Financial Data and Key Metrics Changes - Q3 net sales increased by 13% to $492 million, or 11% in constant currency [6][24] - Gross margins remained strong at 53%, with adjusted operating margins at 11% [6][23] - Adjusted EBITDA for Q3 was $63 million, with an adjusted EBITDA margin of 12.7% [34] - Diluted net income per share was $0.60, including $0.08 per share in restructuring charges [34] Business Line Data and Key Metrics Changes - Digital sales grew by 28% year-over-year and doubled compared to Q3 2019, representing approximately 40% of overall sales [8][27] - Traditional watch sales increased in the high teens, while connected watch sales contracted due to liquidation sales from prior years [29] - Jewelry category net sales grew by 79% in Q3, accounting for approximately 11% of total sales [29] Market Data and Key Metrics Changes - In the Americas, net sales were up 10% in constant currency, driven by strong consumer demand [24] - EMEA region saw a 21% increase in net sales in constant currency, despite pandemic-related closures [12][25] - Asia's net sales increased by 5% in constant currency, with a notable 95% increase in India, while Mainland China saw a 1% decline [14][26] Company Strategy and Development Direction - The company is focused on a digital-first strategy, enhancing consumer engagement through digital channels and product innovation [7][9] - Plans to leverage the Salesforce platform for all global websites to improve consumer engagement and personalization [9] - The company aims to achieve at least 50% of sales through digital channels over time [42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong topline growth, raising the full-year sales growth outlook to 17% to 19% [21][36] - The company anticipates continued operational improvements and efficiencies to drive profitability [22][51] - Management remains optimistic about long-term growth opportunities in high-growth markets like China and India [15] Other Important Information - The company completed a $150 million senior notes offering to strengthen its financial condition [7][49] - Inventory levels were reported at $398 million, up 11% year-over-year, positioning the company well for the holiday season [35] Q&A Session Summary Question: Outlook on traditional watches versus connected watches - Management noted that traditional watches are healthy and growing, with strong performance across regions, while connected watches are being realigned for better performance [38][40] Question: Digital versus brick-and-mortar sales strategy - The company aims for a sustainable growth story in traditional watches, with digital sales currently at 40% and expected to increase [41][42] Question: Impact of supply chain disruptions - Management acknowledged supply chain challenges but noted that the impact is manageable due to the small size of products and reliance on air shipping [45][46] Question: Details on the bond offering - The $150 million bond offering was aimed at lowering capital costs and increasing financial flexibility [49] Question: Insights on increased guidance and long-term growth - The company expects continued net sales growth and improved operating margins, with a focus on efficiency and cost structure [50][51]

Financial Data and Key Metrics Changes - The company reported net sales of $411 million for Q2 2021, representing a 59% increase compared to the previous year and a 51% increase on a constant currency basis [22] - Adjusted operating income was $21 million, significantly higher than both 2020 and 2019 levels, with adjusted EBITDA at $30 million, or 7% of net sales [21][22] - Gross margin for Q2 was 54%, a decrease of 30 basis points from the previous year, but improved when excluding one-time benefits from the prior year [27] Business Line Data and Key Metrics Changes - Traditional watch sales increased by 50% in constant currency, with strong performance across all regions [26] - Jewelry category sales more than doubled compared to last year and increased by 68% versus 2019, indicating a high-margin growth opportunity [12][41] - Digital sales penetration reached 41%, with a 10% increase compared to 2020 and an 82% increase compared to 2019 [8][24] Market Data and Key Metrics Changes - The Americas region saw a 64% increase in net sales in constant currency, driven by strong growth in the U.S. market [10][22] - In Europe, net sales were up 44% in constant currency, despite ongoing COVID-related restrictions [22] - Asia's net sales increased by 41% in constant currency, led by a 38% growth in Mainland China [23] Company Strategy and Development Direction - The company is focused on digital acceleration, brand heat through product innovation, and operational efficiency initiatives [16][18] - Plans to increase marketing investments in key markets and launch new connected watch products in the second half of the year [18] - The addition of a Chief Digital Officer aims to enhance digital sales and customer data strategy [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth in the U.S. and Asia, particularly in China and India, viewing