Q1 2025 Fossil Group Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group first quarter 2025 earnings 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.

Good afternoon, ladies and gentlemen, and welcome to the fossil group first quarter 2025 earnings call.

At this time all parties are in listen only mode.

Conference call is being recorded and may not be reproduced in whole or in part without written permission from the company now.

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

Speaker Change: Now I'll turn the call over to Kristin Greenie.

Christine Greany: of the Blue Shirt Group to begin. Hello everyone and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer, and Randy Grevin, Chief Financial Officer. 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. 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.

With the Blue shirt group to begin.

Speaker Change: Hello, everyone and thank you for joining us with.

Speaker Change: With me on the call today is Franco probably opto, Chief Executive Officer, and Randy Griffin Chief Financial Officer.

Speaker Change: Before we begin I would like to remind you that information made available during this conference call.

Speaker Change: <unk> forward looking information.

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

Speaker Change: 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.

Speaker Change: 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 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 in Fossil's earnings release, which was filed today on Form 8K and is available in the Investors section on FossilGroup.com.

Speaker Change: 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.

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-GAAP financial measures discussed on this call in <unk> earnings release, which was filed today on form 8-K and is available in the investors section on fossil group Dot com.

Franco Fogliato: With that, I'll now turn the call over to Franco. Thank you, Christine. Good afternoon, everyone, and thank you for joining us today.

Franco: With that I'll now turn the call over to Franco.

Franco: Thank you Christine good afternoon, everyone and thank you for joining us today.

Franco Fogliato: I would like to start by welcoming Reni, who joined us in March and has been a tremendous asset in his first two months with Fossil Group. As we have heard me saying on recent earning calls, we're moving fast and furious over here. Randy has jumped right in. He has ramped quickly, developing sharp proficiency across the operating and financial models in just a matter of weeks. And his high energy and strong desire to win are an ideal fit with our customers.

Franco: I'd like to start by welcoming Randy who join US in March and it's been a tremendous asset in these first two months with fossil group.

Franco: As we have moved this EC on recent earnings calls, we're moving Boston full year. So this year Randy has jumped right.

Franco: He has ramped quickly developing sharp proficiency across the operating and financial models and it's just a matter of weeks and <unk> energy and strong desire to we are an ideal fit with our culture.

Franco Fogliato: After my remarks, I will turn the call to Randy to provide a detailed review of the financial results and discuss our outcome. We recognize the global trade environment is top of mind for everyone. Our world-class teams have been doing excellent work on scenario planning, balancing near-term cost management with long-term supply chain optimization.

Speaker Change: After my remarks, I will turn the call to Randy to provide a detail review of the financial results and discuss our outlook.

Speaker Change: We recognize the global trade environment is top of mind for everyone. Our world class teams have been doing excellent work in scenario planning.

Speaker Change: Im seeing near term cost management with long term supply chain optimization.

Both Randy and I will address this during our remarks today.

Speaker Change: Both Randy and I will address these during our remarks today.

Franco Fogliato: First, I will discuss our Q1 performance and provide an update on our turnaround initiatives, which are generating strong business momentum. We're pleased to report another quarter of exceptional progress under our turnaround plan. Our team's delivered results are ahead of our expectations, both operationally and financially. We recorded a significant improvement in sales performance on a sequential basis, drove another quarter of meaningful gross margin expansion, and generated a second consecutive quarter of profitability. Specifically, we narrow our core sales decline to just 8%. that represents a sequential improvement of 400 basis points compared to the fourth quarter. Gross margin exceeded 61%, up nearly nine points from the prior year, and we deliver positive adjusted operating margins of 4.3%.

Speaker Change: First I will discuss our Q1 performance and provide an update on our turnaround initiatives, which are generating strong business momentum.

Speaker Change: We're pleased to report another quarter of exceptional progress and that our turnaround plan. Our teams delivered results ahead of our expectation.

Speaker Change: Operationally and financially.

Speaker Change: We recorded a significant improvement in sales performance on a sequential basis drove another quarter of meaningful gross margin expansion and generated its second consecutive quarter of profitability.

Speaker Change: Specifically, we narrow our core sales declined to just 8% represents a sequential improvement of 400 basis points compared to the fourth quarter.

Speaker Change: Gross margin exceeded the 61% up nearly nine points from the prior year and we delivered positive adjusted operating margins for 3%.

Franco Fogliato: Despite the dynamic macro backdrop, we are not currently seeing any softening in our demand trends and continue to have confidence in our ability to drive growth through our turnaround plan.

Speaker Change: Despite the dynamic macro backdrop, we're not currently see any softening in our demand trends and continue to have confidence in our ability to drive growth through our turnaround plan.

