Q1 2024 Fossil Group Inc Earnings Call

May 8, 2024

Please wait the conference will begin shortly.

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Yeah.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group first quarter 2020 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 full or in part without written permission from the conference organizer. Now, I'll turn the call over to Christine Greany of the Blue Shirt Group to begin.

Good afternoon, ladies and gentlemen, and welcome to the fossil group first quarter 2024 earnings call. At this time all parties are in a listen only mode. This conference call is being recorded and may not be a refuge in whole or in part without written permission from the company.

Christine Greany: Now I'll turn the call over to Christine Green and you have the blue shirt group to begin.

Christine Greany: Hello everyone, and thank you for joining us. With us today on the call are Jeff Boyer, Interim CEO, 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. 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 readily available in the company's Form 8K, 10Q, and 10K reports filed with the SEC.

Christine Greany: Hello, everyone and thank you for joining us with US today on the call are Jeff Boyer interim CEO, and Sunil Doshi Chief Financial Officer.

Christine Greany: 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 to constant currency results 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 fossilgroups.com. Now, I'll turn the call over to Jeff to begin.

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

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

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

Jeff: During today's call, we will refer to constant currency results.

Jeff: Please note that you can find a reconciliation of the actual results to constant currency results and other information regarding non-GAAP financial measures discussed 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 Dot com.

Christine Greany: Now I'll turn the call over to Jeff to begin.

Jeffrey N. Boyer: Good afternoon, everyone, and thank you for joining us. As we reported earlier today, we delivered first quarter net sales and operating margin in line with our expectations. As we continue to navigate challenging top-line trends, our ability to drive gross margin expansion and reduce costs enabled us to narrow our operating loss and improve our free cash flow from a year ago. Benefits from our Transform & Grow plan are at the core of our improved gross margin and our reduction in operating costs. The execution of the Broad-Based Program, which spans seven work streams, started in 2023.

Jeff: Good afternoon, everyone and thank you for joining us.

Jeffrey N. Boyer: As we reported earlier today, we delivered first quarter net sales and operating margin in line with our expectations.

Jeffrey N. Boyer: We continue to navigate challenging topline trends our ability to drive gross margin expansion and reduced costs enabled us to narrow our operating loss and improve our free cash flow from a year ago.

Jeffrey N. Boyer: Benefits from our transforming growth plan are at the core of our improved gross margin and a reduction in operating costs.

Jeffrey N. Boyer: Execution of the broad based program, which spans seven work streams started in 2023.

Jeffrey N. Boyer: P&L benefits were realized starting last year and are expected to accelerate meaningfully in 2024 and carry into 2025. About half of the work streams in TAG are designed to structurally improve our gross margin. First quarter gross margin was up 300 basis points versus last year.

Jeffrey N. Boyer: P&L benefits were realized starting last year and are expected to accelerate meaningfully in 2004 and carry into 'twenty five.

Jeffrey N. Boyer: About half of the work streams in tag are designed to structurally improve our gross margins.

Jeffrey N. Boyer: First quarter gross margin was up 300 basis points versus last year and reflects benefits from the exit of our smartwatch category improved product margins in our core categories and lower freight costs.

Jeffrey N. Boyer: It reflects benefits from the exit of our smartwatch category, improved product margins in our core categories, and lower freight costs. Our work streams on product sourcing and supply chain are expected to generate benefits in the latter part of 2024, enabling us to deliver year-over-year improvement in gross margins. Importantly, our TAG initiatives have us on track to return to historical gross margin levels in the mid-50s over the next two years. The balance of our TAG work streams is focused on taking costs out of our expense structure with the goal of A, recalibrating our operating model for greater efficiency and lower fixed costs.

Jeffrey N. Boyer: Our work streams on product sourcing and supply chain are expected to generate benefits in the latter part of 2024.

Jeffrey N. Boyer: Enabling us to deliver year over year improvement in gross margin.

Jeffrey N. Boyer: Importantly, our tech initiatives have us on track to return to historical gross margin levels in the mid fifties over the next two years.

Jeffrey N. Boyer: The balance of our tag work streams are focused on taking cost out of our expense structure with the goal of.

Jeffrey N. Boyer: Recalibrating, our operating model for greater efficiency, and lower fixed costs be driving savings and our procurement practices.

Jeffrey N. Boyer: B, driving savings in our procurement practices, and C, optimizing our direct channel operating costs. Our Q1 operating expenses declined 20% compared to a year ago, reflecting savings across headcount, labor, and services, which were initiated in 2023. We anticipate that our initiatives will continue to generate year-over-year optics declines in the remaining quarters of 2024.

Jeffrey N. Boyer: Optimizing our direct channel operating costs.

Jeffrey N. Boyer: Our Q1 operating expenses declined 20% compared to a year ago, reflecting savings across head count labor and services, which were initiated in 2023.

Jeffrey N. Boyer: We anticipate that our initiatives will continue to generate year over year Opex declines in the remaining quarters of 2024.

Jeffrey N. Boyer: Notwithstanding the progress being made across all the work streams in TAG, our sales remain under pressure, and we are working urgently to stabilize the trend line. Broadly speaking, we see three major themes playing out in our revenue base, which we anticipate will continue throughout 2024. First, about half of our revenue base is beginning to stabilize. Performance in the following areas of the business was approximately flat compared to last year in Q1. Fossil traditional watches and jewelry globally on a company system.

Jeffrey N. Boyer: Notwithstanding the progress being made across all of the work streams in tag our sales remained under pressure and we are working urgently to stabilize the trend line.

Jeffrey N. Boyer: Broadly speaking, we see three major themes playing out in our revenue base, which we anticipate will continue throughout 2024.

Jeffrey N. Boyer: First about half of our revenue base is beginning to stabilize performance.

Jeffrey N. Boyer: Performance in the following areas of the business was approximately flat to last year in Q1.

Jeffrey N. Boyer: Fast so traditional watches and jewelry globally on a comp basis.

Jeffrey N. Boyer: India, which overall remains a solid market for us. Our value brands sell through value channels like general merchandisers and off-price, and our higher-priced products are sold through more premium specialty channels. Let me provide some color on those.

Jeffrey N. Boyer: India, which overall remains a solid market for us.

Jeffrey N. Boyer: Our value brands sold through value channels like general merchandisers in off price.

Jeffrey N. Boyer: And our higher priced products that are sold through more premium specialty channels.

Jeffrey N. Boyer: Let me provide some color on those.