them as high-growth markets [9][11] - The company raised its full-year net sales growth outlook to 14% to 17% and adjusted EBITDA margin outlook to 6% to 8% [19][32] - Management acknowledged ongoing pandemic challenges but noted strong performance in core markets offsetting these issues [45][48] Other Important Information - The company ended Q2 with total liquidity of approximately $294 million and reduced total inventories by 6% compared to the previous year [31] - The company is planning price increases in its largest product category, watches, to offset cost pressures from shipping and inflation [54] Q&A Session Summary Question: Insights on the traditional watch category and future consumer demand - Management noted increased demand in the U.S. and a strong affinity for watches in Asia, particularly China, which saw an 81% increase over 2019 [35][36] Question: Demand signals across channels and expectations for the second half - Management highlighted broad-based strength in traditional watches across channels and emphasized the importance of innovation and storytelling in driving sales [38][40] Question: Sales and EBITDA guidance details - Management explained that Q1 and Q2 exceeded expectations, leading to an improved outlook for the remainder of the year [45][48] Question: Impact of shipping and wage inflation on operations - Management reported minor shipping disruptions but noted that most products are shipped via air freight, minimizing impact [52][53]

Fossil Group, Inc. (NASDAQ:FOSL) Q1 2021 Earnings Conference Call May 12, 2021 5:00 PM ET Company Participants Christine Greany - IR Kosta Kartsotis - Chairman and CEO Sunil Doshi - Chief Financial Officer Jeff Boyer - Chief Operating Officer Greg McKelvey - EVP and Chief Commercial Officer Operator Good afternoon, ladies and gentlemen. Welcome to the Fossil Group First Quarter 2021 Earnings Call. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part wi ...

PART I [Business Overview](index=5&type=section&id=Item%201.%20Business) Fossil Group, Inc. is a global design and distribution company specializing in fashion accessories, with watches as its core business and a focus on digital sales growth and operational optimization - Fossil Group, Inc. is a design, innovation and distribution company specializing in consumer fashion accessories, including traditional watches, smartwatches, jewelry, handbags, small leather goods, belts and sunglasses[19](index=19&type=chunk) - The company operates under owned brands (**FOSSIL, SKAGEN, MICHELE, RELIC, ZODIAC**) and licensed brands (**ARMANI EXCHANGE, DIESEL, DKNY, EMPORIO ARMANI, KATE SPADE NEW YORK, MICHAEL KORS, PUMA, TORY BURCH**)[19](index=19&type=chunk) - Business is managed primarily on a geographic basis: Americas, Europe, and Asia, each including wholesale, distributor, retail, and e-commerce sales[20](index=20&type=chunk) Net Sales Breakdown by Brand Type (in millions, except percentage data) | Category | 2020 Dollars | 2020 % Change | 2019 Dollars | 2019 % Change | 2018 Dollars | | :--------- | :----------- | :------------ | :----------- | :------------ | :----------- | | Proprietary | $774.2 | (29.8)% | $1,103.4 | (12.6)% | $1,262.1 | | Licensed | $763.5 | (24.7)% | $1,013.7 | (14.4)% | $1,183.7 | | Other | $75.6 | (24.9)% | $100.6 | 5.1% | $95.7 | | **Total** | **$1,613.3** | **(27.3)%** | **$2,217.7** | **(12.7)%** | **$2,541.5** | - Watches (traditional and smartwatches) are the core global business, accounting for approximately **80.6% of consolidated net sales** in fiscal year 2020[27](index=27&type=chunk) - Digital sales comprised **38.8% of consolidated net sales** in fiscal year 2020, a significant increase from **20.1%** in fiscal year 2019[45](index=45&type=chunk) - Strategic priorities include increasing brand excitement, accelerating digital capabilities, expanding in mainland China and India, and optimizing operations through initiatives like 'Make Time for Good' (ESG) and the NWF 2.0 restructuring program[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - As of January 2, 2021, the company employed approximately **7,500 persons globally**, with **65% women** and **35% men**. In the U.S., **60% of employees are BIPOC**[65](index=65&type=chunk)[69](index=69&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, evolving fashion and technology trends, reliance on license agreements, intense competition, substantial indebtedness, and trade tariffs - The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the company's business, operations, liquidity, financial condition, and results of operations, including store closures, reduced traffic, and supply chain disruptions[85](index=85&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - The company's success depends on its ability to anticipate and respond to changing fashion, functionality, and product trends, especially in the wearable technology market, and to reverse negative sales trends[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[94](index=94&type=chunk) - Sales of licensed products accounted for approximately **47.3% of