Fossil Group Inc (FOSL) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Fossil, Inc. Q4 earnings conference call. (Operator Instructions). Today's conference is being recorded, and at this time, I'd like to turn the conference over to Allison Malkin of ICR. Please go ahead, ma'am.

Thank you. Good afternoon, everyone. Thank you for joining us today.

Before we begin, you should be aware that during this conference call certain discussions will contain forward-looking information. Actual results could differ materially from those that will be projected during these discussions. 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 our Form 10-K and 10-Q reports filed with the SEC.

In addition, the Company undertakes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events, or otherwise, except as required by law.

If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure and reconciliation of this non-GAAP financial measure to GAAP will be provided as supplemental financial information through this release located in the earnings release section under the Investor Relations heading on the Fossil Group website.

Please note that you may listen to a live webcast or replay of this call by visiting www.fossilgroup.com under the Investors section.

Now I would like to turn the call over to the Company's Chairman and CEO, Kosta Kartsotis.

Thanks, Allison, and good afternoon, everyone. Joining us today is Dennis Secor, our Chief Financial Officer.

We are very pleased with our fourth-quarter performance, which concluded another excellent year of growth and many noteworthy accomplishments towards achieving our long-term goals. We continue to leverage our competitive strengths in branding, design, manufacturing, sourcing, and distribution to gain increased market share in the growing watch industry. We capitalized on our strong portfolio of global brands, increased our geographic reach, and expanded our own lifestyle brands in watches and other key categories. We continue to enhance our operational capabilities as we build our team and develop the infrastructure we need to fully realize the potential of our brands and our operating model, and we leverage the strength of our balance sheet and solid financial position to further enhance returns to our shareholders.

In all, for 2013 we achieved record results, delivering a 14% top-line increase to nearly $3.3 billion. Coupled with stronger operating margins and an 8% reduction in our share base, we are reporting $6.56 in earnings per share, a 17% increase over last year. I would like to thank our teams around the world for another successful year as we look forward to further capitalizing on the significant potential that exists for us this year and beyond.

For the fourth quarter, we leveraged our diversified model to deliver sales and earnings above our expectations, even as the holiday season remained very promotional, especially in the United States. In total, our sales rose 12% with each region contributing significantly to that growth with double-digit constant dollar sales increases.

In the quarter, the FOSSIL brand continued to deliver sales growth, posting increases across all of our regions. We are particularly pleased with the brand's double-digit gain in Asia where we have been investing in building brand awareness and increasing our distribution.

The growth in FOSSIL watches was balanced with increases in all regions, and we, again, posted solid growth in jewelry.

Our FOSSIL's leather business was roughly flat to last year as this category continues to be our toughest as well as our largest opportunity. We have opportunities to improve our assortments and are heading in that direction.

In addition, we are operating in a highly promotional environment, especially in the United States. That promotional activity impacted our fourth-quarter direct-to-consumer business as comp declines in our US stores more than offset comp gains in our international markets.

As we continue to focus on the long-term health and integrity of the FOSSIL brand, our strategy is to limit promotional activity and to perfect our margins.

Realizing the full potential of the FOSSIL brand is a key element of our long-term growth strategy, our goal is to continue to grow the brand in the Americas where we already have a significant share and to deliver outsized growth internationally as the brand gains share in growing markets.

In 2013 we grew the FOSSIL brand through more focused assortments and improved awareness of our customer. Our goal is to continue that trend in 2014 as we develop exciting new watch and jewelry designs, improve our leathers assortment and continue to focus on increasing the global awareness of the brand.

For SKAGEN, we posted a slight decline in the quarter as we were up against liquidation sales from last year as we were focusing our assortments after the acquisition. Growing SKAGEN into a multi-category lifestyle brand is an important element of our long-term growth strategy, and we made significant progress in 2013. We delivered a solid double-digit top-line increase, even though our design processes and strong point of view on a Danish design lifestyle brand will not fully influence the product offering until 2014.

We have now remodeled two full-price stores in the UK with very positive results, and we continue to test the store experience to ensure we maximize the opportunity in future openings.

We have also been encouraged by the results of our limited launch of leathers in Q4. We continue to see strong results with our jewelry line, particularly in Europe.

As we look to the future of the SKAGEN brand, we have aligned some of our best resources around the multi-category vision for this brand and look to continue the momentum into 2014. We're currently evaluating select flagship store locations in strategic markets, as well as exploring ways to improve the digital experience for the consumer. We also anticipate delivering a full leathers assortment in the back half of 2014.

By leveraging the Fossil Group infrastructure and providing a unique brand experience for consumers by delivering great contemporary product, we think SKAGEN's potential is tremendous.

