Fossil Group
Annual Report 2018

Plain-text annual report

LE T TE R TO STOCK H O LD E R S Dear Stockholders, We entered 2018 with four major objectives. We’re proud to report that in spite of the many challenges we faced, we accomplished these objectives and achieved significant success around the globe as follows: • We improved profitability. • We spearheaded innovation and design in the watch category. • We invested in digital to expand our e-commerce efforts. • We continued to transform our business model under our New World Fossil initiative. Through these efforts and more, we delivered $2.5 billion in net sales, reduced net debt and generated strong cash flow. In accordance with our goal to become a leaner, more profitable company, we aggressively responded to the ever-evolving retail environment, exited unprofitable businesses to sharpen our focus and effectively managed expenses and inventory. While we saw improvements in 2018, these efforts will continue to provide benefits in 2019 and beyond. We will continue to build on our success from this past year, while working to further improve our financial performance and create value for you, our investors, in the coming year. Our Strategy Armed with strategic insights from 2018, we plan to FOSSIL Brand pursue several priority areas to continue our progress through 2019 and beyond: Connected As consumers continued to express their desire for connected devices, we listened. Thanks to our dedication to distinguished designs, improved technology and We saw a modest increase in FOSSIL’s global core watch sales in 2018, as we placed a heavy emphasis on product innovation and expanding our direct-to-consumer business. We worked hard to excite the consumer with new ways to shop, such as Buy Online and Pick Up In Store, and we experienced notable success for handbags in the direct channel. Going forward, we’re enhancing continuous innovation, we experienced 29 percent growth FOSSIL’s consumer targeting and social content in the wearables category in 2018. We launched the next generation of smartwatches, with the overall smartwatch category representing 21 percent of our total watch sales initiatives to further improve engagement while driving sales through search, affiliates and retargeting efforts. in Q4. Additionally, we signed a strategic technology Digital/E-Commerce partnership with CITIZEN to help further our growth in the connected space. By creating products with all the features our customers want and need, we’re strongly differentiating ourselves from our competition and positioning Fossil Group for sustained growth. The way our customers shop continues to evolve rapidly and so must our ability to serve them better and faster. To achieve this, we must continue to understand our customers’ behaviors and what drives their shopping channel preference. In 2018, we increased our marketing spend and invested more in our e-commerce platforms. These efforts optimized our ability to reach consumers Looking Ahead online. This approach also helped us more effectively use the power of social influencers to generate direct sales from posts which include our products. As a result, we achieved 21 percent sales growth in our digital and e-commerce channels in 2018. Portfolio Brands Our licensed brands continue to support our company’s initiatives, as our wide variety of watch styles — from kate spade new york to Michael Kors to Emporio Armani — offers options for every customer’s unique taste and need. We enhanced the footprint of our licensed brands in the wearables space through continued innovation and teamwork with our partners, including launching the first kate spade new york and Tory Burch touchscreen smartwatches. Additionally, In the past year, we have seen how disruption in the marketplace creates opportunity. We’ve also seen the critical importance of emphasizing product innovation and placing the highest priority on strengthening our connection with consumers. Winning in the marketplace means engaging our customers where they are and having the understanding and insight to anticipate where they’re going next. We made significant strides in 2018 to change Fossil Group’s profit profile. And, looking ahead, we see tremendous opportunity to accelerate our pace of innovation and creativity. While our competitive environment remains challenging, I have no doubt in our ability to capitalize on these retail dynamics and successfully turn those challenges into new opportunities. new licenses with PUMA and BMW will