Slide 1: Investor Presentation September 2018
I N V E S T O R P R E S E N TAT I O N September 2018
Slide 2: Disclaimer
DISCLAIMER Certain statements contained herein that are not historical facts, including multi-year profit improvement estimates and the success of our connected accessories, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve
Slide 3: Fossil Group Situation Summary
FOSSIL GROUP SITUATION SUMMARY • Product and channel shifts continue FY 2017 & • Company transformation underway FY 2018 • “Smaller & More Profitable” philosophy initiated • Moderation in category and channel shifts Mid-Term • Company transformation continues FY 2019 & • “Smaller & More Profitable”
Slide 4: Who We Are
WHO WE ARE Portfolio of Brands Multi-category Digital First Focus Traditional Smartwatch Leathers Jewelry Differentiated software 20+ languages 50+ countries Branded apps Smartwatch dials Branded custom watch apps 4
Slide 5: Investment Highlights
INVESTMENT HIGHLIGHTS Uniquely Positioned To ‘Own the Wrist’ • Leader in the growing “multi-segment” watch category • Traditional watches: $33 Billion market, with expansion in emerging markets • Connected Wearables: $14 Billion market, expected to reach $33 Billion by 2021 • Leading the convergence
Slide 6: Significant Market Opportunity
SIGNIFICANT MARKET OPPORTUNITY Fossil Group’s Addressable Market Expected To Increase By Nearly 50% • Adding technology has enabled Fossil Group to expand the addressable market to include not only traditional fashion watches but also the connected wearables category • Fossil Group is even more comp
Slide 7: Global Watch Market Growth
GLOBAL WATCH MARKET GROWTH High growth and significant size - highly attractive 2021 Market Size And Projected Growth By Product Type And Country Some growth and/or size - somewhat attractive (Below $1000) Declining market – less attractive USD, Billions USA Mexico Brazil UK Germany France China Ind
Slide 8: Regional Growth Opportunities
REGIONAL GROWTH OPPORTUNITES • Connected growth in the U.S. • Direct to Consumer expansion across the region, Americas including owned and 3rd party e-commerce • Canada and Mexico growth across watch categories • Further connected expansion in major markets • E-commerce growth across Eurozone market
Slide 9: Competitive Advantages
COMPETITIVE ADVANTAGES Horizontal Advantage Vertical Advantage Technology Advantage RETAIL DISTRIBUTION HYBRID DISPLAY SOURCING DESIGN Team Platform 9
Slide 10: 2018 Strategic Initiatives
2018 STRATEGIC INITIATIVES We remain focused on stabilizing and returning our core watch business to growth, bringing more innovation to connected products, and driving efficiencies throughout the company while investing in our e-commerce and digital opportunities 1) Improve profitability Four 2) In
Slide 11: Improve Profitability
1 IMPROVE PROFITABILITY Fossil Group adapted to a rapidly evolving consumer landscape • Disruption in traditional watches and traditional retail driven by expanding Issue influence of e-commerce and technology • Acquired Misfit to enable the capability necessary to meaningfully grow connected while
Slide 12: Improve Profitability
1 IMPROVE PROFITABILITY • Connected expansion offset by traditional declines • Innovative technology and designs driving connected • Store closures, business exits, and license terminations negatively impacting sales performance approximately 500 basis points 2018 • EBIT margins expand • $140 millio
Slide 13: Innovate Product Offering
2 INNOVATE PRODUCT OFFERING The Watch Category is Evolving Quickly • We are now positioned to compete in both traditional and connected watches Product From clear cut …to a scaled offering based on category product groups… feature set Full features Advanced display connected wearables A display watc
Slide 14: Innovate Product Offering