Franco Fogliato: Our confidence is underpinned by several factors. First and foremost is the immediate attraction and positive result we're seeing from our turnaround efforts over the past two quarters. Additionally, we have a number of tailwinds to propel the business forward, a leading market position, favorable industry dynamics, and a core underlying strength including iconic brands, innovative design, talented teams, and a broad global reach. We're incredibly proud of our teams for delivering strong execution under our turnaround.

Speaker Change: Our confidence is underpinned by several factors first and foremost is the media to fraction and positive results, we're seeing from our turnaround efforts over the past two quarters.

Speaker Change: Additionally, we have a number of weeks to prop of the business forward.

Speaker Change: Leading market position favorability industry dynamics, and a core underlying strengths, including iconic brands innovative design talented teams and a broad global reach.

Speaker Change: We're incredibly proud of our teams for delivering strong execution under our turnaround plan.

Franco Fogliato: As a reminder, the plan is centered on three primary pillars. Re-focusing on our core, right-sizing our cost structure, and strengthening our balance sheet.

Speaker Change: As a reminder, the planet center.

Three primary pillars.

Speaker Change: Refocusing on our core right sizing, our cost structure and strengthening our balance sheet.

Franco Fogliato: I'll take you through a progress update for each of these articles.

Speaker Change: I will take you through where progress update for each of these artists.

Franco Fogliato: Starting with our first pillar, we're focusing on our core. Our teams are fully aligned on our new brand-led and consumer-focused operating model, which is translating to positive results across the business. Our primary focus under this pillar is two-fold, traditional watches on our major brand platforms and go-to-market execution. We're advancing quickly on several fronts. First, we are delivering a robust pipeline of product innovation with core fossil icons, such as our award-winning Raquel line for women and our classic machine series for men. Raquel continues to be among our top sellers, capturing attention from influencer talent and style editors globally.

Speaker Change: Starting with our first pillar refocusing on our core our teams are fully aligned with our new brand led and consumer focused operating model.

Speaker Change: Is translating into positive results across the business.

Speaker Change: Our primary focus under this pillar is twofold traditional watches on our major brand platforms and go to market execution with.

Speaker Change: We're advancing quickly on several fronts.

Speaker Change: First we are delivering a robust pipeline of product innovation with core fossil icon such as our award winning <unk> for women in our class II machines series for men.

Speaker Change: <unk> continues to be among our top seller capturing attention from Influencers talent and style <unk> glasses.

Franco Fogliato: On the men's side, our machine, Chronogram, has been a standout among celebrity stylists. generating social media buzz and press coverage worldwide.

Speaker Change: On the demand side, our machine Conoco has been a standout among celebrate stylus.

Generating social media Buzz and past coverage worldwide.

Franco Fogliato: In 2025, we're elevating storytelling around major products and brand moments to strengthen engagement and prioritize women's women's while continuing the maximized momentum we're seeing in our women's business. Collaboration remains core to the Fossil brand as we continue to build a foundation of storytelling that connects our rich heritage with today's culture. Among our most highly profiled collaborations this year is the Fossil for Minecraft collection. Just two weeks ago after launch, the watches were sold out on Fossil.com. Organic social performance was also exceptional, with a total ratio of 5.5 million.

Speaker Change: 2025 were elevated storytelling round of major product and brand moments to strengthen engagement and prioritize winning so immense while continuing to maximize the momentum we're seeing our womens business.

Speaker Change: Collaboration remain core to the fossil brand as we continue to build that foundation of storytelling that connect our reach a stage with today's culture among.

Speaker Change: Among our most highly profiled collaboration this year as the faucet for Minecraft collection.

Speaker Change: Just two weeks ago. After launch to watches were sold out of fossil dot com organic social performance was also exceptional with its also reached $5 5 million.

Franco Fogliato: More recently, we had the preview event for our upcoming Fossil Pearl Shore Decolletion. This is our most elevated, performance-driven chronograph today, which was built to capture the thrilling legacy of Shelby American Race. Additionally, this week we introduced a limited edition Superman collection featuring a full range of products from watches and wallets to bracelets and cat links, timed to coincide with the Father's Day. We are supporting our robust pipeline of innovation and brand digitalization efforts with full-funnel marketing initiatives. In 2025, we would be investing more strategically, deploying our spend towards a higher mix of brand marketing versus performance tactics.

Speaker Change: More recently, we added the preview event for our upcoming full Super Sharp. The collection. This is our most elevated a performance driven chronograph to date, which was built to capture the trailing legacy of Shelby America Ricky.

