.
Speaker 3: which range from simplification of our organ operating model, savings in product costing and indirect procurement, and better realize AURs through pricing and the markdown management.
And better realized aur's through pricing and markdown management.
These efforts and the carryover impact from our original set of initiatives are laying the groundwork to realize operating income benefits of approximately $135 million to $150 million in 2024.
Speaker 3: These efforts in the carryover impact from our original set of initiatives are laying the groundwork to realize operating income benefits of approximately $135 to $150 million in 2024.
Speaker 3: Cheating the level of benefit will position us to deliver year-of-year operating margin improvement while allocating capital toward our strongest growth opportunities.
<unk> this level of benefit will position us to deliver year over year operating margin improvement, while allocating capital towards our strongest growth opportunities.
Speaker 3: Remaining 100 to 115 million of expected benefits from TAG are estimated to be realized primarily in 2025 with some carryover to 2026, providing further runway to improve our operating.
The remaining $100 million to $115 million of expected benefits from tax are estimated to be realized primarily in 2025 with some carryover to 2020, providing further runway to improve our operating margin.
Speaker 3: With the clear multi-year roadmap in front of us, our near-term focus is on executing to holiday season and delivering on our Transform and Grow initiatives to drive operating margin benefits into 2024 and 2020.
With a clear multi year roadmap in front of us our near term focus is on executing this holiday season, and delivering on our transform and grow initiatives to drive operating margin benefits into 2024 and 2025.
Speaker 3: With that, I'd like to turn the call back over to Christine to take us through some Q&A.
With that I'd like to turn the call back over to Christine to take us through some Q&A.
Speaker 1: Terrific. Thank you, Senille. I'll begin with a question for Costa. What are the key strategies to stabilize sales and when do you expect to see an election?
Terrific. Thank you to Neil I'll begin with a question for Kosta what are the key strategy to stabilize sales and when do you expect to see an inflection point.
Overall, we're moving as quickly as we can to improve the business all across the enterprise. There are a number of tech initiatives that we have in place will drive higher sell throughs and profitability, including SKU reductions improved market pricing lower product costs better promotional management.
Speaker 2: Overall, we're moving as quickly as we can to improve the business all across the
Speaker 2: There are a number of tag-and-issues that we have in place that will drive higher shelters and profitability, including skew reductions, improved market pricing, lower product costs, better promotional management, higher gross to net.
Our gross to net profit capture.
Speaker 2: In addition, we were operating with lower expense structures, so we're moving in the right direction.
In addition, we were operating with lower expense structure. So we're moving in the right direction.
Also we're going to lean more into our strengths in our fossil brand, especially in traditional watches the brand has shown strength and we think that will continue.
Speaker 2: Also, we're going to lean more into our strengths in our possible brand, especially in traditional watches. The brand is showing strength and we think that will continue.
Speaker 2: Also in our increasing digital capabilities, the investments we've made the past few years and people and technology have become a strategic advantage for the company that will have increasingly significant benefits. We also have a-
Also in our increasing digital capabilities. The investments we've made in the past few years in people and technology have become a strategic advantage for the company that will have increasingly significant benefits.
We also have a significant opportunity overall in emerging markets as well as in our jewelry business, which presents a large opportunity for the company long term.
Speaker 2: as well as in our jury business, which presents a large opportunity for the company.
Speaker 2: So overall there's a lot of activity going on in the company and we're making progress on many
So overall there is a lot of activity going on in the company and we're making progress on many fronts and our teams are focusing on strong execution and on improving the business.
Speaker 2: and our teams are focusing on strong execution and all in improving the...
Thank you.
Speaker 1: Thank you, Costa. Moving on to Jeff, could you put more color around the tag program and how that's progressing?
Moving onto Jeff could you put more color around the tag program and how that's progressing.
Sure Christine.
Speaker 4: If you heard in the comments, we're making solid progress on both our initial and our expanded tag.
As you heard in <unk> comments.
Comments, we're making solid progress on both our initial and our expanded tag initiatives, we initiatives programs earlier this year due to potential business softness, which we are now experiencing we have prioritized seven key work streams with three main goals or objectives are key objectives are to one.
Speaker 4: We initiated his programs earlier this year due to potential business offness, which we are now.
Speaker 4: We have prioritized seven key work streams with three main goals for it.
Speaker 4: Our key objectives are to one, reduce organizational complexity, to improve gross margins, and three, optimize overestanding and working capital efficiency.