consolidated net sales** for fiscal year 2020. The loss or non-renewal of significant multi-year, worldwide exclusive license agreements (expiring between 2023 and 2028) could result in a significant decrease in sales[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - The license for Google's WEAR OS operating system, used in full display smartwatches (approximately **12.4% of FY2020 consolidated net sales**), expires on April 27, 2022. Failure to renew could significantly decrease sales[99](index=99&type=chunk) - Global comparable retail store sales decreased **25.5%** in fiscal year 2020, and the company anticipates closing approximately **65 to 75 stores globally** in fiscal year 2021[100](index=100&type=chunk)[261](index=261&type=chunk) - The company faces intense competition from traditional competitors and new competitors in the wearable technology category, including technology brands like Apple and Samsung, and fitness brands like Fitbit[56](index=56&type=chunk)[116](index=116&type=chunk) - As of January 2, 2021, the company had **$152.0 million outstanding** under the Term Credit Agreement and **$98.3 million** under the Revolving Facility, with covenants that restrict business operations and require sufficient cash flow for debt service[145](index=145&type=chunk)[296](index=296&type=chunk) - Estimated gross profit exposure from Section 301 tariffs on imports from China is approximately **$15.0 million** in fiscal year 2021[178](index=178&type=chunk) [Unresolved Staff Comments](index=33&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments exist - None[198](index=198&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) The company owns or leases significant global facilities for offices, warehouses, and distribution, including major hubs in Texas, Germany, and Hong Kong, and operates 415 retail store leases Major Company Facilities (as of FY2020) | Location | Use | Approximate Square Footage | Ownership/Lease Expiration | | :------------------ | :-------------------------------- | :------------------------- | :------------------------- | | Eggstätt, Germany | Office, warehouse and distribution | 383,000 | Owned | | Richardson, Texas | Corporate headquarters | 536,000 | Lease expiring in 2031 | | Dallas, Texas | Office, warehouse and distribution | 518,000 | Lease expiring in 2026 | | Hong Kong | Warehouse and distribution | 205,000 | Lease expiring in 2023 | | Basel, Switzerland | Europe headquarters | 140,000 | Lease expiring in 2036 | | Shenzhen, China | Manufacturing | 110,000 | Lease expiring in 2021 | - As of the end of fiscal year 2020, the company had **415 lease agreements** for retail space, with leases expiring at various times through 2030[199](index=199&type=chunk) [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings but does not anticipate any material adverse effects on its business or financial condition - The company does not believe that the outcome of any currently pending legal matters, individually or collectively, will have a material effect on the business or financial condition[201](index=201&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[203](index=203&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Fossil Group's common stock is listed on NASDAQ under 'FOSL,' with no dividends paid or intended, and a significant decline in stock performance over five years - Common stock is listed on the NASDAQ Global Select Market under the symbol "**FOSL**"[3](index=3&type=chunk)[206](index=206&type=chunk) - As of March 5, 2021, **51,525,632 shares of common stock** were outstanding[7](index=7&type=chunk) - The company has not declared or paid any dividends since its formation and currently does not intend to pay dividends for the foreseeable future, with a business plan to retain future earnings to finance growth[207](index=207&type=chunk) 2020 Comparative Total Returns (Performance Results through 12/31/2020, $100 invested at 12/31/2015) | Index | 12/31/2015 | 12/31/2020 | | :------------------ | :--------- | :--------- | | Fossil Group, Inc. | $100.00 | $23.71 | | S&P 500 Index | $100.00 | $183.77 | | NASDAQ Retail Trades | $100.00 | $241.62 | - A common stock repurchase program approved in August 2010 has **$30.0 million of authorization remaining** as of January 2, 2021. No shares were repurchased under this program during fiscal years 2020, 2019, or 2018[212](index=212&type=chunk)[213](index=213&type=chunk) [Selected Financial Data](index=38&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key consolidated financial data, highlighting significant declines in net sales, gross profit, and a shift to operating and net losses, particularly in fiscal year 2020 Selected Financial Data (in thousands, except per share data) | Fiscal Year | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | :--------- | | Net sales | $1,613,343 | $2,217,712 | $2,541,488 | $2,788,163 | $3,042,371 | | Gross profit | $770,356 | $1,099,438 | $1,340,137 | $1,358,839 | $1,578,186 | | Operating income (loss) | $(135,319) | $(28,383) | $62,711 | $(424,276) | $127,146 | | Net income (loss) attributable