Allison C. Malkin - Senior Managing Director Kosta N. Kartsotis - Chairman and Chief Executive Officer Mike L. Kovar - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer Jennifer L. Pritchard - President of Global Retail Division Mark D. Quick - Vice Chairman

Omar Saad - ISI Group Inc., Research Division Ike Boruchow - JP Morgan Chase & Co, Research Division Randal J. Konik - Jefferies & Company, Inc., Research Division Oliver Chen - Citigroup Inc, Research Division Barbara Wyckoff - CLSA Asia-Pacific Markets, Research Division Anna A. Andreeva - FBR Capital Markets & Co., Research Division Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division Scott D. Krasik - BB&T Capital Markets, Research Division Rick B. Patel - BofA Merrill Lynch, Research Division

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Fossil, Inc.'s First Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, May 8, 2012. I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead. Allison C. Malkin: Thank you. Good morning, everyone. 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'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, Fossil undertakes 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. If any non-GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure and a reconciliation of this non-GAAP financial measure to GAAP will be provided as supplemental financial information to this release under the Earnings Release section under the Investor Relations heading on Fossil's website. Please note that you may listen to a live webcast or a replay of this call by visiting FOSSIL's website and then clicking on About Us at the bottom of the homepage and then on Investor Relations and select Webcast. Now I would like to turn the call over to Fossil's Chairman and CEO, Kosta Kartsotis. Kosta N. Kartsotis: Thanks, Allison. Good morning, everyone. And joining us today in our Dallas office to discuss our first quarter are Mike Kovar, our CFO; and Jennifer Pritchard, our President of Retail. Mark Quick, our Vice Chairman, is calling in from our New York office today. We will give a short overview and then open up the call for questions. Our business has become very dynamic over the last few years, with sales growing more than 65% and earnings more than doubling from the 2009 level. We have many different business units across our global footprint that are in various stages of market penetration and channel development. We believe that we have a unique opportunity to create a much larger global enterprise. Both of our 2 core businesses, the FOSSIL brand and our multi-brand watch business, are positioned for substantial growth. And our focus continues to be on investing in our strategic objectives in order to deliver consistent long-term, sustainable growth. And while we fell short of our sales targets in Q1, we believe we made a lot of progress on many of the initiatives we have in place to advance our long-term strategies. During the first quarter, we were unfortunately not firing in all cylinders. Our earnings, while slightly ahead of our prior guidance, lacked the level of strength we desired. Continued weak economic conditions in Europe and parts of Asia, as well as the resultant impact of certain product line adjustments were magnified in what is historically our lowest sales quarter of the year. We must also keep in mind that in last year's first quarter, our sales were up 37% and our earnings were up 62%. In 2012, our first quarter sales, on a constant currency basis, still grew at double-digit rates, and the results continue to hit record levels. As for the FOSSIL brand, we continued on the path of presenting a clearer, more aspirational image of the brand, supported by online catalog and point-of-sale marketing. As a result, the brand has continued towards a more iconic look and feel that more clearly communicates an image of authenticity and American vintage. During the first quarter, our FOSSIL brand watches continued to increase at a double-digit rate achieving an 11% increase, which was on top of a 19% increase for the same time last year. Our Women's Handbags also performed reasonably well, increasing by 9% during the quarter. In our hindsight process, we feel we missed some business by not having enough spring color in both our watch and accessory offerings. Our sales in FOSSIL jewelry were down on a comp basis, as we are in the middle of a repositioning that cost us some sales, especially in Europe. We also experienced sales decline in our eyewear category as we were pulling back on distribution to U.S. department stores and vacating the optical frames business in Europe. Direct-to-consumer sales, led by our Fossil store business, rose 19% and comp store sales were up 8%. This followed a 21% comp store increase last year and a 20% increase from first quarter of 2010. We were pleased to see Asia lead our store comps for the quarter with an 18% increase, following a 26% gain last year. In North America, comp sales were up 11%, on top of a 26% increase last year. However, in Europe, we saw comps decline by 5%, as the weak economic environment continued to weigh down the results. Also contributing to the decrease was the initial impact of the repositioning of FOSSIL jewelry, especially in line with the fact that Europe represents our most heavily penetrated region for that product category. Over the balance of the year, we will continue to focus on increasing the productivity of our existing stores, while accelerating new openings. With 5 new stores in the first quarter and 65 lease commitments to date, we remain on track to open 70 to 75 new stores this year. The new stores will consist of our outlet and accessory store concepts, fairly equally split between locations in United States and overseas. In addition to the 5 stores we closed in Q1, we are planning to close an additional 18 less productive stores over the balance of the year. We are moving aggressively to capitalize on the opportunity we see for outlet stores for both Fossil and Watch Stations, especially outside the United States. Our outlet stores have a high ROI and represent our primary distribution channel for clearing discontinued FOSSIL and licensed product. The expansion of our locations internationally will also provide us a more efficient means of clearing discontinued product within our regional environment. Overall, we expect our FOSSIL brand sales to return to double-digit growth for the remainder of the year as we introduce our new jewelry offering, maintain our strong watch and accessory momentum and expand our retail store base and concession locations. Turning to our multi-brand watch business. Sales rose 14% globally, following a 44% increase in last year's first quarter. Highlights of our watch brands include an 11% increase in FOSSIL and a 20% rise in the sale of licensed watches. Within our license portfolio, MICHAEL KORS grew by 48%, MARC by MARC JACOBS by 67% and Armani Exchange by 46%. All these are on top of double-digit, and