Eric Cerny - Kosta N. Kartsotis - Chairman and Chief Executive Officer Dennis R. Secor - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer.

Randal J. Konik - Jefferies LLC, Research Division Omar Saad - Evercore ISI, Research Division Simeon A. Siegel - Nomura Securities Co. Ltd., Research Division Rakesh Babarbhai Patel - Stephens Inc., Research Division Dorothy S.

Lakner - Topeka Capital Markets Inc., Research Division Erinn Elisabeth Murphy - Piper Jaffray Companies, Research Division Edward J.

Yruma - KeyBanc Capital Markets Inc., Research Division Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division Oliver Chen - Cowen and Company, LLC, Research Division Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division Barbara Wyckoff - CLSA Limited, Research Division.

Good day, everyone, and welcome to today's FOSSIL Group First Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Eric Cerny. Please go ahead, sir..

Thank you. Good afternoon, everyone. Thank you for joining us, and welcome to FOSSIL Group's First Quarter 2015 Earnings Conference Call. I'd 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 projected 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 on our Form 10-K and 10-Q reports filed with the SEC.

In addition, the company 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.

As noted in the press release filed after the close of the market and in conjunction with this earnings conference call, the company is providing new reporting segments reflective of how the company evaluates the performance of its business.

Results discussed today reflect our updated reporting structure, and restated results for 2014 can be found in an accompanying table with the press release issued earlier. Please note that you may listen to a live webcast or a replay of this call by visiting fossilgroup.com under the Investors section.

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

Good afternoon, and thank you for participating on our call. Dennis Secor, our Chief Financial Officer, is also joining us today. We will begin with our prepared remarks and then open the call to answer any questions. We are pleased to report first quarter results today that give us the belief that we are on track to achieve our goals for the year.

We continue to enjoy both the operational and strategic benefits of our diversified business model. Once again, our global operating platform and powerful brand served us well, leading the first quarter net sales and overall performance that were in line with our expectations.

Looking at the business operationally during the quarter, we continued our leadership in watches, which led our performance. We grew our own brands with both FOSSIL and SKAGEN posting solid increases, especially in watches, and we increased our business and our licensed portfolio.

We grew across all of our regions and continued to expand internationally with the strong performance in Europe. We delivered positive comps in our retail stores, and we continue to invest to drive our future growth while returning capital to our shareholders.

While there are pockets of our business that remain challenging, we're off to a good start and remain focused on delivering both our near- and longer-term objectives. We have spent several decades developing competitive advantage that have us positioned to take advantage of the growing global watch market and accessories markets.

Our expertise in design and creativity, combined with our operational competencies, including our supply chain and global distribution capabilities, enable us to partner with the best brands in the world and help each of them reach their full potential, growing our global footprint in watches and fashion accessories.

We are focused on preserving our business in developed markets and replicating that great success in newer markets where our potential to gain market share is substantial. We have built a strong and scalable operating platform, capable of leveraging our great strengths in design, manufacturing and distribution.

In the first quarter, we made progress on the key areas of strategic focus for us that we outlined on our Investor Day in March. As we shared on that day, we feel very strongly about the company's future and our ability to extend our leadership position in the growing watch and accessories markets.

Growing our own brands, FOSSIL and SKAGEN, enhancing our digital capabilities and bringing to market compelling connected accessories are all critical elements of the strategy, and we advanced our cause in the quarter.

For the FOSSIL brand, in like-for-like currencies in the calendar, we grew the brand 6% for the quarter, with increases in all of our regions and solid growth in watches and leathers.

While we are still not yet where we want to be with the brand, we're seeing encouraging sell-out trends in our American wholesale business in both these categories and strong acceleration in Asia, where we believe we are gaining traction in building brand awareness.

We continue to focus our efforts in marketing to build awareness to ignite the FOSSIL brand, and while it's still early, we remain encouraged by the results, including delivering positive comps across our global fleet of retail stores.