to Fossil Group, Inc. | $(96,095) | $(52,365) | $(3,478) | $(478,172) | $78,868 | | Basic EPS | $(1.88) | $(1.04) | $(0.07) | $(9.87) | $1.64 | | Diluted EPS | $(1.88) | $(1.04) | $(0.07) | $(9.87) | $1.63 | | Working capital | $431,949 | $500,278 | $652,766 | $781,900 | $932,705 | | Total assets | $1,478,505 | $1,604,732 | $1,575,198 | $1,658,372 | $2,186,897 | | Total long-term liabilities | $479,947 | $541,711 | $380,764 | $568,337 | $756,874 | | Stockholders' equity attributable to Fossil Group, Inc. | $439,090 | $503,054 | $585,543 | $576,133 | $1,006,236 | | Return on average stockholders' equity attributable to Fossil Group, Inc. | (22.1)% | (9.8)% | (0.6)% | (62.3)% | 8.2% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details Fossil Group's business, product offerings, global distribution, and strategic initiatives, analyzing the significant declines in net sales and gross profit for FY2020, alongside critical accounting policies - Fossil Group is a global design, marketing, and distribution company specializing in consumer fashion accessories, with a diverse portfolio of owned and licensed brand names[217](index=217&type=chunk) - Approximately **43% of global watch production** in fiscal year 2020 was assembled or sourced through wholly or majority-owned factories, enhancing communication, quality, and supply chain speed[219](index=219&type=chunk) Net Sales by Geographic Segment (FY2020) | Segment | Percentage of Consolidated Revenue | | :-------- | :--------------------------------- | | Americas | 39.8% | | Europe | 32.4% | | Asia | 26.9% | - Gross profit margins are influenced by product mix (fashion branded watches and jewelry generally higher than leather goods; connected products lower than traditional), brand price points, and geographic mix (Europe and Asia historically higher than Americas)[224](index=224&type=chunk)[225](index=225&type=chunk) - The COVID-19 pandemic materially impacted fiscal year 2020 operations and financial performance, leading to disruptions in consumer spending patterns and traffic in traditional brick-and-mortar shopping centers[228](index=228&type=chunk) - Key strategic initiatives include increasing brand excitement, accelerating digital sales, expanding opportunities in mainland China and India, and optimizing operations through the NWF 2.0 restructuring program[229](index=229&type=chunk) - The NWF 2.0 program's goal was increased from **$200 million to $250 million** in run-rate savings due to COVID-19, with approximately **$175 million achieved** in fiscal year 2020 and completion expected in 2021[229](index=229&type=chunk) Consolidated Financial Performance (FY2020 vs. FY2019) | Metric | FY2020 | FY2019 | Change (Reported) | Change (Constant Currency) | | :-------------------- | :--------- | :--------- | :------------------------ | :------------------------- | | Net Sales | $1,613.3M | $2,217.7M | (27.3)% | (27.6)% | | Net Loss | $(96.1)M | $(52.4)M | (83.5)% | N/A | | Gross Profit | $770.4M | $1,099.4M | (29.9)% | N/A | | Gross Profit Margin | 47.7% | 49.6% | (1.9) ppts | N/A | | Operating Loss | $(135.3)M | $(28.4)M | (376.4)% | N/A | | Operating Margin | (8.4)% | (1.3)% | (7.1) ppts | N/A | Product Net Sales Changes (FY2020 vs FY2019, in millions) | Product Category | 2020 Sales | % Change (Reported) | % Change (Constant Currency) | | :--------------- | :--------- | :------------------ | :--------------------------- | | Watches | $1,299.8 | (27.9)% | (28.2)% | | Leathers | $173.6 | (27.2)% | (27.6)% | | Jewelry | $102.9 | (16.5)% | (18.1)% | | Other | $37.0 | (30.7)% | (31.3)% | Geographic Net Sales Changes (FY2020 vs FY2019, in millions) | Segment | 2020 Sales | % Change (Reported) | % Change (Constant Currency) | | :-------- | :--------- | :------------------ | :--------------------------- | | Americas | $642.2 | (32.4)% | (32.1)% | | Europe | $522.4 | (27.0)% | (28.6)% | | Asia | $434.3 | (18.8)% | (18.7)% | | Corporate | $14.4 | (15.8)% | (17.0)% | - The number of stores decreased from **451** at the end of fiscal year 2019 to **421** at the end of fiscal year 2020. The company anticipates closing approximately **65 to 75 stores globally** in fiscal year 2021[260](index=260&type=chunk)[261](index=261&type=chunk) - A **$76.0 million income tax benefit** was recorded in fiscal year 2020 (**44.2% effective tax rate**), primarily due to the CARES Act allowing net operating loss carrybacks, resulting in **$37.7 million short-term** and **$52.3 million long-term tax receivables**[269](index=269&type=chunk) - Critical accounting policies include product returns, inventory valuation (lower of cost and net realizable value), impairment of trade names (**MICHELE impaired by $2.5 million in FY2020, SKAGEN by $16.6 million in FY2019**), property, plant and equipment and lease impairment, income taxes (valuation allowances, GILTI), and warranty costs[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk)[238](index=238&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to foreign currency exchange rate risk, primarily with the euro, and interest rate risk from variable-rate