Good afternoon, ladies and gentlemen. And welcome to the Fossil Group Fourth Quarter and Full Year 2021 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. Now I’ll turn the call over to Christine Greany of The Blueshirt Group. You may begin.

Hello, everyone, and thank you for joining us. With us today on the call are Kosta Kartsotis, Chairman and CEO; Jeff Boyer, Chief Operating Officer; Sunil Doshi, Chief Financial Officer; and Greg McKelvey, EVP and Chief Commercial Officer. I would like to remind you that information made available during this conference call contains forward-looking information and actual results could differ materially from those that will be discussed during this call. Fossil Group’s policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in the company’s Form 8-K and 10-Q 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. Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-GAAP financial measures discussed on this call in Fossil’s earnings release, which was filed today on Form 8-K and is available in the Investors section of fossilgroup.com. With that, I’ll now turn the call over to Kosta to begin.

Thanks, Christine. Good afternoon, everyone, and thanks for joining us today. Before we begin, we would like to acknowledge the unfortunate circumstances in Ukraine, as well as the pandemic that is still affecting a significant number of people around the world. During these challenging times, we are grateful to our teams for their unwavering focus and commitment, agility and strong execution. As a global company with associates around the world, we must all strive to make the world a safer and healthier place to live and grow. Despite various global and macro challenges over the past year, we are pleased to report a significant improvement in our results for 2021, reflecting strength across key categories and regions, as well as excellent execution by our teams globally. We deliver double-digit topline growth of 16%, expanded adjusted EBITDA margins to 8.5% and achieved adjusted diluted earnings per share of $1.12. Early in 2021, we achieved our $250 million New World Fossil cost savings target. With a more streamlined organizational structure and a stronger balance sheet, we were able to accelerate investments in our growth initiatives and also to increase our marketing spend to capitalize on improving consumer demand, particularly for traditional watches. These initiatives contributed to growing sales and expanding margins, which was particularly helpful as we navigated a number of macro headwinds, including ongoing pandemic impacts and a challenging supply chain environment. Investments in our growth initiatives, primarily our digital strategy, marketing, analytics and brand building are paying off. We are deepening our customer engagement with our brands, improving customer lifetime value and creating a strong pathway for sustained revenue growth. It is gratifying to see that our digitally-led mindset drove meaningful results in 2021. We increased our customer file size by 40% and grew our digital sales by 20%. And…

Thanks, Kosta, and good afternoon, everyone. We finished the year with a solid quarter, which saw us achieved double-digit sales growth despite the COVID surge in December, maintain strong gross margins and deliver adjusted EBITDA margins of 9.5%. First, let me walk you through net sales. Q4 net sales came in at $604 million, up 14% year-over-year, up 16% on a constant currency basis and a sequential improvement from Q3’s 11% constant currency growth. From a regional perspective, net sales in the Americas were up 26% in constant currency. Strong consumer demand in traditional watches and jewelry, traffic growth in brick-and-mortar, and ongoing growth in digital channels fueled the results. During the quarter, we did experience some delays in deliveries that impacted our ability to maximize sales in our leathers category. In Europe, Q4 net sales were up 21% in constant currency, reflecting strong digital execution and easing pandemic restrictions. The consumer responded well to our offerings across all channels. We saw notable strength in traditional watches and jewelry across our owned and licensed brands, including Fossil, Kors, Armani and Diesel. Digital sales were up double digits, and traffic and sales comps in our own stores were also strong. With the COVID surge in the later weeks of the quarter, we saw a slowdown in brick-and-mortar traffic and experienced temporary store closures in some markets, which impacted our December topline growth rate. In our Asia region, Q4 net sales declined 11% in constant currency, primarily driven by ongoing pandemic lockdowns in Mainland China. Other markets including India, Japan, Korea and Australia continue to see mixed results due to restrictions. While sales were down versus last year in Mainland China, sales versus 2019 were up 22% in the market. From a channel perspective, Q4 digital sales increased 7% versus a year…

Thanks, Sunil. Teams, there are several macro factors on investor’s minds right now. First and foremost is the situation in Ukraine. Perhaps Greg and Jeff can talk about what impact that may have on Fossil?