In our multi-brand watch portfolio, we continue to gain share and posted solid sales increases of 14% for the fourth quarter and a 17% increase for the full year. Once again, our growth was balanced for the year with double-digit increases in all regions and with the majority of all our brands posting gains.

As the world becomes increasingly globally branded, our watch portfolio, which includes some of the most iconic lifestyle brands in the world, continues to be a powerful weapon to gain share in the growing global watch market. As an innovative category leader with a world-class supply chain and a global distribution network of more than 30,000 doors, we are uniquely positioned to work with the best lifestyle brands around the world.

This spring we launch Armani Swiss, and in the fall, we will launch Tory Burch with a small, edited assortment of Swiss watches to a limited global distribution. As we always do, we will test and learn as we go, but with the buzz and excitement that already surrounds this brand, we think it can be a significant business for us in the future.

We have the advantage of positioning brands across a broad spectrum of market segments to maximize our share of the watch industry, and we can leverage market-leading brands in different regions to create growth opportunities for others. Our goal is to employ all of our strategic advantages to realize the full potential of all our brands.

In 2013 we made significant progress in developing our worldwide operating platform and building our business across all of our regions. Europe posted outstanding results with sales increases in the high teens, reaching a huge milestone of $1 billion in sales for the year. Our growth was broadly based as we grew both watches and jewelry for the year. We expanded our business in most countries, and we continue to be pleased with the trends we are seeing in our retail stores where comps have been positive in nearly all countries.

We're also very pleased with our performance in Asia where we hit $500 million in sales in 2013. For the year, we posted an overall top-line increase of about 17%, excluding the significant headwind caused by weak currencies. Just as in Europe, our growth was probably based with nearly all of our markets posting solid gains for the year. Our priority in Asia is the China market, where we increased sales this year by more than 50%. Our focus now is on continuing to develop distribution and creating awareness for our brands in this very important market.

In our international markets, our goal is to replicate our great success that we have in the United States. In our price points, we have already captured substantial share in the US, about 44%, as lifestyle brands have gained share from traditional watch brands. But outside the United States where we have only a single-digit share, that trend towards lifestyle brands is emerging. Europe and Asia are big watch markets, but lifestyle watches are a small portion of those markets. China's watch market alone is already larger than the United States, but primarily focused in the luxury segment.

We believe that many of the factors that drove our US growth can translate to these international markets. As that happens, we feel we are in a great position to gain share.

In 2013 we made significant progress in developing both the management team and the operating platform that we will need to drive our growth and profitability in the future. We have assembled a great team of people around the world, mixing long-standing talent with key additions from some of the best companies in the world. We recognize that as we grow, our next $3 billion of revenue will come very differently from our first $3 billion. We have redefined the way we operate and established a clear regional structure where brand direction is managed carefully from the center with regional teams responsible for local execution. We feel this will empower our regions to grow faster and to unlock more growth.

This year we have been investing in technology, both in our supply chain and in our support structure, to gain operational efficiencies and quick insight into our operating performance. We're also investing and building an internal strategy team and also an enhanced Web and marketing capabilities so we can understand better who our customers are, how to communicate with them, and to better understand where our opportunities are.

We're also accelerating our design and innovation capabilities with additional resources and lots of new ideas. All of these efforts, we feel, will unlock more growth for us in the years ahead.

Our goal as a Company is to build a world-class entity of excellence where creativity and entrepreneurship are carefully balanced with operational discipline so we can deliver solid returns for our shareholders in the near and long term. And as a Company, we're focused on using all of our resources to drive shareholder value. Growth and efficiency are key components of that, and you can see from -- that we're focused on those drivers.

We are also committed to leveraging our strong financial position. Last year we invested $575 million to repurchase 5.3 million shares. We know this is an important program for our shareholders, and we're fully committed to it as we now operate with a share base that is almost 20% lower than it was just three years ago.

Before I hand it over to Dennis, we would like to thank our investors and analysts for their continuing support and the interest in the Fossil Group. As we reflect on last year, we're very pleased with the performance of the Company and excited about the possibilities in the future. We are well positioned as a leader in a growing industry with a strong global footprint and significant competitive advantages. Our diversification gives us access to multiple sources of growth and supports our goal of predictable earnings and cash flows. Our operating model gives us opportunities for leverage and efficiencies to drive greater profitability, and our strong financial position gives us access to the fuel that we need to drive our business and to deliver returns for the shareholders.

We look forward to a successful 2014, and now I will ask Dennis to walk us through our performance and the outlook for next year.

Thanks, Kosta, and good afternoon, everyone.

Fourth-quarter net sales grew 12% to $1.062 billion as we posted sales increases across all of our reported business segments. Our growth continued to be very balanced with all three geographic regions delivering constant dollar double-digit increases. Our growth was also well distributed among our brands with the vast majority of them posting fourth-quarter increases.

