Q4 2024 Fossil Group Inc Earnings Call
[music]
The New York Times New York Times New York Times
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group 4th quarter in full year 2024 in each call. At this time, all parties are in listen only mode. This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.
Speaker Change: Now I'll turn the call over to Christine Greany of the Blue Shirt Group to begin.
[inaudible]
Speaker Change: Hello everyone, and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer, and Andrew Skobe Interim Chief Cemential Officer.
Speaker Change: Before we begin, 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.
Speaker Change: Fossil Group's policy on forward booking statements and additional information concerning a number of factors that could cause actual results to differ materially.
from such statements
Speaker Change: is readily available in the company's Form 8K, Tanki, and Tanki reports filed with the SEC.
Speaker Change: In addition, Fossil assumes no obligation to publicly update or revise any following statements, whether as a result of new information, future events, or otherwise, except as required by law.
Speaker Change: During today's call, we will refer to constant currency results as well as certain non-GAAP financial measures.
Speaker Change: Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-gape financial measures discussed on this poll in Fossil's earnings release, which was filed today on Form 8K and is available in the Investors section on Fossil Groups.com.
Speaker Change: There you will also find a supplemental presentation which outlines our Q4 results, turnaround plan, and outlook. With that, I'll now turn the call over to Franco.
Speaker Change: We are pleased to have completed the year with four quarter results that exceed our top and bottom line guidance, as our early initiatives have already started today's traction.
Speaker Change: Most notably, we expanded gross margins, reduced cost, and delivered positive operating margins.
Speaker Change: I am incredibly grateful to our global teams for their hard work and dedication to Fossil Group.
Speaker Change: During my first six months in the CO role, we moved swiftly and took a number of pivotal actions to set up the business for long-term success, while stimulating a comprehensive turnaround plan.
Speaker Change: We're clear-eyed about the amount of work required to execute this tournament, and we are energy eyes by the opportunity in front of us.
Speaker Change: We have tremendous opportunities and confidence in our ability to proper the business forward, fueled by our core foundational assets, iconic brands in innovative design, global reach
Speaker Change: Fossil has a minimum, minimum four-tiered history of making watches accessible to consumers around the globe.
Speaker Change: We have unique design, manufacturing and selling capabilities worldwide in the Americas, Europe , Asia. Our strong brand equity is also reflected in our global industry rankings.
Speaker Change: Time Magazine, Ranked Fossil No. 4 in 2024 in the global watch market and more recently.
Late Saturday
Speaker Change: Our Fossil Raquel Washrig was awarded the Fish and Jewel of the year 2025 and the Nogenta Trace Show in Germany.
Speaker Change: We have introduced a turn around plan centered on three-time emergency pillars, refocusing on our core, white sizing our cost structure, and strengthening our balance sheet.
Speaker Change: I get into our first determine around pillar, focusing on our core.
Speaker Change: This starts with building an operating model that is brand-led and consumer focus.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: We are returning to our core with renewed emphasis on traditional watches on our fossil-grant platform as well as our go-to-market execution.
We are well under way of four major initiatives.
Speaker Change: Launching a new Fossil brand platform, leveraging our core license branch, including
Optimizing our global world self-food print and driving channel profitability.
Speaker Change: Number one is bringing a new Fossil brand platform to life which we are executing with both strategic and tactical moves. Last month we went live with a new website which reflects an innovative product platform focusing on watches and innovation.
Speaker Change: We will also be laboring the unique skills and competencies at our innovation labs in Dallas, Vienna, Switzerland and Hong Kong to develop and deliver exciting new products.
Speaker Change: In the coming months, we will be emphasizing heritage brand storytelling across all business dimensions.
Speaker Change: This will be visible to consumer, beginning this summer with a large of an extensive army channel campaign featuring Fossil Brent Sylvite, ambassador of Nick Jonas.
Speaker Change: The campaign is part of our broader strategy to double down on our final tactics to reintroduce the possible brand to new and existing consumers.
