Good day, everyone, and welcome to today's FOSSIL Group First Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Eric Cerny. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us, and welcome to FOSSIL Group's First Quarter 2015 Earnings Conference Call. I'd like to remind you that information made available during this conference call contains forward-looking information and actual results could differ materially from those that will be projected 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 on our Form 10-K and 10-Q reports filed with the SEC. In addition, the company 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. As noted in the press release filed after the close of the market and in conjunction with this earnings conference call, the company is providing new reporting segments reflective of how the company evaluates the performance of its business. Results discussed today reflect our updated reporting structure, and restated results for 2014 can be found in an accompanying table with the press release issued earlier. Please note that you may listen to a live webcast or a replay of this call by visiting fossilgroup.com under the Investors section. Now I would like to turn the call over to the company's Chairman and CEO Kosta Kartsotis.

Good afternoon, and thank you for participating on our call. Dennis Secor, our Chief Financial Officer, is also joining us today. We will begin with our prepared remarks and then open the call to answer any questions. We are pleased to report first quarter results today that give us the belief that we are on track to achieve our goals for the year. We continue to enjoy both the operational and strategic benefits of our diversified business model. Once again, our global operating platform and powerful brand served us well, leading the first quarter net sales and overall performance that were in line with our expectations. Looking at the business operationally during the quarter, we continued our leadership in watches, which led our performance. We grew our own brands with both FOSSIL and SKAGEN posting solid increases, especially in watches, and we increased our business and our licensed portfolio. We grew across all of our regions and continued to expand internationally with the strong performance in Europe. We delivered positive comps in our retail stores, and we continue to invest to drive our future growth while returning capital to our shareholders. While there are pockets of our business that remain challenging, we're off to a good start and remain focused on delivering both our near- and longer-term objectives. We have spent several decades developing competitive advantage that have us positioned to take advantage of the growing global watch market and accessories markets. Our expertise in design and creativity, combined with our operational competencies, including our supply chain and global distribution capabilities, enable us to partner with the best brands in the world and help each of them reach their full potential, growing our global footprint in watches and fashion accessories. We are focused on preserving our business in developed markets…

Thanks, Kosta. Good afternoon, everybody. Before I get into the numbers, let me first address our reporting segments. Over the last couple of years, we've realigned our operating structure. Strategic and brand direction are sent centrally and regional management is now fully empowered and responsible to drive those strategies in brand directions across all brands and channels within their regions. In the past, our regional teams managed just their wholesale businesses, while the retail business was managed globally. We feel the current structure will be far more effective in developing our business, particularly as consumer shopping habits continue to evolve. In addition, in our prior reporting, intercompany profits from factory operations were reported based on their region of production, which is primarily Asia, rather than in the region where the products were sold. With the implementation of our new reporting systems, we are now able to extract discrete financial information that aligns with our operating structure and is more consistent with how we evaluate our business performance. In our earnings release, you will find a table with 2014 results restated under the new segments, including operating margins across our 3 regions reflective of all channels of distribution. Costs that support company-wide rather than region-specific activities, such as brand management, design, global marketing expenses, among many others, are reported within corporate cost, independent of where those expenses are actually incurred. With that, let me now address our performance. There are several factors that will make understanding our performance relative to both last year and our expectations challenging: currency headwinds, last year's extra week and the timing of expenditures. As we go through this report, I will isolate these factors, recognizing that this is not a precise science, particularly the impact of the extra week. The headline for our total first quarter…

[Operator Instructions] And we'll take your first question from Randy Konik with Jefferies.

So I guess I just wanted a little more clarification on your comments around -- on the wholesale channel distribution, your sell-in versus sell-through. It sounds like you said your sell-in improved on a sequential basis versus the prior quarter and yet your sell-through was a little mixed. I just want a little bit more expansion of what your partners are seeing there and why is the sell-through mixed from your perspective? Is it mixed by brand in the department store channel distribution? And then lastly, when you just say you want to focus on -- in the U.S. wholesale channel, protecting your market share, what do you mean by that? And what actions do you think you have to take to protect that share, if any?

