Fossil Q1 Conference Call Summary

Fossil FOSL on Tuesday reported its first quarter earnings.

Shares of the company were down 10.27 percent or $11.45 per share to $100.00.

Below are some key takeaways from its conference call:

Kosta Kartsotis, chairman and CEO:

• We are pleased to be off to a good start in 2014, with a solid first quarter
performance that produced revenue growth at the top end of our expectations.
We continued to expand our international footprint, as we gained significant
market share in both Europe and Asia, and as we expanded our business in the
Americas, even as mall traffic remained challenging.

• Our growth was driven by
strong performance in watches, with both Fossil and our multi-brand portfolio
delivering solid increases. Our jewelry business accelerated with a strong
double-digit increase, which highlights the significant opportunity that
branded jewelry represents for the Company.

• During the quarter, we continued to pursue many operational initiatives to
drive efficiencies throughout our global infrastructure. We also invested in
areas that will enable us to capture future growth and we maintained our
commitment to our share repurchase program.

• With all of that, we feel that we
are on track for the year, as we delivered earnings that were just ahead of
our expectations for the quarter.

• For the Fossil brand, watches delivered the strongest increase with solid
growth rates in all three regions. Our strongest growth came from Asia where
we have been investing in brand building and also expanding our distribution.

• Fossil jewelry sales also increased, while leathers delivered results even
with last year and continued to lag our expectations. In jewelry, we continue
to drive our performance through an elevated assortment and higher-quality
materials.

• Our mission as a company is to continue on our path of building a world-class
entity of excellence where creativity and entrepreneurship are carefully
balanced with operational discipline, so we can drive growth and deliver
solid returns for our shareholders in the near and long term.

• In addition to expanding Fossil's print, social and digital media presence,
this year we're investing in CRM to better communicate with and to understand
our customer better.

• Our entire
management team is focused on optimizing our operating structure and driving
efficiencies throughout our company. Our goal this year is to drive
efficiencies through our base infrastructure, to create fuel to invest in
brand building, customer engagement and demand creation, as well as
continuing to build structure for our long-term initiatives.

Dennis Secor, Chief Financial Officer:

• First quarter net sales grew 14% to $777 million, reflecting sales increases
across all our reported business segments and included this fiscal year's
extra week, which occurred in January. We slightly exceeded our earnings
expectations with stronger gross margins and a lower tax rate.

• We drove
growth during the quarter with strong performances in Asia and Europe with
both regions delivering growth rates in the low 20% range. Our growth was
also well distributed among our brands, as our multi-brand watch portfolio
grew 17%, with the vast majority posting increases.

• The Fossil brand grew by 5% globally, primarily driven by a double-digit
increase in watches and growth in jewelry, while leathers were roughly flat.
Skagen sales were up 2% in the quarter with strong growth in Europe and Asia,
while Americas' sales declined as we are transitioning business from
selective customers to support our overall brand strategy.

• Our U.S. sales
grew while Mexico and Canada both declined. Our U.S. sales growth was driven
by increases in boutiques, specialty accounts and off-price partners.

• In our direct-to-consumer business, first quarter sales increased 18% to $195
million. Sales growth was driven by store expansion, as overall comps based
on a 14-week calendar declined 2.4%.

• In the first quarter, gross profit increased 17% to $443 million and gross
margin expanded 150 basis points to 57.1% compared to 55.6%, which was last
year's lowest quarterly gross margin.

• The improvement was primarily driven by
the impact of a greater sales mix of higher margin products, improvements in
freight and other costs, prior-year acquisitions and a favorable regional
distribution mix, given the growth in international markets.

• During the first quarter we invested $117 million to repurchase about 1
million shares of our common stock at an average price of about $117 per
share. We ended the quarter with $376 million remaining on our share
repurchase authorization. First quarter earnings per share increased to $1.22
from last year's $1.21, which included an $0.11 benefit from the Spanish
joint venture acquisition.

• For the quarter, we
generated operating cash flow of $97 million compared to $86 million a year
ago. We ended the quarter with $303 million in cash compared to $241 million
last year and debt of $542 million compared to $153 million a year ago. Our
inventories increased 16% to $602 million.

Google Partnership

• Kartsotis: We remain confident that this brand will be an
exciting business for us in the future and we are looking forward to the
launch later this year. With our strong brands and operating model, we feel
we're in position to continue to gain share in the global watch market.
We also announced during the quarter our partnership with Google as we pursue
opportunities in wearable technology.

• Kartsotis: This partnership allows us to bring our
creativity and design and the power of fashion brands to the world of
technology in collaboration with some of the most innovative companies in the
space.

• Kartsotis: These are very early days in this exciting partnership and as things
evolve, we look forward to sharing our plans with you.

International Growth

• Kartsotis: In the first quarter, we continued to develop our operating platform and
strengthen our business across all regions. Europe posted outstanding
results, growing sales by 20%.

• Kartsotis: Our growth here was broad-based, as we grew
both watches and jewelry, and expanded our business in nearly all countries.
• Kartsotis: We continue to be pleased with the trends we are seeing in our retail stores
where comps have been positive in nearly all of our European markets, despite
challenging overall traffic.

• Kartsotis: We're also very pleased with our performance in Asia where our sales increase
exceeded 20% and nearly all of our markets posted solid gains. China
increased well over 60% for the quarter; and India, where we just opened our
first Fossil store, increased significantly as well.

• Kartsotis: Our focus is on
continuing to develop distribution in Asia and create an awareness for our
brands in the very important region.

• Secor: In North America wholesale, sales increased 7% to $273 million. Our North
American wholesale growth was driven by double-digit gains in our multi-brand
watch portfolio and jewelry, while sales in leathers declined.

• Secor: In Europe wholesale, sales increased 18% to $206 million, which includes $7
million of favorable currency benefit. Our European growth was driven by
double-digit gains in our multi-brand watch portfolio, as well as in our
jewelry business, with particular strength from our licensed portfolio.

• Secor: Sales from our Asia wholesale operations increased 19% to $104 million, which
includes a $4 million unfavorable currency translation impact. We posted
gains in our proprietary brands, as well as our multi-brand watch portfolio.
The growth was across nearly all of our markets, with particular strength in
China, India, Japan and Korea.