Our sales growth was driven by a 14% increase in our multi-brand watch portfolio. The FOSSIL brand grew by 4%, primarily driven by increases in both watches and jewelry. SKAGEN sales were down 4% in the quarter, anniversarying last year's refinement of the assortment, one of many steps we took to integrate the brand onto our platform.

In North America Wholesale, sales increased 13% to $400 million. Our North American Wholesale growth was driven by strong double-digit gains in our multi-brand watch portfolio. Increases in watches and jewelry drove the growth across the US, Canada, and Latin America and were partially offset by declines in leathers where the vast majority of the decline was driven by one of our non-core, lower-priced brands.

We did deliver higher-than-anticipated wholesale shipments, both with our department store and some off-price partners. Many of our department store partners were very promotional in the run-up to Christmas, which resulted in higher replenishment orders at the very end of the quarter.

In Europe Wholesale, our business remained very strong as sales increased 18% to $274 million, which includes $9 million of favorable currency benefits. Our European growth was driven by strong double-digit gains in our multi-brand watch portfolio, as well as in our jewelry business, with particular strength from our license portfolio. Our leathers business posted a small decline.

Our growth continues to be balanced as we posted gains in virtually all markets with the exception of Italy. We posted strong sales increases in established markets like Germany and the UK. Spain contributed to the sales increase both organically and due to the consolidation of its results. Our distributor markets also posted solid gains.

Sales from our Asia Wholesale operations increased 6% to $109 million, which includes a $7 million unfavorable currency translation impact. We posted gains in our proprietary brands, as well as our multi-brand watch portfolio.

The growth was across virtually all of our markets with particular strength in Japan and China, though the stronger US dollar continued to negatively impact our reported results.

Sales for concessions grew double digits, primarily driven by door growth combined with a modestly positive comp. In the quarter, we added a net eight concessions over all in Asia and ended with 309.

In our Direct to Consumer business, fourth-quarter sales increased 9% to $280 million. Sales growth was driven by store expansion as overall comps declined 1%. Positive comp store sales results in Asia and Europe were offset by a decline in North America, primarily driven by the US stores as traffic declines in the high teens were only partially offset by higher conversion rates. We used promotions to drive traffic into our outlet stores, which outperformed all of our full-price stores in the quarter.

Comp store sales in watches and in jewelry increased in the quarter, while sales of leathers declined. During the quarter, we opened a net 18 stores, bringing our Company-owned store count to 543 at year end.

In the fourth quarter, gross profit increased 13% to $609 million, and gross margin expanded 50 basis points to 57.4%. The gross margin benefited from a larger mix of higher-margin categories like watches and jewelry, along with a higher mix of international sales. Our acquisitions in both Latin America and Spain, as well as the stronger euro, also contributed to our margin expansion. These increases were partially offset by a higher mix of off-price sales and promotions in our US outlets.

Operating expenses increased $55 million, or 17%, to $390 million. The expense increase resulted primarily from retail and concession expansion; performance-based compensation; store impairment; the impact of acquisitions; corporate and Asian infrastructure investments; and enhancements to our marketing program. Last year's expenses were also favorably impacted by an adjustment to our SKAGEN purchase-related liability.

Our expense rate increased by 140 basis points to 36.7%. The most significant drivers of this higher rate were the SKAGEN adjustment, store impairment, and the performance-based compensation where the timing and magnitude were substantially different last year. Each of these items put pressure on our expense rate comparisons and collectively negatively impacted the comparison by nearly 200 basis points.

Operating income increased 7% to $219 million and benefitted from a foreign currency translation impact of approximately $1 million. Operating margin contracted 100 basis points to 20.6%.

Interest expense increased $2 million to $4 million compared to last year, and net other income, which primarily relates to foreign currency activity, was negligible compared to a $2 million gain last year.

Our effective income tax rate for the fourth quarter was 30% compared to 25.6% last year, which included a benefit of $11 million related to a prior year audit settlement.

So overall, fourth-quarter net income decreased 2% to $149 million. During the fourth quarter, we invested $121 million to repurchase approximately 1 million shares of our common stock at an average price of about $122 per share, reducing our average quarterly shares outstanding for the year by about 8% compared to last fourth quarter.

We ended the year with $494 million remaining on our $1 billion share repurchase authorization.

Fourth-quarter earnings per share increased 7% to $2.68 as growth in operating income and a lower share base more than offset the impact of a higher tax rate, interest expense, and lower nonoperating income.

Now turning to our cash flows and balance sheet, for the full year, we generated operating cash flow of $410 million and drew down a net $431 million on our revolver. We used those funds to invest $575 million to repurchase shares, $95 million in CapEx, and $18 million in acquisitions. We ended the year with about $320 million in cash compared to $177 million last year and debt of $508 million compared to $78 million a year ago.