in some cases triple-digit increases last year. Additionally, Diesel brand grew by 23% and BURBERRY increased 14% during Q1. We expect strong increases across our license portfolio, especially as we expand into new geographies with MICHAEL KORS, MARC by MARC and Armani Exchange. As to our jewelry business, as we mentioned, we are in the process of reformulating the FOSSIL jewelry business, which we think will give it an even bigger opportunity long term. In addition, the KORS jewelry launch is going very well and we expect it to reach $30 million this year. We also will be expanding the Skagen jewelry business which we think will be very successful, especially in Europe. You may recall this is where FOSSIL jewelry started and then it grew very quickly in that market. Now I'll look at our wholesale operations. Across geographies, we saw continued momentum in North America and Asia. North America achieved a 9% increase in sales, following a 34% increase in the first quarter last year. Increases of 14% in the watch business and 14% in men's leather were partially offset by a decline in women's leather and eyewear. In Asia, sales accelerated to a 19% increase from 14% growth in the fourth quarter. Growth was led by China, where sales rose by 57%. Korea sales rose 14% against the top comparison to Q1 last year and in a somewhat softening macro environment. In Japan, a tough comparison and the soft economic conditions contributed to a 6% decline in shipments in the quarter. We believe one of the greatest growth opportunities in this region is to significantly increase the number of concessions in which we operate. During the last 12 months, we added a net 38 new concession locations with overall sales growing by 29%. Over the balance of this year, we are targeting another 65 to 70 locations, ending the year with approximately 280. While comp sales within our concession environment were generally up, overall comp sales declined 1% due to a 6% comp decrease in Korea where today, we have a larger concentration of our concession locations. That business was up 29% comp last year, and it seems the market is showing some weakness at the consumer level. Asia, of course, is a very dynamic market with a rapidly growing number of consumers that are particularly predisposed towards watches, jewelry and leather goods, and also have an affinity for global brands. In the past year, we have made considerable progress attracting talent, growing concessions and building our infrastructure to capitalize on what we expect to be a much larger, long-term opportunity. As we look ahead, we expect our multi-brand watch sales percentage growth to surpass first quarter results and drive overall Asia growth of more than 25% for the balance of the year. In Europe, sales were up 5%, reflecting solid double-digit growth in the U.K. and [indiscernible], partially offset by softness in Germany and a weakening environment in Italy and Spain. As we anticipate economic softness to continue in Europe, we are reducing our previous scoped growth expectations of mid-teens for the year down to low to middle single digits. We will continue to be very active in the market and expect to gain market share through our many initiatives in the region. We are excited about the addition of Skagen to our portfolio of brands, which we acquired effective April 2. Skagen has demonstrated a strong track record of growth. And as we mentioned on our Q4 call, it generated sales of about $120 million in 2011 and an operating margin similar to ours. Skagen's strength continued in the first quarter, with sales rising more than 25%. Skagen has a global distribution footprint with sales conducted through owned operations in United States and principally through distributor relationships in Europe and Asia. In addition, there are 13 Skagen retail locations around the world. We plan to build upon Skagen's international distribution by converting their distributor networks to our own distribution global footprint. While this transition could cause some disruption in sales during the year, as well as the potential for some one-time integration costs, we believe that from a long-term perspective, the benefits are significant. Our long-term plan with Skagen is to curate and communicate its unique Danish design heritage and to tell its story more broadly as an accessories-based lifestyle brand. In summary, FOSSIL and the rest of our portfolio brands remain strong, and we continue to present compelling product stories in additional locations around world. While certain geographies are feeling economic pressure, there continues to be strong interest in watches and accessories and considerable life space for us to pursue across our product categories. And now, I'll turn the call over to Mike. Mike L. Kovar: Thanks, Kosta. I'll start off this morning by briefly touching on our first quarter 2012 versus 2011 results from this morning's press release. Net sales increased 9.8%, 11.1% on a constant dollar basis, to $590 million compared to $537 million. Gross profit increased 9% to $329 million, or 55.8% of net sales compared to $302 million, or 56.2% of net sales. Operating income decreased 10.5% to $83 million, or 14.1% of net sales compared to $93 million, or 17.2% of net sales. Net income attributable to Fossil increased 4.2% to $58 million compared to $56 million. And diluted earnings per share increased 8.1% to $0.93 on 62.5 million in shares outstanding compared to $0.86 per diluted share on 64.8 million shares outstanding. From a sales mix perspective, our Direct-to-Consumer business picked up a 160-basis-point increase from our Wholesale business and within our Wholesale business, Asia picked up a 110-basis-point increase, primarily from our European business. Specific to our wholesale operations, North American base sales, which include operating activities in the U.S., Canada and Mexico, as well as sales to our third-party distributor partners in South America, grew by $18 million, or 8.8%, to $225 million and excluding approximately $1 million from unfavorable currency comparisons to Q1 last year, North America Wholesale sales increased by 9.3%. Sales from our Europe Wholesale operations increased by $1 million, or 0.7%, to $153 million. Excluding FX that unfavorably impacted sales by $6 million, Europe Wholesale sales grew at 4.7%. Sales from our Asia Wholesale operations increased by $12 million, or 19.5%, to $77 million. And again, excluding currency that favorably impacted sales by about $400,000, Asia Wholesale sales grew by 18.8%. Specific to our Direct-to-Consumer business, sales increased by $21 million, or 18.1%, to $135 million; that included an unfavorable impact of about $700,000 from currency. And on a constant dollar basis, Direct-to-Consumer sales grew by 18.7%. Constant dollar comps in our retail stores were 7.7% in Q1, on top of a 21.3% increase in the prior year quarter. And this represents the 16th consecutive quarter of positive comps. Globally, we