fuel the My thanks to our board of directors, our management growth of our portfolio brands and extend our reach team and our approximately 11,000 Fossil Group into currently untapped customer segments. employees around the world for all they have done to position us so strongly for success. And, as always, my thanks to you for your continued support and confidence as we embark on this next step in our company’s story. Sincerely, Kosta N. Kartsotis Chairman and Chief Executive Officer Cash Flow / Capital Structure As part of our New World Fossil transformation, we improved our profitability and strengthened our capital structure, reducing our net debt by more than $200 million in 2018. With our focus on profitability, we have exited marginal businesses and closed underperforming store locations, in addition to implementing significant working capital improvements. We did an outstanding job of doing more with less by reducing inventory levels by $196 million and generating nearly $250 million in cash from operations. Sustainability Over the past year, we strengthened our social and environmental commitments to our people, planet and communities through our Make Time for Good sustainability platform. This year, we plan to announce our sustainability targets, with a goal of reporting on progress as early as 2020. While we know we are only at the beginning of this journey, we look forward to making the biggest impact that only we can make. FI NAN CIAL H I G H LI G HTS FISCAL YEAR 2018 2017 2016 2015 2014 (in thousands, except per share data) Net sales ($) Gross profit ($) 2,541,488 2,788,163 3,042,371 3,228,836 3,509,691 1,340,137 1,358,839 1,578,186 1,753,467 2,001,172 Operating income (loss) ($) 62,711 <424,276> 127,146 291,234 566,536 Net income (loss) attributable to Fossil Group, Inc. ($) <3,478> <478,172> 78,868 220,637 376,707 Earnings per share: Basic ($) Diluted ($) Weighted average common shares and common equivalent shares outstanding: <0.07> <0.07> <9.87> <9.87> 1.64 1.63 4.52 4.51 7.12 7.10 Basic (#) Diluted (#) 49,196 49,196 48,468 48,468 48,136 48,323 48,800 48,924 52,882 53,080 Working capital ($) 652,766 781,900 932,705 953,141 1,008,264 Total assets ($) 1,575,198 1,658,372 2,186,897 2,355,661 2,177,460 Total long-term liabilities ($) 380,764 568,337 756,874 933,589 747,351 Stockholders’ equity attributable to Fossil Group, Inc. ($) Return on average stockholders’ equity attributable to Fossil Group, Inc. 1 585,543 576,133 1,006,236 921,388 977,860 <0.6%> <62.3%> 8.2% 24.7% 37.5% Calculated by dividing net income attributable to Fossil Group, Inc. by five quarter average stockholders’ equity attributable to Fossil Group, Inc. CO R P O R ATE I N FO R MATIO N EX EC UTIV E OFFICERS & DIRECT ORS Kosta N. Kartsotis Chairman of the Board and Chief Executive Officer Greg A. McKelvey Executive Vice President, Chief Strategy and Digital Officer Diane L. Neal Director Randy C. Belcher Executive Vice President, Asia Pacific Jeffrey N. Boyer Executive Vice President, Chief Financial Officer and Treasurer Steve A. Evans Executive Vice President, Owned Brands Martin R. Frey Executive Vice President, EMEA Darren E. Hart Executive Vice President, HR Beth A. Moeri Executive Vice President, Portfolio Brands Mark R. Belgya Director William B. Chiasson Director Mauria A. Finley Director Thomas M. Nealon Director James E. Skinner Director Gail B. Tifford Director James M. Zimmerman Director OUR WEBSIT E CORPORATE INFORMAT IO N The company maintains a website at www.fossilgroup.com. Certain event and investor relations information concerning the company are available at the site. ANN UAL MEE TING The Annual Meeting of Stockholders will be held on Wednesday, May 22, 2019, at 9:00a.m. CDT at the company’s headquarters, 901 S. Central Expressway, Richardson, Texas 75080. CO MP AN Y IN FORMATION A copy of the company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, and the Annual Report to Stockholders, in addition to other company information, is available to stockholders without charge upon written request to Fossil Group, Investor Relations, 901 S. Central Expressway, Richardson, Texas 75080-7302, or online at www.fossilgroup.com. Transfer Agent & Registrar Computershare P. O. Box 505000 Louisville, KY 40233-5000 Principal Independent Auditors Deloitte & Touche, LLP 2200 Ross Avenue Dallas, Texas 75201 Corporate Counsel Akin Gump Strauss Hauer & Feld, LLP 2300 N. Field Street, Suite 1800 Dallas, Texas 75201 

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