Our inventories increased 13% to $571 million and aligned well with our sales plan. Accounts receivable increased by 25% to $455 million. The increase is driven primarily by the later timing of shipments in the quarter, along with the impact of this year's acquisitions. Wholesale DSO increased roughly 5 days compared to the prior year.

During the fourth quarter, we invested $29 million in capital expenditures, bringing the total to $95 million for the year, primarily to support new and remodeled stores along with IT and other systems investments.

Depreciation and amortization expense totaled about $22 million for the quarter and $82 million for the year.

Moving now to our outlook, we entered 2014 with significant momentum in many areas of our business. We look to continue to develop innovative watch styles that resonate with our customers and allow us to gain share in the growing global watch market. We see additional growth opportunities for the FOSSIL brand, and we are excited about the potential for SKAGEN. Our outstanding portfolio of lifestyle brands includes some of the best brands in the market today, and we're focused on maximizing their full potential.

We continue to enhance our jewelry line and are well positioned to take advantage of the consumer's growing affinity for branded jewelry.

We have strong momentum internationally, especially in Europe. While there is still work to be done, we have made significant investments in our management team and operations to drive future growth.

We enter 2014 with many tailwinds, but there is still some uncertainty. Our handbag business remains challenging, and while we're working diligently to improve the business, the category remains highly competitive and promotional.

In Asia, our greatest opportunity is China. Even with sales up over 50% in 2013, we still have the opportunity to expand distribution. This takes significant relationship building in a very fragmented market, but given China's importance to our expansion in Asia, it's important to build the best relationships, even if that takes longer. And while global economic trends seem to be improving, there are still many markets that have not fully recovered. Fueled by the industry tailwinds and our own strategic advantages, our goal is to continue to grow our business at a double-digit rate over time. Our challenge is to manage this growth as consistently as possible, taking into consideration the natural ebbs and flows of the brands and business cycles and a retail environment that offers fairly limited visibility at times, especially on the top line.

Our strategy is to operate with an appropriate anticipated sales range, building in flexibility to adjust investments and expenses as trends emerge. As a company, we want to be responsive to both the near-term and long-term objectives of our various stakeholders. Managing with flexibility in our structure supports our objective of delivering more predictable and consistent earnings and cash flows.

For the full year, we expect revenues to increase between 8% and 10%, and for the first quarter, we expect revenues to increase between 12.5% and 14%. Our fiscal calendar includes an extra week in 2014 which occurs in January. Therefore, we expect that the first quarter will generate the highest growth rate of the year, followed by a fairly normalized growth rate in subsequent quarters. This is often difficult to predict as the timing of wholesale orders can create volatility in our inter-quarter sales growth rates.

For the full year, we expect gross margin expansion, though not to the magnitude of fiscal 2013, resulting generally from category and regional mix and the impact of last year's acquisitions. For the first quarter, we expect gross margin expansion given the impact of last year's acquisitions, the improvements in off-price margins, and the overall favorable mix of products, partially offset by expected outlet promotions to drive traffic.

For 2014, which includes the extra week, we expect our operating expense rate will increase, though with less deleverage than in 2013. Our goal is to gain efficiencies in more developed areas to invest in new opportunities. Given the investments that we made in the second half of 2013, we anticipate that the expense growth will be highest in the first part of the year, which includes the extra week and begin to moderate as we reach the second half.

Last year we also deferred certain marketing expenses, while this year we plan to make those investments earlier. Given also that our 53rd week takes place in January, generally our lowest month for sales and profits, we estimate that the extra week will be dilutive to operating margin and roughly neutral to earnings.

Overall for the full year, we expect operating margins in the range between 16.5% and 17% with improvements in gross margin offset by a higher expense rate. For the first quarter, we expect operating margin in the range between 12.25% and 13%. We're planning 2014 with a tax rate between 31.5% and 32%. Our guidance assumes that foreign currencies remain roughly at prevailing rates and also assumes increased interest expense given our higher debt and a lower share base given repurchases. We expect to repurchase shares in 2014, but not to the same level as last year. We expect full-year diluted earnings per share in the range between $6.90 and $7.30 compared to $6.56 in 2013.

For the first quarter, we expect diluted earnings per share in the range between $1.10 and $1.18. This compares to last year's first quarter of $1.21, which included an $0.11 benefit related to the acquisition of our Spanish joint venture.

Given 2014's expense timing and margin profile, we anticipate a decline in second-quarter earnings; however, we expect earnings to grow and accelerate as we move through the second half of the year.

Finally, we're planning annual capital expenditures in the range between $110 million and $120 million and that annual depreciation and amortization expense will be approximately $98 million.

So now I will turn the call back over to the operator for your questions.

