Samsonite Group S A

Good morning, good afternoon and good evening ladies and gentlemen. Welcome to the CentralX International 2024 First Quarter Results Earnings Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yu, Senior Director of Investor Relations. Thank you. Please go ahead Mr. Yu.

Thank you, Operator. Thank you, everyone, for taking the time to join the call tonight. We have our CEO, Tal Jendro, and our CFO, Reza Telagani, with us. And Mr. Jendro will begin with a few opening remarks.

Okay. Thanks, William. Thanks, everyone, for joining us. I know for many of you, it's the eve of a holiday in Hong Kong, so forgive us for that, and thanks for being with us. So we're excited to report Q1 results. We achieved record Q1 net sales, adjusted EBITDA, and adjusted EBITDA margin on top of an extremely strong period, Q1 of last year, as we indicated on our last earnings call. We achieved Q1 sales of $860 million, delivering sales growth of 4.1%, again, off of a tremendous Q1-23 that was already up 18% to Q1 of 19, and up 57% to the previous year. My next slide shows the trend and the story on revenue. But even against these tremendous numbers, we continue to deliver growth. Gross margin, tremendously strong, the highest Q1 gross margin ever at 60.4%, and that's 240 basis points higher than Q1 of last year. We achieved record Q1 EBITDA of $161 million and adjusted EBITDA margin of 18.8, up 40 basis points to last year, continuing this trend of elevating our EBITDA margin, even with 20 basis points increase in advertising, where we stepped up to $53 million or 6.1%. sales from 5.9 last year and as you know we have a plan to bring advertising for the full year closer to 7% and we're still on track for that particularly as we head into the summer season in Q2 and Q3. We continued our Disneyland retail expansion strategy, opening 77 net new stores for the last 12 months, from March 31st last year to March 2024 this year. Tremendous story on selected retail store openings. Reg will cover some of that in his presentation. And all of that feeding to a good story, not just for the growth side, but importantly, you'll see in our fixed cost structure that our fixed costs remain consistent to the last two quarters as we continue to push the business forward. Adjusted net income, $87 million, or 10.1% of sales, up from 9.5% of sales, Q1 of 23. And we had very strong Q1 cash flow compared to last year, this time, $68 million increase, $6 million of free cash flow in a quarter. That typically is kind of a more neutralized quarter for us, very strong, driven off of strong EBITDA, obviously, and working capital timing as working capital really starts to settle into a normal course for us as well. Off the back of strong earnings and strong financial position, and as we indicated on last call, the board's recommended $150 million distribution to shareholders that will get paid in July. When we go to the next slide, it just shows the story. And I think just I wanted to highlight here what was happening last year and what we're seeing this year from a trend perspective. Last year, Q1 was tremendously strong, up 57%. You can see on the chart to the side. And we indicated this on the last call, but importantly, Last year in Q1, wholesale customers, particularly in North America but across the globe, started to buy in in a heavy way as they saw this rapid recovery in travel happening. And so we saw some very high wholesale sales last year ahead of a really robust summer travel season. So that was impacting this very strong Q1. Tumi branded North America and a bit in Asia and Europe had come back into inventory in a meaningful way. And that really fueled the tremendous Tumi story up 57%, 56%. to the previous quarter as the Tumi business really came back into stock and really delivered tremendous sales growth in Q1 of last year. And Europe, as we had indicated, had accelerated some sales into Q1 ahead of a warehouse management system last year. And I guess the point for all of these is we had these big monumental events, and we still delivered really exceptionally strong Q1 growth this year off the back of these moments last year. So we're quite excited with the results we're seeing. By brand, you can see all brands delivering growth. Importantly, Samsonite, our really core largest brand in the fleet, delivered 6.5% growth year-over-year. Tumi was 1.6% growth, so still positive growth, but again, off of that really amazing Q on last year as we came back in inventory. And American Tourists are delivering 3.2% of growth, and this is where we saw the largest impact in Europe as far as accelerating sales. So even with that acceleration from the previous year, we delivered very strong American Tourists to growth. So all three core brands delivering. All of our four regions delivering in a meaningful way. Asia was up 7.5%. I think importantly, Asia was led by China, which was up 23%, Japan 26%, and Korea 13.3%. These big markets delivering real growth. We did see in Q1 India in a negative zone, but this is an India that was up well over double what it was in 2019 off of two years of really record growth in India. And so that's balanced to an Asia at 7.5%. North America up just shy of 1%, but again, this is where we saw this really heavy-duty wholesale buy-in last year, and more importantly, the Tumi inventory position that fueled a very strong Q1 last year. So we're quite happy with this North America number continuing to deliver growth against that. Europe, constant currency down 0.5, but that's off of last year's tremendous numbers as far as accelerating sales into Q1 of last year. Just for scale, we're looking at Europe in Q2 being up, you know, mid-peen 15% plus off of what we saw last year in Q2 when we actually you know, had reduced shipping days because of the warehouse system. So Europe's doing exactly as we'd expect, and Latin America continues at close to 18% growth as we continue to capitalize on the opportunities within Latin America. On the gross margin side, we saw a tremendously strong gross margin, much higher than last year, a margin that's really a record level for Q1, north of 60%. And what we're seeing is in a couple of places, this is being driven by mixed shifts. So we can see on the chart on the top right, you can see Asia as Asia is coming back into the fold and moving at a faster pace. you know that's a 100 basis point increase in asia and as you know that has a higher gross margin so that shift is very important and our d2c business continues mid shift continues to grow at a very um calculated way up 100 basis points to 37.1 percent We saw e-commerce growth quarter to quarter at 11%. We saw retail sales up close to 6.5%, feeding this growth in D2C. And why these are important is these feed into the mixed effects of our business that's driving some of the gross margin expansion as well. We continue to add D2C stores, as I indicated. That's fueling a good story as well. And our adjusted EBITDA margin up 10%. 