Jeffrey N. Boyer: From my macro perspective, we see consumers generally favoring value. Wholesale customers are leaning into value products as sellout remains reasonable in this price tier. At the same time, sell-in and sell-out of more premium-priced products have also shown durability.

Jeffrey N. Boyer: From a macro perspective, we see consumers generally favoring value.

Jeffrey N. Boyer: Wholesale customers, who are leaning in to value products SLO remains reasonable in this price tier.

Jeffrey N. Boyer: At the same time sell in and sell out are more premium priced products have also shown durability.

Jeffrey N. Boyer: The India market, where we've invested significantly over the years, continues to grow with our marketing and brand building investments across fossil, cores, and our money exchange. Lastly, we continue to see improvement in our fossil-fossil watch business fueled by our digital strategies and capabilities, broad distribution, and investment in marketing and products. For the past several quarters, Fossil Traditional Watch, which is among our largest categories, has been one of our most

Jeffrey N. Boyer: The India market, where we've invested significantly over the years continues to grow with our marketing and brand building investments across fossil Kors Armani exchange.

Jeffrey N. Boyer: Lastly, we continue to see improvement in our fossil traditional watch business fueled by our digital strategies and capabilities broad distribution and investments in marketing and product.

Jeffrey N. Boyer: Over the past several quarters fossil traditional watch which is among our largest categories has been one of our most stable.

Jeffrey N. Boyer: The second theme, and also in the stable core I just described, is persistent challenges in two other parts of our business. These are licensed fashion watch brands in our Leathers category. Collectively, these two areas comprise over 40% of our revenue, and we're down about 30% in Q1. In the U.S. and Europe, our most recent industry data highlights that fashion watches contracted in the mid-price category in the wholesale channel. Additionally, Greater China continues to be down in the high double digits as economic challenges are impacting consumer demand in the category.

Jeffrey N. Boyer: The second theme and offsetting this favorable court I. Just described is persistent challenges and to other parts of our business.

Jeffrey N. Boyer: Our license fashion watch brands and all others category.

Jeffrey N. Boyer: Collectively these two areas comprise over 40% of our revenue and were down about 30% in Q1.

Jeffrey N. Boyer: In the U S and Europe, our most recent industry data highlights that fashion watches contracted in the mid price category and the wholesale channel.

Jeffrey N. Boyer: Additionally, greater China continues to be down high double digits as economic challenges are impacting consumer demand in the category.

Jeffrey N. Boyer: We anticipate these headwinds will continue in 2024, and we have reflected that in our revenue outlook. Looking longer term, we expect this segment of the traditional watch business to stabilize and rebound behind the repositioning efforts of our major license brands. Lastly, and as we previously communicated, we've been closing low to negative profit contribution retail stores at lease expiration and have exited the smart watch category.

Jeffrey N. Boyer: We anticipate these headwinds will continue in 2024 and have reflected that in our revenue outlook.

Jeffrey N. Boyer: Looking longer term, we expect this segment of the traditional watch business to stabilize and rebound behind the repositioning efforts of our major licensed brands.

Jeffrey N. Boyer: Lastly, and as we've previously communicated we have been closing low to negative profit contribution retail stores at lease expiration.

Jeffrey N. Boyer: <unk> has exited the smartwatch category.

Jeffrey N. Boyer: While these delivered actions create a headwind to sales in 2024, they are operating income accretion. On our year-end earnings call in March, we outlined four near-term priorities critical to driving our turnaround. As a reminder, those include advancing our tax plan, strengthening our balance sheet, stabilizing our business, and conducting a strategic review. Let me update you on each of these areas.

Jeffrey N. Boyer: While these deliberate actions create a headwind to sales in 2024, they are operating income accretive.

Jeffrey N. Boyer: On our year end earnings call in March we outlined four near term priorities is critical to driving our turnaround.

Jeffrey N. Boyer: As a reminder, those include <unk>.

Jeffrey N. Boyer: Advancing our tech plan stress.

Jeffrey N. Boyer: Strengthening our balance sheet stabilizing our business and conducting a strategic review.

Jeffrey N. Boyer: Let me update you on each of these areas.

Jeffrey N. Boyer: Our first priority is the sharp execution of our transform and grow plan. As we've previously shared with you, TAG is a comprehensive restructuring program across nearly all elements of our operation. The organization has been hard at work across seven work streams, and the program is driving material results into the P&L in 2024. The headline here is that we're on track to achieve 100 million of annualized benefits in 2024, in addition to last year's 125 million.

Jeffrey N. Boyer: Our first priority is the sharp execution of our transform and grow plan.

Jeffrey N. Boyer: As we've previously shared with you peg is a comprehensive restructuring program across nearly all elements of our operations the.

Jeffrey N. Boyer: The organization has been hard at work across seven work streams and the program is driving material results into the P&L in 2024.

Jeffrey N. Boyer: The headline here is that we're on track to achieve $100 million of annualized benefit in 2024. In addition to last year's $125 million.

Jeffrey N. Boyer: On the gross margin side, the largest source of value is expected to come through our product sourcing and supply chain initiatives beginning in the second half of the year. As I mentioned earlier, we've also started to realize benefits from skew rationalization as well as pricing and promotional initiatives. Actions to simplify our organization in 2023 translated to a significant reduction in operating expenses in Q1 and will continue to benefit SG&A throughout 2024. We executed meaningful workforce reductions in 23, which are driving benefits into the P&L this year.

Jeffrey N. Boyer: On the gross margin side, the largest source of value is expected to come through our product sourcing and supply chain initiatives beginning in the second half of the year.

Jeffrey N. Boyer: As I mentioned earlier, we've also started to realize benefits from SKU rationalization as well as pricing and promotional initiatives.

Jeffrey N. Boyer: Actions to simplify our organization in 2023 translated to a significant reduction in operating expenses in Q1 and will continue to benefit SG&A throughout 2024.

Jeffrey N. Boyer: Executed meaningful workforce reductions in 'twenty, three which are driving benefits into the P&L. This year.

Jeffrey N. Boyer: The leadership and resiliency of our teams through these changes has been strong and very much appreciated. Within our TAG plan, we are also tackling the cost of service providers through a significant number of RFPs, and we are in the process of driving cost reductions through efficiencies in our labor models across both stores and concessions. We have accomplished much under our current TAG program.

Jeffrey N. Boyer: The leadership and resiliency of our teams through these changes has been strong and very much appreciate it.