Speaker Change: As our new Fossil brand platformer boss, we believe there would be an opportunity to extend our pricing architecture, enabling us to extend our reach and further strengthen our position in the traditional watch market.
Speaker Change: Turning to our Secretary initiative, Lavinal Co-license Branch, we have already made excellent progress.
Speaker Change: Last month we announced the extension of our license agreement for multiple calls. This partnership goes back 20 years and is very important to Fossil Group.
Speaker Change: We look forward to growing our course watch and yearly business together in the coming years as their company continues to drive the brand of turnover.
Speaker Change: Next, we have made progress toward achieving minimum royalty reduction with some of our long-time licensed, brain-packedness, and we continue to prioritise.
Speaker Change: Lastly, we are integrating the in-store presentation for our license branch within the World
Speaker Change: This includes greater investment in point-of-scarves and in-store presentation and a renewed focus on the specialty watch channel.
Speaker Change: Optimizing our also global footprint is a third key initiative under our killer to refocus on our core.
Speaker Change: We are prioritizing scalable markets which include the US, Germany, France and India. These are among our most important geographies where we have a strong presence and a significant brand awareness.
Speaker Change: In parallel, with our focus on this market, we have made the strategic decision to transition smaller international geographies within Europe and Asia to a distributed model.
Speaker Change: This will allow us to build a more competitive and profitable model in key markets.
Speaker Change: Leveraging the local knowledge and regional expertise of distributors, we enabled us to lower our operating spaces, enable strong flow through a gross profit to the bottom line, and position as to drive long-term and scalable growth.
Speaker Change: Those four, we have transitioned to five countries, Denmark, Finland, Norway, Poland and Sweden and expected to transition additional markets this year.
Speaker Change: The final initiative to help us to refocus on our core is rather the channel profitability.
Speaker Change: We are deploying a two-pronged approach which includes prioritizing the World's third channel and transforming our direct-to-consumer business model.
Speaker Change: and self-education designed to increase visibility of our brains, improve evil approaches and
Speaker Change: Another critical component of our world's strategy is to become increasingly less promotional in our DTC channels.
Speaker Change: Our initial action in Q4 have already started to bear with translating to an improving
Speaker Change: We believe this also has to bolster our relationships with our welfare partners around the globe.
Speaker Change: Looking at our direct to consumer business, we believe there is a significant opportunity to strengthen our model becoming smaller but much more profitable.
Speaker Change: This starts with the liberating and seamless army channel experience in creating platforms for personalized journeys to drive the strong consumer engagement across the corners and retail stores.
Speaker Change: As I just mentioned, we reduce our income promotion and activity in Q4. In addition to improving our growth margin performance, we also resulted in higher quality practice to our website and increase the AUR which has continued in Q1 2025.
Speaker Change: While this tactic is expected to create a near-term headwind to serve, we anticipate it will drive more profitable growth over the long term.
Speaker Change: From a retail store perspective, we aim to strengthen execution by emphasizing traditional watches, highlighting personalization, upgrading our store operating model and optimizing our fleet with the expected closure of approximately 50 stores in 2025.
Moving now to our second turn around tiller, wise sizing the cost traction.
Speaker Change: As we noted in today's press release, we have made the decision to conclude our TAC Program in 2024, which generated approximately 218 million of annualized PNL benefits across gross margin and SGNL over a two-year period.
Speaker Change: We are now taking action to further align our construction to the newly defined strategy scope and scales we are outlining today.
Speaker Change: In 2025, we expect to capture as many savings of approximately 100 million compared to 2024 to a series of initiatives.
Speaker Change: This includes a corporate workforce reduction, which occurred in late February with reduced cost associated with the transitional small and international markets to a distributed model and the closing of approximately 50 fossil retail stores.
Speaker Change: We also expected today best a certain non-core assets and will seek to identify additional cost reduction opportunities which may generate incremental savings this year.
Speaker Change: Wapping up with our third turn around pillar, striking the barren shield.
Speaker Change: We end the year with 177 million of liquidity, which provide us with the runway to execute the plans we are outlining today.