20 basis points or 40 basis points despite having 20% increase in advertising. Importantly, when you look at our EBITDA margin, we're stepping up advertising. Our fixed cost in dollars has stayed consistent Q3, Q4, into Q1 of this year. And all of that feeds into expansion and EBITDA margin that we've been guiding as well. And we've added 77 stores, 14 of which were in Q1. And all of that still allows us to deliver a fixed cost structure that's consistent with the last two quarters. So we're really managing this all very, very well. From an industry perspective, I think you can read your own headlines, but a few that stuck out to me that I think are important. Consumers intent to travel, off of Morgan Stanley piece of research. 60% consumers planning to travel in the next six months. Importantly, that's the same level that we're seeing last year, and last year we had this tremendous sales story and recovery. And so the intent to travel continues to be very strong. The other piece that's really playing out when we look at the space that we're in, particularly tied to travel, is that it consistently has a higher share of wallets. This is a study from Deloitte focused on American consumers. But in general, consumers are really in a new era of prioritizing travel. And we can see it. I can see it traveling. I'm sure most of you see that traveling. And so as consumers might be feeling some inflationary pressures, it's clear their intent to travel and their lean into travel continues to be very, very strong. Global travel is expected to fully recover this year. We indicated that before. It looks like it'll be 106% pre-pandemic. I have a chart on the next page that shows that. But you could clearly see this continued recovery in travel. And I think importantly, the travel for 24, 25, and 26 blended looks to be over 9% CAGR, which is really this continued trend of recovery. My next slide will show that as well. And then the other piece that we're all waiting and watching is the China recovery. And China recovery is probably a little slower. Travel recovery is a little bit slower than what we probably would have thought maybe six months ago. But it's recovering. And so when you look at Chinese arrival, 67% below pandemic levels in 23. And for 24, it looks like it will be down below by 39%. So the inverse that you can see, the recovery, it continues. But there's still a lot of recovery to come in China. which will fuel for travel which will fuel a good story for the back half of the year this year for us but importantly um we'll continue into next year as well um and so uh on page 11 this gives you a sense graphically of what i'm talking about and i think um to the left probably the easiest chart to look at you can see 106 pre-pandemic from a from a traveler's perspective And importantly, I look at 25, 26, 27, where you see this continues to grow at a meaningful level. And off to the right, it's a bit more aligned. It's hard to read. But if you look at the red line and the yellow line, but particularly the red line, this is Asia Pacific, which has a more steady onward growth trajectory, which bodes well for our business. And you can see growth in North America and Europe. The two blue lines are light blue and dark blue. continuing growth, but as we indicated, starting to normalize to a trend that's consistent with what we see in these markets as well. So again, all the forward indicators are very positive for our space and we're excited to see and we're experiencing it in our numbers. And then just lastly for me before I hand the resume and then I'll come back, we published your issue report. I always guide people to look at it. I think it gives an amazing lens into our responsible journey and what we're doing on the sustainability front. We've made tremendous progress in 23. Just a few call-ups. I won't go through all the words on the page here. But when we think about using sustainable materials, 34% of our products incorporated some level of recycled material. That's up from 23% last year, and you should expect this to continue to move for us. We've established a true global product sustainability framework looking at the sustainable materials, circularity, and product footprint, carbon footprint for products, really deep into kind of our understanding of products and how we move the needle on that front for our consumers and for our own initiatives on reducing our carbon footprint, which feeds into the planet column where, first off, we achieved 100% renewable electricity for all of our own operations, two years ahead of our expectation to really great accomplishment. We reduced our carbon intensity in our own operations by 85 percent, really well ahead of our own expectations. And third, we're really focused on setting clear expectations on reducing our scope three emissions, which involves our third-party suppliers. And so we've spent and set meaningful expectations for our supplier base to be part of our journey to reduce our emissions. And so I think we're on a good front there. And we continue to be focused on people, gender balance, which we're making progress up 1% from where we were in the prior year. We continue to focus on professional development and social compliance in meaningful ways. There's not an employee in the company that isn't aware of what we're doing on professional development and social compliance with all of our suppliers. We continue to make tremendous strides there as well. And just lastly on expectations. I think you should continue to see us make efforts on all these fronts, okay, as far as product and setting our standards on recycled content, circulatory packagings in our window. We'll continue to push on our people initiatives. On the planet side, and I think this is probably one of the most important pieces from the ESG report, is we will set a science-based target this year. And we will really work through, we're doing the work now, we'll announce that this year, and really moving towards the direction of systematically reducing our carbon footprint. And I'm quite excited there, and the team is as well. And on the governance side, we continue to work towards being able to measure and have compliance with our measurements and the statements we're making. Subject to audits, we continue to develop our teams on the ESG side, both our dedicated teams within the company resources And what you should expect from us, and another piece you'll start to hear and feel from us, is us elevating our communication on this front, you know, so that we start to elevate more, not only to the investors, but to our consumers, our employees, and a really concerted effort to tell more about what we're doing as we now start to make some really amazing traction on the ESG side. So, More to come there. And with that, I'll turn it over to Reza.