Jeffrey N. Boyer: Within our tax plan. We're also tackling the cost of service providers through a significant number of rfps are in the process of driving cost reductions through efficiencies in our labor models across both stores and concessions.

Jeffrey N. Boyer: So we have accomplished much under our current Tech program. We are identifying additional operating model efficiencies and expect to go after incremental opportunities across channels categories and geographies.

Jeffrey N. Boyer: We are identifying additional operating model efficiencies and expect to go after incremental opportunities across channels, categories, and geographies. Turning to our second priority, we're making progress toward strengthening the balance sheet and improving our liquidity position. During the first quarter, we had minimal cash usage, and as expected, we received a U.S. tax refund of $57 million in mid-April derived from provisions within the CARES Act, which provides us with an important source of incremental cash to execute our plans in 2024.

Jeffrey N. Boyer: Turning to our second priority, we're making progress towards strengthening the balance sheet and improving our liquidity position during.

Jeffrey N. Boyer: During the first quarter, we had minimal cash usage and as expected we received a U S tax refund of $57 million in mid April derived from provisions within the cares Act, which provides us an important source of incremental cash to execute our plans in 2024.

Jeffrey N. Boyer: Additionally, we are continuing to pursue asset monetization opportunities, including the sale of real estate in Europe, which we estimate could yield about $10 to $15 million in net cash proceeds by the end of this year. With these actions and through continued disciplined management of working capital, we expect to be free cash flow positive in fiscal year 2024. Next, we are taking corrective action to stabilize the business. We will continue to pivot resources and capital into segments of our business that are more stable and have room to grow.

Jeffrey N. Boyer: Additionally, we're continuing to pursue asset monetization opportunities, including the sale of real estate in Europe, which we estimate could yield about $10 million to $15 million in net cash proceeds by the end of this year.

Jeffrey N. Boyer: With these actions and through continued disciplined management of working capital, we expect to be free cash flow positive in fiscal year 2024.

Jeffrey N. Boyer: Next we are taking aggressive actions to stabilize the business, we will continue to pivot resources and capital into segments of our business that were more stable and have room to grow as I mentioned. This includes investing behind hospital traditional watches and jewelry, India, our value brands and our premium price brands.

Jeffrey N. Boyer: As I mentioned, this includes investing in traditional watches and jewelry, India, our value brands, and our premium price brands. We are also working closely with our licensors to manage contraction in our fashion brands, category declines in these price points, brand transitions, and challenging macro conditions in large markets like China. We are managing these brand contractions by protecting the price and margin architecture in our category for the long-term health of our business.

Jeffrey N. Boyer: We're also working closely with our Licensors to managed contraction in our fashion brands as Mis category declines in these price points brand transitions and challenging macro conditions in large markets like China.

Jeffrey N. Boyer: We are managing these brand contractions by protecting the price and margin architecture, and our category for the long term health of our business.

Jeffrey N. Boyer: Though we're seeing some bright spots from new product introductions, merchandising initiatives, and emerging markets, they are not yet significant enough to offset the broader category and brand challenges in our major markets. Finally, while our strategic actions create a top-line headwind, we will continue to optimize our SOAR portfolio and should be nearly fully out of the smartwatch business by the end of Q2. Lastly, we continue to work with our advisors on a strategic review of the business, including an ongoing review of our business model and comprehensive reviews of our capital structure and capital allocation strategies. We are acting with urgency as we focus on these priorities. During the first quarter, we appointed two independent board members, which, in tandem with recent leadership changes, usher in new oversight and fresh thinking.

Jeffrey N. Boyer: So we're seeing some bright spots from new product introductions merchandising initiatives and a merchant markets. They are not yet significant enough to offset the broader category and brand challenges in our major markets.

Jeffrey N. Boyer: Finally, while our strategic actions create a topline headwind, we will continue to optimize our store portfolio and should be nearly fully out of the smartwatch business by the end of Q2.

Jeffrey N. Boyer: Lastly, we continue to work with our advisors on a strategic review of the business, including the ongoing review of our business model and comprehensive use of our capital structure and capital allocation strategies.

Jeffrey N. Boyer: We are acting with urgency as we focus on these priorities.

Jeffrey N. Boyer: During the first quarter, we appointed two independent board members, which in tandem with recent leadership changes Usher in new oversight and fresh thinking.

Jeffrey N. Boyer: These individuals bring significant value to the organization with decades of experience in retail and consumer operations, turnarounds, and finance. We look forward to their contributions and support as we move as quickly as possible to stabilize the business and pursue avenues to maximize shareholder value. We greatly appreciate the dedication of our teams and the support of our shareholders during this transformational time for fossil fuels. We look forward to keeping you updated on our progress and driving value for all of our stakeholders. With that, I'd like to turn the call over now to Sunil to step through the financing.

Jeffrey N. Boyer: These individuals bring significant value to the organization with decades of experience in retail and consumer operations turnarounds and finance.

Sunil: We look forward to their contributions and support as we move as quickly as possible to stabilize the business and pursue avenues to maximize shareholder value.

Jeffrey N. Boyer: We greatly appreciate the dedication of our teams and the support of our shareholders. During this transformational time for fossil and we look forward to keeping you updated on our progress in driving value for all of our stakeholders with that I would like to turn the call over now to Sunil to step through the financials.

Sunil M. Doshi: Thanks, Jeff. First quarter net sales totaled $255 million, down 21% in constant currency. With better gross margins and lower SG&A, both driven by our TAG program, we narrowed our adjusted operating loss by 6 million to 19 million. First quarter cash flow from operations was slightly positive. A significant improvement versus last year when we used $86 million. The improvement in cash flows was primarily due to closely managed working capital. Timing of payments in the current year and lapping heavier than normal seasonal working capital needs last, we ended the quarter with $113 million in cash and $123 million in liquidity. Diving deeper into our Q1 friends

Sunil: Thanks, Jeff first quarter net sales totaled $255 million down 21% in constant currency.

Sunil M. Doshi: With better gross margin and lower SG&A, both driven by our tag program, we narrowed our adjusted operating loss by 6 million to $19 million.

Sunil M. Doshi: First quarter cash flow from operations was slightly positive a significant improvement versus last year, when we used $86 million.

Sunil M. Doshi: The improvement in cash flows was primarily due to closely manage working capital timing of payments in the current year and lapping heavier than normal seasonal working capital needs last year.

Sunil M. Doshi: We ended the quarter with $113 million in cash and $123 million in liquidity.