Speaker Change: We are actively working towards monetizing non-core assets in what first aid avenues that will allow us to improve working capital and strengthen liquidity.
Speaker Change: At the same time, we continue working with our advisors to address our upcoming dead-but-mature diseases.
Speaker Change: were pleased that the initial action under our turn-of-one plan are already beginning to take all and generate tangible results.
Speaker Change: There are five major areas of improvement today. I want to allow it.
Speaker Change: First, we achieve Adjusted Authority Inc. Profitability in Q4 in the liver, results ahead of expectation.
Speaker Change: Second, in Q4, we saw improving performance in our U.S. World South Business, which has contributed into 2025.
Speaker Change: Timing agreement for five countries goes far and positioning us to deliver long-term scalable growth in those geographies.
Speaker Change: Lastly, we brought in a celebrity ambassador with a incredibly high profile and deep cultural
Speaker Change: We believe that our partnership with Nick Jonas in the campaign we're launching in the second half of this year as the potential to really move the legal for the Fossil
Speaker Change: We are sending a powerful leadership bench. Last month we appointed Joe Martin as our new Chief Commercial Officer to lead our global sales effort.
Speaker Change: The creation of this role is part of the broader organizational leaders' line to help help us execute our brand-led and consumer-focused strategy.
Speaker Change: We also announced the appointment of Antonio Carrero as Chief Digital Information Officer and General Manager of the EMEA division.
Speaker Change: Antonio's background in digital and deep knowledge of the watch market would be strong and strong assets to drive a non-linear experience and strengthen the customer journey.
Running out our team is Randy Greben.
Speaker Change: High High System Finance Executive, we just announced today as our Incane CFO .
Speaker Change: I'm incredibly proud of our keys throughout the organization for being working fast and curious to generate these results and lay the groundwork for the return of the profitable growth.
The thought to get there is clear.
Speaker Change: In 2045, we will be resetting the top lie, predominantly driven by stored closure and lower levels of promotion activity.
Speaker Change: However, we anticipate that our cost actions ongoing expense control and improved gross margin will enable us to narrow our adjusted operating loss on a Fourier basis versus 2024.
Speaker Change: We believe the new business model, we are out riding today, will set us up to return to the practical growth in the coming years.
Speaker Change: In 2026, we expected to be adjusted operating income profitable on a smaller sales base.
Speaker Change: For the full year in 2027, we expected the business to generate a mid-single digit adjusted operating margin in positive free cash flow on a worldwide net sales phase of more than
Speaker Change: We are committed to the journey I had and have a strong condition that our 2021 plan will allow us to build long-term shareholder life. We greatly appreciate the support of all for our stakeholders and look forward to keeping you updated on our progress.
Speaker Change: Now, I will turn on the call to Andy to review the fourth quarter financial results and provide a more detailed discussion of our financial guidance.
Thank you, Franco. Good afternoon, everyone.
Andy: We concluded the year with positive-adjusted operating income in Q4 despite a year-over-year sale decline. This performance reflects our ability to strengthen our gross margin profile and maintain strict cost control.
Andy: 4th quarter net fails total 342 million down 18% in constant currency
Andy: The current basis point to the decline is attributable to our smartwatch exit and store closures.
Andy: During the quarter, our Fossil Traditional Watch business increased 2% globally versus the prior year, excluding sore closures. Notably, this positive performance during the holiday season enabled our U.S. Hill partners to enter 2025 with healthy inventory positions.
In fact, after narrowing our steel decline in the U.S.
Andy: SG&A expenses were down 35 million to $172 million compared to last year, representing a 17% decrease from our cost takeout actions the year over year reductions are attributable to lower store operating costs from fewer stores.
Andy: Lower compensation and administrative expenses and a planned decrease in marketing spend versus the prior year.
Andy: During Q4, we closed six stores ending the year with 248 stores, 18% reduction compared to 2023.
Andy: All of these closures occurred at natural lease expiration with very minimal closing costs.
