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Fossil Group, Inc. (NASDAQ:FOSL) Q1 2024 Earnings Call Transcript

Fossil Group, Inc. (NASDAQ:FOSL) Q1 2024 Earnings Call Transcript May 8, 2024

Fossil Group, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group First Quarter 2024 Earnings Call. At this time, all parties are in a 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 to begin.

Christine Greany: Hello, everyone, and thank you for joining us. With us today on the call Jeff Boyer, Interim CEO; and 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 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, 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.

A model sporting a traditional watch, highlighting the timeless elegance of the company's watch collections.
A model sporting a traditional watch, highlighting the timeless elegance of the company's watch collections.

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 over to Jeff to begin.

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Jeff Boyer: Good afternoon, everyone, and thank you for joining us. As we reported earlier today, we delivered first quarter net sales and operating margin in line with our expectations. As we continue to navigate challenging top line trends, our ability to drive gross margin expansion and reduced costs, enabled us to narrow our operating loss and improve our free cash flow from a year ago. Benefits from our Transform & Grow Plan are at the core of our improved gross margin and our reduction in operating costs, execution of the broad-based program, which spans seven work streams started in 2023. P&L benefits were realized starting last year and are expected to accelerate meaningfully in '24 and carry into '25. About half of the work streams in TAG are designed to structurally improve our gross margins.

First quarter gross margin was up 300 basis points versus last year and reflects benefits from the exit of our smartwatch category improved product margins in our core categories and lower freight costs. Our work streams on product sourcing and supply chain are expected to generate benefits in the latter part of 2024, enabling us to deliver year-over-year improvement in gross margin. Importantly, our TAG initiatives have us on track to historical gross margin levels in the mid-50s over the next two years. The balance of our TAG work streams are focused on taking costs out of our expense structure with the goal of: a, recalibrating our operating model for greater efficiency and lower fixed costs; b, driving savings in our procurement practices; and c, optimizing our direct channel operating costs.

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