Sunil M. Doshi: Diving deeper into our Q1 trends as Jeff noted there are three underlying theme that we have seen playing out across our business for several quarters now which continued into Q1.

Sunil M. Doshi: As Jeff noted, there are three underlying themes that we have seen playing out across our business for several quarters now, which continued into Q1. First, about five points of our 21-point revenue decline in the first quarter were attributable to the year-over-year decline from closed stores and the exit of our smartwatch business. The revenue impact was roughly four to six points in each of our regions. As a reminder, the stores we are closing are at least expiration, and an aggregate did not have a material contribution in terms of four-wall profitability. And since announcing our exit from the smartwatch category, we've more aggressively worked to move through our remaining inventory.

Sunil M. Doshi: First about five points of our 'twenty one revenue decline in the first quarter was attributable to the year over year decline from closed stores and the exit of our smartwatch business.

Sunil M. Doshi: The revenue impact was roughly four to six points in each of our regions.

Sunil M. Doshi: As a reminder, the stores, we are closing or at lease exploration and in aggregate did not have a material contribution in terms of four wall profitability.

Sunil M. Doshi: And since announcing our exit from the smartwatch category with more aggressively work to move through our remaining inventory.

Sunil M. Doshi: Second, we are seeing signs of stabilization in about half of our Q1 revenue. Across this portion of our revenue base, net sales in the quarter were down 1%. Global net sales in Fossil Brand's traditional watch and jewelry categories were negative 4% on a comparable basis.

Sunil M. Doshi: Second we are seeing signs of stabilization and about half of our Q1 revenue base.

Sunil M. Doshi: Across this portion of our revenue base net sales in the quarter were down 1%.

Sunil M. Doshi: Global net sales and fossil brands traditional watch and jewelry categories were negative 4% on a comparable basis.

Sunil M. Doshi: This reflects growth in the direct channels and in our Asia region offset by declines in the indirect channels in the Americas and Europe. Growth in India remains robust for traditional watches where we achieved double-digit growth in the strategic market anchored by strong sell-off trends and expanded distribution. In our value price brands and more premium price brands, we're about flat to last year. However, as Jeff noted, we've experienced persistent challenges in our licensed fashion brands and leathers category that carried into the first quarter of this year. Sales across this portion of our revenue base were down approximately 30% in Q1, and reflects both challenging operating conditions in China and distribution and category headwinds in traditional wholesale channels, particularly in the Americas and in Europe.

Sunil M. Doshi: This reflects growth in the direct channel and our and then our Asia region.

Sunil M. Doshi: Set by decline in the indirect channels in the Americas and Europe.

Sunil M. Doshi: Growth in India remains robust for traditional watches where we achieved double digit growth in the strategic market anchored by strong sellout trends and expanded distribution.

Sunil M. Doshi: And our value price brands and more premium priced brands were about flat to last year.

Sunil M. Doshi: However, as Jeff noted, we've experienced persistent challenges in our licensed fashion brands and leathers category. It carried into the first quarter of this year.

Sunil M. Doshi: Sales across this portion of our revenue base was down approximately 30% in Q1 and reflects the challenging operating conditions in China and distribution and category headwinds in traditional wholesale channels, particularly in the Americas and in Europe.

Sunil M. Doshi: Turning to gross margins, Q1 gross margins were up 300 basis points versus last year, primarily driven by benefits from our tag. Gross margin improvement versus last year can be traced to two factors. First, the prior year results included a one-time 170 basis point drag from a CAG-driven restructuring charge in our cost of goods related to liabilities from certain product categories. Second, the balance of the gross margin improvement, or 130 basis points, came from product margin improvement in our core categories, where initiatives from skew rationalization, assortment architecture, and reduced promotions in our direct to consumer channels drove better results.

Sunil M. Doshi: Turning to gross margins Q1, gross margins were up 300 basis points versus last year, primarily driven by benefits from our tax plan gross margin.

Sunil M. Doshi: An improvement versus last year can be traced to two factors first the prior year results included a onetime 170 basis point drag from a tag driven restructuring charge in our cost of goods related to liabilities from certain product categories.

Sunil M. Doshi: The balance of the gross margin improvement or 130 basis points came from product margin improvement in our core categories. We're in.

Sunil M. Doshi: <unk> from SKU rationalization assortment architecture and reduced promotions in our direct to consumer channels drove better results.

Sunil M. Doshi: Lower freight costs also contributed to the year-over-year gross margin improvement. SG&A expenses in the first quarter were down approximately $39 million year-over-year, or 20%. This was primarily attributable to lower store operating costs on fewer stores as well as lower compensation and administrative costs resulting from our tagging. We ended the quarter with 277 company-owned retail stores, down 15% from the prior year.

Sunil M. Doshi: Lower freight costs also contributed to the year over year gross margin improvement.

Sunil M. Doshi: SG&A expenses in the first quarter were down approximately $39 million year over year or 20%.

Sunil M. Doshi: Productions were primarily attributable to lower store operating cost on fewer stores as well as lower compensation and administrative costs, resulting from our <unk> initiatives.

Sunil M. Doshi: We ended the quarter with 277 company owned retail stores down 15% from the prior year.

Sunil M. Doshi: Turning now to our Outlook. Our first quarter results for sales and adjusted operating margin were in line with our expectations, and our full year forecast remains unchanged from our prior guidance of approximately $1.2 billion in sales and an adjusted operating margin loss of 3% to 5%. Our net sales guidance of approximately $1.2 billion assumes approximately $100 million of negative impact from our soaring concession closure plans and the lapping of last year's SmartWatch. As we noted on our last earnings call, we expected Q1 to be the softest sales quarter of the year.

Speaker Change: Turning now to our outlook.

Sunil M. Doshi: Our first quarter results for sales and adjusted operating margin were in line with our expectations and our full year forecast remains unchanged from our prior guidance of approximately $1 $2 billion in sales and an adjusted operating margin loss of 3% to 5%.

Sunil M. Doshi: Our net sales guidance of approximately $1 2 billion assumes approximately $100 million of negative impact from our store and concession closure plans and the lapping of last year's smartwatch sales.

Sunil M. Doshi: As we noted on our last earnings call, we expected Q1 to be the softer sales quarter of the year.

