Q2 2024 Fossil Group Inc Earnings Call

August 8, 2024

Good afternoon, ladies and gentlemen, and welcome to the fossil group, second quarter 2021 earnings scores. At this time, all parties are in listen-only mode.

Operator: This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.

Operator: This conference call is being recorded and may not be reproduced in full or in part without written permission from the company. Now, I'll turn the call over to Christine Greany of the Blue Shirt Group.

This conference call is being recorded and may not be reproduced in full or in part without written permission from the company. Now I'll turn the call over to Christine Greany of the Blue Shirt Group to begin. Christine.

Christine Greany: Now, I'll turn the call over to Christine Greany of the Blusher Group to begin.

Christine Greany: Thank you, hello, everyone, and thanks for joining us. With us today on the call are Jeff Boyer, Interim CEO, and Andy Skobe, Interim CFO. 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.

Christine Greany: Thank you. Hello everyone, and thanks for joining us.

Christine Greany: Thank you. Hello everyone and thanks for joining us. With us today on the call are Jeff Boyer, Interim CEO , and Andy Scobie, Interim CFO .

Christine Greany: With us today on the call are Jeff Boyer, Interim CEO, and Andy Scobie, Interim CFO. I would like to remind you that the 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: 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. With that, I'll now turn the call over to Jess.

Speaker Change: I would like to remind you that information made available during this conference call contains forward-looking information.

Christine Greany: 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. 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.

Christine Greany: And actual results could differ materially from those that will be discussed during this call.

Christine Greany: Puffer Group's policy on forward-looking statements.

Christine Greany: and additional information concerning a number of factors that could cause actual results to different materially from such statements is readily available in the company's form KK, 10Q and 10Q reports filed with the SEC.

Christine Greany: In addition, FOSIL 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.

Christine Greany: 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 8-K, and is available in the investors section of FossilGroup.com.

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

Christine Greany: 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.

Christine Greany: in Fossils Earnings Release which was filed today on Form 8K and is available in the investors section of FossilGroup.com. With that I'll now turn the call over to Jeff.

Christine Greany: With that, I'll turn the call over to Jeff.

Jeff Boyer: Thanks, Christine. And good afternoon, everyone.

Jeffrey Boyer: Thanks, Christine. And good afternoon, everyone. Thanks for joining us.

Jeffrey Boyer: I'd like to welcome Andy Skobe, our newly appointed Interim CEO, to the call. Andy joined us on July 1st and has quickly ramped up on our business, allowing for a seamless transition into the CFO role. I'll begin with a high-level overview of our financial results and business performance. Then I'll do a deeper dive on our tax plan in a way where confidential position Fossil to return to profitability.

Jeff: Thanks Christine and good afternoon everyone. Thanks for joining us.

Speaker Change: I'd like to welcome Andy Scobie, our newly appointed interim CFO , to the call.

Jeff: Andy joined us on July 1st and has quickly ramped up on our business, allowing for a seamless transition into the CFO role.

Jeff Boyer: Thanks for joining us. I'd like to welcome Andy Scobee, our newly appointed interim CFO, to the call. Andy joined us on July 1st and has quickly ramped up on our business, allowing for a seamless transition into the CFO role. I'll begin with a high-level overview of our financial results and business performance. Then I'll do a deeper dive on our tag plan and why we're confident that we'll position Fossil to return to profitability, and I'll pass the call to Andy for a more detailed look at the financials. Second quarter results were in line with our expectations, with top line trends remaining relatively constant year to date.

Jeff: I'll begin with a high-level overview of our financial results and business performance. Then I'll do a deeper dive on our tax plan and why we're confident that we'll position Fossil to return to profitability.

Jeffrey Boyer: Then I'll have the call to Andy for a more detailed look at the financials. Second quarter results were in line with the expectations. With top-line trends remaining relatively constant year to date. Against this backdrop, ongoing progress within our tag plan allowed us to deliver meaningful gross margin expansion, continued to take costs out of the business, and substantially narrow our adjusted operating loss. The highlights for the quarter include 390 basis points of gross margin expansion, an 18% reduction in SG&A, and the nearly 40% reduction in our adjusted operating loss.

Jeff: Then I'll have to call to Andy for a more detailed look at the financials.

Speaker Change: Second important results were in line with the expectations, with top line trends remaining relatively constant year-to-day.

Jeff Boyer: Against this backdrop, ongoing progress within our TAG plan allowed us to deliver meaningful gross margin expansion, continue to take costs out of the business, and substantially narrow our adjusted operating loss. The highlights for the quarter include 390 basis points of gross margin expansion, an 18% reduction in SG&A, and a nearly 40% reduction in our Adjusted Operating Loss. Let me provide some color around sales trends. Net sales declined 19% on a constant currency basis, which includes approximately five points of impact related to our strategic actions to exit the smartwatch category and optimize our retail store portfolio.

Andy: Against this backdrop, ongoing progress within our TAG plan allowed us to deliver meaningful gross margin expansion, continue to take costs out of the business, and substantially narrow our adjusted operating loss.

Andy: The highlights for the quarter include 390 basis points of gross margin expansion, an 18% reduction in SG&A, and a nearly 40% reduction in our adjusted operating loss.

Jeffrey Boyer: Let me provide some color around sales trends. Net sales declined 19% on a constant currency basis, which include approximately 5 points of impact related to our strategic actions to exit the smartwatch category and optimize our retail portfolio. At a high level, macro and category dynamics continue to present a significant headwind. As other companies in the consumer segment have noted, the wholesale channel in the U.S. and Europe remains challenging, and consumption sentiment remains soft in China. As we just got last quarter, about half of our sales base is beginning to show signs of stabilization, with Q1 performance in this sector approximately flat and Q2 results down about 4%.

Andy: Let me provide some color around sales trends. Net sales declined 19% on a constant currency basis, which included approximately five points of impact related to our strategic actions to exit the smart watch category and optimize our retail store portfolio.

Jeff Boyer: At a high level, macro and category dynamics continue to present a significant headwind. As other companies in the consumer segment have noted, the wholesale channel in the U.S. and Europe remains challenging, and consumer sentiment remains soft in China. As we discussed last quarter, about half of our sales base is beginning to show signs of stabilization, with Q1 performance in this sector approximately flat and Q2 results down about 4%. The most notable areas of the business where we're seeing positive dynamics emerge are traditional fossil watches, which are approximately flat, globally on a count basis, in India, where sales increased double digits compared to last year, reflecting strong growth across virtually all brands. The more challenging areas of our business, licenses, watch brands, and leathers, represent about half of our revenue base in the quarter.

Andy: At a high level, macro and category dynamics continue to present a significant headwind. As other companies in the consumer segment have noted, the wholesale channel in the U.S. and Europe remains challenging, and consumption sentiment remains soft in China.

Andy: As we discussed last quarter, about half of our sales base is beginning to show signs of stabilization. With Q1 performance in this sector approximately flat, and Q2 results down about 4%.