Andy: Turning now to the bottom line, our focus on gross margin expansion and cost reduction enabled us to deliver fourth quarter adjusted operating income of $20 million compared to a loss of $8 million a year ago.
Andy: This strength translated to a Q4 adjusted operating margin of 6%.
Andy: Moving to the balance sheet, we ended the year with total liquidity of $177 million, including $124 million in cash and cash equivalents and $53 million of availability under our revolving credit facility.
Andy: Inventory levels decreased by 29% compared to a year ago, which aligns with our expectations.
Andy: The business generated positive free cash flow of $30 million, primarily reflecting the reduction in inventory.
Andy: As we execute the turnaround plan that Frank outlined we are working to strengthen the balance sheet and increased liquidity in 2025 in parallel we are pursuing noncore asset sales and opportunities to achieve incremental expense savings. While also continuing to work with our advisors on our previously announced strategic business review.
Andy: Turning now to guidance for the full year of 2025, we expect worldwide net sales to decline in the mid to high teens.
Andy: This includes an expected impact from store closures of approximately $45 million or four percentage points.
Andy: We also anticipate an impact to sales from our reduced promotional levels, particularly in our own E Comm channel.
Andy: Of note this guidance excludes impacts from changes to foreign currency exchange rates potential asset sales are a further softening of the macro environment as.
Andy: As we think about the cadence of sales, we anticipate our initiatives will gain increasing traction enabled us to narrow our year over year sales decline as we move through the year.
Andy: Looking at gross margin as.
Andy: As we focus on driving full price selling model, we expect to see continued improvement in gross margin versus full year 2024.
Andy: Additionally, in the first half of the year, we expect to see flow through from our annualized benefits of our sourcing initiatives from a tariff point of view based on what we know today and the scenario planning, we do not anticipate a material gross margin impact.
Andy: As Franco mentioned, we are taking actions this year that are expected to generate approximately $100 million.
Andy: SG&A expense savings in 2025 versus 2024.
Three factors are driving the savings first we implemented a corporate reduction in force last month.
We expect to continue to rationalize the store portfolio with plans to close approximately 50 stores in 2025.
Andy: And third we transitioned five international markets to a distributor model, which brings our operating costs in those markets near zero.
Andy: The expected savings do not contemplate additional international regions that may be transitioned to a distributor model in 2025 or the potential sale of non core assets.
Andy: We anticipate these factors will enable us to deliver our full year adjusted operating margin and a negative low single digits.
Franco Fogliato: We appreciate your time this afternoon and will be available for follow up calls now I will turn the call back to Franco for closing comments.
Franco Fogliato: Thank you Andy I would also like to take the opportunity to thank you for the value of added during your interim time with the organization and wish you the best going forward.
Franco Fogliato: I'm inspired by our teams were demonstrating tremendous dedication to foster a commitment to turning around this business. We're all energized by the opportunity in front of us and look forward to keeping you updated on our progress throughout the year as we strive to build lasting value for our shareholders.
Franco Fogliato: This concludes today's call. Thank you for joining you may now disconnect.
Franco Fogliato: Please wait the conference will begin shortly.
Franco Fogliato: [music].
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the fossil group.
Franco Fogliato: Quarterly and full year 'twenty 'twenty four earnings call.
Franco Fogliato: This time all parties are in listen only mode.
Franco Fogliato: This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company.
Now I'll turn the call over to Christine <unk> of the Blue shirt group to begin.
Hello, everyone and thank you for joining us with me on the call today is Franco <unk>, Chief Executive Officer, and Andrew Scobey interim Chief Financial Officer.
Franco Fogliato: Before we begin 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.
Franco Fogliato: 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.
Franco Fogliato: 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.
Franco Fogliato: During today's call, we will refer to constant currency results as well as certain non-GAAP financial measures. 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 and fossils earnings release, which.
Franco Fogliato: It was filed today on form 8-K and is available in the investors section on thoughtful growth Dot com.