Well, to begin with, I would caution you to remember that on a quarter-to-quarter basis, it's hard to tell exactly information about sell-in and sell-through because we're not direct to retail. Having said that, we mentioned about fourth quarter last year that our shipments to stores were not -- they were negative and our retail sell-out during the quarter and our wholesale partners was not as negative. So I think what we're saying now is we're seeing the reverse in the first quarter as our sell-in to those accounts in the first quarter was actually better than their sell-out. So part of that could be we shipped less in the fourth quarter last year. And so if you balance it on a -- 2 quarters put together, it may not be an impact at all. So I'll just caution you to look at the entire year when it's done and probably get more information from that. So our focus really is -- obviously, the market's in a very disruptive phase. We're seeing -- in our wholesale partners in the United States, we actually are seeing, as mentioned, their declining business there. Keep in mind also that first quarter is a relatively small part of the year. We still expect, and always have, is that 40% of the retail sales in watches happen in the fourth quarter. So -- but having said that, we're seeing declines in there and also there's a lot of disruption. Obviously, there's a new entrant in the market. We're not sure if there's some impact on the consumers' side to see what that new entrant's products look like, et cetera, but they have yet to be seen. So our mission is really -- we have a big share in the market and we've got a lot of initiatives in place to continue to grow the U.S. market and we're seeing strong -- we're seeing growth in FOSSIL and SKAGEN. We will have accelerated demand-creation activities as well as our omni-channel activities in the back half of this year that we think we can continue to grow those faster. We still, obviously, have -- Kate Spade is new to the market. Tory Burch started in the fourth quarter last year, so we got 3/4 of the year to start that. Both those brands look like they have significant long-term potential. We also are looking at launching wearable technology in the back half of the year in the fourth quarter. We think that can add some fuel to the fire in the U.S. So we're being very aggressive in the U.S., and we think we have some initiatives in place to fuel growth.

And next, we'll hear from Omar Saad with Evercore.

On the question that -- to kind of follow on Randy's question on the market share, to be clear, is the strategy for the U.S. market, which is your biggest market or your more -- most mature market when it comes to the watch portfolio, is the strategy to protect market share by bringing in these new licenses, things like Kate Spade, Tory Burch, Chaps, it sounds like it's a pretty new development. And how do you balance that versus strategies to grow the market as the market share leader? How do you think about growing the market and the possibility that the market share leader could garner, significantly gains that you can get the watch category as a whole going? Or is it basically mature at this point?

Yes. Good question. What -- if you look at the last 5 years and how much the U.S. department store business especially has grown in watches, because we had been very disruptive, bringing in new brands to market at higher retails, more features and functions, more innovation and new ideas, and it really created quite a lot of growth at really high margins in the department stores. So we're kind of in a transition phase right now, where our objectives really are to continue to grow the existing businesses we have. We have a lot of new product initiatives in place that we think can fuel that. And we do have a lot of interest in wearable technology. We think we're in a situation where consumers are very, very interested in this convergence of fashion and technology. So our objective is to put some of this technology, which could be notifications, sensors, other types of activity, in our watches that could add value. And when you leverage across the large scale, large numbers of units that we have, we could be in a situation where we could add a lot of value to the products, with not a lot of expense and have another series of disruptive growth in our business and really change the market in the U.S. And that's really what we're working towards. We think it's quite a significant opportunity, and we're looking at it from that perspective. We do think that we have an opportunity to bring new ideas and compelling products that are tech-enhanced that millennials will embrace. And again, keep in mind that millennials largely have not been wearing watches because they grew up with cell phones and, obviously, they're very interested in technology. And we think it could be a long-term opportunity for us.

From Nomura Securities, we'll hear from Simeon Siegel.

All right. Recognizing I'm probably misreading this, there's a lot fun to go through over here. I think, if I'm reading the press release correctly, the new margin structure has the U.S. as the highest operating margin and Asia is the lowest. Correct me if I'm wrong, but can we just talk about, for a minute, why that is? I think the U.S. has the most stores, which was the lowest margin and also, it was previously the lowest wholesale margin. So I guess, any color you can provide there and maybe the right way to think about kind of a new geographic economics, the right way to think about the go-forward margin opportunity would be helpful.