Jeffrey Boyer: The most notable areas of the business where we're seeing positive dynamics emerge are Fossil traditional watches, which are approximately flat globally on an account basis, and India, where sales increased double digits compared to last year, reflecting strong growth across, firstly, all brands. The more challenging areas of our business, licensed watch brands and leathers, represent about half of our revenue base in the quarter. The pressure work experience on our licensed watch brands can be traced to ongoing contraction due to a license or brand repositioning, as well as the soft consumer demand I noted in China. Encouragingly, we started to see watch and jury sales trends begin to strengthen in our key license or boutiques.

Andy: The most notable areas of the business where we're seeing positive dynamics emerge are fossil traditional watches which are approximately flat, globally on a count basis, and India where sales increased double digits compared to last year, reflecting strong growth across virtually all brands.

Operator: This conference call is being recorded and may not be reproduced in who or in part without written permission from the company.

Christine Greany: Now, I'll turn the call over to Christine Greany of the Blusher Group to begin. Christine? Thank you, hello, everyone, and thanks for joining us.

Andy: The more challenging areas of our business, place and watch brands and others, represent about half of our revenue based in the quarter.

Jeff Boyer: The pressure we're experiencing on our licensed watch brands can be traced to ongoing contraction due to license or brand repositioning, as well as the soft consumer demand I noted in China. However, encouragingly, we started to see watch and jewelry sales trends begin to strengthen in our key licensee or boutiques. Though a small percentage of our overall sales, we view this as an early sign that their brand repositioning efforts are starting to gain traction, and our Fossil Leathers category, as a result of a softer than anticipated consumer response to our new product offerings, we are repositioning the assortment to deliver enhanced functionality and increased value to the consumer.

Christine Greany: With us today on the call are Jeff Boyer, interim CEO and Andy Skobe, interim CFO. 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.

Andy: The pressure of our experience in our licensed watch friends can be traced to ongoing contraction due to a license or brain repositioning, as well as the soft consumer demand I noted in China.

Andy: Encouragingly, we started to see watch and jewelry sales trends begin to strengthen in our key license or boutiques. Though a small percentage of our overall sales, we view this as an early sign that their brand repositioning efforts are starting to gain traction.

Jeffrey Boyer: Though a small percentage of our overall sales, we viewed this as an early sign that their brand repositioning efforts are starting to gain traction.

Jeffrey Boyer: In our Fossil leathers category, as a result of softer than anticipated consumer response to our new product offerings, we are repositioning the assortment to deliver enhanced functionality and increased value to the consumer.

Andy: In our Fossil Lovers category, as a result of softer than anticipated consumer response to our new product offerings, we are repositioning the assortment to deliver enhanced functionality and increased value to the consumer.

Jeffrey Boyer: During these challenging times, we're focused on four core priorities to position the company to return to growth and profitability. First, advancing our transforming growth plan. Second, strengthening our balance sheet. Third, stabilizing the business. And fourth, conducting a strategic review of our business model. Our teams are working tirelessly and delivering strong execution on multiple work streams under our tag plan. We're encouraged by the operational and financial progress we're seeing as we've collected in our margin expansion and cost reduction year to date this year. A critical foundation element of tag is our shift to a globally led operating model with regional execution of consolidated brand strategies.

Jeff Boyer: During these challenging times, we're focused on four core priorities to position the company to return to growth and profitability. First, advancing our transform and grow plan. Second, strengthening our balance sheet.

Andy: During these challenging times, we're focused on four core priorities to position the company to return to growth and profitability.

Jeff Boyer: Third, stabilizing the business, and fourth, conducting a strategic review of our business model. Our teams are working tirelessly and delivering strong execution on multiple work streams under our CAG plan. We are encouraged by the operational and financial progress we're seeing as reflected in our margin expansion and cost reduction year-to-date this year. A critical foundational element of TAG is our shift to a globally-led operating model with regional execution of consolidated brand strategies.

Andy: First, advancing our transform and growth plan.

Andy: Second, strengthen our balance sheet.

Andy: 3. Stabilizing the business 4. Conducting a strategic review of our business model

Christine Greany: Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-gap 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.

Andy: Our teams are working tirelessly and delivering strong execution on multiple work streams under our TAG plan. We're encouraged by the operational and financial progress we're seeing, as reflected in our margin expansion and cost reduction year-to-date this year.

Jeffrey Boyer: With that, I'll turn the call over to Jeff. Thanks, Christine. And good afternoon, everyone. Thanks for joining us.

Andy: A critical foundational element of text is our shift to a globally-led operating model with regional execution of consolidated brand strategies.

Jeffrey Boyer: This model, which is expected to drive greater consistency, efficiency, and accountability, is better aligned with the size of our business and our long-term strategic objectives. Standing up this new model included some right-saving actions in the first half of the year, and we're continuing to evaluate additional opportunities as we evolve the organizational structure in the coming quarters. Importantly, the efficiencies we're capturing under our tag plan are driving significant improvement in growth margin and operating expense. Your date we're tracking to achieve at least 100 million of annualized benefits from tag in 2024 and remain on track to achieve expected total plan benefits of 300 million.

Jeff Boyer: This model, which is expected to drive greater consistency, efficiency, and accountability, is better aligned with the size of our business and our long-term strategic objectives. Standing up this new model included some right-thinking actions in the first half of the year, and we're continuing to evaluate additional opportunities as we evolve the organizational structure in the coming quarters. Importantly, the efficiencies we're capturing under our TAG plan are driving significant improvement in gross margin and operating expense. Year-to-date, we're tracking to achieve at least $100 million of annualized benefits from TAG in 2024 and remain on track to achieve expected total planned benefits of $300 million.

Jeffrey Boyer: I'd like to welcome Andy Skobe, our newly appointed interim CEO to the call. Andy joined us on July 1st and has quickly ramped up on our business, allowing for a seamless transition into the CFO role. I'll begin with a high-level overview of our financial results and business performance.

Andy: This model, which is expected to drive greater consistency, efficiency, and accountability, is better aligned with the size of our business and our long-term strategic objectives.

Andy: Standing up this new model included some right saving actions in the first half of the year and we're continuing to evaluate additional opportunities as we evolve the organizational structure in the coming quarters.

Jeffrey Boyer: Then I'll do a deeper dive on our tax plan in a way where confidential position Fossil to return to profitability.

Jeffrey Boyer: Then I'll have the call to Andy for a more detailed look at the financials. Second quarter results were in line with the expectations. With top-line trends remaining relatively constant year to day. Against this backdrop, ongoing progress within our tag plan allowed us to deliver meaningful gross margin expansion, continued to take costs out of the business, and substantially narrow our adjusted operating loss. The highlights for the quarter include 390 basis points of gross margin expansion, an 18% reduction in SGNA, and the nearly 40% reduction in our adjusted operating loss.

Andy: Importantly, the efficiencies we're capturing under our TAG plan are driving significant improvement in gross margin and operating expense.

Andy: Year-to-date, we're tracking to achieve at least $100 million of annualized benefits from TAG in 2024 and remain on track to achieve expected total planned benefits of $300 million.