debt, using forward contracts to hedge currency exposure - The most significant foreign currency risk relates to the euro, and to a lesser extent, other major global currencies, impacting intercompany inventory transactions[306](index=306&type=chunk) - The company uses forward contracts, generally for up to **85% of forecasted purchases**, to manage fluctuations in global currencies for U.S. dollar denominated inventory purchases[307](index=307&type=chunk) - As of January 2, 2021, a **10% unfavorable change** in the U.S. dollar strengthening against foreign currencies would decrease net pre-tax income by **$17.6 million** and reduce consolidated stockholders' equity by approximately **$43.3 million**[309](index=309&type=chunk) - Based on variable-rate debt outstanding as of January 2, 2021, a **100 basis point increase** in interest rates would increase annual interest expense by approximately **$2.5 million**[310](index=310&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, including balance sheets, income statements, cash flows, and notes, with an unqualified opinion from Deloitte & Touche LLP - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for the period ended January 2, 2021[312](index=312&type=chunk)[313](index=313&type=chunk) - Inventory valuation was identified as a critical audit matter due to significant judgments made by management in estimating future demand, market conditions, and available liquidation channels[318](index=318&type=chunk)[319](index=319&type=chunk) - The company's significant accounting policies cover areas such as use of estimates, concentration of risk, cash equivalents, restricted cash, accounts receivable, inventories, investments, leases, property, plant and equipment, intangible assets, accrued expenses, other long-term liabilities, cumulative translation adjustment, foreign transaction gains and losses, revenue recognition, cost of sales, operating expenses, advertising costs, warranty costs, research and development costs, noncontrolling interest, other comprehensive income (loss), earnings per share, and income taxes[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk)[348](index=348&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[372](index=372&type=chunk) - Recently adopted accounting standards (ASU 2018-15, ASU 2018-14, ASU 2018-13, ASU 2016-13) at the beginning of fiscal year 2020 did not have a material effect on the consolidated financial statements[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[382](index=382&type=chunk) Disaggregation of Revenue by Product Type and Geographic Segment (FY2020, in thousands) | Product Type | Americas | Europe | Asia | Corporate | Total | | :----------- | :------- | :----- | :--- | :-------- | :---- | | Watches | $507,278 | $404,520 | $388,004 | $44 | $1,299,846 | | Leathers | $104,621 | $36,570 | $32,430 | — | $173,621 | | Jewelry | $23,959 | $71,209 | $7,749 | — | $102,917 | | Other | $6,355 | $10,065 | $6,168 | $14,371 | $36,959 | | **Consolidated** | **$642,213** | **$522,364** | **$434,351** | **$14,415** | **$1,613,343** | Debt Outstanding (as of January 2, 2021, in millions) | Type | Amount | | :---------------- | :----- | | Revolving facility | $98.3 | | U.S. term loan | $152.0 | | Other international | $0.5 | | **Total Debt** | **$250.8** | NWF 2.0 Restructuring Charges by Operating Segment (in thousands) | Segment | 2020 | 2019 | | :-------- | :----- | :----- | | Americas | $4,969 | $2,048 | | Europe | $12,630 | $9,333 | | Asia | $8,823 | $773 | | Corporate | $10,086 | $6,677 | | **Consolidated** | **$36,508** | **$18,831** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=92&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure occurred - None[542](index=542&type=chunk) [Controls and Procedures](index=92&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of January 2, 2021, with an unqualified attestation report from Deloitte & Touche LLP - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of January 2, 2021[544](index=544&type=chunk) - Management assessed and concluded that the company maintained effective internal control over financial reporting as of January 2, 2021, based on the COSO framework[547](index=547&type=chunk) - Deloitte & Touche LLP issued an unqualified attestation report on the company's internal control over financial reporting[548](index=548&type=chunk)[552](index=552&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended January 2, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[549](index=549&type=chunk) [Other Information](index=94&type=section&id=Item%209B.