Speaker Change: Additionally, this week, we introduced a limited edition of Superman collection, featuring a full range of products from watches and wallet to bracelet and Catholics.

Speaker Change: <unk> to coincide with the policy.

Speaker Change: We're supporting our robust pipeline of innovation and brand revitalization efforts with full funnel marketing initiatives in.

Speaker Change: In 2025, we would be investing more strategically deploying our spend towards a higher mix of brand marketing versus performance tactics.

Franco Fogliato: Beginning in Q2, we will be doubling down on media, influencer, and PR to drive brand heat, build awareness, and fuel demand. This includes the upcoming production of our Global Fossil Brand Campaign featuring Nick Jonas. As our global brand ambassador, Nick has been a fantastic partner to us as we collaborate in preparation for the launch. In March, Fossil was the lead sponsor of JonasCon, a Jonas Brothers fun convention created in celebration of the group's 20th anniversary. Nick wore our machine chronograph throughout the event, providing Fossil with exposure to his most engaged audience, while also generating significant press coverage and social engagement.

Speaker Change: Beginning in Q2, we will be doubling down on media influenza and PR to drive brand heat buildup awareness and fuel demand.

Speaker Change: These include the upcoming introduction of our global brand campaign, featuring <unk> join us.

Speaker Change: As our global brand Ambassador Nick has been a fantastic partner to us as we collaborate in preparation for the launch.

Speaker Change: In March <unk> was a lead sponsor Vaginas Khan join US broader fund convention created in celebration of the group's 20th anniversary.

Nick: Nick were our machine chronograph 12th of EBIT.

Nick: Providing <unk> with exposure towards east most engaged audience, while also generating significant press coverage and social engagement.

Franco Fogliato: He has a tremendous reach as a musician, actor, and philanthropist, who is known worldwide, and we believe Nick will help us build increased awareness of the fossil brand and drive resonance among both new and existing customers.

Speaker Change: He has a tremendous reaches a musician axle and philanthropies with known worldwide and we believe <unk> will add possibly is.

Speaker Change: Kris awareness of the fossil brand and drive reason us among both new and existing customer.

Franco Fogliato: At the same time, we will be investing in point-of-sales marketing, rolling out a new fixture and improve the storytelling collateral that beacons to the fossil brand at wholesale.

Speaker Change: At the same time, we will be investing in point of sales marketing rolling out new fixture and improved our storytelling collateral the beacon for the Costa brand at wholesale.

Franco Fogliato: Tuning now to our core license brand. Armani, Coors, and Dizzo. We're investing in point-of-sale and in-store presentation in the Wholesale Channel to reinvigorate our positioning among this brand. These initiatives are already generating improved performance. The Kors brand returned to growth, posting double-digit gains in the first quarter. Our money exchange was also up in the double digits, while the Armani brand remains pressured by the difficult environment in China. We are particularly pleased with our ability to achieve minimum royalty reduction with our key partners, which speaks to the strength of our long-term relationship and demonstrates their confidence in our turnaround plan and current trajectory.

Speaker Change: Turning now to our core licensed brands.

Speaker Change: Our mining costs and diesel.

Speaker Change: We're investing in point of sale and in store presentation. The wall sales channel to reinvigorate our positioning among this Brent these initiatives are already generating improved the performance. The course branded attuned to growth posting double digit gains in the first quarter. Our main exchange was also up in the double.

Speaker Change: While the multi brand remains pressured by the difficult macro environment in China.

Speaker Change: We are particularly pleased with our ability to achieve a minimum royalty reduction with our key partners, which speaks to the strength of our long term relationship and demonstrate today, our confidence in our turnaround plan and current trajectory in <unk>.

Franco Fogliato: Importantly, these agreements position us to drive a profitable growth among our portfolio of licensed brands going forward.

Speaker Change: Notably these agreements position us to drive profitable growth among our portfolio of licensed brands going forward.

Franco Fogliato: and other key initiatives, the work we are doing to optimize our global world sales footprint by prioritizing key geographies. Most notably, in the U.S., our Q1 wholesale business for our core brand grew in the double digit on a year-over-year basis. We also saw continued momentum in other highly scalable markets, such as India, where traditional watch performance across brands remains strong. After transitioning five of our smaller international markets to a distributor model earlier this year, We're continuing to evaluate additional opportunities where we can drive efficient growth and scale through the distributor model. This go-to-market strategy can be very powerful in smaller markets.

Speaker Change: And other key initiatives. The work we are doing to optimize our global footprint by priority guidance key geographies, most notably in the U S. Our Q1 also business for our core brands grew in the double digits on a year over year basis.