Franco Fogliato: There you will also find a supplemental presentation, which outlines our Q4 results turnaround plan and outlook with that I'll now turn the call over to Franco.
Franco Fogliato: We're pleased to have concluded the year with fourth quarter results that exceeded our top and bottom line guidance.
Franco Fogliato: Okay.
Franco Fogliato: The initiatives have already started to gain traction.
Franco Fogliato: Most notably we expanded gross margin rates.
Franco Fogliato: Our reduced cost and delivered positive adjusted operating margins.
Franco Fogliato: I'm incredibly grateful to our global teams for their hard work and dedication to possibly grow.
During my first six months in the field all we moved swiftly and took a number of pivotal action to set up the business for long term success, while formulating a comprehensive turnaround plan.
Franco Fogliato: We're clear eyed.
The amount of work required to execute these stood Nevada, and we are energized by the opportunity in front of us.
Franco Fogliato: We have tremendous optimism and confidence in our ability to properly the business forward.
Franco Fogliato: Well by our core foundational assets iconic brands innovative design global reach and talented teams.
Franco Fogliato: Firstly, it is a meaningful meaningful for COPD study or making what she is accessible to consumer around the globe.
Franco Fogliato: We have a unique design manufacturing and selling capabilities worldwide.
Franco Fogliato: I guess Europe and Asia.
Franco Fogliato: Our strong brand equity is also reflected in our global industry rankings pod magazine ranking fossil number for 'twenty.
2024 in the global watch market and more recently in late February our fourth pillar Cal luxury was awarded the efficient Julian for the year 2025.
Franco Fogliato: Dental trade show in Germany.
Franco Fogliato: Our plans to reflect the opportunity we see to unleash these assets and optimize them more effectively.
Franco Fogliato: We have moved quickly to implement chief and create a path for the company to return to profitable growth.
Franco Fogliato: We have introduced a turnaround plan centered on three primary pillars.
Focusing on our core right sizing, our cost structure and strengthening our balance sheet.
Franco Fogliato: Diabetes to our first turnaround pillar, we focusing on our core.
Franco Fogliato: This starts with building an operating model that is brand led and consumer focus.
Franco Fogliato: We are returning to our core with a renewed emphasis on traditional watches on our fossil brand platform.
Franco Fogliato: As well as our go to market execution.
Franco Fogliato: We are well underway of four major initiatives.
Franco Fogliato: Launching a new faucet brand platform, leveraging our core licensed brands, including a multi course in diesel.
Franco Fogliato: Optimizing our global footprint.
Franco Fogliato: Footprint.
Franco Fogliato: And driving channel profitability.
Franco Fogliato: Number one is being gained new fossil brand platform to life, which we are executing with both strategic and tactical moves.
Franco Fogliato: Last month, we went live with a new website, which reflect an elevated product platform focus on watches and innovation.
Franco Fogliato: We will also be unique skills and competencies of our innovation labs in <unk>, Switzerland, and all comed to develop and deliver exciting new products.
Franco Fogliato: In the coming months, we will be emphasizing heritage brand storytelling across all business dimensions.
Franco Fogliato: This would be feasible to consumer beginning this summer with the launch of an extensive omnichannel campaign, featuring fossil brand celebrity Ambassador Nick Jonas.
Franco Fogliato: The campaign is part of our broader strategy to double down on upper funnel tactics to reintroduce the pasta brand to new and existing consumer.
Franco Fogliato: As our new Faucet brand platform evolves, we believe there will be an opportunity to expand our pricing architecture, enabling us to extend our reach and further strengthen our position in the traditional watch market.
Franco Fogliato: Turning to our second initiative leveraging our core license brands, we have already made excellent progress.
Franco Fogliato: Last month, we announced the extension of our license agreement for multi course.
Franco Fogliato: This partnership goes back 20 years and is very important to fossil group.
Franco Fogliato: We look forward to growing our course Watson ULE business together in the coming years.
Franco Fogliato: The company continues to drive the brand to Nevada.
Franco Fogliato: Next we have made progress toward achieving meaningful royalty reduction with some of our long time licensed brand partners, we continue to prioritize.