Sunil M. Doshi: Benefits from our TAG plan continue to be a key driver of our 2024 gross margins in SG&A forecast. We expect to achieve over 100 million P&L benefits in 2024 stemming from annualized savings achieved in 2023 and expected to be achieved in 2024 under the TAG. These benefits are expected to materialize in both gross margin and SG&A. Within gross margin, our TAG initiatives are expected to contribute to gross margin expansion, particularly in the second half of the year.

Sunil M. Doshi: Benefits from our tag plan continues to be a key driver of our 2020 for gross margins and SG&A forecast.

Sunil M. Doshi: We expect to achieve over $100 million of P&L benefit in 2024 stemming from annualized savings achieved in 2023 and expect it to be achieved in 2024 under the tax plan.

Sunil M. Doshi: These benefits are expected to materialize in both gross margin and SG&A.

Sunil M. Doshi: Within gross margin our tag initiatives are expected to contribute to gross margin expansion, particularly in the second half of the year. The improvement is primarily expected to be driven by initiatives within our product sourcing strategy, coupled with ongoing initiatives around assortment architecture, and SKU rationalization as well as product mix benefits.

Sunil M. Doshi: The improvement is primarily expected to be driven by initiatives within our product sourcing strategy, coupled with ongoing initiatives around assortment architecture and skew rationalization, as well as product mix benefits resulting from minimal smartwatch sales in 2020. Looking at the balance of the year, we anticipate that SG&A dollars will be down in the low to mid-teens on a year-over-year basis for the remaining quarters of 2024 as we begin to recognize the annualized benefits of our TAG plan. Restructuring costs for fiscal year 2024 are estimated at $35 million.

Sunil M. Doshi: Thing for minimal smartwatch sales in 2024.

Sunil M. Doshi: Looking at the balance of the year, we anticipate that SG&A dollars will be down in the low to mid teens on a year over year basis for the remaining quarters of 2024 as we begin to recognize the annualized benefits of our tax plan.

Sunil M. Doshi: Restructuring costs for fiscal year 2024, our estimated at $35 million.

Sunil M. Doshi: We are also laser focused on strengthening our balance sheet. We ended the first quarter with $113 million in cash and $10 million available under our revolver. And we have a solid roadmap for generating free cash flow for full year 2024, a significant improvement versus last year's use of cash of approximately $70 million. Note that our expectation to be free cash flow positive this year includes the one-time benefit of the $57 million tax relief.

Sunil M. Doshi: We are also laser focused on strengthening our balance sheet.

Sunil M. Doshi: We ended the first quarter with $113 million in cash and $10 million available under our revolver.

Sunil M. Doshi: And we have a solid roadmap for generating free cash flow for full year 2020 for a significant improvement versus last year's use of cash of approximately $70 million.

Sunil M. Doshi: Note that our expectation to be free cash flow positive. This year includes the onetime benefit of the $57 million tax refund.

Operator: It's also important to note that the seasonal nature of our business and projected sales declines will require operating cash use in Q2 and Q3. In the near term, with limited availability on our ADL facility and until cash flows turn positive in the fourth quarter, we believe it is prudent to preserve our financial flexibility until the business strengthens. At the same time, as part of our current strategic review process, we are taking a holistic review of our capital structure, along with our strategic and operational plans, in order to aggressively improve the longer-term capital structure of the company.

Sunil M. Doshi: It's also important to note that the seasonal nature of our business and projected sales declines will require operating cash use in Q2 and Q3.

Operator: In the near term with limited availability on our ABL facility and until cash flows turn positive in the fourth quarter. We believe it is prudent to preserve our financial flexibility until the business strengthens.

Operator: At the same time as part of our current strategic review process. We are taking a holistic review of our capital structure, along with our strategic and operational plans in order to aggressively through the longer term capital structure of the company.

Operator: We will share more detail in future calls as our plans and programs are developed. We appreciate the support of our shareholders and look forward to keeping you updated on our progress in future calls. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: We will share more detail on future calls as our plans and programs are developed.

Operator: We appreciate the support of our shareholders and look forward to keeping you updated on our progress in future quarters.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait; the conference will begin shortly.

Operator: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Operator: Please wait the conference will begin shortly.

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Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the fossil group first quarter 2024 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.

Christine Greany: Now I'll turn the call over to Christine Green at the Blue shirt group to begin with.

Christine Greany: Hello, everyone and thank you for joining with US today on the call are Jeff Boyer interim CEO, and Sunil Doshi Chief Financial Officer.

Christine Greany: In addition, Fossil is under 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 to constant currency results 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 fossilgroups.com. Now, I'll turn the call over to Jeff to begin.

Christine Greany: I'd 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 fossil group's policy on forward looking statements and additional information concerning a number of factors.

Jeff: That could cause actual results to differ materially from such statements is readily available in the company's form 8-K, 10-Q, and 10-K reports filed with the SEC.

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

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

Jeff: During today's call, we will refer to constant currency results.

Jeff: Please note that you can find a reconciliation of the actual results to constant currency results and other information.

Jeff: <unk> non-GAAP financial measures discussed on this call impossible to earnings release.

Jeff: Which was filed today on form 8-K and is available in the investors section of fossil group dotcom.

Christine Greany: Now I'll turn the call over to Jeff to begin.

Jeff: Good afternoon, everyone and thank you for joining us.

Jeffrey N. Boyer: <unk> reported earlier today, we delivered first quarter net sales and operating margin in line with our expectations.

Jeffrey N. Boyer: As we continue to navigate challenging top line trends, our ability to drive gross margin expansion and reduced cost enabled us to narrow our operating loss and improve our free cash flow from a year ago.

Jeffrey N. Boyer: Benefits from our transformer growth plan are at the core of our improved gross margin and a reduction in operating costs.

Jeffrey N. Boyer: Execution of the Broad-Based Program, which spans seven work streams, started in 2023. P&L benefits were realized starting last year and are expected to accelerate meaningfully in 2024 and carry into 2025. About half of the workstreams in TAG are designed to structurally improve our gross margin. First quarter gross margin was up 300 basis points versus last year.

Jeffrey N. Boyer: Execution of the broad based program, which spans seven work streams started in 2023.

Jeffrey N. Boyer: P&L benefits were realized starting last year and are expected to accelerate meaningfully in 2004 and carry into 'twenty five.

Jeffrey N. Boyer: About half of the work streams in tag are designed to structurally improve our gross margins.

Jeffrey N. Boyer: First quarter gross margin was up 300 basis points versus last year and reflects benefits from the exit of our smartwatch category.

Jeffrey N. Boyer: Improved product margins in our core categories and lower freight costs.