Speaker Change: We also saw continued momentum in other IV scalable markets, such as India, where traditional watch performance across brands remained strong.

Speaker Change: After transitioning five of our smaller international markets to a distributor model earlier this year.

We're continuing to evaluate additional opportunities, where we can drive efficient growth and scale through the distributor model.

Speaker Change: This go to market strategy can be very powerful in smaller markets is simplify our operating model allows us to leverage the regional expertise of lockup optimist.

Franco Fogliato: It simplifies our operating model, allows us to leverage the regional expertise of local partners to accrual top-line growth, and lowers our in-region cost to drive increased profitability. Moving to our initiatives around channel profitability, our actions are generating meaningful results across both water cells and DTPs. This is clearly reflected in the strength of our gross margin and improved bottom line results. The Wolfsfeld Channel continues to perform ahead of our expectations, led by fewer promotions as well as fossil brand innovation. In the e-commerce channel, operating results continue to strengthen. After delivering better than expected results in Q4, we saw ongoing momentum in Q1, which has not slowed down thus far in Q2.

Speaker Change: Top line growth and lowers our in region cost to drive increased profitability.

Speaker Change: Moving to our initiatives around channel profitability, our action are generating meaningful results across both awards sale in.

Speaker Change: BTC.

Speaker Change: This is clearly reflected in the strength of our gross margin improved the bottom line was up it was the channel continue to perform ahead of our expectations led by fewer promotion as well as positive brand innovation.

Speaker Change: In the E Commerce channel operating results continue to strengthen after delivering better than expected results. In Q4, we saw growing momentum in Q1, which has not slowed down thus far in Q2.

Franco Fogliato: The strategic decision to reduce our promotional activities is paying clear dividends. Higher gross margin, higher quality traffic to our website, and increased average unit of retail. In our retail stores, we're seeing a strengthening trend in our full-price locations, led by improved performance in our traditional watch.

Speaker Change: Our strategic decision to reduce our promotional activities.

Speaker Change: The higher gross margin higher quality traffic to our website and increased average unit retail.

Speaker Change: In our retail stores, we have seen a strengthening trend in our food price location led by improved performance in our traditional watches.

Franco Fogliato: During the quarter, we continue to optimize the store portfolio to alter the closure of 28 additional stores.

Speaker Change: During the quarter, we continued to optimize the store portfolio to welcome to closer to 28 additional stores.

Franco Fogliato: As we continue to make great progress across the strategic areas of the business, we are also taking action to transform our operating model by right-sizing fossil group's cost structure. In fact, we have already taken the steps necessary to align our cost structure to our newly defined strategies, scope and scale. This includes a reduction in force in February, moving some of our international markets to a more profitable distributor model, and closing unproductive retail stores. These actions are expected to drive 100 million of SG&E savings in 2025 versus 2024. We're also continuing to evaluate other opportunities, including the potential sale of non-core assets.

Speaker Change: As we continue to make great progress across our strategic areas of the business. We're also taking actions to transform our operating model by right sizing fossil group's cost structure.

Speaker Change: We have already taken this that's necessary to align our cost structure to our newly defined strategy scope and scale.

Speaker Change: This include a reduction in force in February moving some of our international markets to a more profitable distributor model and closing unproductive retail stores.

Speaker Change: These actions are expected to drive 100 million of SG&A savings in.

Speaker Change: 2025 versus 2024.

Speaker Change: Also continuing to evaluate other opportunities, including the potential sale of non core assets.

Franco Fogliato: Looking at the third key pillar under our turnaround plan, strengthening the balance sheet. We ended the quarter with $100 million of liquidity and we are actively pursuing initiatives to improve working capital and manage liquidity. Just a few days ago, we signed an agreement for the sale, lease back of our European Distribution Center in a transaction that's expected to close later in Q2. At the same time, we're working with our advisors to address our upcoming debt maturity. Importantly, our better-than-expected financial performance in Q1 provides us with an added flexibility to execute our plans and navigate the dynamic macro environment.

Speaker Change: Looking at the third key pillar of our turnaround plan strengthening the balance sheet. We ended the quarter with 100 million of liquidity and we are actively pool, Sweden initiatives to improve working capital manage liquidity.

Just a few days ago, we signed an agreement for the sale leaseback of our <unk> distribution center in a transaction that is expected to close later in Q2.

Speaker Change: At the same time, we're working with our advisors to address our upcoming debt maturities importantly, our better than expected financial performance in Q1 provides us with added flexibility to execute our plans and navigate the dynamic macro environment.

Franco Fogliato: I'm tremendously grateful to our teams across the organization for their dedication to Fossil Group. They're putting in their work and we're seeing the results in the early stage of our tournament. This is inspiring and highly motivating.