(Operator Instructions). Erinn Murphy, Piper Jaffray.

Congratulations on a great quarter. Can you talk a little bit about double-digit growth in Fossil in Asia and very strong growth in China? Could you delve in a little bit more about just the development of the brand in China? How many concessions do you have in China alone? And then how do you think about the pace of distribution growth in China and just longer term the levers in the market there? Thank you.

Well, the Fossil business in Asia is a relatively small part of the business model than it would be in the United States or in Europe. But it is showing very strong signs of life, and a couple of our newest and most exciting stores actually are in the China region. One is in Macau. It's at the Venetian hotel. It is actually one of our largest volume stores and probably the highest comp we have in the whole Company. So we're seeing some early reads there.

There's a few other locations where we have concessions, and we are seeing strong response to it as well. We also, as you know, we opened a flagship store in Causeway Bay in Hong Kong that opened in August/September. Doing extremely well. Great visibility. A lot of awareness. And our numbers are pretty strong. So, although the business is small in Asia and in China, what we are seeing, I think, is a very good sign. And, as you know, there's going to be hundreds of millions of people joining the middle class in China, and they are all going to be traveling all over the world. Most of the growth in the middle class is not super rich. These are Fossil customers. So to start communicating to them the brand and showing our accessories offering and having them understand the lifestyle at this early stage we think is very valuable.

Omar Saad, ISI Group.

Really good year, guys. Congratulations.

I wanted to ask on the wholesale business, it seems like both in North America and Europe you are seeing some really good gains there. I know some of it might have sounded like it might have been replenishment, but if you had to parse it out -- and maybe it is different for Europe versus North America -- but if you had to parse it out between just faster turnover of the existing space versus maybe some of the department stores are expanding their footprint in the watch category, versus you guys are taking more share within the watch business in the wholesale channel, I'd love to get some insights there on what is driving it in North America and Europe. Thanks.

I think actually, Omar, it is probably all of those things. We're in a really good position as far as our portfolio goes and our ability to gain share and to penetrate new markets, gain additional space. We're putting shop-in-shops around the world for all of our brands and especially core. But all of those things working together put us in a position where I think we can have market share gains over the long term in both Europe and the US as we build into which is a much larger opportunity long term in Asia.

Dorothy Lakner, Topeka Capital Markets.

Congratulations on the great quarter. Great end to the year.

Wondered if you could talk about Asia again and what you are looking in terms of concession growth in 2014 and just circling back also to Europe, what your plans are for store expansion there.

Just quickly on the numbers, for next year, we are expecting probably somewhere in the high 30s of net concession openings. We will open some. We will close a few, but rough math we would expect that to be in the high 30s.

Okay. Great. Thanks.

And I think you asked a question about store growth in Europe. It is interesting. What we have been opening mostly as a company over the last couple of years has been outlet stores, both in the US and Europe. Part of that was catch up from our big growth that we had over the last several years. We needed additional outlet store space.

But if you look at in the United States, for example, at the end of this year, we will actually end this year with the same number of regular price accessory stores in malls that we ended 2011 with, which if you look at the traffic in the United States, it was actually a good thing that we started slowing down our store growth in US based on the change in the consumer. We're in a very disruptive environment. Traffic in the malls is less. People migrating to omnichannel. We're starting to see some of the same signs in other parts of the world. So we're looking very closely at how many stores we're opening, where we're putting them. We want to have brand-building stores in very high traffic locations, especially in Asia where the brands are not known very well. We want to do the same for SKAGEN, but we are being very careful about where we are putting regular price stores for this year and the future.

Great. That is good to hear.

Anna Andreeva, Oppenheimer and Company.

Congrats on a solid quarter, guys. Just to followup on North America, obviously impressive acceleration there. Were there any timing shifts, or was it all of replenishment that came late in the quarter? And maybe talk about the near-term as we go through 2014 and the longer-term growth algorithm there. Just what is the expectation for FOSSIL brand versus licensees? You mentioned you still see opportunities for the FOSSIL brand, so maybe some color there, and how should we think about the impact of a later Easter hurting your 1Q and benefiting 2Q? Thanks.

Well, with respect to the fourth quarter on wholesale, what we experienced the time between Thanksgiving and the first three weeks of December was actually pretty challenging, but it picked up at the end. I know that and you mentioned on the prepared remarks that a lot of our partners were reasonably promotional. There was a matching of friends and family events. And ultimately that drove some late-quarter replenishment. Actually when we looked at the very last quarter of the year, it came in stronger than we had anticipated. The first week of January actually was a little weaker than anticipated.

So there may have been some timing moving between the first and fourth quarter, but it's not an exact science. It is difficult to predict.