ended Q1 with 398 stores, 190 of which were outside of North America. And we occupied 700,000 square feet compared to 636,000 square feet at the end of Q1 last year, an increase of 10.1%. Our store base included 247 full-price accessory stores, 145 of which are outside of North America, 105 outlet locations including 30 outside of North America, 33 clothing stores with 4 outside of North America and 13 full-price multi-brand stores, with 11 of those outside of North America. This compares to 362 stores at the end of Q1 last year, of which 165 were located outside North America. This included 233 full-price accessory stores with 130 located outside of North America, 92 outlets including 23 outside North America, 27 clothing stores including 3 outside of North America and 10 full-price multi-brand stores with 9 of those outside of North America. During the first quarter, we opened 5 stores and closed 5 and as Kosta mentioned previously, we are currently on track to open an additional 65 to 70 stores by the end of the year. From a watch and non-watch category perspective, total watch sales increased $46 million or 12.3%, 13.7% excluding currency to $418 million, with FOSSIL brand watch sales increasing $10 million or 9.2%, 11% x currency to $119 million and licensed watch sales increasing by $43.3 million or 19.2%, 20.6% x currency to $269 million. While on the non-watch side of our business, leather product sales increased $13 million or 14.9%, 15.8% x currency to $104 million, jewelry sales decreased $3 million or 7.1%, 4.8% x currency to $39 million. And while the continued launch of Kors jewelry added $4 million, this was offset by a decline in our FOSSIL jewelry business. And eyewear product sales decreased $4.8 million or 26.8%, 25.6% x currency to $13.3 million. Gross profit increased to $329 million in the first quarter, a 9% increase in comparison to $302 million in the prior year quarter. Gross profit margin declined 40 basis points to 55.8% compared to 56.2% in Q1 last year. This decline was principally driven by an increase in the cost of factory labor and certain watch components and a higher percentage of sales to third-party distributors. Foreign currency rate changes negatively impacted gross profit margin by approximately 20 basis points for the quarter. Partially offsetting these negative influences on gross margin were increases in the sales mix of higher margin watch products, Direct-to-Consumer sales and Asia Pacific Wholesale sales in comparison to Q1 last year. For fiscal year 2012, we expect full year gross profit margins only slightly below the 56.1% level achieved in 2011. At prevailing exchange rates, currency will negatively impact gross margins on a full year basis, with a more severe impact on Q2 and Q3. Also in comparison to the prior year, Q2 margins will be impacted by input cost increases similar to that level expense in our first quarter, as we don't anniversary most of the production cost increases we absorbed last year until the second half of this year. However, select price increases and an expected higher mix of sales from our Asia Wholesale and Direct-to-Consumer segments will partially offset the impact of unfavorable currency comparisons and higher input costs. We do not expect the addition of the Skagen business for the balance of the year to have a material impact to our structural gross profit margin rate. However, at this time, we don't have a lot of visibility as to the quality of inventory being held in distributor markets. Operating expenses, expressed as a percentage of net sales, increased to 41.7% in Q1 compared to 39% in the prior year quarter. Total operating expenses in our Wholesale segment increased by $13.6 million, of which approximately $10 million of this was related to the Asia region, including the impact of the Asia infrastructure buildout and management additions, which primarily commenced after the first quarter last year. Expense increases of $14.2 million in our Direct-to-Consumer segment were primarily attributable to store growth, while corporate expense increases of $9.1 million were primarily attributable to increased payroll cost due to headcount additions and incentive stock compensation, as well as higher operating costs associated with our new corporate headquarters. For fiscal 2012, excluding transaction and other nonrecurring costs related to the integration transition of Skagen, we are expecting slight deleverage in operating expenses. This deleverage is more impactful in the first half of the year, as we want anniversary expenses associated with our new headquarters until the second half of the year and we're continuing to make investments in support of our long-term growth strategies in Asia. As a percentage of net sales, Q1 operating income decreased to 14.1% of net sales compared to 17.2% of net sales in the prior year quarter, primarily the result of decreases in both gross profit margin and operating expense leverage. During the first quarter, operating income was negatively impacted by approximately $3 million, as a result of currency translation. Other income and expense increased favorably by $5.6 million for the first quarter, and this increase was primarily driven by net foreign currency gains resulting from mark-to-market hedging and other transactional activities during Q1 compared to currency losses in the prior year quarter. Income tax expense for the first quarter was $23.5 million, resulting in an effective income tax rate of 27.8% and were favorably impacted by certain discrete items and the release of a $2.8 million deferred income tax liability associated with our decision to permanently reinvest certain past and future earnings related to specific subsidiaries in Asia. For the balance of fiscal year 2012, we estimate our effective tax rate will approximate 32%, excluding any additional discrete events. First quarter net income attributable to Fossil increased by 4.2% to $58.1 million, or $0.93 per diluted share compared to $55.8 million, or $0.86 per diluted share in the prior year quarter. Q1 was positively impacted by net currency gains of $0.03 per diluted share. Turning to the balance sheet. We ended the first quarter with cash, cash equivalents and securities available for sale totaling $261 million compared to $355 million at the end of Q1 last year, and we had roughly $21 million of debt. At the beginning of the second quarter, to fund the U.S. portion of the acquisition of Skagen, including amounts related to escrow requirements, we drew down approximately $200 million on our $350 million U.S. based revolving line of credit. And since that time, we have paid down approximately $25 million into that amount. Purchase price amount associated with the acquisition of Skagen subsidiaries located outside the U.S. were paid from excess cash in our Europe and Asia subsidiaries. Based upon our current cash flow estimates, we expect the majority of the current amount outstanding under our U.S. revolving line of