Speaker Change: I am tremendously grateful to our teams across the organization per day is dedicated to fossil group, they're putting in the work and we're seeing this as us in the early stage of our term tomorrow. This is inspiring and highly motivated including lending we have three new executive who joined the company during the first quarter all of them have heated up.

Franco Fogliato: Including Rennie, we have three new executives who joined the company during the first quarter. All of them have hit the ground running. Joe Martin, our Chief Commercial Officer, is overseeing all of our global revenue generating activities. Joe has already implemented a robust commercial strategy designed to drive growth within our global wholesale business.

Speaker Change: Ground running.

Speaker Change: Joe Martin, our Chief commercial officer, overseeing all of our global revenue generating activities.

Speaker Change: Joins already implementing robust commercial strategy designed to drive growth within our global wholesale business. During Q1 join I've spent time meeting with our partners around the globe and we're working in close collaboration on future plan reinforcing the opportunities in front of us.

Franco Fogliato: During Q1, Joey and I spent time meeting with our partners around the globe and we're working in close collaboration on future planning, reinforcing the opportunity in front of us.

Franco Fogliato: Another key leader new to the team is Antonio Carreiro, our Chief Digital Information Officer and General Manager of EMEA. Antonio is leading our global technology strategy and driving our commercial business in the EMEA region. He is focused on optimizing our existing tech stack while accelerating our use of AI across the organization to drive efficiency and unlock potential growth drives.

Another key leader new to the team is I'm Tanaka, our chief Digital information Officer, and general manager for EMEA.

As a leading our global technology strategy and driving our commercial business in the EMEA region. He is focused on optimizing our existing tax stock while accelerating our use of AI across their organization.

Speaker Change: To drive efficiency and unlock potential growth of glass.

Franco Fogliato: And while I've already talked about the value Randy has brought to the table, I will add that he has been instrumental in our tariff whirlwind as we assess, plan, and model the business amid a struggling situation.

Speaker Change: And while I have already talked about the value Randy has brought to the table I will add that he has been instrumental in our padded room as we assess plan and model the business I mean this fluid situation.

Franco Fogliato: As we announced today, we also added two new board members to complement the strength of our executive team and bring additional thought and leadership to Fossil Group. While the year has started differently than we expected, we are seeing continued business momentum, and we are addressing the global tariff environment from a position of strength. First and foremost, we're fortunate to have a team with extensive experience navigating complexity across global markets. Equally important, our diverse global footprint limits our tariff exposure and we have multiple levers we can pull to protect our strong cross-margin profile. We have long-term relationship with our vendor partners.

Speaker Change: As we announced today. We also added two new board members to the complement of the strength of our executive team and bring additional leadership to fossil group.

Speaker Change: While the year started differently than we expected we are seeing continued business momentum and we are addressing the global tariff environment from a position of strength.

Speaker Change: First and foremost we're fortunate to have a team with extensive experience navigating complexity across global markets.

Speaker Change: Equally important our diverse global footprint limits our exposure.

Speaker Change: We have multiple levers we can pull to protect our strong gross margin profile. We have long term relationship with our vendor partners. We have the ability to lean into a highly scalable market outside the U S where our brands already has a strong presence and we have pricing power.

Franco Fogliato: We have the ability to lean into highly scalable market outside the US, where our brand already has a strong presence and we have pricing power. While the devolving policy changes and market moves make it challenging to predict consumer sentiment for the remaining of the year, we have not seen any slowdown in our business trends yet to date. We are reiterating our full-year guidance, which contemplates a range of outcomes for China targets. We also remain confident in the freer financial framework we have outlined during our March Earnings Call. Our outlook assumes there is no material change in macroeconomic conditions and broader consumer demand trends.

Speaker Change: Why is it the whole of the policy changes and market moves make it challenging to predict consumer sentiment for the remainder of the year, we have not seen any slowdown in our business strength year to date.

Speaker Change: We are reiterating our full year guidance, which contemplates a range of outcomes for China part.

Speaker Change: We also remain confident in the three year financial framework, we outlined during our March earnings call.

Our outlook assumes there is no material change in macroeconomic condition and broader consumer demand trends.

Franco Fogliato: I thought we've been operating in a tumultuous environment. Our turnaround plan is working, and our results are moving in the right direction.

Speaker Change: A photo we have been operating tumultuous environment, our turnaround plan is working and whereas that are moving the right direction. We look forward to continuing on our path to restoring growth delivering long term profitability and creating durable shareholder value.

Franco Fogliato: We look forward to continuing on our path to restoring growth, delivering long-term profitability, and creating durable shareholder value.