Jeffrey Boyer: From a gross margin perspective, we're realizing benefits from serialization, pricing, and promotional initiatives. from an operating expense lens where capturing benefits through several actions as we continue to right size our cost structure. These include workforce reductions, procurement and indirect cost savings, store closures, rent negotiations, and store labor optimization. The actions I just outlined are expected to generate significant growth margins and SG&A benefits in the second half of 2024 and continue until next year. Our work distance in the balance; she's progressing. As we discussed on our last call, during Q2, we received a US tax refund of 57 million, providing us with incremental cash and strength in our equity position.

Jeff Boyer: From a gross margin perspective, we're realizing benefits from skew rationalization in pricing and promotional initiatives. From an operating expense perspective, we're capturing benefits through several actions as we continue to right-size our cost structure. These include workforce reductions, procurement and indirect cost savings, store closures, rent negotiations, and store labor optimization.

Andy: From a gross margin perspective, we're realizing benefits from skew rationalization in pricing and promotional initiatives.

Andy: From an operating expense lens, we're capturing benefits through several actions as we continue to right-size our cost structure. These include workforce reductions, procurement and indirect cost savings, store closures, rent negotiations, and store labor optimization.

Jeffrey Boyer: Let me provide some color around sales trends. Net sales declined 19% on a constant currency basis, which include approximately 5 points of impact related to our strategic actions to exit the smartwatch category and optimize our retail portfolio. At a high level, macro and category dynamics continue to present a significant headwind, as other companies in the consumer segment have noted, the wholesale channel in the U.S, and Europe remains challenging and consumption sentiment remains soft in China.

Jeff Boyer: The actions I just outlined are expected to generate significant gross margin and SG&A benefits in the second half of 2024 and continue into next year. Meanwhile, our work to strengthen the balance sheet is progressing. As we discussed in our last call, during Q2, we received a U.S. tax refund of $57 million, providing us with incremental cash and strengthening our liquidity position. Second quarter ending inventory declined 38% versus a year ago and 10% compared to Q1, driving improved working capital.

Andy: The Actions I just outlined are expected to generate significant gross margins and SUNA benefits in the second half of 2024, and continue its next year.

Andy: Our work to strengthen the balance sheet is progressing. As we discussed on our last call, during Q2, we received a U.S. tax refund of $57 million, providing us with incremental cash and strengthening our liquidity position.

Jeffrey Boyer: Second quarter and inventory declined 38% versus a year ago and 10% compared to Q1, driving improved working capital. We're continuing to focus on the asset monetization opportunity we talked about last quarter, including the scale of our real estate in Europe. We'll also pursue an opportunity to utilize our working capital more efficiently, leverage our inventory and receivables, and obtain liquidity opportunities for our non-ABL assets. We ended the second quarter with 156 million of liquidity, comprised of cash and available borrowings under our revolving credit facility. Based on current business trends in anticipated working capital needs, we're positioned to maintain ample liquidity and generate positive pre-cash flow for the full year.

Andy: 2nd quarter, and the inventory declined 38% versus 0, and 10% compared to Q1, driving improved working capital.

Jeffrey Boyer: As we just got last quarter, about half of our sales base is beginning to show signs of stabilization, with Q1 performance in this sector approximately flat and Q2 results down about 4%. The most notable areas of the business where we're seeing positive dynamics emerge are Fossil traditional watches which are approximately flat, globally on account basis, and India where sales increased double digits compared to last year, reflecting strong growth across firstly all brands.

Jeff Boyer: We're continuing to focus on the asset monetization opportunities we talked about last quarter, including the sale of our real estate in Europe, while also pursuing opportunities to utilize our working capital more efficiently, leverage our inventory and receivables, and obtain liquidity opportunities for our non-ABL assets. We ended the second quarter with $156 million of liquidity comprised of cash and available borrowings under a revolving credit facility.

Andy: We're continuing to focus on the asset monetization opportunity we talked about last quarter, including the style of our real estate in Europe, but also pursuing an opportunity to utilize our working capital more efficiently.

Andy: leverage our inventory and receivables, and obtain liquidity opportunities for our non-AVL assets.

Andy: We ended the second quarter with 156 million of liquidity comprised of cash and available borrowings under a revolving credit facility.

Jeffrey Boyer: The more challenging areas of our business, licensed watch brands and leathers, represent about half of our revenue base in the quarter. The pressure work experience on our licensed watch brands can be traced to ongoing contraction due to a license or brand repositioning as well as the soft consumer demand I noted in China. Encouragingly, we started to see watch and jury sales trends begin to strengthen in our key license or boutiques. Though a small percentage of our overall sales, we viewed this as an early sign that their brand repositioning efforts are starting to gain traction. In our Fossil leathers category, as a result of softer than anticipated consumer response to our new product offerings, we are repositioning the assortment to deliver enhanced functionality and increased value to the consumer.

Jeff Boyer: Based on current business trends and anticipated working capital needs, we're positioned to maintain AMP liquidity and generate positive pre-cash flow for the full year. Our near-term actions to stabilize the business are bearing fruit. In the first half of 2024, we exited 46 retail store locations at natural lease expiration and now expect to close up to 55 fossil and watch station stores by year-end as part of our store optimization initiative. Additionally, we've successfully exited the smartwatch category with almost no inventory remaining.

Andy: Based on current business trends and anticipated working capital needs, we're positioned to maintain ample liquidity and generate positive pre-cash flow for the full year.

Jeffrey Boyer: Our near-term actions to stable as the business are bearing fruit.

Jeffrey Boyer: In the first half of 2024, we expected 46 retail store locations at natural lease expiration and now expected close up to 55 Fossil and Watch Station stores by year end as part of our store optimization initiative. Additionally, we've successfully acted the smartwatch category with almost no inventory remaining. In the second quarter, we saw trend improvements in our own stores and boutiques, four traditional watches across our Fossil brand, as well as several of our major licensed brands. Of note, Fossil traditional watches were up 4% in our DPP channels and accounts sales basis in Q2.

Andy: Our near-term actions to stabilize the business are bearing fruit. In the first half of 2024, we exited 46 retail store locations at natural lease expiration, and now expect to close up to 55 fossil and watch station stores by year-end as part of our store optimization initiative.

Andy: Additionally, we've successfully exceeded the Smartwatch category with almost no inventory remaining.

Jeff Boyer: In the second quarter, we saw trend improvements in our own stores and boutiques for traditional watches across our fossil brand, as well as several of our major licensed brands. Of note, fossil-fission watches were up 4% in our DTC channels on a count-sales basis in Q2. In the second half, our teams will focus on additional upper-funnel initiatives to drive awareness and heat, including brand ambassador and influencer campaigns. For example, just this morning, we announced supermodel and entrepreneur Ashley Graham as a new ambassador for Michelle, our luxury women's watch brand. She'll serve as the face of Michelle's latest marketing campaign.

Andy: In the second quarter, we saw trend improvements in our own stores and boutiques for traditional watches across our fossil brand, as well as several of our major licensed brands.