With respect to the timing on Easter, on the wholesale part of the business, which, remember, is 75% of our business is wholesale. We are expecting that most of those orders would deliver toward the end of the first quarter. I mean there's always some risk of some little slippage, but generally that is way we are planning on it.

The retail business, again, it is the other 25%, and not all of that 25% is really impacted by Easter. So we're not anticipating a material impact on the inter-quarter growth rate this year due to Easter.

Oliver Chen, Citigroup.

Congratulations on a great close to the year. Regarding the plus 4% on the FOSSIL watches and jewelry brand, is that the run rate that we should expect for that, and what are the key drivers of the next step of product innovation within that FOSSIL brand?

Also, the DTC comp store sales, what are the parameters and timing from which we can see a better number question, or do you expect the comps to continue in this negative range in the near term?

On the FOSSIL question, we are expecting the brand to grow next year; that is our plan. The lion's share of that growth or the larger rates should come from the international markets where the brand is less developed, though we are planning to get good growth still out of the American region.

We also, Oliver, as you know, we had a relatively weak year in handbags, which we think we are in a great position. We have some additional design resources that have been there for some months now and products getting much better. We think we have a big opportunity to gain share in somewhat of a dynamic market. I think that is globally. We also -- we feel like we've got some great ideas in the pipeline to add more fuel to the fire for watches. We're doing everything we can to have the entire brand grow faster, including doing right now some consumer insight and segmentation and doing research on how we can do some demand creation, how we can do some measurable advertising to our customers. We're really putting ourselves in a position where I think we can get through some really good research insight segmentation and good strong advertising -- digital, social, etc. I think we can turbocharge the brand in the next year or two. So we are working on that, as well.

Okay. And would you highlight any aspects of the product innovation in terms of what takes us further along? You already have such awesome share in North America, in particular, and we have had many years of really great growth. So I'm just curious about what we should prioritize for continuing to drive --.

Oliver, we don't want to comment really on what is driving the sales or what we think we've got in the marketplace. But, as you always do, you will be in the stores, and you'll see it firsthand. So I would just recommend you go out and look at that and start looking on our website. Because we do have a lot of stuff in there that we are very excited about, and hopefully it is going to really manifest itself some sales increases in the near term.

Randy Konik, Jefferies & Company.

This is Eddie Plank filling in for Randy. Just wondering, how should we think about the Tory Burch line in terms of magnitude? Is this something that could be as meaningful as Michael Kors is to your licensing business? Thanks.

Well, to start off with, it will be very small. We're going to have a very limited distribution to their doors and a very special number of doors around the world. So it's going to start small. It is going to start in the fourth quarter basically.

And this is typically the way we start all of our brands -- just starting small. We don't really push them or start expanding quickly until they are ready for prime time, when we see the operating model working. We have a group of core sellers that are strong and we can innovate within those familiar styles. And once we get the model going, then we can -- we will push it a little harder. But in the interim, it's more of an incubator business, and we will build it from there.

And just having looked at the brand and its creativity, it's in the unique position, very strong over the world. It leads us to believe that it will be a significant business some day. It doesn't matter to us when. We're not going to push it outside its boundaries early, but we do feel like long term it will be a very significant business.

Great. Thank you.

John Kernan, Cowen and Company.

Congrats on a nice year. There seems to be a lot of noise about wearable tech in the future of that category out there. I haven't really seen many people wearing them -- on the watch side of things yet, but just wondering how you guys think about the future of this and whether you can participate and how big of a threat it might be to you guys long term?

It's all very interesting to us because we have made smart watches going back 10 years that did not generate much interest.

We are of the mindset that anything that attracts attention to the wrist is good for us. And there's a whole generation of consumers out there that haven't worn a watch, and as they see the verbiage on this and they see the awareness of it, maybe it will inspire them to wear some of our product.

So all of this awareness, combined with a lot of tech companies working on this, and a lot of those tech companies, we are in dialogs with some of them and looking at what the next step is. So the combination and the convergence of consumer interest and brainpower, there probably will be at some point some compelling products that we can put in the marketplace, and that is what we are studying right now.

We also think and what we understand is in the future there will be some miniaturization of components and also extended battery life that will make these products more compelling and more fashion oriented. So we are in the process of working through it. There's nothing imminent that we are putting out there, but we're watching it very closely, and we think it could be an opportunity at some point.

Scott Krasik, BB&T Capital Markets.

Congratulations, guys. If you look at the $228 million in jewelry sales this year, it was obviously up a lot, but it is a fraction of what your largest licensing partners said they thought jewelry could be. Plus, you have FOSSIL and Armani and some others.

Are we going to hit an inflection point where the jewelry really starts to grow at a much faster rate, and how do you see that evolving?

As we have said before, we have been looking at jewelry as an add-on to our global multi-brand watch business. The reason we do that is because it's the same brands, and it also goes to the same channels. And the jewelry has similar characteristics in terms of profitability, lead times, etc. So it's almost like watches that don't tick.