We are continuing to build our analytic capabilities to help focus our investments in the brand to drive stronger returns both for this year and beyond. For SKAGEN, the progress we are making is very encouraging. Like-for-like SKAGEN sales increased more than 20%, with solid double-digit increases in all regions.

Watch performance led the business and we're also seeing positive responses to both leathers and jewelry. We continue to see great potential with SKAGEN as we further develop the brand and expand the distribution globally. In digital, our goal is to build world-class capabilities over the next 2 years.

To remain competitive and relevant, we have to enhance our digital experience, creating a better connection with our customers and evolving to meet the needs of today's consumers. In the quarter, we made excellent progress in extending our social presence and improving our CRM capabilities to communicate with customers in a more targeted way.

Our goal for the year is to further enhance the customer experience with a redesigned website optimized for mobile and a rollout of tablet devices to all of our full-priced stores in the United States in order to support sales and our CRM efforts.

We're also investing in key foundational components like order management and point-of-sale systems to further extend our omni-channel capabilities. When it comes to connected accessories, we feel very strongly about both our progress and our prospects to be a strong catalyst for growth in the category.

There's a lot of consumer interest in the space and a wide diversity of perspectives on the role that smart watches and other connected accessories will play in the market.

With our partnerships with Google and Intel, coupled with our ability to create fashion at scale, we believe we have a significant opportunity as the convergence of fashion and technology enables us to bring compelling tech-enhanced accessories to the consumer.

We continue to make progress, and we look forward to launching later this year with FOSSIL products in stores for holiday 2015. At the core of our objectives is to leverage what we do best and to extend our leadership position in watches.

With our strategic advantages in design, production and distribution, our objective is to gain share in the global watch market. In February, we added Kate Spade New York to our portfolio and began shipping the products in March.

This is an emerging brand with global appeal, and we are looking forward to further developing the products and the distribution over the next few years. Additionally, last month, we partnered with the Ralph Lauren Corporation to develop watches under the Chaps label that will further enhance our portfolio.

The Chaps label complements our multi-brand portfolio with opportunities for new price points and distribution channels. We look forward to leveraging our competitive advantages to help expand the brand's global footprint.

We're working with all of our brands to help them achieve their full potential and drive global growth by leveraging our operating platform and competitive strengths. During the first quarter, on a like-for-like basis, our multi-brand watch portfolio grew 3%, with the strongest growth in Europe.

We believe our international markets represent a great opportunity to gain share and to benefit from global category growth. We saw growth across Michael Kors, Armani, Diesel and continue to benefit from the launch of newer brands like Tory Burch.

Looking at our results regionally, we continued to benefit from a diversified geographic model, with each of our regions growing on a like-for-like basis during the quarter. This includes the Americas where we grew by 3%, a sequential improvement from last year's fourth quarter.

Our retail business continues to improve with positive comps across the fleet. While wholesale sell-in increase U.S. department store sell-out trends were mixed, with some brands accelerating, while others have not been as strong. There's a lot of this disruption in this market right now with new entrants and existing brands that are maturing.

While we do see growth from other markets like Latin America, our focus is on our U.S. wholesale business is to protect the significant share that we have built over the years. Europe continued to be strong for us, with a 9% increase with solid performances in our larger markets such as Germany and the United Kingdom.

We continue to see white-space opportunities to grow in new markets and to add more of our brands to our existing distribution. In Asia, sales grew by 4%, and while we experienced stronger performances in markets such as Japan, Australia and India, we are working hard to address opportunities to ignite growth across the region.

Our infrastructure investments are largely in place and now we are focusing our resources on increasing brand awareness and adding distribution to advance all of our brands in the region. While the Asian watch market is the largest and fastest-growing globally, it remains dominated by traditional watch brands and higher price points.

We remain confident that as the middle class emerges in key markets like China, we are well positioned to benefit from the same market dynamics that helped drive our significant share gains in the United States. So with the first quarter behind us, we feel we're on track.