Franco Fogliato: Lastly, we again do you got 18, the in store presentation for our licensed brands within the wholesale channel.
Franco Fogliato: This includes greater investment in point of sales and in store presentation, and a renewed focus on the specialty channel.
Franco Fogliato: Optimizing our global footprint is a third key initiative under our pillar to refocus on our core.
Franco Fogliato: We're prioritizing scalable markets, which include the U S, Germany, France and India.
Franco Fogliato: These are among our most important geographies, where we have a strong presence and has significant brand awareness.
In parallel with our focus on these markets. We have made the strategic decision to transition to smaller international geographies within Europe and Asia.
Franco Fogliato: Surrebuttal model.
Franco Fogliato: This will allow us to build a more competitive and profitable model in key markets.
Franco Fogliato: Leveraging the.
Franco Fogliato: No later than the regional expertise of distributors will enable us to lower our operating expenses enabled strong flow through of gross profit to the bottom line and positioning us to drive long term scalable growth.
Thus far we have transitioned five countries, Denmark, Finland, Norway, Poland and Sweden.
Franco Fogliato: And expected to transition additional markets this year.
Franco Fogliato: The final initiative to help us focus on our core is driving channel profitability.
Franco Fogliato: We are deploying a two pronged approach which include prioritize in the wholesale channel in transforming our direct to consumer business model.
Franco Fogliato: Starting with also we are working to improve our in store presence through enhanced visual merchandising.
Franco Fogliato: It also displays.
Franco Fogliato: And sales syndication designed to increase the visibility of our brands improve ease of approaches and drive conversion.
Franco Fogliato: Another critical component of our strategy is to become increasingly less promotional in our DTC channels.
Franco Fogliato: Our initial action in Q4 have already started to bear fruit translating to an improving gross margin profile across all channels.
Franco Fogliato: We believe this will also help to bolster our relationships with our wholesale partners around the globe.
Franco Fogliato: Looking at our direct to consumer business, we believe that as a significant opportunity to strengthen our model, becoming smaller but much more profitable.
Franco Fogliato: This starts with delivering a seamless omnichannel experience.
Franco Fogliato: Creating platforms for personalized journeys the drive the strong consumer engagement across e-commerce and retail stores.
Franco Fogliato: As I just mentioned, we reduced our ecommerce promotional activity in Q4.
Franco Fogliato: In addition to improving our gross margin performance. This also resulted in a higher quality traffic to our website and increase the AUR, which has continued in Q1 2025.
While these tactics.
Franco Fogliato: <unk> is expected to create near term headwinds to sales we.
Franco Fogliato: We anticipate that will drive more profitable growth over the long term.
Franco Fogliato: From a retail store perspective, we aim to strengthen execution by emphasizing traditional watches highlighted personalization upgrading our store operating model and optimizing our fleet with the expected closure of approximately 50 stores in 2025.
Franco Fogliato: Moving now to our second turnaround pillar right sizing the cost structure.
As we noted in today's press release, we have made the decision to conclude our tag program in 'twenty, 'twenty, four which generated approximately $218 million of annualized P&L benefits across gross margin and SG&A over a two ERP.
Franco Fogliato: Got it.
Franco Fogliato: We'll now take an action to further align our cost structure to the newly defined strategy scope and scale we are outlining today.
2025, we expect to capture SG&A savings of approximately $100 million compared to 2024 through a series of initiatives. This includes our corporate workforce reduction which occurred in late February but reduce costs associated with the transition of smaller international markets.
Per distributor model and the closing of our approximately 50 posterior Rico stores.
Franco Fogliato: We also expect to divest certain non core assets and will seek to identify additional cost reduction opportunities, which may generate incremental savings this year.
Franco Fogliato: Wrapping up with our third is driven around pillar strengthening the balance sheet.
Franco Fogliato: We ended the year with 177 million of liquidity, which provide us with the runway to execute the plans we are outlining today.