Speaker Change: Of note, fossil-fifixion watches were up 4% in our GPT channels and a count-cells basis in YouTube.

Jeffrey Boyer: In the second half, our team will focus on additional upper funnel initiatives to drive awareness and heat, including brand ambassador and influencer campaigns. Just this morning, we announced supermodel and entrepreneur Ashley Graham as a new ambassador for Michelle, our luxury women's watch brand. She'll serve as a face of Michelle's latest marketing campaign. Similar partnerships are expected in the coming months.

Andy: In the second half, our teams will focus on additional upper funnel initiatives to drive awareness and heat, including brand ambassador and influencer campaigns.

Andy: Just this morning we announced supermodel and entrepreneur Ashley Graham as a new ambassador for Michelle, our luxury women's watch brand. She'll serve as the face of Michelle's latest marketing campaign. Similar partnerships are expected in the coming months.

Jeff Boyer: Similar partnerships are expected in the coming months. From a licensed brand perspective, we just signed an expansive license agreement with Skechers, broadening the scope of our agreement and extending the term to 2029. Over the past five years, we've grown our Skechers watch business by 35% annually. We're extremely excited to continue our partnership with one of the world's fastest-growing brands and look forward to driving further growth on a global scale in the coming years.

Jeffrey Boyer: From a licensed brand perspective, we just signed an expansive license agreement with Sketchers, broadening the scope of our agreement and extending the terms at 2029. Over the past five years, we've grown our Sketchers watch business by 35% annually. We're extremely excited to continue our partnership with one of the world's fastest growing brands and look forward to driving further growth on a global scale in the coming years.

Andy: From a licensed brand perspective, we just signed an expansive licensed agreement with Sketchers, brought in the scope of our agreement and extending the terms at 2029.

Jeffrey Boyer: A critical foundation element of tag is our shift to a globally led operating model with regional execution of consolidated brand strategies. This model, which is expected to drive greater consistency, efficiency, and accountability, is better aligned with the size of our business and our long-term strategic objectives. Standing up this new model included some right-saving actions in the first half of the year, and we're continuing to evaluate additional opportunities as we evolve the organizational structure in the coming quarters.

Speaker Change: Over the past five years, we've grown our sketches, watched business by 35 percent annually. We're extremely excited to continue our partnership with one of the world's fastest growing brands and look forward to driving further growth on a global scale in the coming years.

Jeff Boyer: We continue working closely with our advisors on our strategic review, including an ongoing analysis of our business model, the development of strategic initiatives, refinement of our financial plans, and comprehensive reviews of our capital structure and financing alternatives. Looking ahead to the remainder of 2024, we expect to see sequential improvement in trends across sales, gross margin, and adjusted operating margin. We remain on track with our tax plan and reiterate our full year expectation to achieve net sales of approximately $1.2 billion.

Speaker Change: We continue working closely with our advisors on our strategic review, including an ongoing analysis of our business model, development of strategic initiatives, refinement of our financial plans, and comprehensive reviews of our capital structure and financing alternatives.

Jeffrey Boyer: Looking ahead to the remainder of 2024, we expect to see sequential improvement in trends across sales, gross margin, and adjusted operating margin. We remain on track with our tax plan, and reiterate our folio expectation to achieve net sales of approximately 1.2 billion, adjusted operating margin of minus 3% to minus 5%. And positive pre-cashflow, inclusive of the 57 million tax refunds. We're acting urgently to drive improved financial performance and remain committed to building long-term shareholder value. We appreciate the dedication of our teams and the support of our shareholders.

Speaker Change: Looking ahead to the remainder of 2024, we expect to see sequential improvement in trends across sales, gross margin, and adjusted operating margin.

Jeffrey Boyer: Importantly, the efficiencies we're capturing under our tag plan are driving significant improvement in growth margin and operating expense. Your date we're tracking to achieve at least 100 million of annualized benefits from tag in 2024 and remain on track to achieve expected total plan benefits of 300 million. From a gross margin perspective, we're realizing benefits from serialization, and pricing, and promotional initiatives, from an operating expense lens where capturing benefits through several actions as we continue to right size our cost structure.

Andy: We remain on track with our tax plan and reiterate our full year expectation to achieve net sales of approximately $1.2 billion.

Jeff Boyer: Adjusted operating margin of minus 3% to minus 5%, and positive Pre-Cash Flow Inclusive of the $57 million tax refund. We're acting urgently to drive improved financial performance and remain committed to building long-term shareholder value. We appreciate the dedication of our teams and the support of our shareholders. Now I'll turn the call over to Andy to review the financials, and we'll conclude the call with some Q&As led by Christine.

Speaker Change: adjusted operating margin of minus 3% to minus 5% and positive pre-cash flow inclusive of the 57 million tax refund

Speaker Change: We're acting urgently to drive improved financial performance and remain committed to building long-term shareholder value. We appreciate the dedication of our teams and the support of our shareholders.

Jeffrey Boyer: Now, I'll turn the call to Andy to review the financials, and we'll conclude the call to some Q&A led by Christine.

Jeffrey Boyer: These include workforce reductions, procurement and indirect cost savings, store closures, rent negotiations, and store labor optimization. The actions I just outlined are expected to generate significant growth margins and SGNA benefits in the second half of 2024 and continue until next year. Our work distance in the balance she's progressing. As we discussed on our last call, during Q2, we received a US tax refund of 57 million, providing us with incremental cash and strength in our equity position.

Speaker Change: Now, I'll turn the call to Andy to review the financials and we'll conclude the call with some Q&A led by Christine.

Andy Scobie: Thanks Jeff and good afternoon all. It's great to be here and I look forward to getting to know our shareholders in the coming quarter. Despite continued top-line pressure, our TAG plan has allowed us to drive improvement across the rest of the P&L. Second quarter net sales totaled $260 million. That's down 19% in constant currency and includes 5 points of impact related to our smart watch exit and store closure. Gross margin expanded by 390 basis points compared to last year, which primarily can be traced to improved product margins resulting from the tag initiatives that Jeff discussed, as well as the benefit of a lower smartwatch mix. We expect to achieve continued gross margin expansion in the second half of the year driven by sourcing and supply chain initiatives and ongoing benefits from skew rationalization, pricing, and promotion.

Andrew Skobe: Thanks, Jeff, and good afternoon. It's great to be here, and I look forward to getting to know our shareholders in the coming quarters. Despite continued top-line pressure, our tag plan has allowed us to drive improvement across the rest of the P&L. Second quarter net sales totaled $216 million. That's down 19% in constant currency, and includes five points of impact related to our smartwatch exit and store closures. Gross margin expanded to 390 basis points compared to last year, which primarily can be traced to improve product margins, resulting from the tag initiatives that Jeff discussed, as well as the benefit of lower smartwatch mix.

Andy: Thanks, Jeff, and good afternoon, all. It's great to be here, and I look forward to getting to know our shareholders in the coming quarters.

Andy: Despite continued offline pressure, our tag plant has allowed us to drive improvement across the rest of the P&L.