We remain confident in our strategies and are focused on building our brands, developing digital and advancing our connected accessories in an advantaged way. We're restructuring our operating model and shifting our investments away from infrastructure towards direct growth-driving initiatives.

And while there are challenges, especially in the near term, we are very excited about the long term. We operate a very diverse business model with many levers of growth.

Our operating model gives us opportunities for leverage and efficiencies to drive growth, and our strong financial position gives us access to the fuel that we need to drive our business and to deliver solid returns.

We continue to expect that 2015 will be another year of progress towards our overarching objective, which is to deliver sustained growth and solid returns for our shareholders over the long term. And now I'll turn it over to Dennis for more comments..

to invest in our own brands, FOSSIL and SKAGEN; to invest in building our digital platform and enhancing the online experience of our customers; to invest in connected accessories and leverage the partnerships that we are building to bring fashion to the space; and of course, to use and optimize our portfolio of lifestyle brands to extend our leadership position in the growing global watch market.

As we said before, nearer-term challenges remain. Newcomers are entering our market, and managing the natural ebbs and flows of brands in the life cycle is an imperfect science. Consumer shopping behaviors are changing at an unprecedented rate, and we continue to be cautious in the United States.

This is our most developed market, and we are actively engaged in protecting our position, seeking new opportunities for growth and working to replicate our great success here in international markets. With these near-term challenges, we see even greater longer-term opportunities.

Kate Spade New York brings another of the world's hottest fashion brands into our portfolio and it can be a powerful weapon to preserve and gain share. We are well positioned to take advantage of favorable market demographics to expand the penetration of fashion brands in growing international markets.

Our research supports significant growth opportunities for both FOSSIL and SKAGEN, and we are focusing more target investments to support this. There are both near- and longer-term opportunities to leverage our full brand portfolio to grow in our well-developed global distribution, and we see levers such as price to drive top line growth.

We're seeing success with our initial price adjustments and are implementing more that we'll roll out later in the year. The only significant change to our outlook for this year relates to foreign currencies. While the U.S. dollar strengthened further in the quarter, it has weakened significantly in the last couple of weeks.

And we are updating our outlook to reflect that volatility using a range that roughly aligns with our initial 2015 guidance rate on the high side and more current prevailing rates on the low side. So with respect to sales, we continued to expect full year sales growth in the range between 3% and 7%.

This excludes the impact of last year's extra week, a roughly 1.25 point headwind as well as currency headwinds, which, based on our assumptions, would range between 5 points and 6 points. We see opportunities for current sales trends to improve modestly in the middle quarters as we benefit from the addition of Kate Spade to our portfolio.

We expect the bigger opportunity for a more accelerated growth rate in the fourth quarter as we anniversary last year's performance and also benefit from the step-up in marketing investments, which are targeted for the second half of the year to support the most important selling seasons.

For the second quarter, we expect constant dollar sales growth in the range of 4% to 6%. We expect currency headwinds on sales will be most severe in the second quarter, roughly 6.5 to 7 full points, begin to lessen in the third quarter and diminish even more in the fourth quarter, though certainly still significant.

Based on these assumptions, for the full year, we now expect reported GAAP sales in the range between a 1% increase and a 4% decrease, and for second quarter reported GAAP sales to decline between 0.5% and 3%.

With respect to gross margins, excluding the impact of currencies, we continue to anticipate gross margin expansion, driven by continued favorable international mix, along with our pricing and margin-enhancement initiatives.

We expect the greatest opportunity for expansion will come in the second half of the year, when more of our pricing changes will be implemented and as we anniversary last year's handbag liquidation and the outlet promotion strategy, which we implemented later last year.

Based on our currency assumptions, the currency headwind on gross margins, which we estimate in the range between 2.5 and 3 full points, should generally follow the same pattern -- quarterly pattern of sales, though roughly 1 quarter delayed, as currencies first impact inventories and only affect margins once products are sold.