Franco Fogliato: We are actively working towards monetizing noncore assets and were pursuing avenues that will allow us to improve working capital and strengthening our liquidity.
At the same time, we continue working with our advisors to address our upcoming debt, but <unk> got the maturities.
Franco Fogliato: We're pleased that the initial action under our turnaround plan and already beginning to take old and generate tangible results.
Franco Fogliato: There are five major areas of improvement to date I want to highlight.
Franco Fogliato: First we achieve adjusted operating income profitability in Q4 and delivered results ahead of expectations.
Franco Fogliato: Second in Q4, we saw improving performance in our U S wholesale business, which has continued into 2025.
Franco Fogliato: Next we brought that down promotional levels, which is translating to a higher gross margin profile.
Franco Fogliato: Q4, gross margins expanded 640 basis points versus the prior year to 53, 9%.
Franco Fogliato: Additionally, we moved swiftly to transition selected international markets to a more profitable distributor model.
Franco Fogliato: Signing agreements for five countries, thus far and positioning us to deliver long term scalable growth in those geographies.
Lastly, we brought in a celebrity ambassador with incredibly high profile and deep cultural Readouts.
Franco Fogliato: We believe that our partnership with Nick join US in the campaign will launch in the second half of this year as the potential to really move the needle for the fossil brand.
Franco Fogliato: We are assembling a powerful leadership bench last month, we appointed Joe marquee as our new Chief commercial officer to lead our global sales effort.
Franco Fogliato: And ensure consistency across across Brian said regions.
Franco Fogliato: The creation of this role is part of the broader organizational redesign to help us execute our brand led and consumer focused strategy.
Franco Fogliato: We also announced the appointment of Antonio Carrillo, Chief Digital Information Officer, and general manager of the EMEA region.
Franco Fogliato: Anthony has background in digital and deep knowledge of the watch market would be strong assets to drive a nominee channel experience and strengthen the customer journey.
Franco Fogliato: Rounding out our team is Randy gribbin.
Speaker Change: Highly seasoned finance executive who we just announced today as our incoming CFO.
Speaker Change: I'm incredibly proud of our teams throughout the organization, we're being working fast and furious to generate these results and laid the ground work for the tumor to profitable growth.
Speaker Change: The path to get there is clear.
Speaker Change: In 2025, we will be resetting the top line predominantly driven by store closure and lower levels of promotional activity.
Speaker Change: I am Heather we anticipate that our cost actions ongoing expense control and improved gross margin will enable us to narrow our adjusted operating loss on a full year basis versus 2024.
Speaker Change: We believe the new business model, we're outlining today will set us up to return to profitable growth in the coming years.
Speaker Change: In 2026, we expect it to be adjusted operating income profitable on a smaller sales base for.
Speaker Change: For the full year in 2027, we expected the business to generate mid single digit adjusted operating margin and positive free cash flow on a worldwide net sales of more than 800 million.
Speaker Change: We're committed to the journey AD and have a strong conviction that our turnaround plan will allow us to build long term shareholder value.
Speaker Change: We greatly appreciate the support of all of.
Speaker Change: Our stakeholders and look forward to keeping you updated on our progress.
Now I will turn to call the call to Andy to review the fourth quarter financial results and provide a more detailed discussion of our financial guidance.
Speaker Change: Thank you Frank good afternoon, everyone.
Andy: We concluded the year with positive adjusted operating income in Q4, despite a year over year sales decline. This performance reflects our ability to strengthen our gross margin profile and maintain strict cost control.
Andy: Fourth quarter net sales totaled $342 million down 18% in constant currency.
Andy: 600 basis points of the decline is attributable to our smartwatch exit and store closures during.
Andy: During the quarter, our foster traditional watch business increased 2% globally versus the prior year, excluding store closures, notably this positive performance during the holiday season enabled our U S. Wholesale partners to enter 2025 with healthy inventory positions in fact after narrowing our sales decline in the U S.
Yes.
Andy: Wholesale during Q4, the channel continues showing signs of improvement in 2025.