2 INNOVATE PRODUCT OFFERING Our objective is to infuse technology into traditional watches and to infuse fashion and our global resources into connected 14
Slide 15: Connected Market Segmentation
2 CONNECTED MARKET SEGMENTATION Source: Euromonitor International 15
Slide 16: Gen 3 vs. Gen 4 Comparison
2 GEN 3 VS. GEN 4 COMPARISON Gen 3 Gen 4 Fossil Q Venture, Q Explorist Fossil Q Venture HR, Q Explorist HR Michael Kors Access Sofie, Grayson Michael Kors Access Runway Emporio Armani Connected Emporio Armani Connected HR Diesel Full Guard Diesel Full Guard 2.5 Misfit Vapor Misfit Vapor 2 Skagen Fal
Slide 17: Gen 4 Product Features
2 GEN 4 PRODUCT FEATURES Regular Reminders: Don’t forget Personalized Customization: Log Your Downward Dog: Tap & Go Payments: Use Google to take your vitamins! Set reminders Change your watch face to match Select Yoga from Google Fit tracking Pay to grab a smoothie with your card & alarms so you do
Slide 18: Connected Offering Comparison
2 CONNECTED OFFERING COMPARISON Gen 4 Apple Apple Samsung Fitbit Fitbit Versa Garmin (Falcon/ Series 3 Series 3 Gear s3 Ionic fenix 5 Raven) LTE Pricing $255+ $329 $399 $349 $299.95 $199.95 $549.99 Wear OS OS watchOS watchOS Tizen OS Fitbit OS Fitbit OS Garmin OS by Google 38mm, 11mm 38mm, 11mm 41mm
Slide 19: Expand Ecom & Digital Marketing
3 EXPAND ECOM & DIGITAL MARKETING • Media spend mix continues to shift digital; now have more than 90% of marketing invested in digital channels, including social media, digital media, and paid search • Continuing to expand celebrity influencer activity along side hundreds of additional brand ambass
Slide 20: Transform Business Model
4 TRANSFORM BUSINESS MODEL The Industry is Evolving… Product category Geographic market Purchase channel More than 2 of every 5 wrists Developing countries Over 50% of watch sales will be wearing will make up almost 2/3 will take place online some form of connected watch of the traditional watch mar
Slide 21: Transform Business Model: NWF 2.0
4 TRANSFORM BUSINESS MODEL Raising the game on New World Fossil (“NWF”): NWF 2.0 What we’ve accomplished… Maintaining sustainable impact… NWF 1.0: Right-Sizing NWF 2.0: Refocusing • Right-size organization given recent market • Refocus organization on prioritized shifts and financial realities consu
Slide 22: New World Fossil 1.0
4 NEW WORLD FOSSIL 1.0 New World Fossil Primary Drivers of New World Run-Rate Financial Impact (USD in millions) Fossil $140M • Improved Design for Value • Product Sourcing $80M • Category & Pricing Management • Indirect Spending Management • Organizational Efficiencies 2017 2018 22
Slide 23: Transform Business Model: Our Mission is to Own the Wrist
4 TRANSFORM BUSINESS MODEL Our Mission is to own the Wrist… Profitably Reignite traditional watch through innovation Reach We will consumers… Grow connected continue to Pivot To whenever, evolve with the Accelerate and sustain China/India growth Growth wherever, industry to: however Expand online se
Slide 24: Improving Balance Sheet
4 IMPROVING BALANCE SHEET (1) End of Quarter Net Debt $ millions 516 503 488 339 326 318 295 215 233 154 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 • $362 million reduction in net debt since 2016 as a result of: • New World Fossil driving improved gross margins a
Slide 25: Capital Structure
4 CAPITAL STRUCTURE Capital Structure Philosophy Capital Structure • Significant business volatility • Current Credit Facility • Fashion risk • Term loan with amortization • March 2019: $125 million • Technology risk • March 2020: $75 million • December 2020: $200 million • Currency risk • ABL-like
Slide 26: Financial Guidance Provided August 7, 2018
FINANCIAL GUIDANCE PROVIDED AUGUST 7, 2018 Q3 2018 Q4 2018 FY 2018 Net Sales (16)% to (10)% (14)% to (8)% (10)% to (6)% Gross Margin 50% to 52% 50% to 52% 51% to 52% Operating Expenses(1) $300 million to $320 million $330 million to $350 million $1.25 billion to $1.30 billion Operating Margin (1)% t