Sure. I mean, the way you -- to try to understand the previous reporting structure to this one, before, you had all the inter-company profits sitting in Asia. So now we've redistributed those to the actual underlying selling region. We've also been able better to differentiate some corporate costs that were sitting in the U.S. wholesale business. Now those are really corporate activity. So at the end of the day now, the -- and you see also the impact of taking the direct businesses and reallocating those to the underlying geographic region. So you've got -- the Asia region is the smallest of our regions. It's about 1/3 of the size of the overall U.S. or American business, with a fully developed infrastructure there that provides significant amount of opportunity for leverage over the long term, but it has to grow to ultimately fully absorb the cost of that infrastructure. So the margin structures are different in each of those businesses in Asia. You've got higher gross margins, but you also have a much heavier concentration of concessions, which carry a significant amount of expense as well. So again, we've realigned that. We've absorbed the direct businesses into those regional structures; aggregated the corporate costs, those costs that solely relate to central expenses, and reported it that way, with the biggest opportunity for margin gains as the fastest -- long-term fastest-growing region could be Asia as it fully absorbs all those fixed costs.

And so just thinking through going forward, so what is the -- I guess the implication, as you continue to expand Asia and then Europe as well, just on the margin, I mean, how do you view the margin holistically?

Well, the margin holistically, we view as there are opportunities across the whole organization to leverage our infrastructure, our strategy, as we shared on our Investor Day a couple -- or 2 months ago, was to create -- or use that capacity that would create in all regions, and then redeploy that to drive top line initiatives across all our regions with the biggest being in Asia over time. So our goal right now again, as we shared on that call, was that we are -- we see the biggest opportunities for us. And the very compelling opportunity is to invest in growth. And where we are in our life cycle, we think that's the appropriate way for us to manage our operating structure.

Next, we'll hear from Rick Patel of Stephens Incorporated.

Can you talk about the indications of interest for wearables that you plan to roll out later this year? What do your big wholesale accounts think about this? And do you anticipate staying in the same shelves that you're in right now for department and jewelry stores? Or will you get incremental shelf space? Just help us think about the rollout.

Well, as we've been talking about that we're going to launch some products late this year, and it won't -- it's not going to be of significant numbers this year, but as I mentioned before, there's really a huge amount of consumer interest on this whole idea of the convergence of fashion and technology. One of the things to keep in mind is the department stores are very interested in this because they perceive there to be consumer demand. But there's another issue here also, which is, if you look at the -- the watch business is about $65 billion globally, relatively a small industry, whereas, the tech industry, which includes smartphones, cell service, iPads, all the activity has gone to the technology world. The spending in there is huge. So just a small percentage of that spending and interest, when it comes in the watch business, it could have a huge impact on the watch business and make it much, much larger. A lot of that spending or most of it is not happening in the department store where our customers are. So our mission is really, in a disruptive way, to bring some of these technologies and ideas to the brands and enable us to add additional functionality at not a lot of cost could make the watch category more relevant and could bring a significant amount of sales into the channels that we sell to. And that's what we're working on, and we think it's a pretty big opportunity.

From Topeka Capital Markets, we'll hear from Dorothy Lackner.

Just wanted to go back to the North American wholesale business a minute and just kind of ask I guess maybe a bit of a philosophical question. Where do you think this is going? You talked about the newer brands, the Chaps with Ralph Lauren. Tory Burch, obviously, is still very small, Kate Spade. You haven't even gotten to putting your own product in the stores as well as some renewed strength in FOSSIL and strength at SKAGEN. So what has to happen to that business, do you think, to make it better? Does the space need to shrink? Just what do you see your partners doing? And what are you advising them to do?