credit to be repaid by the end of fiscal 2012. As of the date, since the inception of our $750 million buyback authorization in August of 2010, we have repurchased $532 million of common stock, representing approximately 7 million shares. Inventory at the end of the first quarter was $512 million, representing an increase of 27.2% in comparison to last year's Q1 balance of $403 million. This increase is primarily related to the shortfall of expected sales for the first quarter and increased levels of watch component inventories. As we've discussed in previous calls, we have increased the level of inventory related to key watch component parts, including those with longer lead times, given the concentration of certain vendors and given the experience we had with our movement supply in Japan, considering the natural disasters that occurred there early last year. Accounts receivable increased by 1.6% to $223 million at the end of Q1 compared to $220 million at the end of the prior year quarter. And first quarter day sales outstanding for our Wholesale segment was 43 days in comparison to 46 days in the prior-year quarter, and this decrease was primarily the result of lower sales increases in Europe that generally have longer collection cycles. During the first quarter, we had capital expenditures of approximately $18 million and are expecting fiscal year 2012 capital expenditures of approximately $120 million. The bulk of this CapEx spend is related to new store openings, a new POS and back-office system for our Asia retail stores, improvements to our product lifecycle management and demand planning systems and implementation of a new global financial planning and reporting system, as well as normal CapEx maintenance activity. Depreciation and amortization expense for the first quarter totaled $13 million. And we estimate full year 2012 depreciation and amortization of approximately $60 million. Turning to guidance for the balance of 2012. For the second quarter, we expect reported net sales to increase around 16%, with constant dollar net sales increasing 19%. Net sales of Skagen included in this estimate are expected to benefit overall sales growth by 6% during the quarter. Including Skagen activities, second quarter 2012 diluted earnings per share are expected to be in a range of $0.77 to $0.79. And while we expect Skagen to deliver approximately $0.03 of operational earnings for the second quarter, we're also expecting transition-related costs and other transition integration activities to negatively impact second quarter diluted earnings per share by approximately $0.07. For the full year, we expect reported net sales to increase approximately 16%, with constant dollar net sales increasing 18%. Net sales of Skagen included in this estimate are expected to benefit overall sales growth by 5%. For the full year, we expect diluted earnings per share in the range of $5.30 to $5.40. Within our full year earnings estimate, we are including $0.22 related to Skagen operational activities, partially offset by an expected $0.15 of diluted earnings per share related to transaction and other transition integration costs. Additionally, relative to our original guidance given in February, a stronger U.S. dollar is negatively impacting Q2 earnings by about $0.02 and the full year by $0.07. Our forward guidance is based upon the current prevailing rate of the U.S. dollar compared to other foreign currencies for countries in which we operate. And now, I'd like to turn the call over to the operator to begin the question-and-answer portion of the call.

[Operator Instructions] Our first question is from the line of Omar Saad with ISI Group. Omar Saad - ISI Group Inc., Research Division: I guess my question will be how do you -- given this, and I know it's one quarter, but given kind of this little bit of change in trend in the business, we see this continued strength in the watch business, the licensed watch business, even the FOSSIL brand watches are up double-digit. How do you think about resource allocation as you look out over the next year, the next 3 years, the next 5 years building this business long-term as you just kind of choose between the FOSSIL lifestyle brand strategy and the watch strategy, which clearly seems to be working for the existing licenses that you have and then any potential licenses you have in the future? Kosta N. Kartsotis: Well, we still believe that we have a rather large opportunity in both of our core businesses. So if you look at the FOSSIL business during the quarter, part of what happened there, there was some product misses in our reformulation of the jewelry business. As you might remember, we had 2 separate jewelry assortments, one in Europe and one in the U.S. and what we're doing basically is making one global assortment. The transition of that impacted our sales, especially in Europe, where the sales are much larger in jewelry, more deeply penetrated market. So it impacted our Europe sales and also our comps over there. So we look at FOSSIL and we look at the growth of it and we look at the aspirational nature of it and the fact that it works all over the world, and we have stores all over the world. We look at our comps in Asia, which is very encouraging, plus 18%. And we still, at the end of this year, I think we'll only have 290 regular-priced Fossil stores, so still rather underpenetrated if you look at a big global lifestyle brand. So we still think there's a bunch of runway ahead for FOSSIL. And then obviously, in our multi-brand watch business, it's a pretty large long-term opportunity for us to continue to build out the infrastructure, especially in Asia. And if you look at just the hundreds of millions of new people joining the middle class in Asia, that's basically our FOSSIL customer and our multi-brand watch customers. So we think there's a very large opportunity out there that we're building into. If you look at those 2 businesses and the new shared services around the world, to us, it's a very compelling business model and we think that long-term, it will help us penetrate those new markets in Asia, even more efficiently than you might if you just have one brand. Omar Saad - ISI Group Inc., Research Division: And then can you just quickly touch on the U.S., kind of slowed down a little bit. You're seeing destocking at the retail level in that Wholesale side of the business. Kosta N. Kartsotis: Well first of all, it's our first quarter, smallest quarter of the year. We came off a pretty large and significant increase over the last couple of years in a somewhat dynamic and disruptive environment. It doesn't always match up shipment this quarter versus last quarter, et cetera. But all in all, the retail sales of watches and FOSSIL brand in U.S. continue to be very strong. And we're very bullish on the long-term impact that it'll make on our company, and we think we're going to continue to gain market share in the U.S. and we think there's a big amount of runway ahead of us.