So we would expect the third quarter to absorb the greatest gross margin decline. We also expect that the offsetting nonoperating gains related to our foreign currencies contracts should roughly mirror the currency impact on gross margins, but will also be impacted by the underlying sales volume, which is highest in the fourth quarter.

Regarding expenses, with the first quarter now behind us, and given our sales expectations, we continue to expect to generate leverage from our overall infrastructure and store expense base, including some initial benefits from our restructuring efforts.

We expect the total annual expense rate to increase year-over-year, given the additional $35 million or $0.50 per share that we plan to invest this year to support our marketing and brand-awareness activities, our digital strategy and to develop connected accessories.

The concentration of these investments will occur during the second half of the year to support the key selling season. We expect to incur about $8 million or roughly $0.11 per share of this year's $25 million in restructuring charges in the second quarter as we enhance our operating structure.

Given these factors, along with this year earlier Basel fair, which already impacted the first quarter, we are expecting our overall second quarter expense rate to decline slightly.

Given these assumptions, we continue to expect full year adjusted operating margins, excluding both the impacts of currencies and the restructuring charge, in a range that is roughly flat to down 80 basis points. Including our currency assumptions, we now expect full year reported GAAP operating margins in the range between 11.5% and 13%.

For the second quarter, we expect reported GAAP operating margin in the range between 8% and 9% and adjusted operating margin in the range between 11.5% and 12.5%.

Given all these factors, along with continued share repurchases, we continue to expect reported GAAP full year earnings per share at $6.05 on the high side, and given our updated currency assumptions, at $5.25 on the low side.

This includes a net unfavorable currency impact between $1.20 and $1.40 per share and a $0.35 impact related to restructuring charges. On a constant dollar basis, excluding restructuring charges, adjusted EPS would be in the range between $7 and $7.60.

For the second quarter, we expect reported GAAP earnings per share in the range between $0.80 and $0.91. This includes a net unfavorable currency impact of about $0.27 and $0.11 related to restructuring charges. We now expect capital expenditures between $110 million and $120 million.

Our plan is to support fewer openings of stores and a shift toward investments to build our digital and CRM capabilities as well as incremental shop-in-shops. So now I'll turn the call back over to the operator for your questions..

[Operator Instructions] And we'll take your first question from Randy Konik with Jefferies..

So I guess I just wanted a little more clarification on your comments around -- on the wholesale channel distribution, your sell-in versus sell-through. It sounds like you said your sell-in improved on a sequential basis versus the prior quarter and yet your sell-through was a little mixed.

I just want a little bit more expansion of what your partners are seeing there and why is the sell-through mixed from your perspective? Is it mixed by brand in the department store channel distribution? And then lastly, when you just say you want to focus on -- in the U.S.

wholesale channel, protecting your market share, what do you mean by that? And what actions do you think you have to take to protect that share, if any?.

Well, to begin with, I would caution you to remember that on a quarter-to-quarter basis, it's hard to tell exactly information about sell-in and sell-through because we're not direct to retail.

Having said that, we mentioned about fourth quarter last year that our shipments to stores were not -- they were negative and our retail sell-out during the quarter and our wholesale partners was not as negative.

So I think what we're saying now is we're seeing the reverse in the first quarter as our sell-in to those accounts in the first quarter was actually better than their sell-out. So part of that could be we shipped less in the fourth quarter last year. And so if you balance it on a -- 2 quarters put together, it may not be an impact at all.

So I'll just caution you to look at the entire year when it's done and probably get more information from that. So our focus really is -- obviously, the market's in a very disruptive phase. We're seeing -- in our wholesale partners in the United States, we actually are seeing, as mentioned, their declining business there.

Keep in mind also that first quarter is a relatively small part of the year. We still expect, and always have, is that 40% of the retail sales in watches happen in the fourth quarter. So -- but having said that, we're seeing declines in there and also there's a lot of disruption. Obviously, there's a new entrant in the market.