Jeffrey N. Boyer: Our work streams on product sourcing and supply chain are expected to generate benefits in the latter part of 2024.

Jeffrey N. Boyer: Enabling us to deliver year over year improvement in gross margin.

Jeffrey N. Boyer: Importantly, our TEG initiatives have us on track to return to historical gross margin levels in the mid fifties over the next two years.

Jeffrey N. Boyer: The balance of our tag work streams are focused on taking cost out of our expense structure with the goal of a recalibrating, our operating model for greater efficiency and lower fixed costs be driving savings and our procurement practices can see optimizing our direct channel operating costs.

Jeffrey N. Boyer: Our Q1 operating expenses declined 20% compared to a year ago.

Jeffrey N. Boyer: Reflecting savings across head count labor and services, which were initiated in 2023.

Jeffrey N. Boyer: We anticipate that our initiatives will continue to generate year-over-year optical declines in the remaining quarters of 2024. Notwithstanding the progress being made across all the work streams in TAG, our sales remain under pressure, and we are working urgently to stabilize the trend line. Broadly speaking, we see three major themes playing out in our revenue base, which we anticipate will continue throughout 2024. First, about half of our revenue base is beginning to stabilize. Performance in the following areas of the business was approximately flat compared with the last year in Q1. Fossil traditional watches and jewelry globally on a comp-based system.

Jeffrey N. Boyer: We anticipate that our initiatives will continue to generate year over year Opex declines in the remaining quarters of 2024.

Jeffrey N. Boyer: Notwithstanding the progress being made across all of the work streams in tag our sales remained under pressure and we are working urgently to stabilize the trend line.

Jeffrey N. Boyer: Broadly speaking, we see three major themes playing out in our revenue base, which we anticipate will continue throughout 2024.

Jeffrey N. Boyer: First about half of our revenue base is beginning to stabilize.

Jeffrey N. Boyer: Performance in the following areas of the business was approximately flat to last year in Q1.

Jeffrey N. Boyer: Fossil traditional watches and jewelry globally on a comp basis.

Jeffrey N. Boyer: India, which overall remains a solid market for us.

Jeffrey N. Boyer: Our value brands sold through value channels like general merchandisers in off price.

Jeffrey N. Boyer: And our higher priced products that are sold through more premium specialty channels.

Jeffrey N. Boyer: Let me provide some color on those.

Jeffrey N. Boyer: On a macro perspective, we see consumers generally favoring value <unk>.

Jeffrey N. Boyer: Wholesale customers, who are leaning in to value products SLO remains reasonable in this price tier.

Jeffrey N. Boyer: At the same time sell in and sell out of more premium priced products have also shown durability.

Jeffrey N. Boyer: The India market, where we've invested significantly over the years, continues to grow with our marketing and brand building investments across fossil, cores, and our money exchange. Lastly, we continue to see improvement in our fossil-fueled watch business, fueled by our digital strategies and capabilities, broad distribution, and investment in marketing and products. For the past several quarters, Fossil Traditional Watch, which is among our largest categories, has been one of our most stable.

Jeffrey N. Boyer: The India market, where we've invested significantly over the years continues to grow with our marketing and brand building investments across fossil Kors Armani exchange.

Jeffrey N. Boyer: For the past several quarters fossil traditional watch which is among our largest categories has been one of our most stable.

Jeffrey N. Boyer: The second theme and often in a civil Court I. Just described is persistent challenges in two other parts of our business.

Jeffrey N. Boyer: Our licensed fashion watch brands and all others category.

Jeffrey N. Boyer: Collectively these two areas comprise over 40% of our revenue and were down about 30% in Q1.

Jeffrey N. Boyer: In the U S and Europe, our most recent industry data highlights that fashion watches contracted in the mid price category and the wholesale channel.

Jeffrey N. Boyer: Additionally, greater China continues to be down high double digits economic challenges are impacting consumer demand in the category.

Jeffrey N. Boyer: We anticipate these headwinds will continue in 2024 and have reflected that in our revenue outlook.

Jeffrey N. Boyer: Longer term, we expect this segment of the traditional watch business to stabilize and rebound behind the repositioning efforts of our major licensed brands.

Jeffrey N. Boyer: Lastly, and as we previously communicated we've been closing low to negative profit contribution retail stores at lease expiration.

Jeffrey N. Boyer: <unk> has exited the smartwatch category.

Jeffrey N. Boyer: While these deliberate actions create a headwind to sales in 2024, they are operating income accretive.

Jeffrey N. Boyer: On our year end earnings call in March we outlined four near term priorities is critical to driving our turnaround.

Jeffrey N. Boyer: As a reminder, those include <unk>.

Jeffrey N. Boyer: Advancing our tax plan.

Jeffrey N. Boyer: And our balance sheet stabilizing our business and conducting a strategic review.

Jeffrey N. Boyer: Let me update you on each of these areas.

Jeffrey N. Boyer: Our first priority is the sharp execution of our transform and grow plan. As we previously shared with you, TAG is a comprehensive restructuring program across nearly all elements of our operation. The organization has been hard at work across seven work streams, and the program is driving material results into the P&L in 2024. The headline here is that we're on track to achieve 100 million of annualized benefits in 2024, in addition to last year's 125 million.

Jeffrey N. Boyer: Our first priority is the sharp execution of our transform <unk> grow plan.

Jeffrey N. Boyer: Yes, we've previously shared with you peg is a comprehensive restructuring program across nearly all elements of our operations.

Jeffrey N. Boyer: The organization has been hard at work across seven work streams and the program is driving material results into the P&L in 2024.

Jeffrey N. Boyer: The headlines here because they were on track to achieve $100 million of annualized benefit in 2024. In addition to last year's $125 million.

Jeffrey N. Boyer: On the gross margin side, the largest source of value is expected to come through our product sourcing and supply chain initiatives beginning in the second half of the year.

Jeffrey N. Boyer: As I mentioned earlier, we've also started to realize benefits from SKU rationalization as well as pricing and promotional initiatives.

Jeffrey N. Boyer: Actions to simplify our organization in 2023 translated to a significant reduction in operating expenses in Q1, we will continue to benefit SG&A throughout 2024.

Jeffrey N. Boyer: We executed meaningful workforce reductions in 'twenty, three which are driving benefits into the P&L. This year.

Jeffrey N. Boyer: The leadership and resiliency of our teams through these changes has been strong and very much appreciate it.