Randy Grevin: Now, I will turn the call over to Randy to review the first quarter financial and discuss our outlook. Thank you, Franco, and good afternoon, everyone. It's great to be here and be a part of this incredible team. I'm excited about the opportunity we have in front of us and look forward to getting to know our show. We started the year with strong first quarter performance that exceeded our expectations across the P&L. First quarter net sales totaled $239 million, down just 6% in constant card sales. Core sales declined to 8% on a year-over-year basis, excluding the benefit of 700 basis points from the additional week in this year's retail calendar, partially offset by 500 basis points of impact from our SmartWatch exit and retail store closure.

Speaker Change: Now I will turn the call over to Randy to review, the first quarter financial and discuss our outlook.

Randy: Thank you Franco and good afternoon, everyone.

Randy: It's great to be here and be a part of this incredible team IMAX.

Randy: I am excited about the opportunity we have in front of us and look forward to getting to know our shareholders.

Randy: We started the year with strong first quarter performance that exceeded our expectations across the P&L.

Randy: First quarter net sales totaled 239 billion down.

Randy: Down just 6% in constant currency.

Randy: Core sales declined 8% on a year over year basis, excluding the benefit of 700 basis points from the additional week in this year's retail calendar, partially offset by 500 basis points of impact from our smartwatch exit and retail store closures.

Randy Grevin: This represents notable sequential improvement from a core sales decline of 12% in Q4. Performance in our fossil traditional watch business also improved sequentially, posting growth of 7% globally versus the prior year, excluding the 53rd week and store closure. That's up from low single-digit growth in Q4 of 2020. First quarter gross margin expanded 880 basis points compared to last year, coming in at 61.1%. The year-over-year increase primarily reflects higher product margins in our core categories driven by improved product costing, reduced promotional activity in our e-commerce business, and our exit from connected watchmaking. Looking at the balance of the year, we expect gross margins to remain strong as we continue to reduce our promotional levels and focus on a full price selling model.

Randy: This represents a notable sequential improvement from a core sales decline of 12% in Q4.

Randy: Performance in our fossil traditional watch business also improved sequentially posting growth of 7% globally versus the prior year, excluding the 50, <unk> week and store closures.

That's up from low single digit growth in Q4 of 2024.

Randy: First quarter gross margin expanded 880 basis points compared to last year coming in at 61, 1%.

The year over year increase primarily reflects higher product margins in our core categories driven by improved product costing.

Randy: <unk> promotional activity in our e-commerce business and our exit from connected watches.

Randy: Looking at the balance of the year, we expect gross margins to remain strong as we continued to reduce our promotional levels and focus on our full price selling model.

Randy Grevin: Looking at expenses, we brought down SG&A by $17 million to $136 million. This represents a decrease of 11% versus prior year, which can be traced to lower store operating costs on fewer stores, lower compensation at administrative expenses, and a planned decrease in digital marketing spend versus the prior year. Our teams have done a great job of prioritizing cost control, and we will continue to identify additional expense levers in 2025. During Q1, we closed at 28 stores, ending the quarter with 226. All of these closures occurred at natural lease expiration with very minimal closing costs. Looking at the bottom line, our focus on gross margin expansion and cost reduction enabled us to deliver a second consecutive quarter of profitability.

Randy: Looking at expenses, we brought down SG&A by $17 million.

Randy: To $136 million.

Randy: This represents a decrease of 11% versus prior year, which can be traced to lower store operating cost on fewer stores.

Randy: Lower compensation at administrative expenses.

Randy: In a planned decrease in digital marketing spend versus the prior year.

Randy: Our teams have done a great job of prioritizing cost control and we will continue to identify additional expense leverage in 2025.

During Q1, we closed 28 stores ending the quarter with 220 stores.

Randy: All of these closures occurred natural lease expiration with very minimal closing costs.

Looking at the bottom line, our focus on gross margin expansion and cost reduction enabled us to deliver a second consecutive quarter of profitability.

Randy Grevin: First quarter adjusted operating income swung from a loss of $20 million last year to a $10 million profit this year. This strength drove a Q1 Adjusted Operating Margin of 4.3%. Moving to the balance sheet, we ended the quarter with total liquidity of $100 million, including $78 million in cash and cash equivalents, and $21 million of availability under our revolving credit. Inventory levels totaled $182 million. That's down 19% compared to a year ago, and in line with our expectations. Our teams are continuing to operate with financial rigor, exercising working capital discipline, and careful inventory management as we work towards strengthening the ballast.

Randy: First quarter adjusted operating income swung from a loss of $20 million last year to $10 million profit this year.