So it has the potential of just making the entire potential of the Company even larger. Because the jewelry business is much larger than the watch business. And there has been a lot of reports in the last year that show that jewelry is becoming increasingly globally branded, which fits right into our wheelhouse.

So we have actually been increasing our capabilities for jewelry with additional resources, additional production capabilities, and we're continuing to do so, getting ourselves ready for what could be in the future a more significant growth. Of course, FOSSIL is very significant, especially in Europe; SKAGEN is off to a strong start; and Kors is very, very strong and is going to be a very significant business long term.

Of course, we have Armani, which is a very powerful business and growing very quickly. So we could have additional brands, as well. So we are, in fact, looking at that as the future.

But you won't see significant rapid growth really accelerate too much this year. It is probably in the follow-on years, but we're getting ready for it.

That is helpful, and then if I could sneak one more in quickly. Dennis, you talked about examining the capital structure in terms of how much leverage the business could take on to maybe buy back an even more meaningful amount of stock. Where are you in that analysis?

We are in the middle of it. We're going to go through a more -- a fuller -- full strategic review during the year. We're also working with outside consultants and just evaluating where we ultimately think the right position is in terms of the structure.

We have, as you can tell from the activity this year, I think you can say that we have certainly embraced that debt as a significant place that they can play in our structure. And we added debt this year, and we're able to really enhance this share repurchase program.

So but right now I would say as we said in the prepared remarks, that I wouldn't expect that we would be able to buy back to the same extent in 2013 as we are still going through that process and finding that optimal point.

Ike Boruchow, Sterne, Agee.

Congrats and thanks for taking my question. I guess on the US, on the North America Wholesale side, up 13%, can you just parse out the US versus the non-US portion of that growth?

And then as a quick second one, the growth in Europe up 14%, still very strong, but relative to last quarter's 23%, I'm trying to figure out what exactly did you see in Europe for the quarter, and then maybe of that 8% to 10% revenue guide, what are you planning the European wholesale business at?

I don't have the breakout on the North American business that you asked for. Let me get to the European. We saw strong performance across the board in Europe, and that is one of the things that really encourages us about the performance is that it is very broad-based. Even more mature markets like Germany are continuing to grow. The UK was probably our strongest grower this quarter. So we're encouraged by that performance, and we have got several of our brands that are really doing well. One of the strategies for next year is to really expand that so we can get the full potential of the portfolio really driving the business next year.

And just about 90% of the wholesale business in North America is US based.

And then can you give an outlook for Europe? What the --?

I think the way I would look at the outlook is, if you look at the various regions, we're expecting them to perform as you probably would naturally expect them to perform relative to their maturity. So the American business is our most developed market, so we would expect the least in terms of growth rate, and Europe and Asia would be higher than that.

Great. Thanks very much.

Rick Patel, Stephens.

I will add my congrats, as well. A question on the leather business. At the end of the third quarter, I think you had a number of new products flowing in, but it seems that that category still underperformed. So I am curious if the new products at least performed as you expected. And as we think about 2014, is the bigger focus going to be developing the product to be trend right in full-price stores, or are you looking to scale your made-for-outlet handbags a little bit more?

I would say in the back half of the year that leathers did not meet our expectations, and we're striving to have much better performance out of that. But I think what we are showing in the market now for the fall looks much, much better. We've gotten a much better response to it. We are in a very competitive environment in handbags. There is some very hot brands out there, and there's a lot of promotional activity on the bottom end. We are positioned in the middle and in the right place, I think, for growth. We are a very important brand to our segment and to the accessories market. We think we're in a great position to grow, and we're looking forward to getting back to a stronger business there.

Thank you.

Matt McClintock, Barclays Capital.

Kosta, earlier you were talking about omnichannel and the disruption there. I was wondering if you could actually -- do you have any idea or any sense of the flow-through from some of your wholesale partners, the strong ecommerce businesses that you have at some of your wholesale partners, how that is growing versus traditional brick-and-mortar stores, and how do you actually work with your wholesale partners to better address that? Thank you.

I think that is one of the things that has happened is the market is changing very quickly. I think we used to look at our own website as looking at how much sales and traffic we got. I think we've changed our thought process. It really should be looked at in terms of how can we facilitate online and omnichannel growth with all our partners. Because as a practical matter, as you mentioned, all of our wholesale partners have had huge growth in all of our categories over the last several years, and that is continuing.

I think that the customer is definitely changing the way they shop, and we're doing everything we can to adjust to that as quickly as possible, both on our own omnichannel efforts but also on our website, using it to facilitate more growth to our wholesale partners. And that is just not in the United States. That is also globally, too.