Andy Scobie: SG&A expenses were down $34 million compared to last year, representing an 18% decrease as we continue to focus on cost take-up. The year-over-year reductions are attributable to lower store operating costs in fewer stores and lower compensation and administrative costs driven by TAG initiatives that Jeff described. We closed 20 stores in Q2, ending the quarter with 258 stores, which is a reduction of 18% compared to a year ago. As Jeff mentioned, we have closed 46 locations in the first half of the year and expect to close up to 55 by year end. As a reminder, all closures occur at natural lease expiration.

Andy: Second quarter net sales totaled $260 million. That's down 19% in constant currency and includes five points of impact related to our smartwatch exit and store closures.

Andy: Gross margin expanded to 390 basis points compared to last year.

Andy: which primarily can be traced to improved product margins resulting from the tag initiatives that Jeff discussed as well as the benefit of lower smartwatch mix

Andrew Skobe: We expect to achieve continued gross margin expansion in the second half of the year, driven by sourcing and supply chain initiatives and ongoing benefits from speed rationalization, pricing, and promotion. SG&A expenses were down 34 million compared to last year, representing an 18% decrease as we continue to focus on cost takeout. The year-over-year reductions are attributable to lower store operating costs, infuer stores, and lower compensation and administrative costs driven by tag initiatives that Jeff described. We closed 20 stores in Q2, ending the quarter with 258 stores, which is a reduction of 18% compared to a year ago.

Jeff: We expect to achieve continued gross margin expansion in the second half of the year Driven by sourcing and supply chain initiatives and ongoing benefits from ski rationalization pricing and promotion

Andy: SG&A expenses were down $34 million compared to last year, representing an 18% decrease as we continue to focus on cost takeout.

Jeffrey Boyer: Based on current business trends in anticipated working capital needs, we're positioned to maintain ample liquidity and generate positive pre-cash flow for the full year. Our near-term actions to stable as the business are bearing fruit. In the first half of 2024, we expected 46 retail store locations at natural lease expiration and now expected close up to 55 fossil and watch station stores by year end as part of our store optimization initiative. Additionally, we've successfully acted the smartwatch category with almost no inventory remaining.

Speaker Change: The year-over-year reductions are attributable to lower-store operating costs in fewer stores and lower compensation in administrative costs, working by Kagan Initiatives that you have to describe.

Speaker Change: We closed 20 stores in YouTube, ending the quarter with 258 stores, which is a reduction of 18% compared to a year ago.

Andrew Skobe: As Jeff mentioned, we have expected void six locations in the first half of the year and expect to close up to 55 by year-end. As a reminder, all closures occur at natural lease expiration. Ongoing cost actions are expected to drive continued reductions in SG&A dollars through the remainder of 2024, with anticipated second half year-over-year comparisons down in the low double digits. The combination of gross margin expansion and cost reduction in the second quarter enable us to significantly narrow Q2-adjusted operating loss to 17 million. That reflects an improvement of 39% versus the adjusted operating loss of 28 million a year ago.

Speaker Change: As Jeff mentioned, we have exited 46 locations in the first half of the year and expect to close up to 55 by year-end. As a reminder, all closures occur at natural lease expiration.

Andy Scobie: Ongoing cost actions are expected to drive continued reductions in SG&A dollars through the remainder of 2024, with anticipated second half year-over-year comparisons down in the low double digits. The combination of gross margin expansion and cost reduction in the second quarter enabled us to significantly narrow our Q2 adjusted operating loss to $17 million. That reflects an improvement of 39% versus the adjusted operating loss of $28 million a year ago. Turning to the balance sheet, we ended the quarter with total liquidity of $156 million, providing us with the flexibility to continue to execute our TAG plan.

Jeffrey Boyer: In the second quarter, we saw trend improvements in our own stores and boutiques, four traditional watches across our fossil brand, as well as several of our major licensed brands. Of note, fossil traditional watches were up 4% in our DPP channels and accounts sales basis in Q2.

Jeff: Ongoing cost actions are expected to drive continued reductions in SG&A dollars through the remainder of 2024, with anticipated second half year-over-year comparisons down in the low double digits.

Speaker Change: The combination of gross margin expansion and cost reduction in the second quarter enabled us to significantly narrow Q2 adjusted operating loss to 17 million.

Jeffrey Boyer: In the second half, our team will focus on additional upper funnel initiatives to drive awareness and heat, including brand ambassador and influencer campaigns.

Speaker Change: That reflects an improvement of 39% versus the adjusted operating loss of $28 million a year ago.

Andrew Skobe: Turning to the balance sheet, we ended the quarter with total liquidity of 156 million, providing us with a flexibility to continue to execute our tag plan. We brought down inventory levels by 38% versus a year ago, improving work in capital. Cash flow from operations total 35 million in the quarter, reflecting seasonal cash use of approximately 22 million, which was more than offset by our receipt of 57 million tax refund donations.

Jeffrey Boyer: Just this morning, we announced supermodel in entrepreneur Ashley Graham as a new ambassador from Michelle, our luxury women's watch brand. She'll serve as a face of Michelle's latest marketing campaign. Similar partnerships are expected in the coming months.

Speaker Change: Turning to the balance sheet, we ended the quarter with total liquidity of 156 million, providing us with a blessed ability to continue to execute our tag plan.

Andy Scobie: We brought down inventory levels by 38% versus a year ago, improving working capital. Cash flow from operations totaled $35 million in the quarter, reflecting seasonal cash use of approximately $22 million, which was more than offset by our receipt of $57 million in tax refunds in April. Moving to Guiding

Speaker Change: We brought down inventory levels by 38% versus a year ago, improving working capital.

Jeffrey Boyer: From a licensed brand perspective, we just signed an expansive license agreement with sketchers, broading the scope of our agreement and extending the terms at 2029. Over the past five years, we've grown our sketchers watch business by 35% annually. We're extremely excited to continue our partnership with one of the world's fastest growing brands and look forward to driving further growth on a global scale in the coming years.

Speaker Change: Cash flow from operations totaled $35 million in the quarter, reflecting seasonal cash use of approximately $22 million, which was more than offset by our receipt of $57 million in tax refunds in April .

Andy Scobie: We are reiterating our outlook for the full year. Worldwide net sales are expected to be approximately 1.2 billion, while the adjusted operating margin loss is expected to range from negative 3 percent to negative 5 percent. Our net sales guidance of approximately $1.2 billion assumes an approximate $100 million negative impact from our strategic actions, including store and concession closures and the exit from smartwatches. We remain on track to achieve at least $100 million of annualized P&L benefits in 2024 across gross margin and SG&A under our TAG plan. Restructuring costs related to TAG are estimated to be approximately $40 million for the full year of 2024.

Speaker Change: Moving to guidance.

Speaker Change: We are reiterating our outlook for full year. Worldwide net sales are expected to be approximately $1.2 billion, while the adjusted operating margin loss is expected to range from negative 3% to negative 5%.