Well, we have a lot of levers to pull across all our brands and we have a lot of product initiatives in place in every brand, a lot of ideas about how we can change the customer experience at the point of sale, enhancing the presentation better, more storytelling, in addition to some enhanced brand-building around FOSSIL and SKAGEN and the new brands that we have. We just think we have a lot of ammunition. So having said that, I look at the first quarter and sales were down at the department stores. We're in a -- there's obviously a big new entrant into the category. We're not really sure exactly what impact that will have on the overall watch market. We do think that long term, as I mentioned, I think it's a net plus for us and could be a significant advantage for us. But we're looking at the entire market and how can we gain share. And the Chaps opportunity I think, is one where, if you look at the market, the watch market globally, over the last several years, as we've put more feature function, more innovation, we've raised the average unit retail across all our brands from Fossil all the way up. And we do have a sense that there -- it's created because we've elevated all our price points so that there's -- created some white space below most of our brands in a more valued way. So there is some distribution we sell to in the U.S. and globally that has been disadvantaged because they don't have access to all those brands that they've been disadvantaged, and there's a pretty big opportunity. If you look at the value channel and if you look at their watch business, they're very under-penetrated compared to stores that are -- modern department stores and above, just because they don't have access to brands. So part of this Chaps opportunity is for us to bring energy, design, innovation and branding to stores that may not have the potential to get other brands. And it could be a pretty big opportunity for us to round out our portfolio and to give us additional market share. So that's what that's about. But we're, in general, just being very aggressive with the U.S. the market. We continue to believe that we can make it bigger and grow all our brands and take share over time. And we do expect that the expectations are still that the market will grow over the next 5 years. We've seen indications from mirror monitors [ph] it's going to grow single digits. That's before the wearable technology entrants are in there. So we're not sure exactly what the market's going to do, except that we're going to be very aggressive and go after it.

From Piper Jaffray, we'll hear from Erinn Murphy.

You guys talked about taking price. Can you elaborate a little bit more about what you've done thus far across the portfolio, either by brand or by region? And then I guess, within the growth margin assumptions for the year, what are you including for the past year [ph] of price increases?

So we have -- as we mentioned, have taken price increases, moderate price increases, across all our brands globally, obviously, focusing especially on Europe where the euro is quite different than it was. And we have taken some of those earlier this year. There's another round of that going later this year. We're watching it very carefully. So far, we've seen positive results from our price increases, and we'll see how it goes out for us next year.

In terms of margin expectations that we -- they -- assuming that they continue to perform as we anticipate, you'd start in the first quarter, and we would expect to see a build of a tailwind as we move through the year.

And Dennis, is that in the guidance as you see it today?

We've made that assumption right.

Next, we'll hear from Ed Yruma from KeyBanc Capital Markets.

I was wondering if you could give a little bit more color on the other income line. I know that, that's where the lot of hedges fall. So should we assume that, that kind of flows in accordance with the FX impact? And kind of what quarter should see the biggest benefit there?

Sure. That should follow the trend. That should roughly mirror, not necessarily to -- in fact, not to the same extent, because we don't fully hedge. But that should roughly mirror the gross margin impact, which, in my prepared remarks, I said would build -- based on our currency assumptions, would build and likely peak in the third quarter and then begin to tail off. The only thing to think about is though, you got to -- it's a function of volume as well in the fourth quarter. Because even though the fourth quarter headwinds will not be as significant, you should still expect a fairly impactful impact on the bottom line or on the -- below the line there.

From Goldman Sachs, we'll hear from Lindsay Drucker Mann.

I was hoping to get a little bit more clarification on what your sell-throughs have been. I understand that it's obviously going to have some volatility quarter-to-quarter and that there's probably an overhang from the Apple Watch launch. But with the assumption that shipments ultimately catch-up to what your sell-through is, can you help us understand what the run rate 4Q, 1Q, sell-through has been at department stores where you have visibility? And also how much department stores make up of your total U.S. wholesale business?

Well, we don't give exact numbers. And what we've said on our fourth quarter is that our sell-out was not as bad as our sell-in, and we're saying the reverse in the first quarter. So other than that, we're not giving any numbers or statistics. And quite honestly, there's so many moving parts to it. It's really difficult for us to even ascertain exactly where they are and what's going to happen the rest of the year and pipeline fill and reverse pipeline fill. You could spend a whole quarter trying to study what happened. At the end of the day, it doesn't make that much difference because something else will change.

I mean, our goal is to really -- particularly we've had -- last year as an example, we had a lot of volatility on the sell-in. So we use that just as another bit of data to help people understand the overall performance. But in a thin window of time, it's a data point. It's not something that we interpret as a trend. We just want to share and characterize what we are seeing.

