Fossil Group, Inc. Annual Report 2015

FY2015 Annual Report · Fossil Group, Inc.

Loading PDF…

LETTER TO STOCKHOLDERS

—

Dear Stockholders,

Fossil Group’s 2015 proved to be a year of both significant challenges and accomplishments. While various
headwinds impacted our business and resulted in disappointing operating results, we remained focused on our
strategic priorities to strengthen our leadership position in our core business and to extend that leadership
further through our investments in wearable technology.

We repositioned the company with the

Advancing CRM Initiatives

Our investments and efforts in this

necessary platform to accelerate sales

and profitability in the future and made

significant progress against our goals.

Our team’s dedication, resiliency and

ability to remain nimble in a quickly

changing environment, combined with

the strategic actions taken over the past

year, have positioned us to improve our

performance in the future. During the

year, we restructured our operations and

teams to compete in a rapidly evolving

retail environment and we look forward to

building on those actions in 2016.

Disruption in the marketplace brings

opportunities to take advantage of growth

and changing trends. While we have

a successful track record of delivering

strong revenue and earnings growth,

our performance in 2015 was below our

expectations and more importantly, below

where we see the potential of our company.

To reach that potential, we have refocused

our efforts on design and innovation and,

given the progress made on our strategic

priorities, believe we have positioned the

company for strong growth.

STRATEGIC PRIORITIES

Investing In Fossil And Skagen

In an effort to better understand our

customer and their shopping patterns and

preferences, we completed development

of a global customer database to run

targeted CRM campaigns with a focus

on understanding the digital and social

activity of our customers. We believe

creating a deeper connection with our

customers and providing an opportunity

for continued dialogue facilitates repeat

customer visits and drives additional

sales. The insights gained through this

process will enable us to create new social

activation programs and in-store events

aimed at driving traffic to our websites

and our stores. We will continue to invest

in these initiatives based on the initial

success we have seen and believe these

efforts will prove crucial as consumer

shopping patterns continue to evolve.

area have so far proved successful,

driving double digit growth across our

e-commerce channel in 2015.

Extending Category Leadership

We continue to work toward extending

our leadership position in the traditional

watch market by enhancing our

portfolio of lifestyle brands. This past

year proved to be a challenging year

for the traditional watch category with

technology and new functionality

taking mind-share and impacting

customer purchases. However, we

continue to see growth in the category

for the coming years, and we believe our

portfolio of highly desirable lifestyle

brands will enable us to continue to

take share in the space. In 2015, we

added two new brands to our portfolio:

kate spade new york and Chaps. These

Investing In Digital Capabilities

new brands complement the existing

We are focused on investing in our

digital capabilities to improve the online

experience for the customer and increase

our omni-channel capabilities. In 2015, we

re-launched the Fossil website and expect

it to be a key component in advancing

our omni-channel capabilities, providing

us the opportunity to further develop

brands in the portfolio and represent

new opportunities across price points

and distribution channels. In addition,

our teams have been designing and

producing new styles to take advantage

of our global distribution network in

2016.

Innovation and design are key elements

to driving growth, and our team is

focused on elevating our platform of

brands with new designs, materials

and functionality. We will capitalize on

what is trending in our space in an effort

to accelerate growth in the traditional

watch category.

Throughout our history, we have

the customer’s relationship with the

successfully leveraged our strategic and

brand. With the updated website, we

competitive advantages to become the

have given our customers an improved

licensee of choice in the traditional watch

shopping experience, added compelling

space. While we will continue to play

brand content and stories, and carried

that role, we believe the long-term value

these capabilities across an upgraded

for Fossil Group is to be a strong lifestyle

mobile platform. All of this functionality

brand builder and leverage that strength

is supported by a world-class content

to grow our licensed brands. In 2015, we

management system, which enables us

invested in brand building and demand

to update our branded experiences more

Connected Accessories And

creation activities for our owned brands

efficiently and scale globally, as we grow

Wearable Technology

and on a comparable basis to 2014, drove 4%

our international e-commerce business.

growth in Fossil and 15% growth in Skagen.

We are very focused on building our

presence in the connected accessories

space. With consumer interest driving

the trend and our retail partners seeking to

weakening currencies globally, we delivered

add more technology-infused product to their

sales of roughly $3.2 billion and EPS of

assortments, we are putting resources behind

$4.51. Additionally, we returned value to our

this initiative in a very meaningful way. We

shareholders—repurchasing $229 million of

spent 2015 designing, developing, producing

stock or just under three million shares.

and launching the Fossil Q assortment,

bringing fashion to technology and filling a

void within the wearable technology space.

We believe technology has the ability to be the

next catalyst in the accessories space, and we

are positioning ourselves to take advantage

of this very exciting trend. In addition to

launching the Fossil Q product line, we

made a significant investment in wearable

technology with the acquisition of Misfit, Inc.

By leveraging their scalable cloud and app

platform and talented engineering team, we

will develop cutting-edge technology-infused

products and provide a unique branded

experience for our portfolio of brands.

We find ourselves at the epicenter of the

convergence of fashion and technology. Our

branding and design capabilities combined

with our production and global distribution

network have enabled us to become a category

leader in traditional watches. Now, combined

with our efforts this past year in launching

Fossil Q and acquiring Misfit, we have

In this rapidly changing world, we are very

excited about the opportunities for Fossil

Group. We remain very optimistic about the

future, confident in our long-term strategies

and look forward to building on the progress

we made this past year against our strategic

priorities. As 2015 resulted in our first EPS

decline in a decade, we recognize this past

year was a difficult year for our shareholders,

but we appreciate your support and the long-

term horizon with which you invest.