So we are working on a lot of fronts, but we think it is a very compelling opportunity for us.

Barbara Wyckoff, CLSA.

I will add my congratulations. Can you talk about the outlets performance in FOSSIL versus Watch Station and other multi-branded outlets? If you could do over the quarter, could you have done something differently to change the performance, and are you thinking or rethinking your growth plans here? Thanks. And also, how many outlets do you have in China?

Just with respect to the fourth quarter, obviously the most challenging part of our business was just operating through that very promotional environment here in the United States. As a brand, we protect our brand integrity. We don't promote to any significant extent in the full-price stores, but we did use promotion to drive traffic into the outlet stores.

So we did see a better performance in the outlets here than we did in the full-price stores, but still we would like to be in a position where it's not just promotions that we're using to drive the traffic.

Having said that, the outlets are a very efficient use to consumers of our capital, and it is a good investment for us. We have talked about the improvements that we're making in the made for lines. So we still think that's a good investment for us, and the vast majority of our stores this year are going to be focused on outlets both here and overseas.

Barbara, obviously the change in the market is consumers are gravitating to three things. One is omnichannel, less traffic in malls, etc. The other one is outlets, and the third is travel retail. And we have initiatives in place for all three of those.

On the outlet side, our focus really is to improve the customer experience, which includes more -- a better design buildout, more made-for product. We recently hired a new Senior VP of Retail that has a lot of experience in that market that is going to up our customer experience quite a bit. And we think we benefit from that, not just in the performance of the outlets, but just in the overall brand presence, which I think is very important -- looking at the way the customer shops today. So I think we have a big opportunity I think to upgrade that customer experience in our outlet stores.

And in China, the plan is to only open a couple of new stores -- outlets.

Will there be -- just in general, all of the outlets that are going to be open are going to be multi-brand, or FOSSIL, or both?

Both, yes.

Okay. Thanks.

David Wu, Telsey Advisory Group.

Congrats on the solid results.

Can you perhaps talk about whether you're seeing any changes with respect to the way consumers are responding to various price points within the watch offering and how you are adjusting the assortment accordingly?

And also, can you perhaps talk about the evolution of the watch trends and what is resonating well with customers now and how you envision it evolving in 2014? Thank you.

Well, as you know, there was quite a lot of promotional activity in the month of December in all categories, and it started to happen in watches. From our standpoint, it is unnecessary, and I think the stores that were promotional saw a situation where it didn't necessarily help their sales and impacted their margins. So we are very strongly believing it's a regular-priced business. And we are doing everything we can to inspire the stores we sell to to focus more on great customer presentation and experience, branding, innovation, new ideas and designs.

In terms of just overall watch trends in the business, the big macro trend is lifestyle brands like the ones in our portfolio -- telling great stories, great innovation, new products, compelling value that the marketplace is over the long term going to gain share in the global marketplace for watches.

Simeon Siegel, Nomura Securities.

Congrats, guys. Have you said what percent of sales in Asia are driven by the concessions? And then Kosta, what was the change in regional structure that you referenced? And you guys were talking to a decline in op margins for the year. Can you speak to the long-term EBIT margin goals? Thanks.

Roughly, I don't have the numbers in front of me, but I think the concession business roughly maybe 25% to 30%. I will have to refine that with some numbers, I don't have that number directly in front of me.

As you know, we have been benchmarking much larger global multi-brand consumer products companies on how they go to market -- really looking at scalability for our own company. And as part of that effort, what we have done is restructure the Company, where instead of having the corporate office here in Dallas control everything globally as we have three regions with strong regional offices in Switzerland, Hong Kong, and in the US. So in our Dallas office, we have a global office and also a regional office.

So what we have done is with global guidance we have empowered these regions to operate on their own within guidelines, but their own approvals to move faster and be more adaptive to the market. And this was from our research of looking at much larger global companies this is how they have unlocked a lot of growth, and we think it's got huge potential for us.

We have over the last several years in the regions in Asia and Europe, especially hired a great amount of talent in every category from operations to merchandising, retail, concessions, visual presentation -- great talent in these markets. They understand clearly our model. There's a lot of alignment in the Company about how we go to market and how we tell stories, and we think this is a great thing for the Company to really empower them to move faster.

And we definitely think it will have us grow faster in the future.

Dorothy Lakner, Topeka Capital Markets.

Thanks. My question has been answered.

Thank you. There are no further questions at this time. I would like to turn the conference over to Dennis Secor, Chief Financial Officer, for closing remarks.

Thank you for joining us today and for your interest in the Fossil Group, and we look forward to speaking with you when we hold our next conference call on the 13th of May.

Thank you, sir. Ladies and gentlemen, this does conclude the Fossil Q4 earnings conference call. Thank you very much for your participation. You may now disconnect.