Reduce organizational complexity.
To improve gross margins and three optimize overhead spending and working capital efficiency.
I will share our progress so far on each of these efforts.
Regarding our efforts to reduce our organizational complexity.
Speaker 4: We are very far along in planning the rights, ties and the organization, as well as operating on a more global versus...
We are very far along in planning the right size of the organization as well as operating on a more global versus regional basis.
Speaker 4: Unlike some other efforts we've had in the past, this initiative has felt fundamentally changing our operating model to be more globally driven and to improve decision-making.
Unlike some other efforts we've had in the past this initiatives focused on fundamentally changing our operating model to be more globally, driven and to improve decision, making and efficiency.
Execution of this work stream is well underway and will continue into next year.
Speaker 4: execution of this work stream is well underway and we'll continue.
One of our most significant value creation pillars as improving gross margins as product cost from one of the most significant expense elements of our operating model.
Speaker 4: One of our most significant value creation pillars is improving growth.
Speaker 4: has product costs for more of the most significant expense elements of our app.
Speaker 4: We are working with our current and new suppliers to reduce product costs. In so far, we're very pleased with the response and the support we're getting from our existing annual.
We are working with our current and new suppliers to reduce product costs and so far we're very pleased with the response and the support we're getting from our existing and new partners.
Speaker 4: run track drive benefits from the short stream into the PNL.
We're on track to drive benefits from this work stream into the P&L in 2024.
We're also focusing on increasing our average AUR with customers by refining our pricing architecture.
Speaker 4: We're also focused on increasing our average AOR with customers by refining our pricing architecture, enhancing our promotional and marketing programs.
Enhancing our promotional and markdown programs and reviewing terms with our wholesale partners.
Lastly, we're conducting deep dives under demand planning programs inventory levels and product lifecycle management areas and expect additional economic benefits from improvements in each of these areas.
Speaker 4: Lastly, we're conducting deep dives under demand signing programs, inventory levels, and product cycle management areas. And expect additional economic
Speaker 4: and supporting our overhead optimization and working capital efficiency initiative.
On the spending side and supporting our overhead optimization and working capital efficiency initiatives all spend areas are being reviewed.
From marketing to information technology spend to indirect procurement.
Speaker 4: From marketing to information technology spend to enter.
Speaker 4: We've instituted an expense control tower process to review all significant expenditures, requesting lower costing initials.
We've instituted an expense control tower process to review all significant expenditures.
Requesting lower cost initially and rfps for major purchases.
Speaker 4: Our overhead optimization program also includes initiatives and our region.
Our overhead optimization program also includes initiatives in our retail channel we.
Speaker 4: We are taking a harder look at sole rationalization and in-store process up.
We are taking a harder look at so rationalization and in store process optimization.
We're also revisiting our duty operations logistics and parcel management programs to identify incremental cost savings opportunities.
Speaker 4: We're also revisiting our de-sia operations, logistics, and parcel management programs to identify incremental cost-singing.
Speaker 4: Working capital initiatives currently being worked on include improving our inventory.
Working capital initiatives currently being worked on include improving our inventory turnover, reducing customer accounts, DSO and moving major suppliers to more standard industry payment terms.
Speaker 4: reducing customer account DSO and moving major suppliers to more standard industry payment terms. As you can tell, the transformation part of our tech program is extensive.
As you can tell the transformation part of our Tech program is extensive.
It has impacted nearly every area of our business and economic model.
After several months of further work.
Speaker 4: We remain confident in our ability to deliver our CAD goal of 300 million in benefits they were shared back in August .
We remain confident in our ability to deliver our goal of $300 billion in benefits they will share back in August.
Thank you Jeff very helpful.
Speaker 1: The meal, how does that 300 million of tag saving flow through the P&L? And what does the cadence look like beyond that initial 100 million of benefits that you expect to capture?
So Neil how does that $300 million of tax savings flow through the P&L and what is the cadence look like.
That initial 100 million benefit that you expect to capture.
Hi, yes, thanks, Christine a quick recap on that first $100 million in annualized benefits.
Speaker 3: All right, yeah, thanks Christine. A quick recap on that first $100 million in annualized benefits. We expect a cap for $50 million in 2023 and $50 million in 2024.
We expect to capture $50 million in 2023 and $50 million in 2024.