We believe 2016 will be a transformative year

in further advancing our wearables initiative,

unlocking the potential of Misfit and applying

increased functionality and a robust platform

across our portfolio of brands.

We also believe that our many growth

opportunities, combined with our diversified

business model, solid financial position and

cash flow generation, set us up to win over the

long-term and drive value for our shareholders.

differentiated ourselves from our peers and

We look forward to building on our initiatives

further enhanced our competitive advantages.

in 2016 and would like to thank our

The strategic acquisition of Misfit accelerates

our ability to become a force in the wearable

technology space and enables a consistent

flow of new products with technology,

shareholders and partners for their long-term

support and our associates across the globe for

their hard work.

innovation and increased functionality. Misfit

also expands our addressable market for 2016.

Sincerely,

It gives us new doors of distribution and the

opportunity to leverage our existing global

distribution to broaden the Misfit brand.

We have the unique ability to combine the

technology that consumers are demanding

with the design, style and brands that they’ve

Kosta N. Kartsotis

always loved—and all at the global scale

Chairman and Chief Executive Officer

necessary to drive the right economics. We

believe we are uniquely positioned to lead

the convergence of style and technology and

become the fashion gateway to wearable

technology and the connected device markets.

In the end, we look at 2015 as a year of

delivering against our strategic priorities we

laid out at the beginning of the year and will

continue to focus on these in 2016.

Despite the many headwinds and challenges

we faced, including macro uncertainty and

FINANCIAL HIGHLIGHTS

—

FISCAL YEAR

(in thousands, except per share data)

2015

2014

2013

2012

2011

Net sales ($)

Gross profit ($)

Operating income ($)

3 , 2 2 8 , 83 6

3 , 5 09 , 691

3 , 2 59 ,97 1

2 , 857, 5 0 8

2 , 567, 3 0 2

1 ,7 5 3 , 4 67

2 , 0 01 , 17 2

1 , 86 1 , 6 86

1 , 6 0 6 , 5 4 3

1 , 4 39 , 1 86

291 , 2 3 4

56 6 , 5 3 6

56 1 , 59 6

4 8 8 , 8 4 0

47 1 ,991

Net income attributable to Fossil Group, Inc. ($)

2 2 0 , 637

37 6 ,707

37 8 , 1 5 2

3 4 3 , 4 01

29 4 ,70 2

Earnings per share:

Basic ($)

Diluted ($)

Weighted average common shares and common

equivalent shares outstanding:

Basic

Diluted

Working capital

Total assets ($)

4 . 5 2

4 . 5 1

7. 1 2

7. 10

6 . 59

6 . 56

5 .63

5 . 59

4 .6 6

4 .6 1

4 8 , 8 0 0

5 2 , 8 8 2

4 8 ,9 2 4

5 3 , 0 8 0

57, 4 01

57, 67 6

6 0 ,959

63 , 29 8

6 1 , 4 0 0

63 ,9 65

95 3 , 1 4 1

1 , 0 0 8 , 2 6 4

939 , 57 3

70 2 ,7 7 6

797,93 2

2 , 3 5 5 , 6 6 1

2 , 17 7, 4 6 0

2 , 1 86 , 2 5 1

1 , 8 2 0 , 3 0 4

1 , 6 09 , 0 6 6

Total long-term liabilities ($)

93 3 , 5 89

747, 3 5 1

6 1 8 ,97 8

17 3 , 0 6 2

10 0 ,9 4 2

Stockholders’ equity attributable

to Fossil Group, Inc. ($)

Return on average stockholders’ equity
attributable to Fossil Group, Inc. 1

9 2 1 , 3 8 8

97 7, 86 0

1 , 0 6 8 , 67 7

1 , 2 3 3 , 5 3 5

1 , 105 ,9 29

2 4 .7 %

37. 5%

3 3 . 1%

29 .9%

2 8 . 0%

Calculated by dividing net income att ributable to Fossil Group, Inc. by f ive quar ter average stock holders’ equit y att ributable to Fossil Group, Inc.

CORPORATE INFORMATION

—

EXECUTIVE OFFICERS
& DIRECTORS

Kosta N. Kartsotis
Chairman of the Board

Dennis R. Secor
Executive Vice President,

Diane L. Neal
Director

and Chief Executive Officer

Chief Financial Officer

Randy C. Belcher
Executive Vice President, Asia Pacific

Hans-Peter Gehmacher
Executive Vice President, EMEA

Darren E. Hart
Executive Vice President, HR

Greg A. McKelvey
Executive Vice President,
Chief Strategy

and Digital Officer

and Treasurer

John A. White
Executive Vice President

and Chief Operating Officer

Elaine B. Agather
Director

Jeffrey N. Boyer
Director

William B. Chiasson
Director

Mauria A. Finley
Director

Thomas M. Nealon
Director

Mark D. Quick
Director

Elysia Holt Ragusa
Director

Jal S. Shroff
Director

James E. Skinner
Director

James M. Zimmerman
Director

OUR WEBSITE

CORPORATE INFORMATION

The company maintains a website at www.fossilgroup.com.

Certain event and investor relations information concerning the

company are available at the site.

ANNUAL MEETING

The Annual Meeting of Stockholders will be held on

Wednesday, May 25, 2016, at 9:00a.m. CDT at the company’s

headquarters, 901 S. Central Expressway, Richardson, Texas 75080.