%20Other%20Information) No other information is reported under this item - None[559](index=559&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=94&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, corporate governance, and the company's Code of Conduct and Ethics is incorporated by reference from the proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the proxy statement[561](index=561&type=chunk) - The company has adopted a Code of Conduct and Ethics that applies to all directors and employees, including the principal executive officer, principal financial officer, and principal accounting officer[562](index=562&type=chunk) [Executive Compensation](index=94&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the proxy statement - Information regarding executive compensation is incorporated by reference from the proxy statement[563](index=563&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=94&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the proxy statement - Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the proxy statement[564](index=564&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=94&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the proxy statement - Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the proxy statement[565](index=565&type=chunk) [Principal Accountant Fees and Services](index=94&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the proxy statement[566](index=566&type=chunk) PART IV [Exhibits and Consolidated Financial Statement Schedules](index=95&type=section&id=Item%2015.%20Exhibits%20and%20Consolidated%20Financial%20Statement%20Schedules) This section lists the Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements and Notes, and various exhibits required by Item 601 of Regulation S-K - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[570](index=570&type=chunk) - Various exhibits required by Item 601 of Regulation S-K are listed, including organizational documents, credit agreements, and certifications[580](index=580&type=chunk)[581](index=581&type=chunk)

Financial Data and Key Metrics Changes - In Q3 2020, the company achieved net sales of $435 million, a decline of 19% year-over-year, but exceeded expectations due to strong performance in e-commerce channels and growth in Mainland China [9][27] - Adjusted EBITDA increased by 7% to $44 million compared to the previous year, while operating income improved to $18 million from a loss of $9 million in Q3 2019 [9][34] - Gross margin expanded by 120 basis points to 52.8%, driven by favorable channel mix and fewer markdowns [31] Business Line Data and Key Metrics Changes - Direct-to-consumer e-commerce sales grew by 66%, while global comparable sales decreased by 29% [28][29] - Total watch sales declined by 21%, with traditional watches down 24% and connected watches down 5% [30] - The connected watch category represented 19% of total watch sales in the quarter [30] Market Data and Key Metrics Changes - Sales in Mainland China increased by 55%, contributing over 40% of Asia region sales, with e-commerce in China expanding by 90% [11][28] - The Americas region saw a sales contraction of approximately 20%, while Europe experienced a decline of about 15% [28] Company Strategy and Development Direction - The company is focusing on four strategic priorities: storytelling and innovation, commercial transformation, expanding opportunities in China and India, and the New World Fossil initiative [15][20][21] - The introduction of new products, including the Gen 5E smartwatch and expanded Hybrid HR offerings, is aimed at meeting consumer demand [17][18] - The company is leveraging digital capabilities and e-commerce growth to enhance profitability and expand market presence [19][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for the holiday season, citing strong product innovation and a robust digital presence [23][42] - The company anticipates a decline in Q4 net sales of 30% to 40% compared to the previous year due to ongoing pandemic-related challenges [36] - Despite uncertainties, management maintains a positive outlook for the total addressable watch market and plans for top-line growth in 2021 [24][36] Other Important Information - The company ended Q3 with total liquidity of $356 million, consisting of $324 million in cash and cash equivalents [35] - Inventory levels decreased by 37% year-over-year, reflecting the clearance of Gen 4 connected watch inventory [35] Q&A Session Summary Question: How does the company feel about its positioning for the holiday season? - Management believes the company is well-positioned with strong product offerings across various brands, including traditional watches and smartwatches, which are expected to perform well during the holiday season [38][39] Question: What is the outlook for cash and liquidity in the fourth quarter and early next year? - The company expects to maintain a stable liquidity position, with solid operating cash flow in Q4, and adequate liquidity throughout next year despite some structural changes [43][45] Question: Can you elaborate on the digital growth strategy? - The company has developed a three-pillar digital growth strategy focusing on e-commerce migration, partnerships with major third-party marketplaces, and advanced digital marketing capabilities to enhance customer acquisition and lifetime value [46][49][51]

Use these links to rapidly review the document TABLE OF CONTENTS PART IV Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 28, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-19848 FOSSIL GROUP, INC. (Exact name of regi ...