We're not sure if there's some impact on the consumers' side to see what that new entrant's products look like, et cetera, but they have yet to be seen. So our mission is really -- we have a big share in the market and we've got a lot of initiatives in place to continue to grow the U.S.

market and we're seeing strong -- we're seeing growth in FOSSIL and SKAGEN. We will have accelerated demand-creation activities as well as our omni-channel activities in the back half of this year that we think we can continue to grow those faster. We still, obviously, have -- Kate Spade is new to the market.

Tory Burch started in the fourth quarter last year, so we got 3/4 of the year to start that. Both those brands look like they have significant long-term potential. We also are looking at launching wearable technology in the back half of the year in the fourth quarter. We think that can add some fuel to the fire in the U.S.

So we're being very aggressive in the U.S., and we think we have some initiatives in place to fuel growth..

And next, we'll hear from Omar Saad with Evercore..

On the question that -- to kind of follow on Randy's question on the market share, to be clear, is the strategy for the U.S.

market, which is your biggest market or your more -- most mature market when it comes to the watch portfolio, is the strategy to protect market share by bringing in these new licenses, things like Kate Spade, Tory Burch, Chaps, it sounds like it's a pretty new development.

And how do you balance that versus strategies to grow the market as the market share leader? How do you think about growing the market and the possibility that the market share leader could garner, significantly gains that you can get the watch category as a whole going? Or is it basically mature at this point?.

Yes. Good question. What -- if you look at the last 5 years and how much the U.S.

department store business especially has grown in watches, because we had been very disruptive, bringing in new brands to market at higher retails, more features and functions, more innovation and new ideas, and it really created quite a lot of growth at really high margins in the department stores.

So we're kind of in a transition phase right now, where our objectives really are to continue to grow the existing businesses we have. We have a lot of new product initiatives in place that we think can fuel that. And we do have a lot of interest in wearable technology.

We think we're in a situation where consumers are very, very interested in this convergence of fashion and technology. So our objective is to put some of this technology, which could be notifications, sensors, other types of activity, in our watches that could add value.

And when you leverage across the large scale, large numbers of units that we have, we could be in a situation where we could add a lot of value to the products, with not a lot of expense and have another series of disruptive growth in our business and really change the market in the U.S. And that's really what we're working towards.

We think it's quite a significant opportunity, and we're looking at it from that perspective. We do think that we have an opportunity to bring new ideas and compelling products that are tech-enhanced that millennials will embrace.

And again, keep in mind that millennials largely have not been wearing watches because they grew up with cell phones and, obviously, they're very interested in technology. And we think it could be a long-term opportunity for us..

From Nomura Securities, we'll hear from Simeon Siegel..

All right. Recognizing I'm probably misreading this, there's a lot fun to go through over here. I think, if I'm reading the press release correctly, the new margin structure has the U.S. as the highest operating margin and Asia is the lowest. Correct me if I'm wrong, but can we just talk about, for a minute, why that is? I think the U.S.

has the most stores, which was the lowest margin and also, it was previously the lowest wholesale margin. So I guess, any color you can provide there and maybe the right way to think about kind of a new geographic economics, the right way to think about the go-forward margin opportunity would be helpful..

Sure. I mean, the way you -- to try to understand the previous reporting structure to this one, before, you had all the inter-company profits sitting in Asia. So now we've redistributed those to the actual underlying selling region. We've also been able better to differentiate some corporate costs that were sitting in the U.S. wholesale business.

Now those are really corporate activity. So at the end of the day now, the -- and you see also the impact of taking the direct businesses and reallocating those to the underlying geographic region. So you've got -- the Asia region is the smallest of our regions. It's about 1/3 of the size of the overall U.S.

or American business, with a fully developed infrastructure there that provides significant amount of opportunity for leverage over the long term, but it has to grow to ultimately fully absorb the cost of that infrastructure. So the margin structures are different in each of those businesses in Asia.

