Good afternoon, ladies and gentlemen, and welcome to the Fossil Group Third Quarter 2020 Earnings Call. At this time all parties are in listen-only mode. This conference call is being recorded and may not be reproduced in whole or in part without permission from the company. Now I'll turn the call over to Christine Greany of The Blueshirt Group to begin.

Hello, everyone, and thank you for joining us. With us today on the call are Kosta Kartsotis, Chairman and CEO; Jeff Boyer, Chief Operating Officer and CFO; and Greg McKelvey, EVP and Chief Commercial Officer. I would like to remind you that information made available during this conference call contains forward-looking information, and actual results could differ materially from those that will be discussed during this call. 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 the company's Form 8-K and 10-Q reports filed with the SEC. In addition, Fossil assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. All references to sales during today's call reflect constant currency results unless otherwise indicated. Please note that you can find a reconciliation and other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8-K and is available in the Investors section of fossilgroup.com. With that, I will turn the call over to Kosta to begin the formal remarks.

Good afternoon, everyone, and thank you for joining us today. We hope everyone is staying healthy and safe. We would like to start by expressing our gratitude to the entire organization for delivering strong execution in the third quarter. Our financial performance exceeded our expectations and we continue to make progress on our four strategic priorities. During the past eight months, our teams have demonstrated tremendous resilience and an ability to navigate extremely dynamic market conditions. We appreciate their ongoing commitment to Fossil, and we'll continue to prioritize the health and safety of our employees, our customers, and the communities we serve. In the third quarter, we achieved net sales of $435 million on a reported basis and strong gross margins, while continuing to reduce our operating expenses. This enabled us to deliver adjusted EBITDA of $44 million, a 7% increase versus a year ago. From a global business perspective, sales trends were fairly consistent across all three regions, which includes the Americas, Europe and Asia. Notably, we saw a continued acceleration across our owned and third-party digital channels, strong growth in Mainland China and modest improvement among the majority of our wholesale partners. Sales on a constant currency basis were up 66% on our own e-commerce sites globally and third-party e-commerce increased 44% in the quarter. As expected, digital growth rates tempered somewhat from Q2 when brick-and-mortar locations were essentially closed across the globe. Core digital sales through our own e-commerce sites and third-party marketplaces represented nearly 30% of our sales mix in the quarter, demonstrating the importance of this channel and our ability to meet increasing consumer demand. Our strongest performance on a regional basis was in Asia, reflecting continued growth in China. In Q3, Mainland China represented over 40% of Asia region sales and increased 55% due…

Thanks, Kosta. While net sales declined in the third quarter, we strengthened gross margins and reduced operating expenses. Our actions allowed us to improve profitability, increase cash flow and maintain a strong liquidity position throughout the quarter. On a reported basis, Q3 net sales totaled $435 million, down 19% versus a year ago. Top line results were better than expected, primarily due to strength within our Fossil and third-party e-commerce channels, high double-digit growth in Mainland China and modest improvement within the wholesale channel globally. From a regional lens, performance in the Americas was consistent with total sales trends, contracting approximately 20% on a constant currency basis. Trends were about 5 points softer than that in Europe and down mid-teens in Asia. Within the Asia region, Mainland China delivered a third consecutive quarter of growth. Sales increased 55% versus a year ago and 44% on a sequential basis. All sales channels in Mainland China demonstrated year-over-year growth with e-commerce expanding 90%. Within our direct-to-consumer business, our Fossil owned e-commerce channel generated sales growth of 66%, while global comp sales in constant courtesy decreased 29%. In the third quarter, we ended with 431 stores, a reduction of five stores from the prior quarter. Turning to category performance, sales trends improved sequentially across the board. Total watches declined 21% in constant currency. Traditional watch sales declined 24% and connected watch sales decreased 5%. From a mix perspective, connected represented 19% of total watch sales in the quarter. Looking at gross margin, third quarter gross margin expanded 120 basis points to 52.8% versus a year ago. The increase was primarily driven by favourable channel and region mix as well as fewer markdowns compared to prior year. We're anticipating a fairly promotional fourth quarter, but we believe our initiatives around product assortment and a…

Thanks, Jeff. I have a few questions that are top of mind for investors that I'd like to turn to for a moment. The first one is for Kosta. Kosta, as you said, holiday is rapidly approaching. How do you feel about Fossil’s positioning overall in terms of innovation and brand heat? And what's new on the product front for this season?