The next question is from the line of Ike Boruchow with JPMorgan. Ike Boruchow - JP Morgan Chase & Co, Research Division: Couple of questions on Europe and Asia. I guess I'll start with Asia. Kosta, you gave the comps in Korea, I believe, were down 6. Is there any way you could parse out what the comps in China were for the China concessions? And then also, can you also help us, walk us through the rest of the year why exactly should we expect revenues in the region to come out to about 20 -- to the mid-20s on a percentage basis for the year? Like what's going to cause that acceleration? Kosta N. Kartsotis: Well first of all, Korea, last year, I think we had a 117% increase or something like that in the first quarter, so we're up against some pretty strong comps just overall and in the comps and the concessions, we're plus 29%. We have perceived some softness in the market; you might have heard that from some other companies. But that operation, we think, has a huge potential long-term and we are -- we think it's fairly stable [indiscernible] what the potential size of that businesses is going to be. China, I think our comps were 17.3%. Mike, is that right? Mike L. Kovar: That's correct. Kosta N. Kartsotis: So if you look at the numbers of additional concessions that we're going to be putting in the market and all the other activities over there, that's where we get to that overall Asia increase, I think, of 25% for the year. Mike L. Kovar: Mike, on the Japan question, we're transitioning our business there to more of a concession environment, and that's an early on process for us. But if you look at our Fossil performance in that region, Jennifer, I think we were up 18% in the first quarter comp? Jennifer L. Pritchard: Yes, up 29% from the year before. Mike L. Kovar: So I think we're seeing strength in terms of our direct business there, albeit the 18 Fossil stores we have in the country. It's the Wholesale business where we're finding it a little bit more of a challenge in terms of growth. And again, that comes up again to 10% increase in Japan last year, which obviously most of our shipments went out before the disaster occurred. And as we move forward, we think we have some much easier comparisons in Asia. If you look at the sequential growth in Asia from Q1 last year to Q4, we went from a 58% increase, I believe, in Q1 down to a 14% increase in Q4. So those comps are getting progressively easier as we move through 2012. Ike Boruchow - JP Morgan Chase & Co, Research Division: Okay, great. And then just a couple of quick ones on Europe. I was wondering if you guys could help go through the weakness you saw inter-quarter maybe by country or by brand in terms of where you really saw that weakness? Or was it just as a whole? And then could you also remind us again of your penetration? I believe Germany is your biggest market, followed by the U.K., but just any color there will be very helpful. Kosta N. Kartsotis: Well, we actually had a pretty strong growth in both the U.K. and France. Germany was flattish and Italy and Spain were not good, down and that was obviously due to the tough macro environment there. But overall, I mean, I think we're very bullish about our long-term ability to gain additional market share in the market. We have, obviously with Skagen going in there, they're very strong, especially in Northern Europe. And we think we can expand the jewelry business there [indiscernible]. In addition to that, the MICHAEL KORS brand and some of our others are growing very quickly in Europe. So we think we continue to gain market share and we just keep pushing through it during this difficult time. It could be an opportunity for us to gain market share during this period. Ike Boruchow - JP Morgan Chase & Co, Research Division: All right. Last one, real quick. If you exclude the Skagen acquisition, would you expect your revenues in Europe on an organic basis to remain flattish for the remainder of the year? Could it be negative? How should we think about that? Mike L. Kovar: Mike, I think we're, as Kosta mentioned, excluding Skagen, we're guiding toward low to mid- single-digit increases for the balance of the year in Europe.

The next question is from the line of Randy Konik with Jefferies & Company. Randal J. Konik - Jefferies & Company, Inc., Research Division: Kosta, with the market and stocks getting hurt this morning, obviously, it appears the market's kind of concerned about there's a reset in the growth curve of the company. And I think the previous calls you talked about, I think a mid-single digit growth rate in the U.S., mid-teens in Europe and then above 20% in Asia and you're kind of guiding Europe, obviously, to a slower trajectory at least in the near term. How should we be thinking about beyond the next couple of quarters? Do you still back those growth rates long-term? If so, how do we get there? And just kind of talk us through that. Kosta N. Kartsotis: Well, I think first of all, as I said early, it's a rather dynamic environment just coming off of a 65% growth in 2 years. It's our first quarter. And we see some economic toughness in Europe and other parts of the world. And we are still, long-term, I think we have a huge opportunity to double the size of the company in 5 or 6 years, and that's what we're focused on. But for right now, we obviously are seeing some slowness. And some of this is partly due to some product misses that we had, as we mentioned both on the jewelry side and not having enough color on the Fossil accessories and watches, for example. We also had perceived that we had moved up some of our prices on the low-end in some of our brands and potentially evacuated an opening price, so we've very quickly gone in and corrected that, so we think we're on the right track there. We're watching it very closely. And just with the sheer size of the opportunity in Asia, we think we're going to grow in the U.S. and Europe with the massive amount of opportunity in Asia. And we're moving very quickly in the market to get in position to capture this white space opportunity that is really a game changer for the company, and that's really what we're focused on. Randal J. Konik - Jefferies & Company, Inc., Research Division: So the read is, you still have very high conviction that the watch trend we're in is there's nothing changing. That trend is more of a change in the macro dynamic that you've seen just suddenly? Kosta N. Kartsotis: All of our signals show that this watch trend is very, very strong globally. So we don't see any change in that. You might have noticed that the Swiss watch exports, I think, for the first quarter this year were up 17%. Last year, they were up 19% full year. Even in Swiss watches in the U.S., I think it was up 28% in the first quarter. So there's a lot of interest in watches, part of it being driven by the demand in Asia. I think the appeal of the scarcity of Swiss watches I think is somewhat creating an umbrella effect for us. And in addition to that, the business has changed. It's no longer the fashion watch businesses, it's more of a global lifestyle brand business. And there's a huge amount of awareness and demand for these products globally, especially when they're executed correctly and they're under the right brand umbrella and we're telling the correct stories at the right time. It's just a big long-term compelling opportunity for us. Randal J. Konik - Jefferies & Company, Inc., Research Division: And just a last question. I guess, Mike, can you parse out the componentry between the either higher inventories you said in the press release were a function of sales missing expectations and then it looks like component inventories. Can you just break that out for us a little bit? What's the mix of the higher inventories? Is it more components? Or is it more of because of shortfall? And if it's more of the shortfall, do we have growth margin implications for the next couple of quarters? Just kind of walk us through that. Mike L. Kovar: Sure. If you look at the inventory increase, we missed our sales plan by approximately $25 million and in our margin, that represents somewhere between a $10 million and $12 million inventory cost that we carry at the end of the quarter. In addition to that, our component inventories in our factories are up probably around 40% year-over-year. So that's probably another $5 million or $6 million in addition to what we typically carry there. But obviously, we're just playing that safe and we're taking on longer lead time items at an advanced rate. In terms of clearing that inventory going forward, obviously we're continuing to open outlet stores. We don't think that the slight increase in inventory in Q1 relative to sales is going to be impactful to our gross margin for the balance of the year. As we've talked about earlier, we were expecting inventories to be growing faster at the end of Q1 than sales. And as we've talked about in previous calls, we expect that to balance itself out in terms of growth in Q2. And we're still targeting, at year end, inventories to be flat or slightly up to last year and still a double-digit sales growth. Again, our outlet penetration at the end of the year is strong compared to where we were last year. Those are some of the most productive concepts we have out there. And as we've talked about earlier, as Kosta mentioned on his call, a number of the 70 to 75 stores that we're opening this year will be both Fossil outlets, as well as Watch Station outlet stores around the world.