You've got higher gross margins, but you also have a much heavier concentration of concessions, which carry a significant amount of expense as well. So again, we've realigned that.

We've absorbed the direct businesses into those regional structures; aggregated the corporate costs, those costs that solely relate to central expenses, and reported it that way, with the biggest opportunity for margin gains as the fastest -- long-term fastest-growing region could be Asia as it fully absorbs all those fixed costs..

And so just thinking through going forward, so what is the -- I guess the implication, as you continue to expand Asia and then Europe as well, just on the margin, I mean, how do you view the margin holistically?.

Well, the margin holistically, we view as there are opportunities across the whole organization to leverage our infrastructure, our strategy, as we shared on our Investor Day a couple -- or 2 months ago, was to create -- or use that capacity that would create in all regions, and then redeploy that to drive top line initiatives across all our regions with the biggest being in Asia over time.

So our goal right now again, as we shared on that call, was that we are -- we see the biggest opportunities for us. And the very compelling opportunity is to invest in growth. And where we are in our life cycle, we think that's the appropriate way for us to manage our operating structure..

Next, we'll hear from Rick Patel of Stephens Incorporated..

Can you talk about the indications of interest for wearables that you plan to roll out later this year? What do your big wholesale accounts think about this? And do you anticipate staying in the same shelves that you're in right now for department and jewelry stores? Or will you get incremental shelf space? Just help us think about the rollout..

Well, as we've been talking about that we're going to launch some products late this year, and it won't -- it's not going to be of significant numbers this year, but as I mentioned before, there's really a huge amount of consumer interest on this whole idea of the convergence of fashion and technology.

One of the things to keep in mind is the department stores are very interested in this because they perceive there to be consumer demand.

But there's another issue here also, which is, if you look at the -- the watch business is about $65 billion globally, relatively a small industry, whereas, the tech industry, which includes smartphones, cell service, iPads, all the activity has gone to the technology world. The spending in there is huge.

So just a small percentage of that spending and interest, when it comes in the watch business, it could have a huge impact on the watch business and make it much, much larger. A lot of that spending or most of it is not happening in the department store where our customers are.

So our mission is really, in a disruptive way, to bring some of these technologies and ideas to the brands and enable us to add additional functionality at not a lot of cost could make the watch category more relevant and could bring a significant amount of sales into the channels that we sell to.

And that's what we're working on, and we think it's a pretty big opportunity..

From Topeka Capital Markets, we'll hear from Dorothy Lackner..

Just wanted to go back to the North American wholesale business a minute and just kind of ask I guess maybe a bit of a philosophical question. Where do you think this is going? You talked about the newer brands, the Chaps with Ralph Lauren. Tory Burch, obviously, is still very small, Kate Spade.

You haven't even gotten to putting your own product in the stores as well as some renewed strength in FOSSIL and strength at SKAGEN.

So what has to happen to that business, do you think, to make it better? Does the space need to shrink? Just what do you see your partners doing? And what are you advising them to do?.

Well, we have a lot of levers to pull across all our brands and we have a lot of product initiatives in place in every brand, a lot of ideas about how we can change the customer experience at the point of sale, enhancing the presentation better, more storytelling, in addition to some enhanced brand-building around FOSSIL and SKAGEN and the new brands that we have.

We just think we have a lot of ammunition. So having said that, I look at the first quarter and sales were down at the department stores. We're in a -- there's obviously a big new entrant into the category. We're not really sure exactly what impact that will have on the overall watch market.

We do think that long term, as I mentioned, I think it's a net plus for us and could be a significant advantage for us. But we're looking at the entire market and how can we gain share.

And the Chaps opportunity I think, is one where, if you look at the market, the watch market globally, over the last several years, as we've put more feature function, more innovation, we've raised the average unit retail across all our brands from Fossil all the way up.

And we do have a sense that there -- it's created because we've elevated all our price points so that there's -- created some white space below most of our brands in a more valued way. So there is some distribution we sell to in the U.S.

and globally that has been disadvantaged because they don't have access to all those brands that they've been disadvantaged, and there's a pretty big opportunity.