Speaker 3: for the 50 million in 2023, a couple of additional points. First, 45 of the $50 million is in S-GNA, and $5 million of that benefit or that expense reduction is in gross margin as it pertains to freight.
For the $50 million in 2023, a couple of additional points first 45 of the $50 million in SG&A and $5 million of that benefit or that expense reduction is in gross margin as it pertains to freight costs from an SG&A perspective, the $45 million savings represents about five 5%.
Speaker 3: From an S-GNA perspective, the $45 million in savings represents about 5.5% of our FY22 actual S-GNA expense.
Of our FY 'twenty two actual SG&A expenses are.
Speaker 3: Our current year forecast reflects about a 4% reduction in S-GNA. The other one and a half points from our TAG savings is primarily offsetting underlying inflation that we had coming into the
Our current year forecast reflects about a 4% reduction in SG&A and the other one five points from our tax savings as is primarily offsetting underlying inflation that we had.
Coming into the year.
Speaker 3: With respect to 2024, we will capture the remaining $50 million and another $85 to $100 million related to the initiatives that Jeff Schess spoke.
With respect to 2024, we will capture the remaining $50 million and another $85 million to $100 million related to the initiatives that Jeff just spoke about that brings the total benefits in fiscal 2024 to approximately $1 35 to $1 50.
Speaker 3: That brings the total benefits in fiscal 2024 to approximately 135 to 1.
Speaker 3: There will be some access to these benefits as we rationalize some segments of our business and based on our current views of sales trends into 2024. But taking together the actions from TAG will provide a meaningful improvement to our adjusted operating income expectations for FY20.
There will be some offset to these benefits as we rationalize some segments of our business and based on our current views of sales trends into 2024 are taken together the actions from tag will provide a meaningful improvement to our adjusted operating income expectations for FY 2024.
Yeah.
Speaker 1: Thanks, Emil. One last question for you. How do you think about capital allocation in the near term, given your expected sales?
Thanks, Danielle one last question for you how do you think about capital allocation in the near term given your expected sales declines.
Speaker 3: Yeah, thanks Christine. So in the near term, our capital allocation priorities are to focus on business operations and to execute our transform and grow initiatives.
Yes, thanks, Christine so in the near term our capital allocation priorities are to focus on business operations and to execute our transform <unk> grow initiatives.
Speaker 3: It's also important to note that in 2023, we've been able to offset our operating losses by managing our inventory and overall working capital down from 2022 low.
It's also important to note that in 2023, we've been able to offset our operating losses by managing our inventory and overall working capital down from 2022 levels working capital is down approximately $100 million versus last year in.
Speaker 3: Working capital is down approximately $100 million versus last year.
Speaker 3: In 2024, we expect a more normalized working capital flow where Q1 to Q3D tend to require some working capital.
In 2024, we expect a more normalized working capital flow, where Q1 to Q3 tend to require some working capital. We do have initiatives included in our transform and grow plans that are focused on driving structural improvements in our inventory levels, but those.
Speaker 3: We do have initiatives included in our Transform and Grow Plan that are focused on driving structural improvements in our inventory levels. But those benefits are more back and weighted and into 2025 based on our development cycle and leaps.
<unk> are more backend weighted and into 2025 based on our development cycle and lead times.
Speaker 3: So with those factors in mind, considering our most recent revenue trends, we think in the near term, it's important to preserve capital for business operations while we execute our transforming growth.
So with those factors in mind when considering our most recent revenue trends, we think in the near term it's important to preserve capital for business operations, while we execute our transform and grow plans longer term.
Speaker 3: Longer term as we capture planned tag benefits, work down restructuring costs, and resize the revenue base, pre-cash loads should be healthier and will be in a better position to consider a broader set of capital allocation options.
As we capture planned attack benefits work down restructuring cost and resize the revenue base free cash flow should be healthier and will be in a better position to consider a broader set of capital allocation options.
Great. Thank you team for the Q&A I'll, just turn the call back to Jeff for closing comments.
Speaker 1: Great, thank you team for the Q&A. I'll just turn the call back to Costa for closing.
Well, thanks, everyone for joining us today, we appreciate your support we look forward to speaking to you again about our fourth quarter early next year have a good day.
Speaker 2: Well, thanks everyone for joining us today. We appreciate your support. We look forward to speaking to you again about our fourth quarter, early next year. Have a good day.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Speaker 5: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful.
Speaker 6: SCREET SCREET
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