Is it fair to say, though -- I think you said it before, I just want to make sure, that sell-through has been negative fourth quarter and it got a little worse in -- it got worse in the first quarter sequentially.

Yes, it was fairly consistent throughout last year in a quarter-to-quarter basis. And so far in the first quarter, the data deteriorated a little bit, with -- we highlighted the biggest brands and noted too, FOSSIL and SKAGEN, have continued to improve.

From Cowen and Company, we'll have Oliver Chen.

Regarding the organic -- the constant currency North America, so just -- it's difficult to line up the quarter. So I mean, should we expect this to inflect to negative and positive just as we think about the rest of the year? It feels like on the retail side, retailers could continue to be tightening their inventory. And Kosta, on the wearables paradigm, is your average unit retail at the FOSSIL banner going to be at the same $100 to $200 range? And as we look at the back half, is that sell-in going to occur on the wholesale side as well?

We didn't specifically -- in terms of how we're thinking about the year and the trend, we did and continue to plan the department store business, I think reflective of where we are in this cycle. We're not expecting growth coming from department stores or overall in the United States. We are continuing to expect favorable trends in our retail business. And we're making continued investments to support that, particularly into the holiday season. And we're also seeing growth coming from international markets in the Americas. Latin America was strong. Canada was strong. So we're not expecting the growth. And certainly, the performance, as we said, kind of the overarching message of the first quarter is that the business is roughly performing the way we planned it.

On the wearables side, we are...

With Dennis, are you just saying negative then -- you're saying negative for the full year constant currency North America wholesale?

We didn't give -- no, what I'm saying is we didn't give specific guidance, but we're planning. Those department stores, we're not expecting to see growth there in the United States.

And on the wearables side, there is a small assortment of items from jewelry, which is bracelets up to watches, and the price points would be in the $1,200 to the $300. So it's an assortment products of different prices.

And that benefits the wholesale side, Kosta, like just to be clear?

Yes, that'll be in our retail stores and our wholesale.

Okay, and the FOSSIL brand, not Kors or FOSSIL brand?

FOSSIL brand will be this year -- we'll have a suite of products for Kors next year and some other brands.

And from Sterne Agee CRT, we'll hear from Ike Boruchow. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: Dennis, on the restructuring costs, in Q1, I'm sorry if I missed this, what exactly does the $12 million represent in restructuring? And so does that $0.13 hit that took place in Q1 and you're guiding $0.11 in Q2, how does the remaining $0.11 in restructuring split between Q3 and Q4 for the fiscal year to get you to that $0.35?

So the first quarter, what we -- it's mostly some reorganizations of building and optimizing our structure here as well as the closure and re-purposing some of our retail stores. Actually, we got more done in the quarter than we had planned, so the charge was a little larger. And then the remainder should -- we should be done probably mostly by the end of the third quarter. There might be some lingering impact into the fourth quarter. But the lion's share is in the first half and some in the third, a little bit in the fourth.

Next, we'll go to Barbara Wyckoff with CLSA.

Can you talk about the timing of Chaps? Do we assume that's next spring or this year? And the traffic and conversion in e-commerce and mobile channels, can you comment on that with improving capabilities this year versus last?

Chaps will be out next year. And as you know -- strong brand, it does have some international component to it, and we're looking forward to working closely with them and helping build the brand and creating great product and taking it into market. So we're very excited about that. Our e-comm business, we don't have all the metrics in front of us right now. So we would say that our e-comm business, we're continuing to grow it. We have a lot of initiatives in place based around our omni-channel capabilities, our CRM, et cetera, and how that fits in with the stores. And as we've mentioned, we're putting iPads in our stores in the next couple of months. So we're expecting a more robust activity over time on our website.

And ladies and gentlemen, that is all the time we have for today's questions. At this time, I would like to turn the conference back over to Mr. Dennis Secor for any additional or for closing remarks.

Sure. Thank you, everybody, for joining us today and for your interest in the Fossil Group. Look forward to speaking again with you when we hold our next quarterly call in mid-August. Thank you very much.

And with that, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.