If you look at the value channel and if you look at their watch business, they're very under-penetrated compared to stores that are -- modern department stores and above, just because they don't have access to brands.

So part of this Chaps opportunity is for us to bring energy, design, innovation and branding to stores that may not have the potential to get other brands. And it could be a pretty big opportunity for us to round out our portfolio and to give us additional market share. So that's what that's about.

But we're, in general, just being very aggressive with the U.S. the market. We continue to believe that we can make it bigger and grow all our brands and take share over time. And we do expect that the expectations are still that the market will grow over the next 5 years.

We've seen indications from mirror monitors [ph] it's going to grow single digits. That's before the wearable technology entrants are in there. So we're not sure exactly what the market's going to do, except that we're going to be very aggressive and go after it..

From Piper Jaffray, we'll hear from Erinn Murphy..

You guys talked about taking price.

Can you elaborate a little bit more about what you've done thus far across the portfolio, either by brand or by region? And then I guess, within the growth margin assumptions for the year, what are you including for the past year [ph] of price increases?.

So we have -- as we mentioned, have taken price increases, moderate price increases, across all our brands globally, obviously, focusing especially on Europe where the euro is quite different than it was. And we have taken some of those earlier this year. There's another round of that going later this year. We're watching it very carefully.

So far, we've seen positive results from our price increases, and we'll see how it goes out for us next year..

In terms of margin expectations that we -- they -- assuming that they continue to perform as we anticipate, you'd start in the first quarter, and we would expect to see a build of a tailwind as we move through the year..

And Dennis, is that in the guidance as you see it today?.

We've made that assumption right..

Next, we'll hear from Ed Yruma from KeyBanc Capital Markets..

I was wondering if you could give a little bit more color on the other income line. I know that, that's where the lot of hedges fall.

So should we assume that, that kind of flows in accordance with the FX impact? And kind of what quarter should see the biggest benefit there?.

Sure. That should follow the trend. That should roughly mirror, not necessarily to -- in fact, not to the same extent, because we don't fully hedge.

But that should roughly mirror the gross margin impact, which, in my prepared remarks, I said would build -- based on our currency assumptions, would build and likely peak in the third quarter and then begin to tail off. The only thing to think about is though, you got to -- it's a function of volume as well in the fourth quarter.

Because even though the fourth quarter headwinds will not be as significant, you should still expect a fairly impactful impact on the bottom line or on the -- below the line there..

From Goldman Sachs, we'll hear from Lindsay Drucker Mann..

I was hoping to get a little bit more clarification on what your sell-throughs have been. I understand that it's obviously going to have some volatility quarter-to-quarter and that there's probably an overhang from the Apple Watch launch.

But with the assumption that shipments ultimately catch-up to what your sell-through is, can you help us understand what the run rate 4Q, 1Q, sell-through has been at department stores where you have visibility? And also how much department stores make up of your total U.S.

wholesale business?.

Well, we don't give exact numbers. And what we've said on our fourth quarter is that our sell-out was not as bad as our sell-in, and we're saying the reverse in the first quarter. So other than that, we're not giving any numbers or statistics. And quite honestly, there's so many moving parts to it.

It's really difficult for us to even ascertain exactly where they are and what's going to happen the rest of the year and pipeline fill and reverse pipeline fill. You could spend a whole quarter trying to study what happened. At the end of the day, it doesn't make that much difference because something else will change..

I mean, our goal is to really -- particularly we've had -- last year as an example, we had a lot of volatility on the sell-in. So we use that just as another bit of data to help people understand the overall performance. But in a thin window of time, it's a data point. It's not something that we interpret as a trend.

We just want to share and characterize what we are seeing..

Is it fair to say, though -- I think you said it before, I just want to make sure, that sell-through has been negative fourth quarter and it got a little worse in -- it got worse in the first quarter sequentially..

