Good afternoon, ladies and gentlemen, and welcome to the Fossil Group First Quarter 2022 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 Blueshirt Group to 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 the 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. Now I'll turn the call to Kosta to begin.

Thanks, Christine. We are pleased to report strong first quarter results in line with our expectations, which includes 4% worldwide net sales growth or 6% on a constant currency basis. This was against the backdrop of an increasingly challenging macro environment in our Europe and Asia geographies. The quarter was highlighted by growth of 10% in traditional watches and growth of 38% in jewelry. Broadly speaking, the U.S. consumer is generally considered healthy and more people are getting back to work, while Europe and Asia are being pressured by the Ukraine crisis and China's COVID situation, all with the backdrop of increased energy costs and rising global inflation. We are all disheartened by the ongoing humanitarian crisis that is unfolding in Europe and continues to worsen. At high level, the watch category also continues to be healthy and is showing positive underlying trends. Consumer spending remains stronger and higher priced years were affordable luxury, fashion and innovation have driven more excitement in the category. We are also creating brand heat through new marketing collaborations and limited additions, which create outsize awareness and broaden our consumer reach. We think these activities are positive signs for the category as a whole. And now turning to the first quarter results. In the Americas sales were, up 6% in constant currency, led by 22% growth in traditional watches and 14% growth in jewelry. Demand in the category was driven by a strong U.S. and European consumer returning to more normalized activities after the Omicron surge in late December and early January. Store traffic growth in the quarter was strong as was average spend levels. Wholesale sell-in was also strong in the quarter, although we did see a softening in sellout trends later in the quarter, which we attribute to rising inflation and geopolitical uncertainty…

Thanks, Kosta, and good afternoon everyone. We started the year with a solid quarter, amidst a challenging macro backdrop, which intensified during the latter part of the quarter. During Q1, the factors Kosta spoke to primarily impacted our Asia region and to a lesser degree in Europe. Let me walk you through net sales. Q1 net sales came in at $376 million, up 4% year-over-year and up 6% on a constant currency basis. The stronger dollar resulted in 230 basis points of a headwind to our revenue growth. From a regional perspective sales in the Americas region were up 6% in constant currency, with stronger wholesale sales in the front half of the quarter and stronger brick and mortar traffic and retail stores throughout the quarter. Sales in Europe were, up 20% in constant currency and up 14%, when factoring in the stronger dollar versus the euro. In Asia, sales were down 10% in constant currency and down 12% at reported rates. Sales in Mainland China were down 34% versus last year in constant currency, but still up 28% versus 2019. Other markets that have historically benefited from Mainland China tourist such as concessions in Korea and travel retail throughout the region were also down versus last year. Conversely, net sales in the India market were up double-digits. From a channel perspective digital sales decreased 17% versus a year ago and represented approximately 34% of our total sales mix. As a reminder, digital sales include sales on our owned e-commerce sites, global third-party platforms and wholesale.com. There were two key drivers for the decline in digital sales. First, the ongoing lockdowns in Mainland China impacted delivery and shifted consumer spending to other non-discretionary categories. Digital sales reflect the vast majority of our sales mix in Mainland China. Second, in Europe…

Thanks, Sunil. Let’s run through some questions that we're hearing from the investment community. Starting with Kosta, can you talk about the widely understood headwinds out there and how you're thinking about consumer demand going forward? We know that geopolitical uncertainty and inflation are on the minds of consumers, especially in Europe. What are the datasets, that you're looking at both internally and externally to monitor the consumer?

Yes, Christine. There is the number of macro events that are expected to impact spending levels over the next few quarters. Obviously high inflation rates and energy prices, interest rate increases and geopolitical unrest or consider some of the most significant. At the same time many of our countries that we operate in are reducing our COVID-related restrictions and consumers are returning the marketplace. For much of the last two years consumers redirected spending away from affordable fashion accessories towards home, tech and family related areas as many countries where lockdown and social distancing was in place. Beginning in the second half of last year and continuing in the first quarter we saw consumer demand build nicely as consumers activity starting to return to more normal patterns of returning to the office, dining out, visiting with friends and family, et cetera. And with that return to normalcy our watch, jewelry and leather business rebounded. We saw similar pattern back in 2010, after the housing related recession in 2008, which were some of the strongest growth years we've ever witnessed. The fundamental question is, will the consumer demand remains strong? Or will world -- and macro events cause a pullback in their spending? We believe U.S. and European consumer spending will remain relatively strong in our categories from a growth perspective, partly due to an overall return to normal and partly due to pent-up demand. As to what type of data, we look at our best info on our consumer spending in our categories comes from our own DTC channel, where our combined stores and e-commerce sales are growing as consumers return to the marketplace. Stores are rebounding nicely since are now more open than last year and some volume is shifting out of our e-commerce sites towards our stores. But…

Great, thank you. Onto Sunil with the varying puts and takes that Kosta mentioned, can you provide some additional framing and contact around Company's updated guidance for us?

Yes. Sure, Christine. Starting with the revenue guidance, like I mentioned there are two key drivers of the revision to our full-year outlook that took the midpoint from a 4% growth rate to a midpoint of 1.5%. First is FX, as I mentioned, we estimate that the impact of prevailing rates to be around 350 basis points versus the previous estimate of 250 basis points. Q2 and Q3s estimate are closer to 500 basis points and we estimate Q4s impact to be more similar to Q1. In developing these estimates we are using prevailing rates, including the euro at $1.5, compared to our previous prevailing rate at $1.9, both of which are weaker than historical averages of around $1.13 to $1.15. Other major currencies like the renminbi, the Indian rupee, the British pound and the Canadian dollar have all recently depreciated versus the dollar. While the strengthening of the dollar does create revenue headwind, it’s important to note that our costs also translate lower and so overall operating margins are typically only impacted by about 20 basis points to 40 basis points. Excluding the estimated FX impact on revenue, we also share that we've revised our revenue outlook for the remainder of the year globally by around 150 basis points, primarily driven by our international markets. First in APAC, sales results in Mainland China are the primary pressure point. Our prior guidance are factored in some conservatism in one half -- first half of the year, but with current policies extending into the second quarter, we are incorporating a more cautious outlook for the balance of the year with some normalization beginning in Q4. As a reminder, we are lapping a 20% decline in sales and our Mainland China results from Q4 of last year. Outside of Mainland China, we…

Great, thank you. Greg, the smartwatch category is down in the quarter, can you share some additional perspective on the quarter, as well as the balance of the year outlook for this category?

Sure. Thanks, Christine. Our smatwatch business remains in a state of transition this year as Sunil mentioned margins are up significantly in the business, while revenue was down as we lap prior late year liquidation, the LTE launch for Fossil brand and hold back somewhat on pushing sales, while the new operating system from Google is not yet available to us. Later this year we will be relaunching our Gen 6 product line with Google's new Wear 3 operating system. I think it's important to highlight how meaningful of a change this holidays Gen 6 re-launch with this new operating system represents. Currently Google's own app runs our smartwatches and we are unable to access even basic customer information. With this relaunch, however, we will now be taking over the app for all of our smartwatches, which allows us to own the customer data and relationship, build a better product experience and leverage the customer data to drive post purchase cross-sell and up-sell revenue margin. With this launch and then followed by the next generation of smartwatches that we're already innovating on, we're not just launching new devices, rather we are launching a new customer acquisition and engagement business model that we've architected into our unique to the industry smartwatches platform. Our smartwatch business is about to become a critical accelerator of our customer acquisition and CLTV model overall as a company. Every smartwatch we sell in any channel in any country in the world will feed our customer file and create a new direct-to-consumer marketing and commercial channel of customer engagement. As you can tell, we remain excited about the potential of this business and what our teams are accomplishing. We remain patient and working through near-term headwinds and financial results as the technology platform goes through this transition, but are very bullish on the long-term. We have a fashion tech platform that's unique in the industry and we remain well positioned to take advantage of the growth potential in front of us.

Thank you. Shifting gears over to supply chain, a question for Jeff. Can you talk about supply chain impacts and how you teams are navigating those headwinds? This is a multi-dimensional issue for many companies out there that has impacts across material, manufacturing and logistics. What is Fossil seeing here? And then more specifically how do the China lockdowns factor in?

Sure, Christine. As you mentioned supply chains around the globe are being impacted to varying degrees by three primary issues. One, the availability in the cost of raw materials; two, manufacture interruptions and three logistical challenges. On the cost and availability of material side of the equation, our raw material suppliers have been great partners throughout this, we've seen a little interruptions in the flow of components and only modest cost pressure on raw materials at this point in our cycle. The majority of our traditional watch suppliers are located in Southern China in close proximity to Hong Kong. Although there have been COVID-related rolling lockdowns these lockdowns have been of a fairly short duration and have not had a material impact on our raw material availability or on our costs. Our manufacturing partners have also worked extremely hard on managing the flow of product into their operations, as well as holding down their input costs and achieving additional efficiencies. These partners are extremely entrepreneurial and our great at adapting to new operating constraints as they develop. They’ve worked extremely hard at navigating rolling lockdowns with positive outcomes and we greatly appreciate their efforts to support our business. The logistical part of the supply chain equation has been the most challenging. However, we're likely more fortunate than many other companies and that we only ship a limited amount of product out of the Port of Shanghai, which currently has the highest level of congestion and delays in the world. As we've mentioned on past calls, our traditional watch and jewelry categories are shipped mostly out of Hong Kong via air freight, given their small cube size and high average AUR. The air freight rates have increased dramatically, due to the overall global supply chain imbalances. Our traditional watch and jewelry…

Great, thank you so much. Now over the Greg. Kosta spoke to the importance of continued investments in digital marketing. Can you expand on that and discuss how Fossil using data and analytics to drive engagement, lower the cost of customer acquisition and increased lifetime value?

Yes. Thanks, Christine. I'd start by saying that everything we do in the digital e-commerce and marketing space is highly analytic and data-driven and enabled by the best cloud-based customer data and marketing tools in the industry. We've also recently added over 70 people to the digital team that have quickly taken us to another level of capability. There are two areas, I'd highlight where we are making dramatic progress. The first area is customer data acquisition segmentation and targeting, where we are on track for another year of significant increases in our file size as our teams around the world adopt and rally around this new model for driving revenue and margin in our business. At the same time we are nearly finished with the initial release of our new customer data platform, which is greatly enhancing our ability to deliver more relevant and personalized communication, the focus on improving purchase frequency of our most loyal and high customer lifetime value customers. These cloud-based AI-driven tools are game-changers for our team's ability to deliver and scale, highly effective, personalized campaigns to 10s of millions of consumers real time. The second area, we're making dramatic progress is in real time optimization of our marketing spend. Broadly media and customer acquisition costs across the industry are increasing as more companies shift marketing spend to digital and social media. For many companies, we believe this is squeezing ROI on advertising spend, which limits growth online. We've built the team with the right mix of analytics, e-commerce and digital marketing skills and have created agile ways of working that allow them to rapidly test, learn and then scale tactics across audiences and marketing channels. As a result, our teams are actually expanding our customer lifetime value to customer acquisition cost ratio as they deliver CLTV increases that are multiples of what we're seeing in customer acquisition cost inflation. We're really proud of what our teams are accomplishing and look forward to sharing more progress and results with you over the coming quarters.

Great, thank you team for the questions. Now, I'll just turn it back to Kosta to close this out.

Thanks for participating today and we look forward to talking to you on our next call. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.