Jeffrey N. Boyer: Do we have accomplished much under our current Tech program. We are identifying additional operating model efficiencies and expect to go after incremental opportunities across channels categories and geographies.

Jeffrey N. Boyer: We are identifying additional operating model efficiencies and expect to go after incremental opportunities across channels, categories, and geographies. Turning to our second priority, we're making progress towards strengthening the balance sheet and improving our liquidity position. During the first quarter, we had minimal cash usage, and as expected, we received a U.S. tax refund of $57 million in mid-April derived from provisions within the CARES Act, which provides us with an important source of incremental cash to execute our plans in 2024.

Jeffrey N. Boyer: Turning to our second priority, we're making progress towards strengthening the balance sheet and improving our liquidity position.

Jeffrey N. Boyer: With these actions and through continued disciplined management of working capital, we expect to be free cash flow positive in fiscal year 2024.

Jeffrey N. Boyer: Next we are taking aggressive actions to stabilize the business, we will continue to pivot resources and capital in this segment of our business that were more stable and have room to grow as I mentioned this includes investing behind fossil traditional watches and jewelry.

Jeffrey N. Boyer: As I mentioned, this includes investing in traditional watches and jewelry, India, our value brands, and our premium price brands. We are also working closely with our licensors to manage contraction in our fashion brands, amidst category declines in these price points, brand transitions, and challenging macro conditions in large markets like China. We are managing these brand contractions by protecting the price and margin architecture in our category for the long-term health of our business.

Jeffrey N. Boyer: Our value brands and our premium price brands.

Jeffrey N. Boyer: We are managing these brand contractions by protecting the price and margin architecture and our category for the long term help our business.

Jeffrey N. Boyer: Though we are seeing some bright spots from new product introductions, merchandising initiatives, and emerging markets, they are not yet significant enough to offset the broader category and brand challenges in our major markets. Finally, while our strategic actions create a top-line headwind, we will continue to optimize our SOAR portfolio and should be nearly fully out of the smartwatch business by the end of Q2. Lastly, we continue to work with our advisors on a strategic review of the business, including an ongoing review of our business model and comprehensive reviews of our capital structure and capital allocation strategies. We are acting with urgency as we focus on these priorities. During the first quarter, we appointed two independent board members, which, in tandem with recent leadership changes, ushers in new oversight and fresh thinking.

Jeffrey N. Boyer: So we're seeing some bright spots from new product introductions merchandising initiatives and emerging markets. They are not yet significant enough to offset the broader category and brand challenges in our major markets.

Jeffrey N. Boyer: Finally, while our strategic actions create a top line headwind, we will continue to optimize our store portfolio and should be nearly fully out of the smartwatch business by the end of Q2.

Jeffrey N. Boyer: We are acting with urgency as we focus on these priorities.

Jeffrey N. Boyer: During the first quarter, we appointed two independent board members, which in tandem with recent leadership changes Usher in new oversight and fresh thinking.

Jeffrey N. Boyer: These individuals bring significant value to the organization with decades of experience in retail and consumer operations, turnarounds, and finance. We look forward to their contributions and support as we move as quickly as possible to stabilize the business and pursue avenues to maximize shareholder value. We greatly appreciate the dedication of our teams and the support of our shareholders during this transformational time for FOSSIL. We look forward to keeping you updated on our progress and driving value for all of our stakeholders. With that, I'd like to turn the call over now to Sunil to step through the finances.

Jeffrey N. Boyer: These individuals bring significant value to the organization with decades of experience in retail and consumer operations turnarounds and finance.

Sunil: We look forward to their contributions and support as we move as quickly as possible to stabilize the business and pursue avenues to maximize shareholder value.

Sunil M. Doshi: Thanks, Jeff. First quarter net sales totaled $255 million, down 21% in constant currency. With better gross margins and lower SG&A, both driven by our TAG program, we narrowed our adjusted operating loss by 6 million to 19 million. First quarter cash flow from operations was slightly positive, a significant improvement versus last year when we used $86 million. The improvement in cash flows was primarily due to closely managed working capital. Timing of payments in the current year and lapping heavier than normal seasonal working capital needs last. We ended the quarter with $113 million in cash and $123 million in liquidity. Diving deeper into our Q1 friends

Sunil: Thanks, Jeff first quarter net sales totaled $255 million down 21% in constant currency.

Sunil M. Doshi: With better gross margin and lower SG&A, both driven by our tag program, we narrowed our adjusted operating loss by 6 million to $19 million.

Sunil M. Doshi: First quarter cash flow from operations was slightly positive a significant improvement versus last year, when we use $86 million.

Sunil M. Doshi: We ended the quarter with $113 million in cash and $123 million in liquidity.

Sunil M. Doshi: Diving deeper into our Q1 trends.

Sunil M. Doshi: As Jeff noted, there are three underlying themes that we have seen playing out across our business for several quarters now, which continued into Q1. First, about five points of our 21-point revenue decline in the first quarter were attributable to the year-over-year decline from closed stores and the exit of our smartwatch business. The revenue impact was roughly four to six points in each of our regions. As a reminder, the stores we are closing are at least expiration and, in aggregate, did not have a material contribution in terms of four-wall profitability. And since announcing our exit from the smartwatch category, we've more aggressively worked to move through our remaining inventory.

Sunil M. Doshi: As Jeff noted there are three underlying theme that we are seeing playing out across our business for several quarters now which continued into Q1.

Sunil M. Doshi: The revenue impact was roughly four to six points in each of our regions.

Sunil M. Doshi: As a reminder, the stores, we are closing or at lease exploration and in aggregate did not have a material contribution in terms of four wall profitability.

Sunil M. Doshi: And since announcing our exit from the smartwatch category more aggressively work to move through our remaining inventory.

Sunil M. Doshi: Second we are seeing signs of stabilization and about half of our Q1 revenue base.

Sunil M. Doshi: Across this portion of our revenue base net sales in the quarter were down 1%.

Sunil M. Doshi: Global net sales and fossil brands traditional watch and jewelry categories were negative 4% on a comparable basis.

Sunil M. Doshi: This reflects growth in the direct channel and our and then our Asia region.

Sunil M. Doshi: Set by decline in the indirect channels in the Americas and Europe.

Sunil M. Doshi: Growth in India remains robust for traditional watches where we achieved double digit growth in the strategic market anchored by strong sellout trends and expanded distribution.

Sunil M. Doshi: And our value price brand and a more premium price brands were about flat to last year.