Thanks, Christine. First, I want to say that our thoughts are with those being impacted by the humanitarian crisis in Ukraine and the ongoing pandemic around the world. We are certainly living in challenging times and we just couldn’t be more appreciative of our teams around the world that are staying focused on growth and delivering results. With regards to the specific impact of the Ukraine crisis on our business, I would make two points. First is that we have historically had very minimal sales in Ukraine and Russia through distributors and have occlude -- excluded those sales from our guidance for the year. Second is that, there is of course no way to accurately assess the range of potential outcomes and impact at this point. As a result, we will remain conservative in our planning, but aggressive in our execution of the business and agile in taking necessary actions to address headwinds as they occur.

Christine, on the supply chain front, we’re not seeing major business impacts from the crisis in Ukraine at this time, as our supply chain doesn’t include route through the impacted areas. That said, we are watching oil prices, as freight operators can pass fuel surcharges along and there could be some freight expense pressure if the conflict continues and oil prices remains elevated.

Thanks, Jeff. Zooming out a bit on that, can you talk more broadly about supply chain headwinds and another key topic on investor’s minds as we know, and how are you navigating those in 2022?

Unfortunately, the outlook for the supply chain headwinds that we and many other companies have faced over the past year are not forecast or turned around very quickly. Most forecasts indicate that the ocean freight, port and trucking issues will remain with us for most of this year. For us, the most important issue is managing our product flow and ensuring product delivery for seasonal peaks and promotions. We’ve added time to our delivery schedules for both air and ocean deliveries to account for the longer lead times. Our teams around the world have done an outstanding job of ensuring timely product flow despite the longer lead times and unforeseen disruptions that can happen. Shipping costs do remain structurally higher than what we saw pre-pandemic. For us will absorb up to 100 basis points of higher shipping and freight cost as a percent of sales. Despite that, as Sunil mentioned in his remarks, we have been able to expand our gross margins during this time period. With the structurally higher shipping costs, we are looking at all elements of our supply chain end-to-end to identify efficiencies and improve our supply chain resiliency. From better forecasting, demand trend and inventory management to production planning and logistics. We see improvements in these areas of the supply chain as providing sales opportunities with enhanced inventory availability, while at the same time providing offsets to the supply chain cost pressures. However, the most recent wildcard we are facing currently is the fuel increase driven by the increase in the price of oil globally that I mentioned that earlier. If fuel and other raw material prices continue to increase, we will consider additional pricing actions similar to what we executed this past year.

That’s great color, Jeff. Thank you. Let’s move to Kosta, traditional watches had strong performance in 2021 Kosta? How do you keep the momentum going and what can we expect in terms of innovation and brand heat going forward?

Well, over the past few years, the overall traditional watch market has stabilized somewhat and our demand signals and some outside consumer research indicate that it will continue to grow for the foreseeable future. For us, we are seeing particular strength in our largest brands, Fossil, Kors and Armani and we see major opportunities for them to continue to grow and gain share in the global marketplace. As a group, we are increasing our focus on innovation design and branding. We are ramping up our storytelling in the form of new watch ideas and materials, sustainability innovations and collaboration some limited editions. In addition, our significant investments in digital capabilities are a game changer and enable us to engage in a more robust way with a global watch consumer. We’re also increasing our marketing as a percentage of sales to build greater awareness and help us acquire new customers at a faster rate. And Asia, of course, is a very significant long-term opportunity for traditional watches, as those consumer markets continue to develop.

Kosta, that’s exciting. Back in December, you announced the appointment of a new fossil brand leader. What are some of the initiatives she’ll be focusing on and how does that change your strategy or roadmap going forward?

Yes. A major component of our overall strategy is to build brand heat for the Fossil brand by investing in product design and brand building talent and this position was the first step. We have a new brand leader and a new CMO for the Fossil brand. And we are adding additional creatives in all areas of product design, visual presentation and communication, and marketing. This new fossil brand story will all be told through our increasing digital capabilities. In mid-2021, our Chief Digital Officer joined the company and we successfully expanded our digital team globally with additional talent. We are making significant progress and we’ll see substantial benefits over the next several months and years.