Yes, it was fairly consistent throughout last year in a quarter-to-quarter basis. And so far in the first quarter, the data deteriorated a little bit, with -- we highlighted the biggest brands and noted too, FOSSIL and SKAGEN, have continued to improve..

From Cowen and Company, we'll have Oliver Chen..

Regarding the organic -- the constant currency North America, so just -- it's difficult to line up the quarter. So I mean, should we expect this to inflect to negative and positive just as we think about the rest of the year? It feels like on the retail side, retailers could continue to be tightening their inventory.

And Kosta, on the wearables paradigm, is your average unit retail at the FOSSIL banner going to be at the same $100 to $200 range? And as we look at the back half, is that sell-in going to occur on the wholesale side as well?.

We didn't specifically -- in terms of how we're thinking about the year and the trend, we did and continue to plan the department store business, I think reflective of where we are in this cycle. We're not expecting growth coming from department stores or overall in the United States.

We are continuing to expect favorable trends in our retail business. And we're making continued investments to support that, particularly into the holiday season. And we're also seeing growth coming from international markets in the Americas. Latin America was strong. Canada was strong. So we're not expecting the growth.

And certainly, the performance, as we said, kind of the overarching message of the first quarter is that the business is roughly performing the way we planned it..

On the wearables side, we are....

With Dennis, are you just saying negative then -- you're saying negative for the full year constant currency North America wholesale?.

We didn't give -- no, what I'm saying is we didn't give specific guidance, but we're planning. Those department stores, we're not expecting to see growth there in the United States..

And on the wearables side, there is a small assortment of items from jewelry, which is bracelets up to watches, and the price points would be in the $1,200 to the $300. So it's an assortment products of different prices..

And that benefits the wholesale side, Kosta, like just to be clear?.

Yes, that'll be in our retail stores and our wholesale..

Okay, and the FOSSIL brand, not Kors or FOSSIL brand?.

FOSSIL brand will be this year -- we'll have a suite of products for Kors next year and some other brands..

And from Sterne Agee CRT, we'll hear from Ike Boruchow..

Dennis, on the restructuring costs, in Q1, I'm sorry if I missed this, what exactly does the $12 million represent in restructuring? And so does that $0.13 hit that took place in Q1 and you're guiding $0.11 in Q2, how does the remaining $0.11 in restructuring split between Q3 and Q4 for the fiscal year to get you to that $0.35?.

So the first quarter, what we -- it's mostly some reorganizations of building and optimizing our structure here as well as the closure and re-purposing some of our retail stores. Actually, we got more done in the quarter than we had planned, so the charge was a little larger.

And then the remainder should -- we should be done probably mostly by the end of the third quarter. There might be some lingering impact into the fourth quarter. But the lion's share is in the first half and some in the third, a little bit in the fourth..

Next, we'll go to Barbara Wyckoff with CLSA..

Can you talk about the timing of Chaps? Do we assume that's next spring or this year? And the traffic and conversion in e-commerce and mobile channels, can you comment on that with improving capabilities this year versus last?.

Chaps will be out next year. And as you know -- strong brand, it does have some international component to it, and we're looking forward to working closely with them and helping build the brand and creating great product and taking it into market. So we're very excited about that.

Our e-comm business, we don't have all the metrics in front of us right now. So we would say that our e-comm business, we're continuing to grow it. We have a lot of initiatives in place based around our omni-channel capabilities, our CRM, et cetera, and how that fits in with the stores.

And as we've mentioned, we're putting iPads in our stores in the next couple of months. So we're expecting a more robust activity over time on our website..

And ladies and gentlemen, that is all the time we have for today's questions. At this time, I would like to turn the conference back over to Mr. Dennis Secor for any additional or for closing remarks..

Sure. Thank you, everybody, for joining us today and for your interest in the Fossil Group. Look forward to speaking again with you when we hold our next quarterly call in mid-August. Thank you very much..

And with that, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation..