Fossil Earnings Call Insights: Tory Burch Deal and Price Increases

Fossil, Inc. (NASDAQ:FOSL) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Tory Burch Deal

Omar Saad – ISI Group: Kosta, can you talk about the Tory Burch deal? It’s pretty exciting, that’s definitely a big kind of upcoming brand, a lot of people are focused on, as we think about it, but it’s still mostly, I think, largely North America brand in its existing businesses. How do we think about kind of the landscape at retail, as you add kind of potentially new brands to the portfolio and continue to grow your existing portfolio in North America? How do we think about where new brands like Tory Burch are going to fit, is there room at the department stores, are there other channels you can utilize for new brands like this or is there a little bit of an element of potentially Tory Burch, some of the styles might replace some of the existing styles. Help us think about how the landscape is going to develop at retail as you get more new exciting brands into your portfolio like this?

Kosta N. Kartsotis – Chairman and CEO: It’s actually, we think a very exciting opportunity for the Company at the start of 2014, which is obviously sometime away but if you look at the trajectory of the brand — just going and the strength that it has, not just in the United States, but around the world increasingly, we think it’s a very strong long-term global brand. So, similar to what we’ve done with Kors and some of the other brands, I think it’s an opportunity for us to think differently about the market, I think it could in effect create white space in the interest and as we look at the total watch business, the one thing that just continues to happen is globalization across the world is driving a lot of this interest in global brands. So, if you imagine that consumers around the world increasingly want to be part of a customer experience attached to a brand rather than to a watch brand, we think that is ongoing and it can create a significant white space long-term. So, starting with all that, we are looking at it and we think we can put it in a position, in different parts of distribution around the world that could create a new business and even more interest if you look at what’s happening with some of the other brands that have gone to market, some of the success we’ve had, there is a wide open market out there, consumers that are – increasing numbers of consumers especially in Asia, that are very interested in this category and are very willing to be part of a brand story that includes a timepiece. So, we’re very excited about the future of it.

Omar Saad – ISI Group: Then do you think it could fit easily into your existing distribution, not just globally but in North America as well?

Kosta N. Kartsotis – Chairman and CEO: Yeah, absolutely. If you look at our distribution around the world, we have all types of distribution, not all our brands in every point of sale, so there is a different profile for different brands and there’s a certain group of brands that fit into different distribution and we think that (indiscernible) very well in a lot of parts of our organization. Obviously, we’ll start off small, but we think it has the potential to expand as the brand gets stronger.

Price Increases

Rick Patel – Bank of America Merrill Lynch: Can you just give us a little bit more color on price increases? Any brands or geographies that you can highlight would be great. Secondly, is there any way to quantify the tailwind that you’ll get to sales growth in 2013 as a result of price increases taken last year?

Kosta N. Kartsotis – Chairman and CEO: As we’ve talked about before we made an effort in some brands and categories or countries to be more inclusive on pricing so we actually lowered some prices and we increased assortments at the opening price. Overall, I don’t think the impact actually lowered our average in retail as much as it just engage more customers in the brand we’re able to trade some of those people up. So, I don’t think we really noticed anything in that regard in terms of lower average in retail. Again in your question about the tailwind from price increases, I think, our average in the retails for 2013 will be similar to last year. I don’t think we’re really going to seek average in retails going up. I don’t know if we’re going to get a tailwind from prices.

Rick Patel – Bank of America Merrill Lynch: Can you walk us through how the department store and specialty retail channel will approach a new brand launch like Lagerfeld? Do you expect them to create new cases to sell this merchandise or do you think they’ll deemphasize underperforming products to make space for that brand? Is there any risk that similar to Fossils, other brands will lose shelf space as a result of Lagerfeld coming in?

Kosta N. Kartsotis – Chairman and CEO: Well, the one overarching issue is that this watch business has been very, very strong and all the stores that we sell to, especially United States, they all have taken the opportunity to give it more space over time. This business is much, much larger than it was three and four years ago and as you know virtually all regular price of that averaging retails are very high and margins per foot is very high. So the stores are – while they have the opportunity of getting more space, so we don’t really foresee space an issue, it’s going to obviously start off slow, but as business expanding in a rate where we think we can continue to gain space and we’re gaining market share also and that will be an ongoing process.

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