This strength that drove our Q1 adjusted operating margin of four 3%.

Randy: Moving to the balance sheet, we ended the quarter with total liquidity of $100 million.

Randy: Including $78 million in cash and cash equivalents and $21 million of availability under our revolving credit facility.

Randy: Inventory levels totaled $182 million, that's down 19% compared to a year ago and in line with our expectations.

Randy: Our teams are continuing to operate with financial rigor exercising working capital discipline and careful inventory management as we work towards strengthening the balance sheet, a critical pillar under our turnaround plan.

Randy Grevin: critical pillar under our turnaround. The company has been acting with urgency to address its liquidity position, and I can share that we're making meaningful progress towards refinancing our debt, selling non-core assets, and further reducing costs. I'm particularly pleased to report that in the last week, we signed an agreement for the sale-leaseback of our distribution center in Expat, Germany. The transaction is expected to close at Q2 and will bring in excess of $20 million to the balance sheet upon completion. The refinancing process has been a particular focus of mine during my first 60 days and we look forward to sharing more with our investors in the coming months.

Randy: The company has been acting with urgency to address its liquidity position and making sure that we're making meaningful progress towards refinancing our debt selling noncore assets and further reducing costs.

Randy: Particularly pleased to report that in the last week, we signed an agreement for the sale leaseback of our distribution center in <unk>, Germany.

Randy: The transaction is expected to close in Q2, and we'll bring in excess of $20 million to the balance sheet upon completion.

Randy: The refinancing process has been a particular focus of mine. During my first 60 days and we look forward to sharing more with our investors in the coming months.

Randy Grevin: Turning now to God. Based on the results we're seeing from our turnaround initiatives and ongoing momentum across the business, we are reiterating our full-year outlook for 2025. With respect to the global tariff situation, our business has a number of factors that work in our favor, and I've been impressed at the speed at which my colleagues around the globe have mobilized to address this head-on. The company is leading from the front with respect to addressing tariff mitigation and absorption. Even if tariff rates ultimately settle between 30% to 145% on goods from China and 10% on products from other countries, we're confident that we can mitigate the full impact of tariffs to our 2025 outlook.

Randy: Turning now to guidance.

Randy: Based on the results received from our turnaround initiatives and ongoing momentum across the business. We are reiterating our full year outlook for 2025.

Randy: With respect to global tariff situation, our business has a number of factors that work in our favor and I've been impressed at the speed at which my colleagues around the globe have mobilized to address this head on the.

Randy: The company is leading from the front with respect to addressing tariff mitigation and absorption.

Randy: Even if tariff rates ultimately settle between 30% to 145% on goods from China, and 10% of our products from other countries were confident that we can mitigate the full impact of tariffs to our 2025 outlook.

Randy Grevin: Let me unpack just one. First and foremost, we are a global company, with more than 60% of our revenue generated outside of the United States. This provides us with a level of insulation that we will leverage as we continue to lean into countries where we have a strong presence and growing business momentum, placing less reliance on our tariff-impacted domestic markets. In addition to having a large and diverse revenue stream, we have long established vendor-partner relationships, in many cases, formed over decades, both in China and around the globe. We are leaning into those relationships and have already seen partners willing to participate in sharing some of the cost impact of the incremental tariff.

Randy: Let me unpack just why.

Randy: First and foremost we are a global company with more than 60% of our revenue generated outside of the United States.

Randy: This provides us with a level of installation that we will leverage as we continue to lean into countries, where we have a strong presence and growing business momentum, placing less reliance on our tariff impacted domestic business.

Randy: In addition.

Randy: One to having a large and diverse revenue stream, we have long established vendor partner relationships in many cases formed over decades, both in China and around the globe.

We are leaning into those relationships and have already seen partners willing to participate and sharing some of the cost impact of the incremental tariffs.

Randy Grevin: We also have a supply chain that has built-in redundancy, providing us with the agility to reallocate manufacturing quickly and seamlessly as needed. While reducing costs and leveraging our global revenue stream are key advantages, they are not our only leverage. We have also made the strategic decision to increase prices later in Q2 and into Q3. Our approach is highly surgical and will vary by brand and by category, providing us with another means to protect the growth margin progress we've demonstrated over the last year.

Randy: We also have a supply chain that has built in redundancy, providing us with the agility to reallocate manufacturing quickly and seamlessly as needed.

Randy: While reducing costs and leveraging our global revenue stream are key advantages. They are not our only levers. We have also made the strategic decision to increase prices later in Q2 and into Q3.

Randy: Our approach is highly surgical and will vary by brand and by category, providing us with another means to protect the gross margin progress we've demonstrated over the last two quarters.