Financial Data and Key Metrics Changes - Q4 sales were $712 million, down 10% year-over-year and 9% in constant currency, primarily due to challenges in U.S. wholesale and older generation connected product performance [29][30] - Gross margin for Q4 was 43.3%, reflecting a decline of 970 basis points from the previous year, with a significant portion attributed to a $38 million inventory write-down [32][34] - The company reported a net loss of $0.14 per diluted share for Q4, compared to an EPS of $0.94 in the prior year [34] Business Line Data and Key Metrics Changes - Watches category sales declined 8% in constant currency, with traditional watch sales down low single digits and connected watch sales decreasing double digits [32] - The direct-to-consumer business saw retail comp sales decrease by 3%, with full-price comps down high single digits [31] Market Data and Key Metrics Changes - Asia delivered double-digit growth, with mainland China growing 61% and India growing 10%, while the Americas experienced a 16% sales decline [30][11] - E-commerce marketplaces in the U.S. partially offset declines in traditional wholesale channels [30] Company Strategy and Development Direction - The company is focusing on four strategic priorities for 2020: exceptional storytelling and innovation, driving commercial transformation, expanding opportunities in China and India, and implementing New World Fossil 2.0 [20][23][24] - The company plans to pivot its model by deploying resources to direct channels, accelerating connected product offerings, and strengthening operations to build scale [17][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the traditional wholesale channel and emphasized the need to optimize the cost structure while focusing on growth areas [25][36] - The company expects full-year sales to decline between 11.5% and 4.5%, with continued double-digit growth anticipated in Asia and modest growth in the direct-to-consumer channel [36][37] Other Important Information - The company ended 2019 with $200 million in cash and cash equivalents and virtually no net debt, maintaining a low net leverage ratio of 0.8x [35] - The company is prioritizing production for key products and expects factories in China to be at full speed by the end of March [62] Q&A Session Summary Question: What is the outlook for Asia in Q1 given the virus headwinds? - Management expects the APAC region to be down low double digits overall due to the impact of the virus [44] Question: What is the outlook for wearables in Q1 and throughout the year? - The company anticipates a decline in wearables for the full year, with a focus on key brands and distribution rationalization [45] Question: Can you provide details on the wholesale channel and product assortment changes? - Management expects trends in the wholesale channel to continue, with significant challenges in the Americas and modest contractions in AMEA [58] Question: What is the status of factories and component parts in light of the coronavirus? - Factories are coming back online, with an estimated capacity of about 50%, expected to reach full speed by the end of March [62]

Financial Data and Key Metrics Changes - Third quarter sales decreased 11% to $539 million, with a 10% decline in constant currency [22] - Gross margin decreased by 200 basis points to 51.6%, impacted by inventory obsolescence reserves and higher inventory costs [29] - Net loss reported at $0.51 per diluted share, including restructuring and impairment charges [34] Business Line Data and Key Metrics Changes - Connected watch sales represented $71 million or 16% of total watch sales, declining double digits due to reduced liquidation levels [28] - Traditional watch sales improved sequentially, with a low-single digit decline compared to previous quarters [27] - Direct-to-consumer retail comp sales decreased 2%, with e-commerce comps up double digits internationally [25] Market Data and Key Metrics Changes - Sales in Asia grew 9%, driven by strong performance in mainland China and India, while the Americas and EMEA regions saw double-digit declines [23][24] - Overall sales in the Americas declined 18%, primarily due to wholesale and off-price channels [24] - Europe experienced a 16% decline in sales, driven by the wholesale channel [24] Company Strategy and Development Direction - The company is focusing on emerging markets, direct channels, and connected watches to change the sales trajectory [20] - Investments in e-commerce and direct-to-consumer initiatives are expected to drive future growth [10][20] - The company aims to leverage partnerships with Google and Qualcomm to enhance connected watch offerings [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging consumer environment in the mid-priced fashion watch category, particularly in developed markets [8] - There is a cautious outlook for Q4, with lowered sales expectations due to ongoing challenges in the wholesale channel [19] - Management remains optimistic about long-term growth opportunities in emerging markets and digital channels [20] Other Important Information - The company has closed 44 stores since