Good afternoon, ladies and gentlemen, and welcome to the Fossil Group First Quarter 2023 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. 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, 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. 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. Good afternoon, everyone. And Thanks for joining us today. The company executed to plan in the first quarter delivering financial results in line with our expectations. Constant currency net sales declined 11% and currency translation was in line with our expectations we laid out in our last call. Our inventories are in good shape and are down 13% from last year, and we are maintaining our outlook for the rest of the year. Sunil will cover the financials in more detail in a few minutes. While the global operating environment remains choppy, we're seeing cross currents and demand regionally. In Asia, consumer spending appears healthy so far this year overall. In Mainland China traffic and our online channels is picked up quickly. And our wholesale partners are planning for stronger growth this year, as consumer spending and tourism are picking back up. In India, demand remains strong for traditional watches and sell out trends were strong across retail, e-commerce platforms and brick and mortar wholesale. With a generally strong economic backdrop in India and the reopening of Greater China we will be leaning into these businesses during 2023. In the Americas, the consumer is showing some strength but it tends to be directed more to services and to categories outside of our core watch business. Our Q1 sales in the direct to consumer channel were strong. Comps were up double digits with growth in both stores and e-commerce. These DTC comps benefited from our digital investments, particularly in our own e-commerce sites. And our wholesale channel as expected year-over-year declines and shipments continue to lag sell out trends as retailers closely manage their inventory levels and maintain caution on their outlet for consumer spending. In Europe, consumer spending in our primary categories is down and with inflation still…

Thanks, Kosta. And good afternoon, everyone. In the first quarter, our performance came in as expected on revenue, margins and inventory with no significant variations in key themes. The impact of foreign currencies on our P&L in Q1 was also in line with our expectations. Relative to the prior year quarter currencies impacted net sales by 280 basis points, gross margins by 220 basis points and operating margins by 260 basis points. Starting with sales. Global sales and constant currency were down 11%, with the trend in each region playing out as we anticipated. Sales in the Americas and Europe were down 15% and 11% respectively. As we noted on our yearend earnings call the decline in these regions primarily stemmed from wholesale shipping trends. In both regions, shipments into the channel significantly lagged the underlying sell out from our major retail partners. We attribute this pattern primarily to the continued cautious stance that most large retailers have maintained on consumer spending and inventory purchases in discretionary categories, including watches and jewelry. Partially offsetting our wholesale channels declined in these regions we did achieve solid growth in our direct to consumer channels, including double digit comparable retail sales growth. These results reflect strong execution of our digital and store capabilities and some increased promotional activity through these channels as we cleared prior year inventory. Sales in Asia were down 2% versus the prior year quarter. Sales in India grew double digits and missed a favorable consumer spending environment coupled with solid execution in retail and wholesale. In Mainland China, we're beginning to see a comeback. Sales declined 10% a significant improvement from the trends over the past two quarters results significantly outpaced our plans as underlying sell out and direct to consumer and wholesale channels has picked up. Global sales…

Thanks, Sunil. Let me start with Kosta. Can you talk about the major trends you're seeing across your categories on a global basis?

Well, as we mentioned in our remarks, we're seeing many different trends depending on the geography and the category. But overall, the seems to be three big trends out there. The first is just the overall strength of the Swiss watch business globally and especially in the United States. It's great for us to see this much interest in the category because it bodes well for the rest of the watch business. There's obviously a core user out there that loves watches, and the Swiss watch business tends to be mostly men's watches and mostly luxury sport. So we are focusing on the men's sport part of our assortments in order to capture the less affluent, more aspirational customer. The second one is Asia. The resurgence in China and the strength of India also bodes well for the watch business. These are again, traditional core watch customers that aspired on a great watch. The emerging customer loves watches and accessories and the increasing travel is going to spur more growth. We have a great position in these markets when we look forward to long term growth. And the third is the fact that in Europe and Americas our wholesale business is tough and the DTC business is very good. It shows that our marketing and digital programs are working very well and that the customer will respond to great storytelling and compelling product. The strong response to our collaboration tells us that and we are planning to do a lot more of these content driven activations.

Thanks, Kosta. A follow on for you. You mentioned China, could you share more color on how the consumer is rebounding there as we move through 2023? And what are the potential risks to a broad based comeback there?