Sunil M. Doshi: However, as Jeff noted, we've experienced persistent challenges in our licensed fashion brand and leathers category that carried into the first quarter of this year.

Sunil M. Doshi: Sales across this portion of our revenue base were down approximately 30% in Q1 and reflect both challenging operating conditions in China and distribution and category headwinds in traditional wholesale channels, particularly in the Americas and in Europe. Turning to gross margins, Q1 gross margins were up 300 basis points versus last year, primarily driven by benefits from our tag. Gross margin improvement versus last year can be traced to two factors. First, the prior year results included a one-time 170 basis point drag from a CAG-driven restructuring charge on our cost of goods related to liabilities from certain product categories.

Sunil M. Doshi: Two, the balance of the gross margin improvement, or 130 basis points, came from product margin improvement in our core categories, where initiatives from skew rationalization, assortment architecture, and reduced promotions in our direct-to-consumer channels drove better results. Lower freight costs also contributed to the year-over-year gross margin improvement. SG&A expenses in the first quarter were down approximately $39 million year-over-year, or 20%. Reductions were primarily attributable to lower store operating costs on fewer stores as well as lower compensation and administrative costs resulting from our tagging issue. We ended the quarter with 277 company-owned retail stores, down 15% from the prior year.

Sunil M. Doshi: Turning to gross margins Q1, gross margins were up 300 basis points versus last year, primarily driven by benefits from our tax plan gross margin.

Sunil M. Doshi: An improvement versus last year can be traced to two factors first the <unk>.

Sunil M. Doshi: Prior year results included a onetime 170 basis point drag from a tag driven restructuring charge in our cost of goods related to liabilities from certain product categories.

Sunil M. Doshi: The balance of the gross margin improvement or 130 basis points came from product margin improvement in our core categories, where initiatives from SKU rationalization assortment architecture and reduced promotions in our direct to consumer channels drove better results.

Sunil M. Doshi: Lower freight costs also contributed to the year over year gross margin improvement.

Sunil M. Doshi: SG&A expenses in the first quarter were down approximately $39 million year over year or 20%.

Sunil M. Doshi: Reductions were primarily attributable to lower store operating cost on fewer stores as well as lower compensation and administrative costs, resulting from our <unk> initiatives.

Sunil M. Doshi: We ended the quarter with 277 company owned retail stores down 15% from the prior year.

Sunil M. Doshi: Turning now to our outlook, our first quarter results for sales and adjusted operating margin were in line with our expectations, and our full year forecast remains unchanged from our prior guidance of approximately $1.2 billion in sales and an adjusted operating margin loss of 3% to 5%. Our net sales guidance of approximately $1.2 billion assumes approximately $100 million of negative impact from our soaring concession closure plans and the lapping of last year's smartwatch. As we noted on our last earnings call, we expected Q1 to be the softest sales quarter of the year.

Sunil M. Doshi: Turning now to our outlook, our first quarter results for sales and adjusted operating margin were in line with our expectations and our full year forecast remains unchanged from our prior guidance of approximately $1 $2 billion in sales and an adjusted operating margin loss of 3% to 5%.

Sunil M. Doshi: As we noted on our last earnings call, we expected Q1 to be the softer sales quarter of the year.

Sunil M. Doshi: Benefits from our TAG plan continue to be a key driver of our 2024 gross margins and SG&A forecast. We expect to achieve over 100 million P&L benefits in 2024 stemming from annualized savings achieved in 2023 and expected to be achieved in 2024 under the TAG. These benefits are expected to materialize in both gross margin and SG&A. Within gross margin, our TAG initiatives are expected to contribute to gross margin expansion, particularly in the second half of the year.

Sunil M. Doshi: Benefits from our tag plan continues to be a key driver of our 2020 for gross margins and SG&A forecast.

Sunil M. Doshi: We expect to achieve over $100 million of P&L benefit in 2024 stemming from annualized savings achieved in 2023 and expect it to be achieved in 2024 under the tax plan.

Sunil M. Doshi: These benefits are expected to materialize in both gross margin and SG&A.

Sunil M. Doshi: Within gross margin our tag initiatives are expected to contribute to gross margin expansion, particularly in the second half of the year.

Sunil M. Doshi: Restructuring costs for fiscal year 2024, our estimated at $35 million.

Sunil M. Doshi: We are also laser focused on strengthening our balance sheet. We ended the first quarter with $113 million in cash and $10 million available under our revolver. And we have a solid roadmap for generating free cash flow for full year 2024, a significant improvement versus last year's use of cash of approximately $70 million. Note that our expectation to be cash flow positive this year includes the one-time benefit of the $57 million tax reduction.

Sunil M. Doshi: We are also laser focused on strengthening our balance sheet.

Sunil M. Doshi: We ended the first quarter with $113 million in cash and $10 million available under our revolver.

Sunil M. Doshi: And we have a solid roadmap for generating free cash flow for full year 2020 for a significant improvement versus last year's use of cash of approximately $70 million.

Sunil M. Doshi: Note that our expectation to be free cash flow positive. This year includes the onetime benefit of the $57 million tax refund.

Sunil M. Doshi: It's also important to note that the seasonal nature of our business and projected sales declines will require operating cash use in Q2 and Q3. In the near term, with limited availability on our ABL facility and until cash flows turn positive in the fourth quarter, we believe it is prudent to preserve our financial flexibility until the business shrinks. At the same time, as part of our current strategic review process, we are taking a holistic review of our capital structure along with our strategic and operational plans in order to aggressively improve the longer-term capital structure of the company. We will share more detail in future calls as our plans and programs are developed. We appreciate the support of our shareholders and look forward to keeping you updated on our progress in future quarters.

Sunil M. Doshi: It's also important to note that the seasonal nature of our business and projected sales declines will require operating cash use in Q2 and Q3.

Sunil M. Doshi: In the near term with limited availability on our ABL facility and until cash flows turned positive in the fourth quarter. We believe it is prudent to preserve our financial flexibility until the business strengthens.

Sunil M. Doshi: At the same time as part of our current strategic review process. We are taking a holistic review of our capital structure, along with our strategic and operational plans in order to aggressively through the longer term capital structure of the company.

Sunil M. Doshi: We will share more detail on future calls as our plans and programs are developed.

Sunil M. Doshi: We appreciate the support of our shareholders and look forward to keeping you updated on our progress in future quarters.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Q1 2024 Fossil Group Inc Earnings Call

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