the third quarter of last year, ending with 454 stores [26] - Inventory increased by 9% in the quarter, attributed to lower sales levels [36] - The company has improved its net debt position by over $40 million, with debt levels down to $264 million [37] Q&A Session Summary Question: Trajectory of smartwatches and implications of Google acquisition - Management expressed optimism about Gen 5 smartwatch performance but noted a slowdown in older models, planning to adjust pricing strategies [50] - The acquisition of Fitbit by Google is seen as a positive development for the wearable category, enhancing product offerings [54] Question: Performance of Michael Kors brand - The Michael Kors business has been declining, but there are efforts to introduce new ideas and innovations to drive growth, especially in Asia [56] Question: Inventory of older generation watches - Management indicated that inventory levels are manageable, with minor promotional pressure expected as older models are sold through [59] Question: Wholesale channel performance - The wholesale channel is facing challenges, particularly in the Americas, but there are productive conversations with partners to improve performance [61] Question: Clarification on Q4 guidance and tariff impacts - Management provided insights on the expected $10 million impact from tariffs in Q4 and a projected $5 million to $10 million impact for 2020, with plans to mitigate future tariff effects [66]

Financial Data and Key Metrics Changes - In Q2 2019, the company reported a net loss of $7 million, an improvement from a net loss of $8 million in the same quarter last year, with a reported loss of $0.15 per diluted share [24][25] - Sales decreased 13% to $501 million, with a constant currency decrease of 11%, showing a sequential improvement of four percentage points from Q1 [25][26] - Gross profit decreased to $265 million, and gross margin decreased by 70 basis points to 52.9%, primarily due to unfavorable currency impacts [33] Business Line Data and Key Metrics Changes - The watch business declined 8% in constant currency, with traditional watch sales improving from a double-digit decline to a high-single-digit decline [29] - Connected watch sales represented 21% of total watch sales for the quarter, with sales of newer generation connected display products increasing over 20% [29][30] - Direct business continued to contract, improving to a moderate single-digit decline compared to a double-digit decline in Q1 [28] Market Data and Key Metrics Changes - In the Americas, Q2 sales decreased 20% to $223 million, improving from a 24% decrease in Q1 [30] - In Europe, reported sales decreased 16% to $147 million, with a constant dollar decline of 12%, showing improvement from a 19% decrease in Q1 [31] - Asia reported a sales increase of 4% on $126 million, with underlying core sales in Asia growing low double digits [32] Company Strategy and Development Direction - The company is focused on improving profitability, driving product innovation, maximizing top-line growth, and transforming its business model [12][19] - The New World Fossil program aims to deliver $200 million of run rate profitability improvements over three years, with a focus on digital marketing capabilities and product innovation [18][19] - The company is investing in direct-to-consumer (DTC) and digital capabilities while streamlining its model to react more quickly to trends [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that while sales trends remain challenging, there are underlying positive signs in parts of the business [9] - The company expects sales trends to materially improve in the second half of the year, driven by positive sales trends in Asia and strong growth in display watches [46] - Management remains focused on transforming the company to unlock significant potential for future growth [21] Other Important Information - The company has closed 51 stores since the second quarter of last year, ending the quarter with 456 stores [28] - The estimated gross exposure from a potential 10% tariff is approximately $5 million to $10 million, primarily impacting smartwatches [43] Q&A Session Summary Question: Transition from old parts to new product in smartwatches - Management highlighted the focus on customer experience and innovation in the new Gen 5 smartwatch, with strong initial sales and positive consumer response [51][53] Question: Stabilization of the traditional watch business - Management noted improvements in Asia and ongoing efforts to innovate and introduce new products, with expectations for future growth despite current challenges in the U.S. market [55][56] Question: Outlook for the wearables business and Michael Kors performance - Management maintained a modest growth forecast for the wearables business, with challenges in the Michael Kors watch brand due to a cooling women's fashion market [60][62]

Use these links to rapidly review the document TABLE OF CONTENTS PART IV Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 29, 2018 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-19848 FOSSIL GROUP, INC. (Exact name of regi ...