Well, we're obviously very excited about the consumer rebound we're seeing in China. Like many other companies, we're seeing consumer mobility, retail sales increasing at a quick rate, both online and in bricks and mortar. And we have a very strong experience team in China that drove the business over $200 million before COVID. And now they're focused on getting it back to that level and higher, the potential is definitely there. Our most significant challenge in the second half of this year is going to be our ability to ramp up inventory flow to meet the demand. And we're very focused on doing just that.

Great, thank you. Jeff moving over to you. How are you progressing on the transformation efforts? Can you talk to us about how you're tracking against the $100 million in expense savings under the tag plan? And how should we think about the cadence of those cost reductions in 2023? And then lastly, could you spend some time on specific actions you're taking beyond the workforce reduction and store closures?

Sure, sure, Christine lots and lots of questions in there, but I'll make sure I touch on all of them. First of all, we're progressing really well on all the key elements of our transformation program, Project tag as we refer to it. Very importantly, this program includes several transformation pillars, as well as the growth initiatives that Sunil and Kosta have been talking about. On the transformation side, in addition to improving our store and organizational product activity, we're also heightening our focus on the categories and the brands that can have the most substantial impact on our business, which this really means focusing in on our Fossil corps, Armani, in Diesel businesses in our core watch and jewelry categories. This additional focus is already showing up in the strong first quarter performance of our own brand, and our own Fossil brand as Sunil mentioned. More specifically, we're optimizing our watch jewelry and smartwatches assortments rationalizing our SKU base against those categories as well and aligning our inventory decisions to those higher productivity offerings. Over the longer term, these efforts will improve our sales productivity and gross margin performance. While the wholesale channel in North America and Europe are constraining sales growth in the near term, we are seeing early signs of improved gross margin performance on these lower inventory levels. As Sunil mentioned, we are on track to achieve our target of $100 million in annualized run rate benefit by the end of next year. We're being thoughtful in our reorganization and profitability improvement efforts to ensure that we can importantly strengthen our overall business performance at the same time, we are becoming more efficient. As a result, we expect to see between 50% and 60% of the run rate benefits this year weighted mostly to Q3 and Q4 with the remainder of our efforts on tag analyzing next year.

Got it. Thanks for capturing all of the questions. One more quick follow up for you regarding a specific issue that has challenged a number of retailers. Jeff what is the current supply chain situation at Fossil?

Sure Christine. I mean overall our supply chain actually operate relatively well during the pandemic when a number of other retailers had high periods of disruption particular flow of goods. For us our most significant issue has been increased freight costs rather than lead times. Recall that due to our relatively small cube size and high dollar value, most of our product volume and dollars shipped via air freight with a smaller portion mostly leather goods shipping via ocean containers. Post-pandemic we are seeing lead times shorten and freight costs come down particularly on leathers which again is shipped via ocean, ocean freight. The inbound freight savings both air and ocean freight that we're seeing are one important element that will support our gross margin expansion in the second half of the year and into next year. As we look forward, we'll build on our solid supply chain foundation, with additional work on structural reduction store overall inventory levels in improvement in our turnover performance. The category and brand focus that I mentioned in my tag comments is helping to reduce the level of our unproductive SKUs, thereby improving turns in generating better gross margin performance.

Thank you. Moving over to Sunil. Great to see the reduction in inventory levels in Q1. How should we think about inventory composition and working capital needs as you work down inventory levels throughout the remainder of the year? And how does that correlate to cash flow generation in 2023?

Sure, Christine, I think it's helpful to walk back to the end of last year first. We ended 2022 with elevated inventory levels and heading into 2023 we were planning reductions in inventory in two buckets. First, the more tactically, we immediately reduce the future flow of inventory. And second, we're executing against initiatives that we believe will take us to structurally lower levels. The second step involves initiatives that will span a couple of years. Q1 tells us that we're generally on track as inventory levels were down 13% in cash use improved year-over-year. So this will remain a key focus as we execute our plans in 2023 and in doing so, we would expect to see a working capital benefit and significant improvement in cash from operations for the year. Zooming out a bit the improvement in working capital and cash from operations is very relevant as we think about investing in our near term priorities and tag where our goal is to return to top line growth and better adjusted operating income margins. We think this is the best way to drive shareholder value in the near term. Longer term, of course, this provides an opportunity to evaluate additional pathways to return capital to shareholders.

Great, thank you so much. I'm going to turn it back over to Kosta to close out the call.

Thanks for interest in Fossil and we look forward to speaking with you on our second quarter call in August. Thanks very much.

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