The next question is from the line of Oliver Chen with Citibank. Oliver Chen - Citigroup Inc, Research Division: Regarding the new outlook and full year EPS guidance versus your prior, could you just help us understand and prioritize the key drivers for that change in terms of if it was geographic or product or pricing, in terms of the prioritization of the change? And then within Europe, if you could help us elaborate on what -- did you identify an inflection, or was there a particular change in the country relative to 3 to 4 months ago in terms of the performance there? Mike L. Kovar: Oliver, I'll take the first question. If you look at the key drivers of the reduction in our sales and earnings guidance, it's primarily related to the fact that we were expecting kind of low to mid- teens growth in Europe when we gave initial guidance back in February. And now we've dialed that down to kind of the same level of performance we saw on a constant dollar basis in Q1. So I think the most impactful piece of that is obviously our outlook on Europe for the balance of the year. I would say we've slightly adjusted our Asia growth, but not anything significant to the levels of what we're doing for Europe. Kosta N. Kartsotis: And I would also add just overall in Europe, we saw -- starting in the early first quarter, a drop in traffic in our stores. We have traffic counters in there and we saw a drop in traffic, and we heard that from our Wholesale customers, also. Kind of coincided with some of the increasing negative news on the economic situation over there. But that seemed to affect the, obviously retail sales. In addition to that, as we said, we had a product miss on jewelry that impacted us, especially in Germany where it's our most penetrated market. Oliver Chen - Citigroup Inc, Research Division: Okay. So regarding the outlook in Europe. So was there a particular country where the whole region, do you think Germany continues to kind of hang in there in your view? Mike L. Kovar: As Kosta mentioned, we saw strong a double-digit growth in markets like the U.K. and France. And obviously, Scandinavia still increasing nicely for us, but on a much smaller base of business. Italy and Spain have turned seriously negative. We're talking double-digit declines there. And Italy itself has been rather bumpy over the last 3 quarters. If you recall, we saw a pretty sharp decline in Q3. We were able to recover some of that in Q4 last year and now we're back down in those sharp decline. What's going on in terms of the macro environments in Italy and in Spain are probably as much do with the cadence in our business now as anything else. Germany, we saw soften as we mentioned. And again, this is something that kind of progressed through the end of the quarter, I would say for the first 2 months of the quarter. We were coming through nicely in terms of our expectations, and then we saw most of that deterioration occur in the third month of the quarter, which is obviously a 5-week month and more impactful anyway. But I would say it kind of progress towards the end of the quarter when we saw the change. Oliver Chen - Citigroup Inc, Research Division: Okay. And my last follow-up. Regarding the inventory numbers and what we saw in the short pile of sales, what's the expectation for your methodology for clearing through the incremental product? Mike L. Kovar: I think it hasn't changed from what it's been historically. We're looking at our outlet stores to clear the bulk of that product but where we're kind of deep in certain styles or certain categories, we'll continue to use the off-price channel, but we're not expecting that off-price channel to be any more impactful than it has been in the past. Kosta N. Kartsotis: In addition, we're opening a significant number of outlet stores, as we mentioned earlier. So first of all, a lot of that inventory is caused because of our lead times is getting shorter. We do think our inventories are very current in terms of the content of them. And then we're going to be opening those additional outlet stores, which gives us the potential to liquidate in more efficiently than we had in the past. The additional outlet stores, we think, just makes our entire business model more robust. And we think that's a very good thing for us long term. Mark D. Quick: Oliver, it's Mark. I think on the last conference call, we talked a little bit about the improvement in lead times to about 5 working days. And one of the forward-looking changes we've made is our planning organization has reduced the weeks of supply number for Q2, Q3, Q4 ending to comprehend that improvement in lead times. So I think there's the ability, as Mike and Kosta have said, to clear through more effectively, given the strengthening position of outlet stores. But on a more proactive basis, the reduction in future tense weeks of supplies we think will help us more actively pull down the forward-looking inventories.