Jeffrey Boyer: We continue working closely with our advisors on our strategic review, including an ongoing analysis of our business model, development of strategic initiatives, refinement of our financial plans, and comprehensive reviews of our capital structure and financing and others. Looking ahead to the remainder of 2024, we expect to see sequential improvement in trends across sales, gross margin, and adjusted operating margin. We remain on track with our tax plan, and reiterate our folio expectation to achieve net sales of approximately 1.2 billion, adjusted operating margin of minus 3% to minus 5%. And positive pre-cashflow, inclusive of the 57 million tax refunds.

Andrew Skobe: Dr. Andrew Skobe, Fossil Group Inc. Dr. Andrew Skobe, Fossil Group Inc Dr. Andrew Skobe, Fossil Group Inc. Fossil Group Inc. Dr. Andrew Skobe, Fossil Group Inc.

Speaker Change: Our net sales guidance of approximately $1.2 billion assumes an approximate $100 million negative impact from our strategic actions, including store and concession closures and the exit from smart watches.

Speaker Change: We remain on track to achieve at least a hundred million of annual ICNL benefits in 2024 across Rose Margin and SGA under our tag plan. Restructuring costs related to tag are estimated to be approximately 40 million for the full year of 2024.

Andy Scobie: Looking at cash flow, we anticipate that seasonal working capital needs, coupled with continued sales declines, will require operating cash use in the third quarter. However, as we enter the holiday period and our initiatives continue to take hold, we expect to generate positive pre-cash flow in Q4. We also expect to be pre-cash flow positive for the full year in 2024, inclusive of the $57 million tax rebate. While we're pleased to see our TAG initiatives showing up in the P&L, the business is not where we know it has the potential to be.

Speaker Change: Looking at cash flow, we anticipate the seasonal working capital needs, coupled with continued sales declines, will require operating cash use in the third quarter. As we entered the holiday period and our mission continues to take hold, we expect to generate positive pre-cash flow in Q4.

Jeffrey Boyer: We're acting urgently to drive improved financial performance and remain committed to building long-term shareholder value. We appreciate the dedication of our teams and the support of our shareholders.

Andrew Skobe: Now, I'll turn the call to Andy to review the financials and we'll conclude the call to some Q&A led by Christine. Thanks Jeff, and good afternoon. It's great to be here, and I look forward to getting to know our shareholders in the coming quarters. Despite continued top-line pressure, our tag plan has allowed us to drive improvement across the rest of the P&L. Second quarter net sales totaled 216 million. That's down 19% in constant currency, and includes five points of impact related to our smartwatch exit and store closures.

Speaker Change: We also expect to be free cash flow positive for the full year in 2024, inclusive of the 57 million dollar tax refund.

Speaker Change: While we're pleased to see our TAG initiatives showing up in the P&L, the business is not where we know it has the potential to be.

Andy Scobie: We remain laser-focused on the priorities that Jeff laid out, which include actions to stabilize the business, and the exploration of opportunities to improve the capital structure. And we're moving as quickly as possible on all fronts. Now, I'll turn the call back to Christine for Q&A.

Jeff: We remain laser-focused on the priorities that Jeff laid out, which include actions to stabilize the business, the exploration of opportunities to improve a capital structure, and we're moving as quickly as possible in all fronts. Now I'll turn to call back to Christine for Q&A.

Christine Greany: Thanks, Sandy. I'll take us through some questions that we've been getting from shareholders.

Christine Greany: I'll take us through some questions that we've been getting from shareholders. Let me start with Jeff. Jeff, what are you doing to stabilize the top line, and when do you expect to start growing it?

Andrew Skobe: Gross margin expanded to 390 basis points compared to last year, which primarily can be traced to improve product margins, resulting from the tag initiatives that Jeff discussed, as well as the benefit of lower smartwatch mix. We expect to achieve continued gross margin expansion in the second half of the year, driven by sourcing and supply chain initiatives and ongoing benefits from speed rationalization, pricing, and promotion. SG&A expenses were down 34 million compared to last year, representing an 18% decrease as we continue to focus on cost takeout.

Christine Greany: Thanks, Sandy. I'll take us through some questions that we've been getting from shareholders. Let me start with Jeff. Jeff, what are you doing to stabilize the top line and when do you expect to start growing again?

Christine Greany: Let me start with Jeff. Jeff, what are you doing to stabilize the top line, and when do you expect to start growing again?

Jeff Boyer: Thanks, Christine. We're directing programs and funding against our key and most important top line opportunities. We've increased our upper funnel marketing programs on a number of brands to generate additional brand heat and demand. As I mentioned previously, earlier today, we announced Ashley Graham as the new ambassador for Michelle, our luxury women's watch brand, with additional influencers and endorsers planned for our own brands as well as for our licensed watch brand partners.

Jeffrey Boyer: Thanks, Christine. We're directing programs in funding against our key and most important top line opportunities. We've increased our upper panel marketing programs on a number of grants to generate additional grant heat and demand.

Jeff: Thanks Christine. We're directing programs and funding against our key and most important top line opportunities.

Speaker Change: We've increased our upper funnel marketing programs on a number of brands to generate additional brand heat and demand.

Jeffrey Boyer: As I mentioned previously, earlier today, we announced Acid Graham as the new ambassador for Michelle, our luxury women's watch brand, with additional influencers and endorsers planned for our own brands as well as for our licensed watch brand partners. On the inventory front, we're distorting inventory into the brand's categories and markets that are showing the most substantial growth potential, such as traditional watches in emerging markets such as India and Mexico. These efforts are the primary drivers behind the stabilization and growth in about half of our traditional watch business.

Speaker Change: As I mentioned previously, earlier today, we announced Cassie Graham has the new ambassador for Michelle, our luxury women's watch friends, with additional influencers and adorsers planned for our own brands as well as for our licensed watch brand partners.

Andrew Skobe: The year-over-year reductions are attributable to lower store operating costs, infuer stores, and lower compensation and administrative costs driven by tag initiatives that Jeff described. We closed 20 stores in Q2, ending the quarter with 258 stores, which is a reduction of 18% compared to a year ago. As Jeff mentioned, we have expected void six locations in the first half of the year, and expect to close up to 55 by year-end. As a reminder, all closures occur at natural lease expiration, ongoing cost actions are expected to drive continued reductions in SG&A dollars through the remainder of 2024, with anticipated second half year-over-year comparisons down in the low double digits.

Jeff Boyer: On the inventory front, we're distorting inventory into the brands, categories, and markets that are showing the most substantial growth potential, such as traditional watches in emerging markets such as India and Mexico. These efforts are the primary drivers behind the stabilization and growth in about half of our traditional watch business.

Speaker Change: On the inventory front, we're distorting inventory into the brands, categories, and markets that are showing the most substantial growth potential, such as traditional watches in emerging markets such as India and Mexico.

Speaker Change: These efforts are the primary drivers behind the stabilization and growth and about half of our traditional watch business.

Christine Greany: Great, thank you. Can you help us understand what's happening in the core traditional watch business and how that tracks to overall industry performance during Q2?

Jeffrey Boyer: Great. Thank you. Can you help us understand what's happening in the court traditional watch business and how that tracks to overall industry performance? During Q2, about half of our traditional watch business performance is consistent with the industry based on NPD data. This includes the fossil, harmonies, change, Tory, birch, and sketch of brands. The remaining parts of our business, including our money cores and these, will remain pressured. This is primarily due to softness and China resulting from the weak consumer environment, as well as ongoing brand position efforts by some of our licensed brands.

Speaker Change: Great, thank you. Can you help us understand what's happening in the core traditional watch business and how that tracks to overall industry performance?

Jeff Boyer: During Q2, about half of our traditional watch business performed consistently with the industry based on NPD data. This includes the Fossil, Armani Exchange, Tory Burch, and Skechers brands.

Speaker Change: During Q2, about half of our traditional watch business performed consistent with the industry based on NPD data. This includes the Fossil, Armani Exchange, Tory Burch, and Skechers brands.

Jeff Boyer: The remaining parts of our business, including Armani cores and diesel, remain pressured. This is primarily due to softness in China resulting from the weak consumer environment, as well as ongoing brand position efforts by some of our licensed brands. Also recognize that our top line is being impacted by the strategic decisions being made to close stores and exit the smartwatch category.

Andrew Skobe: The combination of gross margin expansion and cost reduction in the second quarter enable us to significantly narrow Q2-adjusted operating loss to 17 million. That reflects an improvement of 39% versus the adjusted operating loss of 28 million a year ago. Turning to the balance sheet, we ended the quarter with total liquidity of 156 million, providing us with a flexibility to continue to execute our tag plan. We brought down inventory levels by 38% versus a year ago, improving work in capital. Cash flow from operations total 35 million in the quarter, reflecting seasonal cash use of approximately 22 million, which was more than offset by our receipt of 57 million tax refund donations.

Speaker Change: The remaining parts of our business, including harmonic cores and diesel, remain pressured.

Speaker Change: This is primarily due to softness and China, a result from that we consume our environment, as well as ongoing brand position efforts by some of our licensed brands. Recognize also that our top line is being impacted by the strategic decision we've made to close tours and exit the Smartwatch category.

Jeffrey Boyer: Recognize also that our top line is being impacted by the strategic decisions we made to close tours and exit the smartwatch category.

Christine Greany: Thanks. Given your liquidity levels, Jeff, are you considering buying back equity or bonds?

Speaker Change: Given your liquidity levels, Jeff, are you considering buying back equity or bonds?

Jeff Boyer: As we look at the business, we do believe that our current valuation levels are not reflective of the long-term potential we see for the business. That said, however, we believe it's very important to maintain financial flexibility given the current macro environment. And under our operating capital allocation framework, you know, deploying resources towards strengthening our business is the highest priority. As you can see in our year-to-date results, the investments in and execution of our TAG plan are driving operational and financial improvements, including better bottom-line results, and this is our primary focus at this time.

Jeff: As we look at the business, we do believe that our current evaluation levels are not reflective of the long-term potential we see for the business. You know, that said, however, we believe it's very important to mean financial flexibility given the current macro environment.

Jeffrey Boyer: Jeffrey Boyer, Fossil Group Inc. In under our operating capital allocation framework, deploying resources toward strengthening our business is the highest priority. As you can see in our U.K. results, the investments in an execution of a tax plan are driving operational and financial improvements, including better bottom line results, and this is our primary focus at this time.

Speaker Change: In under our operating capitalization framework, deploying resources towards strengthening our business is the highest priority.

Jeff: As you can see in our year-to-date results, the investments in and execution of our TAG plan are driving operational and financial improvements, including better bottom-line results, and this is our primary focus at this time.

Andrew Skobe: Dr. Andrew Skobe, Fossil Group Inc. Dr. Andrew Skobe, Fossil Group Inc Dr. Andrew Skobe, Fossil Group Inc.

Christine Greany: Okay, moving over to Andy, how many quarters of runway do you have to execute the tag?

Andrew Skobe: Okay, moving over to Andy, how many quarters of runway do you have to execute the tax plan? Thanks, Christine. We believe we have ample runway to continue to execute our tag plan. We will complete a majority of the tag initiatives by 2024, with annualized operating income benefits of at least 100 million materializing this year. We also see additional benefits in 2025 and 2026.

Andy: Okay, moving over to Andy, how many quarters of runway do you have to execute the TAG plan?

Andy Scobie: Thanks, Christine. We believe we have ample runway to continue to execute our TAG plan. We will complete a majority of the TAG initiatives by 2024, with annualized operating income benefits of at least $100 million materializing this year. We will also see additional benefits in 2025 and 2026. Also, in March 2024, we initiated a strategic review to optimize our current business model, which includes efforts to find additional structural cost reductions, as well as explore debt and equity financing.

Andy: Thanks for seeing, we believe we have ample runway to continue to execute our tag plan.

Andrew Skobe: Fossil Group Inc. Dr. Andrew Skobe, Fossil Group Inc.

Speaker Change: We will complete a majority of the TAG initiatives by 2024 with annualized operating income benefits of at least $100 million materializing this year. We also see additional benefit in 2025 and 2026.

Speaker Change: Also, in March 2024, we also initiated a strategic review to optimize our current business model, which includes efforts to find additional structural cost reductions, as well as explore debt and equity financing options.

Christine Greany: What is the status of a potential refinancing ahead of your upcoming debt maturity?

Andrew Skobe: What is the status of a potential refinancing ahead of your upcoming debt maturity? As we discussed, we are assessing potential debt and equity financing as part of our strategic review, and we've retained a financial advisor to assist with this process. Importantly, we are reviewing options to put a new financing strategy in place, well before the exploration of our current ABL facility in 2027 and our senior notes in 2026.

Speaker Change: Well, what is the status of a potential refinancing out of your upcoming debt maturity?

Andy Scobie: As we discussed, we are assessing potential debt and equity financing as part of our strategic review, and we've retained a financial advisor to assist with this process. Importantly, we are reviewing options to put a new financing strategy in place well before the expiration of our current ADL facility in 2027 and our senior notes in 2026.

Speaker Change: Well, as we discussed, we are assessing potential debt and equity financings as part of our strategic review, and we've retained a financial advisor to assist with this process.

Speaker Change: Importantly, we are reviewing options to put a new financing strategy in place well before the expiration of our current AVL facility in 2027 and our senior notes in 2026.

Christine Greany: Thanks, Sandy. I'll take us through some questions that we've been getting from shareholders. Let me start with Jeff.

Christine Greany: Great. Thank you.

Christine Greany: Great, thank you. Just one last question for you, Andy. Could you take us through the puts and takes on cash flow this year?

Andrew Skobe: I'm just one last question for you, Andy. Could you take us through the puts and takes on cash flow this year? Sure. In broad strokes, the seasonal nature of our business and the projected sales decline will require operating cash use in the near term. But we expect to generate positive free cash flow in Q4. Based on the seasonality of our business, cash collections compared to the first half of the year are anticipated to increase for the remainder of 2024. This is consistent with the implied sales increase from the first to second half, based on our full year of 2024 guidance.