Well, we actually think we're in a pretty good shape considering the environment. And if you look at our brands, so Fossil, Michael Kors, Armani and Diesel, just to name a few, along with all the different product offerings we put in the market, including traditional watches, smartwatches, jewelry and handbags, these are all great gifts for the holiday season and we feel like we're in pretty good shape. Our teams have been doing everything they can to drive innovation across the portfolio brands and categories, especially in our connected and traditional watch categories. So overall, we feel we're very well positioned during the holidays. On the connected watch front, our Gen 5 and our Gen 5E smartwatches have new capabilities like extended battery life, always on display, enhanced sleep and fitness tracking, and the new smaller size in Gen 5E should be a very strongly supported feature by consumers. And then, of course, there’s hybrids, which is really a unique product for customers who love to look at traditional watches, but want the functionality of a connected watch, our HR Hybrid serves that bill. So, including notifications and other smartwatch features, it has a heart rate sensor, activity tracking, sleep monitoring and the best thing of all is the battery life is a two-week time period, so you don't have to charge it up every night. In the traditional watch category, consumers are continuing to respond particularly well to our Emporio Armani product in China and we're seeing increasing interest in Kors’ product, both in China and in the United States. Broadly speaking, we are seeing improving trends in our brands returning to their classic looks with logos and strong signature elements. In Fossil, we're seeing strong response to sports and athletic trends, especially in our diver watch, which comes in a lot of different shapes, sizes and colors, and should be a strong seller for holiday. I would also like to add that while we are very well positioned for the holiday season, I have great new product in the market. We are retaining a conservative posture regarding sales. The health and safety issues are critical to all of us and we expect that this will cause a shift to online shopping. But in any case, we are well-prepared globally to help keep everyone safe and to deliver great product to our customers during the holiday season.

Great. Thanks, Kosta. Jeff, can you help us understand how you're thinking about cash and liquidity in the fourth quarter and also your liquidity outlook for early next year?

Sure, Christine. Given the ongoing uncertainty in the consumer environment, maintaining a strong liquidity position is absolutely one of our most important goals in the near-term. As we look at our fourth quarter, we expect our liquidity position to remain fairly stable overall. We are expecting solid operating cash flow in the fourth quarter, which we'll use to fund our working capital needs. As we move into next year, we will have some contraction in our capital structure due to some required term loan amortization, as well as reductions in our revolver due to lower inventory levels as we exit the year. So in the first-half of next year, we expect to utilize some of our available liquidity to fund these structural changes as well as to bring some of our working capital balances closer to historical levels. Given our current outlook, we expect to have adequate liquidity throughout next year.

Thank you, Jeff. A question now for Greg around digital. At a high level, how should we think about Fossil's digital agenda? And then if you can provide some granularity around digital sales and marketing, that would be great?

We've developed three pillars to our digital growth strategy. The first is our near complete e-commerce migration to one global cloud-based platform and partnership with salesforce. In addition to providing efficiencies and an improved customer experience overall, we're seeing a sustained 60% or greater increase in our conversion rate versus prior year and meaningful increases in average order value has resulted the features our teams have implemented, which include artificial intelligence driven cross-sell and up-sell, which serves up targeted and personalized content and recommendations throughout the online customer journey; a digital wallet suite that gives our customers an easy and flexible transaction, now also including an interest-free installment option powered by PayPal; an augmented reality tool that allows our customers to virtually try on a watch on their own risk using the camera on their mobile device; a virtual selling pilot, where at the click of a button our customers can enjoy the expert advice and personalization of an in-store sales associate who can not only offer advice, but also fulfill the order right there using our ship from store capability. Not only is this a great customer experience, is also a really efficient use of our sales associates, store infrastructure and inventory assets. And lastly, our e-commerce, IT and logistics teams have partnered to not only rapidly implement and scale modern day fulfillment capabilities, including buy online pickup in store, ship from store and curbside pickup, but also to significantly expand our e-commerce capacity in our warehouses to near flawlessly handle unforecasted and sustained peaks in online demand throughout the year. The work that teams have done is truly inspiring, but to see it show up in the results so quickly tells us we're definitely on the right track. Our second pillar is to be the watch category leader…

Thanks, Greg. Appreciate that. Now I'll turn the call back to Kosta for some closing comments.

Well, thanks to everyone for joining us today. We greatly appreciate the ongoing support of our investors and wish everyone a healthy and safe holiday.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.