The next question is from the line of Barbara Wyckoff with CLSA. Barbara Wyckoff - CLSA Asia-Pacific Markets, Research Division: Just kind of changing of focus here. Can you talk about the impact of the changed strategy on JCPenney on RELIC? And can you also discuss -- Skagen inventory you said it's difficult to know what's out in the distributors. But can you talk about the U.S. inventory situation, the quality of the inventory and what you're doing there? Kosta N. Kartsotis: As far as JCPenney goes, as you know, we have a RELIC business there, both in watches and in handbags. And we have not seen any change or change in the strategy on how that would go forward. So we're expecting business to be as it usually as is in that environment. As far as Skagen goes, we do have -- we are expecting to, as we saw it from the beginning, grow the sales in that brand pretty quickly. So we're preparing for increasing amounts of quantities to the rest of this year globally, not just in the U.S. market. One great thing about Skagen is we're able to get additional assembly facilities out of that. They use factories that we don't use, so we're working with them closely now really to ramp up and really fuel the growth that we think is going to be coming over the next 6 months and several years after that. So we think we're in pretty good shape in terms of the Skagen business. Barbara Wyckoff - CLSA Asia-Pacific Markets, Research Division: What about the existing inventories, is it pretty clean there? Mike L. Kovar: Yes, Barbara, I think that the comment we made on the prepared remarks is basically that there's a number of distributor markets that over the balance of this year and early in the next year we're going to be transitioning over to our distribution footprint. So where they have a distributor in markets like Japan and Australia, we'll bring that in our environment. And right now, our teams are out there working with the Skagen teams to understand how impactful that transition could be, what they're currently carrying in terms of inventory, how old is that inventory and what are our plans to move through that. So that's basically what we're referring to in terms of that comment.

[Operator Instructions] The next question is from the line of Anna Andreeva with FBR Capital Markets. Anna A. Andreeva - FBR Capital Markets & Co., Research Division: Trying to understand the second quarter guidance a little more. You're guiding basically the core Fossil sales of up 13%, better than in the first quarter where you came below planned. So what is driving that? Is that just Asia acceleration? Or are you expecting any other segment of the business to improve as well? And just a question on gross margins as well. Should we think about higher label -- labor and component cost to still be a headwind in the second quarter? Or are higher prices offsetting that to a degree? Just curious what has reception been to higher prices. I think you mentioned that you took some of the opening prices up, and then you had to tweak them down, so just a little bit of color on that would be helpful. Mike L. Kovar: Okay. On the last question, Anna, we already baked in margin expectations relative to the increase in labor costs. As we said on previous calls, we’re expecting labor costs to increase anywhere from about 13% to 20%. And that's been built in how we engineer our margins for product as we develop units and as we replenish core. But one outlier there is that we did see an increase in movement prices towards the end of the second quarter last year. So we still have that to anniversary until we get to the back half of Q2 in terms of the input cost. As it relates to the question in terms of the Q2 growth being slightly higher on a constant dollar basis than the Q1 growth, we have seen a slight improvement in Europe in April. It's one month of the quarter to a 4-week month. We still have 9 weeks to go. But also, we're going to have an increasing number of store openings, an increasing number of concession openings that will help increase the sales productivity in Q2 in comparison to Q1. Anna A. Andreeva - FBR Capital Markets & Co., Research Division: The improvement in Europe in April, is that coming across the board? Or any particular region you can call out? Mike L. Kovar: I would still say we're still seeing weakness in Italy and in Spain. But Germany has recovered slightly from where it was in Q1. And we're seeing similar results from the rest of the countries in that market for April. But again, it's one month and it's early on. Anna A. Andreeva - FBR Capital Markets & Co., Research Division: And just staying with Europe, just curious, watch sales, I think, you called out were up about 7%, give or take. Was that primarily driven by the core Oxford brand of how were licenses in Europe? Mike L. Kovar: I would say we saw an impact on our much larger businesses like FOSSIL, like Armani, like our jewelry business.

The next question is from the line of Eric Beder with Brean Murray, Carret & Co. Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division: Could you talk a little bit -- let's just take this in a completely different [indiscernible]. Could you talk a little bit about Lagerfeld and how that acquisition -- how that roll out is progressing? What are you hearing about that? Kosta N. Kartsotis: Well as you know, we are planning on launching that first quarter of next year. So we've been working on the product development with them over the last several months, and we think it's going to be pretty good. It's going to be in the similar price point of MICHAEL KORS. It's got a great global awareness. I mean, it's got a lot more awareness than MICHAEL KORS did when we started with that brand. And there's a -- we've taken a lot of interest in Asia as well as Europe for this. And we expect it's going to be pretty good next year. Our teams have done a great job kind of creating an iconic product with his influence. It's a little bit different, but it's still very, very iconic and pretty sellable. So we think it's going to have a unique positioning. And it looks different than everything else that we have, so it has interesting positioning. And it's going to launch in an interesting way. I think we're going to launch in globally all on the same day at the same time and on the Internet, so it's going to be kind of instantaneous global launch next year. So we're very excited about it. Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division: Great. And could you refresh us, how many stores did you open last year? And how many opened this year? And what's the delta in terms of preopening and SG&A costs that are baked into the numbers for 2012? Mike L. Kovar: I think last year we opened around a net just over 30. I think we have 15 new stores and around 18 closings, 19 closings. The cadence on a quarterly basis will remain pretty similar where first half of the year, we're generally not opening a lot of stores. We start to ramp up in the back half of Q2. And then build pretty significantly into Q3 and into the first half of Q4. So I think you'll see that same type of ramp, just on a larger number of store openings. Eric M. Beder - Brean Murray, Carret & Co., LLC, Research Division: Is there a sum dollar quantification to the preopening expense you can give us or provide for us in terms of SG&A? Mike L. Kovar: It varies greatly between markets. Generally in Europe, the preopening costs are a little bit more significant than you would find in the U.S. and Asia, somewhere between the 2. But I would say on average, we generally see anywhere from 75 to 150,000 in terms of preopening. That will include the cost in terms of securing real estate, the fact that you have to account for the rent before the store is opened and the fact that you're obviously bringing labor in early to train them for the doors being opened as well.