Speaker Change: Great. Thank you. Just one last question for you, Andy. Could you take us through the puts and takes on cash flow this year?

Andy Scobie: Sure, in broad strokes, the seasonal nature of our business and the projected sales decline will require operating cash use in the near term, but we expect to generate positive free cash flow in Q4. Based on the seasonality of our business, cash collections compared to the first half of the year are anticipated to increase for the remainder of 2024. This is consistent with the implied sales increase from the first to second half based on our full year 2024 guidance.

Andy: Sure. In broad strokes, the seasonal nature of our business and the projected sales decline will require operating cash use in the near term, but we expect to generate positive free cash flow in Q4.

Jeffrey Boyer: Jeff, what are you doing to stabilize the top line and when do you expect to start growing again? Thanks, Christine. We're directing programs in funding against our key and most important top line opportunities. We've increased our upper panel marketing programs on a number of grants to generate additional grant heat and demand. As I mentioned previously, earlier today, we announced Acid Graham as the new ambassador for Michelle, our luxury women's watch brand, with additional influencers and endorser planned for our own brands as well as for our licensed watch brand partners.

Speaker Change: Based on the seasonality of our business, cash collections compared to the first half of the year are anticipated to increase for the remainder of 2024. This is consistent with the implied sales increase from the first to second half based on our full year 2024 guidance.

Andrew Skobe: Additionally, there will be inventory, freight, and marketing expenditures to support the sales increase in the second half. There will also be increased payments to our licensing partners, as well as higher tax payments.

Andy Scobie: Additionally, there will be inventory, freight, and marketing expenditures to support the sales increase in the second half. There will also be increased payments to our licensing partners, as well as higher taxes. From a FOULIER perspective, we have the one-time benefit of the $57 million tax refund received in Q2. Additionally, as we continue to realize the benefits under our

Speaker Change: Additionally, there will be inventory, freight, and marketing expenditures to support the sales increase in the second half. There will also be increased payments to our licensing partners as well as higher tax payments.

Andrew Skobe: From a full year perspective, we have the one-time benefit of the $57 million tax refund received in Q2. In addition to a reduction in overall operating expenses anticipated for the year, as we continue to realize the benefits under our tax plan.

Julia: From a Julia perspective, we have a one-time benefit of the $57 million tax refund received in Q2.

Jeffrey Boyer: On the inventory front, we're distorting inventory into the brand's categories and markets that are showing the most substantial growth potential, such as traditional watches in emerging markets such as India and Mexico. These efforts are the primary drivers behind the stabilization and growth in about half of our traditional watch business.

Speaker Change: In addition to a reduction in overall operating expenses anticipated for the year, as we continue to realize the benefits under our TAG plan.

Operator: Great. Thank you.

Christine Greany: Thanks, Andy and Jeff. We appreciate everyone listening in today and look forward to updating you next quarter. The team is available for follow-up. Please reach out to me directly with requests. My email is included at the end of the earnings release, Christine at reshirtgroup.com.

Christine Greany: Thanks, Sandy and Jeff. We appreciate everyone listening in today and look forward to updating you next quarter. The team is available for follow-up. Please reach out to me directly with requests. My email is included at the end of the earnings release, christine at blueshirtgroup.com.

Speaker Change: Thanks, Sandy and Jeff. We appreciate everyone listening in today and look forward to updating you next quarter.

Jeffrey Boyer: Can you help us understand what's happening in the court traditional watch business and how that tracks to overall industry performance? During Q2, about half of our traditional watch business performance consistent with the industry based on NPD data. This includes the fossil, harmonies, change, Tory, birch, and sketch of brands. The remaining parts of our business, including our money cores and these, will remain pressured. This is primarily due to softness and China resulting from the weak consumer environment, as well as ongoing brand position efforts by some of our licensed brands. Recognize also that our top line is being impacted by the strategic decisions we made to close tours and exit the smartwatch category.

Speaker Change: The team is available for follow-up. Please reach out to me directly with requests. My email is included at the end of the earnings release, christine at blueshirtgroup.com. Thanks again, and everyone have a good rest of the week.

Christine Greany: Thanks again, and everyone have a good rest of the week. That concludes today's call. You may now disconnect.

Christine Greany: Thanks again, and everyone have a good rest of the week.

Operator: That concludes today's call; you may now disconnect with the next couple of weeks. Thank you very much.

Speaker Change: That concludes today's call. You may now disconnect.

Operator: Thanks for watching!

Speaker Change: [inaudible]

Jeffrey Boyer: Jeffrey Boyer, Fossil Group Inc. In under our operating capital allocation framework, deploying resources toward strengthening our business is the highest priority.

Jeffrey Boyer: As you can see in our U.K, results, the investments in an execution of a tax plan are driving operational and financial improvements, including better bottom line results, and this is our primary focus at this time.

Andrew Skobe: Also in March 2024, we also initiated a strategic review to optimize our current business model, which includes efforts to find additional structural cost reductions, as well as explore debt and equity financing options. What is the status of a potential refinancing ahead of your upcoming debt maturity? As we discussed, we are assessing potential debt and equity financing as part of our strategic review, and we've retained a financial advisor to assist with this process. Importantly, we are reviewing options to put a new financing strategy in place, well before the exploration of our current ABL facility in 2027, and our senior notes in 2026.

Operator: Great.

Operator: Thank you.

Andrew Skobe: I'm just one last question for you, Andy. Could you take us through the puts and takes on cash flow this year? Sure.

Andrew Skobe: In broad strokes, the seasonal nature of our business and the projected sales decline will require operating cash use in the near term. But we expect to generate positive free cash flow in Q4. Based on the seasonality of our business, cash collections compared to the first half of the year are anticipated to increase for the remainder of 2024. This is consistent with the implied sales increase from the first to second half, based on our full year of 2024 guidance. Additionally, there will be inventory, freight, and marketing expenditures to support the sales increase in the second half. There will also be increased payments to our licensing partners, as well as higher tax payments.

Speaker Change: ? ? ? ? ? ? ? ? ?

Operator: That concludes today's call, you may now disconnect with the next couple of weeks. Thank you very much. [inaudible] time, and thank you very much[inaudible] your time, and thank you very much for your time[inaudible] your time, and thank you very much for your time, and thank you very much for your time, . .

Speaker Change: [inaudible]

Operator: [inaudible] [music] [inaudible] Copyright © 2020, New Thinking Allowed Foundation, [music] Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc, [music] Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc Kosta Kartsotis, Sunil Doshi, Christine Greany, Fossil Group Inc

Operator: I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I know I I know I know I know I know I know .

Speaker Change: Thank you for watching, see you in the next video.

Speaker Change: Thank you for watching.

Speaker Change: [inaudible]

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Speaker Change: Kosta Kartsotis, Christine Greany, Christine Greany,

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Q2 2024 Fossil Group Inc Earnings Call

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