Great. Thank you. Let’s move back to Greg. From a commercial lens, how did you see category and channel performance playing out in each region in Q4? And Greg, what are the trends you’re seeing in 2022, also are customers responding similarly across regions?

The single most important trend is accelerating momentum in traditional watches, where we were up 18% in Q4 versus prior year, with 39% growth in the Americas and 24% growth in Europe, partially offset by decline in APAC, which is being disproportionately impacted by COVID closures. Traditional watch performance was robust across both digital and brick-and-mortar channels, despite these headwinds from COVID lockdowns in December, which caused some loss of momentum in the back half of December in brick-and-mortar traffic in key markets. We are also taking back share again in traditional watches in key markets and expect to continue to see solid growth across channels in 2022. The second category trend to note is jewelry, which grew 48% in Q4 versus prior year and we believe has a long runway of growth ahead of it. We are investing more into the category and accelerating the growth with our expanding ecommerce capabilities. The combination of a category with growth tailwinds, a broad range of owned and licensed brands are bringing in market, high margins and our ability to leverage our global infrastructure and existing channels of distribution makes this a profitable growth category for us. One call out from a regional perspective is APAC. Asia is, of course, a very significant long-term opportunity, as those consumer markets continue to develop, especially in China and India. Although, our sales in China were down for the quarter, the fiscal year 2021 business is up 55% versus 2019 and is about 10% of our total sales with significant upside. Although, we remain conservative in our guidance for APAC in 2022, our teams remain aggressively focused on growth, especially in digital channels in China and India, and are positioned to capitalize when markets fully open back up. To summarize, as Kosta mentioned earlier, following our category, channel and infrastructure transformation over the last few years, we have a fundamentally healthier and more robust business model and are excited by the momentum and growth trajectory we’re seeing in our core categories. Along with strength in traditional watches and jewelry, I mentioned above, in smartwatches our initiatives to streamline distribution and focus our core brands and smartwatches is positioning us to return to growth. We have an exciting innovation roadmap ahead. In fact, we are back to innovating aggressively across all of our categories and have a pipeline of products we’re bringing to market in 2022 that we think our customers and our consumers across the world are going to love.

That’s helpful. Thank you, Greg. Now over to Sunil. Can you help us understand the dynamics around the 2022 outlook and how we should think about the waiting between first half, second half? And then if you could share your thoughts on the longer term outlook and path to getting to that double-digit operating margin that you and Kosta mentioned? That would be helpful. Thanks.

Sure. First, I’ll take the current year outlook. When we think about the full year, our revenue guidance assumes that the front half of the year will be at the lower end of the range, with stronger growth in the back half of the year. From a topline perspective, it’s important to note that we expect currency to be a larger headwind in the first half of the year, given prevailing currency rates, particularly when we compare the euro, the current euro rate to last year. While we estimate the full year impact to be around 250 basis points, prevailing rates would suggest that to be closer to 300 basis points in the first half of the year. Second, we also recognize that the recent geopolitical factors have not fully played out and the zero COVID policies in many Asian markets, which impacted our Q4 trends will carry into this year. Taking these issues into account, it’s also to important -- it’s also important to note, as Greg and Kosta mentioned, that the fundamentals in our categories are positive. Coming out of 2021, we were pleased with the performance of traditional watches, particularly in Americas, Europe and in India. In 2021, the jewelry category grew nicely versus 2020 and 2019. And in both categories, we’re continuing to lean into design and inventory to continue this momentum. Also in 2021, we missed some topline growth in our leathers category, given some of the supply chain challenges that emerged last year and impacted the timing of deliveries. As we have adjusted our transit lead times, we have better opportunity to recapture that volume in 2022. It also is worth noting, our digital distribution is growing nicely and our brick-and-mortar distribution is much more right sized than a few years ago. Our investments…

Terrific. Thanks, Sunil. Thanks team for the Q&A. And I’ll turn it back to Kosta for any closing comments.

Thanks everyone for joining us and we look forward to talking to you on our next call. Thank you.

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.