Fossil Group(US:FOSL)2019-11-07 03:56Financial 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]