Andy: Gross margin expanded by 630 basis points compared to last year coming in at 53, 9%.
Andy: Gross margin included restructuring charges of approximately $8 million or 220 basis points related to the closure of our Swiss manufacturing operations.
Andy: Excluding these costs gross margin increased by 850 basis points.
Andy: The year over year increase primarily reflects increased product margins in our core categories driven by improved product costing our exit for connected watches and reduce promotional activities in our E Commerce business.
Andy: SG&A expenses were down $35 million to $172 million compared to last year, representing a 17% decrease from our cost takeout actions the year over year reductions are attributable to lower store operating costs and fewer stores.
Andy: Lower compensation and administrative expenses and a planned decrease in marketing spend versus the prior year.
Andy: During Q4, we closed six stores ending the year with 248 stores, 18% reduction compared to 2023.
Andy: All of these closures occurred at natural lease expiration with very minimal closing costs.
Andy: Turning now to the bottom line, our focus on gross margin expansion and cost reduction enabled us to deliver fourth quarter adjusted operating income of $20 million compared to a loss of $8 million a year ago.
Andy: This strength translated to a Q4 adjusted operating margin of 6%.
Andy: Moving to the balance sheet, we ended the year with total liquidity of $177 million, including $124 million in cash and cash equivalents and $53 million of availability under our revolving credit facility.
Andy: Inventory levels decreased by 29% compared to a year ago, which aligns with our expectations.
Andy: The business generated positive free cash flow of $30 million, primarily reflecting the reduction in inventory.
Andy: As we execute the turnaround plan that Frank outlined we are working to strengthen the balance sheet and increased liquidity in 2025 in parallel we are pursuing noncore asset sales and opportunities to achieve incremental expense savings. While also continuing to work with our advisors on our previously announced strategic business review.
Andy: Turning now to guidance for the full year of 2025, we expect worldwide net sales declined in the mid to high teens.
This includes an expected impact from store closures of approximately $45 million or four percentage points.
Andy: We also anticipate an impact to sales from our reduced promotional levels, particularly in our own E Comm channel.
Andy: Of note this guidance excludes impacts from changes to foreign currency exchange rates potential asset sales are a further softening of the macro environment as.
Andy: As we think about the cadence of sales, we anticipate our initiatives will gain increasing traction enabled us to narrow our year over year sales decline as we move through the year.
Andy: Looking at gross margin as.
Andy: As we focus on driving full price selling model, we expect to see continued improvement in gross margin versus full year 2024.
Andy: Additionally, in the first half of the year, we expect to see flow through.
Andy: From our annualized benefits of our sourcing initiatives.
Andy: A tariff point of view based on what we know today and the scenario planning, we do not anticipate a material gross margin impact.
Andy: As Franco mentioned, we are taking actions this year that are expected to generate approximately $100 million of.
Andy: SG&A expense savings in 2025 versus 2024 three.
Andy: Three factors are driving the savings first we implemented a corporate reduction in force last month.
Andy: We expect to continue to rationalize the store portfolio with plans to close approximately 50 stores in 2025 and.
Andy: And third we transitioned five international markets to a distributor model, which brings our operating costs in those markets near zero.
Andy: The expected savings do not contemplate additional international regions that may be transitioned to a distributor model in 2025 or the potential sale of non core assets.
Andy: We anticipate these factors will enable us to deliver our full year adjusted operating margin and a negative low single digits.
Franco Fogliato: We appreciate your time this afternoon and will be available for follow up calls now I will turn the call back to Franco for closing comments.
Franco Fogliato: Thank you Andy I would also like to take the opportunity to thank you for the value of added during your input in time with the organization and wish you the best going forward.
Franco Fogliato: I'm inspired by our teams were demonstrating tremendous dedication to foster a commitment to turning around this business. We're all energized by the opportunity in front of us and look forward to keeping you updated on our progress throughout the year as we strive to build lasting value for our shareholders.
Franco Fogliato: This concludes today's call. Thank you for joining you may now disconnect.