The next question is from the line of Scott Krasik with BB&T Capital Markets. Scott D. Krasik - BB&T Capital Markets, Research Division: So, Mike, what was the pricing up in Q1? And what's your expectation in the guidance for pricing for the rest of the year? Mike L. Kovar: Did you say pricing? Scott D. Krasik - BB&T Capital Markets, Research Division: Yes. Mike L. Kovar: As we've said, we were affecting price increases on units in certain core styles effective March 1. And that is something that's ongoing. As Kosta mentioned, we are looking at bringing back some of the opening price points in certain categories where we felt like we may have vacated that and lost an opportunity. Our original expectations were that those price increases would benefit overall 2012 gross margins by about 60 basis points. And I would say we're still in that area. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. So on a net basis, maybe it's pricing for the full year would be flat to maybe slightly lower than what you originally expected, but still a benefit? Mike L. Kovar: Yes. As we've laid out in our margin guidance, we still haven't really changed our expectations from Q1 in terms of the overall margin expectations. We think we'll be slightly below last year's level on a full year basis with an improvement as we get to the back half of the year, as we get beyond some tough currency comparisons in the next couple of quarters. And obviously, the input cost increases I alluded to earlier related to the movement over the balance of this quarter. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then the 48% increase in KORS, did that include jewelry? And if not, what were the jewelry sales this quarter and the expectations? Mike L. Kovar: That did not include jewelry. And jewelry sales for the quarter contributed about $4 million to overall sales. Scott D. Krasik - BB&T Capital Markets, Research Division: And your feeling about core jewelry for the year? Mike L. Kovar: I think Kosta mentioned in his part of the script that we still see that as a $30 million opportunity this year. We will be launching it in Europe later on this year. And obviously, we're adding doors to the very small launch that we affected in fall last year. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then just last on Skagen. You mentioned converting international distributors to own businesses. Any thoughts on converting any of the manufacturing to get more vertical? Kosta N. Kartsotis: For right now on the manufacturing, we're just working closely with them. We do have some methodologies that we use for automation, et cetera that we think can ramp up their assembly. And we're also learning a lot from their factories also about how we can make our operation better. So I think it's a good synergy on both sides.

The next question is from the line of Rick Patel with Bank of America Merrill Lynch. Rick B. Patel - BofA Merrill Lynch, Research Division: Just a follow-up on an earlier question. Can you put your North American Wholesale growth into context for us? Are you seeing consistent growth throughout the specialty retail department store and mass channels? Or are some of those holding up better than others? Mike L. Kovar: In North America, we don't have a big specialty business here. Most of our business would -- most of our brand is in department stores. I think we're seeing sell-through statistics in line with inventory, so there's no imbalance there in terms of performance at retail. We're seeing U.S. continue to grow at a high single-digit rate and overall, North America slightly better than that, given that we're continuing to grow over 20% and 30% in markets like Canada and in Mexico. And we're advancing our sales with our distributors in South America at a pretty rapid pace as well. So I would say in terms of what's happening at retail, we really haven't seen any significant change in terms of how the retailers are managing inventory levels against the sell-through rates. Those things are pretty much in line. Rick B. Patel - BofA Merrill Lynch, Research Division: Okay. And then can you also update us on which any year you think you're in as far as distribution growth goes in Europe? And as you think about some of your newer brands, the newer launches there doing well like MICHAEL KORS, how should we think about cannibalization? Kosta N. Kartsotis: Well, I don't think we're really looking at cannibalization among our brands. And from what we've seen so far, KORS is obviously growing very quickly in Europe. It grew quickly there last year and we're expecting it to do the same thing this year. One thing that we've seen in the U.S. is that KORS is not really cannibalizing, it's just made the whole business larger for everyone. Kind of fueled this massive growth and been part of the big awareness increase in watches overall globally. So I think the impact it could have on Europe and the follow-on in Asia could be very significant to the rest of our brands and quite honestly the rest of the watch business also. Rick B. Patel - BofA Merrill Lynch, Research Division: And then what about distribution growth? Kosta N. Kartsotis: Our distribution in Europe is actually -- what we're focused on right now is the top 20% of the door. So we may, in some cases, actually be losing some distribution. It's typically, when you start analyzing it closely and you start seeing roughly small doors that are not doing very much business and you can get more space in the big doors, you can actually increase your sales part of it. So we're actually going through a process where we will be reducing doors in some brands and probably gaining a lot of business out of it by focusing on bigger doors.

Ladies and gentlemen, this is all the time that we have for the question-and-answer session. I will turn it back over to management for any closing remarks. Kosta N. Kartsotis: Thanks. Should you want a replay of this conference call, it has been recorded and will be available from 10:00 a.m. Central time today until 12 midnight Central time tomorrow by calling (303) 590-3030 or 1 (800) 406-7325 and entering passcode 4529924. [Operator Instructions] The conference call has also been recorded by StreetEvents and may be accessed through StreetEvents' website at www.streetevents.com or directly through our website at fossil.com. Finally, should you have any questions that did not get addressed today, please give me a call. Thanks again for joining us today. Our next scheduled conference call will be in August for the release of our second quarter 2012 operating results.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect, and thank you for your participation.