Randy Grevin: The final mitigant is to further geo-diversify our production. We are evaluating opportunities to lessen, and in some categories, completely remove, the portion of our production that occur in...

Randy: The final mitigates as to further geo diversify our production.

Randy: We are evaluating opportunities to lessen and in some categories completely remove the portion of our production that occurred in China.

Randy Grevin: In fact, we've already begun to mobilize on this front in certain key areas of the Given the fluid trade situation, there are two key points I will make regarding our guide. First, our full-year outlook assumes no material softening of the macroeconomic environment or broader consumer demand. And second, the favorable dynamics Franco and I discussed make us confident that we can offset potential tariff impacts even if China rates settle as high as 145%. If the current rate of 30% holds through the year-end, we believe the guidance we're providing today could prove conservative. For the full year 2025, we expect worldwide net sales to decline in the mid to high 20s.

Randy: In fact, we've already begun to mobilize on this front certain key areas of the business.

Randy: Given the fluid trade situation. There are two key points I will make regarding our guidance.

Randy: First our full year outlook assumes no material softening of the macroeconomic environment for broader consumer demand and second the favorable dynamics Franco and I discussed make us confident that we can offset potential tariff impact, even if china rates settle as high as 145%.

Randy: If the current rate of 30% holds through the year and we believe the guidance, we're providing today could prove conservative.

For full year 2025, we expect worldwide net sales to decline in the mid to high teens, which includes approximately $45 million of.

Randy Grevin: which includes approximately $45 million of impact related to retail store closures and excludes impacts from foreign exchange and potential asset sales. Given the strong business momentum we're seeing, we expect to continue to narrow our year-over-year sales declines for the remaining quarters in 2025. As Franco mentioned, we are taking actions this year that are expected to generate approximately $100 million of SG&A savings in 2025 versus 2025. Three factors are driving the savings. First, we implemented a corporate reduction in force in February. Next, we expect to continue to rationalize the store portfolio with plans to close approximately 50 stores in 2025, and third, we transitioned five international markets to a distributor model, which brings our operating costs in those markets to near zero.

Randy: The impact related to retail store closures and exclude the impacts from foreign exchange and potential asset sales.

Randy: Given the strong business momentum we are seeing we expect to continue to narrow our year over year sales declines for the remaining quarters in 2025.

Randy: As Franco mentioned, we're taking actions this year that are expected to generate approximately $100 million.

Randy: Of SG&A savings in 2025 versus 2024.

Randy: Three factors are driving the savings.

Randy: First we implemented a corporate reduction in force in February.

Randy: Next we expect to continue to rationalize our store portfolio with plans to close approximately 50 stores in 2025 and third we transitioned five international markets to a distributor model, which brings our operating costs in those markets to near zero, we are continuing to evaluate opportunities in additional regions.

Randy Grevin: We are continuing to evaluate opportunities in additional regions. We expect the combination of expanding gross margins and aggressive cost actions to drive full-year adjusted operating margins in the negative low single digits. As we position the business to achieve long-term profitable growth, we're acting with discipline, maintaining financial rigor, and moving as quickly as possible on all fronts.

Randy: We expect the combination of expanding gross margins and aggressive cost actions to drive full year adjusted operating margin in the negative low single digits.

Randy: As we position the business to achieve long term profitable growth, we're acting with discipline, maintaining financial rigor and moving as quickly as possible on all fronts.

Randy Grevin: We appreciate your time this afternoon and will be available for follow-up.

Randy: We appreciate your time this afternoon and will be available for follow up calls.

Franco Fogliato: Now I'll turn the call back to Franco for closing. Thank you, Randy.

Franco: Now I'll turn the call back to Franco for closing comments.

Franco: Thank you Randy I want to thank you our teams for their tireless efforts and dedication to our turnaround plan and I want to thank you our shareholders for their ongoing support we remain committed to restoring profitable growth and building long term shareholder value and look forward to updating everyone on our continuous.

Franco Fogliato: I want to thank you, our teams, for their tireless efforts and dedication to our turnaround plan. And I want to thank you, our shareholders, for their ongoing support. We remain committed to restoring profitable growth and building long-term shareholder value and look forward to updating everyone on our continuous progress next week.

Franco: Progress next quarter.

Operator: This concludes the meeting.

Franco: This concludes the meeting you may now disconnect.

Operator: You may now disconnect. Please wait, the conference will begin shortly.

Franco: Please wait the conference will begin shortly.

Franco: [music].

Franco: Sure.

Franco: [music].

Franco: Okay.

Franco: [music].

Franco: Okay.

Franco: [music].