Thank you so much, Kyle. And we're on slide 16. So just to get into the results in a little bit greater detail, again, record sales results, record results pretty much across the board. Sales were up $7.5 million, which is 4.1% constant currency growth, and that's comping against a very strong Q1 of 2023. 2023, for those of you that remember, we had the wholesale customers in North America, as Kyle said, and strong sales out of Tumi as Tumi came into stock, along with the WMS implementation that was happening in Q2, which basically pulled some of the European sales into Q1 of 2023. The gross margin, really, really terrific results, 60.4%, frankly, exceeding our own expectations internally as well, increasing by 240 basis points from Q1 of 2023. That works its way over to adjusted EBITDA, delivering 18.8% adjusted EBITDA margin. increased 40 basis points from the prior year, and that's after a 20 basis point increasement in advertising spend as well, so $4.8 million of incremental adjusted EBITDA year over year. And then on adjusted net income, net income up $5.9 million to $87 million of adjusted net income as well as that flow through from EBITDA work as well to net income. On the next slide on page 17, just to get into some of the numbers in a little greater detail, advertising spend in the quarter was $53 million, which was 6.1% of net sales versus 5.9% in the previous year. Fixed SG&A expenses remained consistent with both Q3 and Q4 of last year. We're very disciplined in terms of the cost base. If you're comparing it to Q1 of last year, please recall that Q1 of last year still had some of the temporary store savings as we had some reduced staffing at the various stores in some of the regions that hadn't fully recovered yet. And some of the temporary rent concessions were there as well. Positive free cash flow of $6 million in the quarter. That's a $68 million improvement compared to Q1 of 2023. Net debt position, we continue to be very focused on delevering the business. Net debt position of $1.8 billion as of March 31st. That compares to $1.44 billion as of March 31 last year. The net leverage in this period, sub-1.5 turns, we're at 1.48 turns of leverage, the lowest level again since the acquisition of SUNY in 2016. And importantly, after the end of the quarter, I think many of you will have noticed the press release that we had in April. We took advantage of the lower interest rate that we have for our revolving credit facility to pay down $100 million of our term loan B, and we refinanced the term loan B to reduce the spread by 75 basis points down to SOFR plus 2 points, down from SOFR plus 275. The annualized interest rate savings as a result of that move is approximately $5 million. Liquidity, almost $1.6 billion of liquidity as of the end of the quarter. That included $845 million of availability under the revolving credit facility. Obviously, given the refinance that we did, we did put $100 million of that in April. So there's a little bit of debt under the revolving credit facility, so ample, ample liquidity for us. On the next page, just to look at the fixed SG&A point, as you can see, in absolute dollar terms, our Q1 fixed SG&A remains very consistent with the past few quarters. We did want to just go back and just show full transparency if you're comparing it to Q1 of 2023. There's about a $13 million increase in that period. That's largely reflecting the one-time kind of store savings that we have that I just alluded to. On the next slide, we continue to increase our net sales contribution from the BTC channels, both in terms of comp store sales, but as Kyle mentioned, we also have year-over-year 77 new stores as well. Fifty-two of those are Samsonite stores, 25 of them Tumi. The majority of the stores are in Asia, so we have 49 additional stores in Asia as we continue to look at that market as a great opportunity for growth for us. The DTC total is 37.1% of sales now. That's an increase of a point year over year as well, with e-commerce growth of just 11%. So this is obviously a continued focus for us as well. On the next slide, moving to the balance sheet, obviously we're very proud of the deleveraging that we've been doing with the net debt at just north of $1.1 billion. Ample liquidity and net leverage ticking down. As you can see, we have $173 million of cash if you're looking at the comparison year over year. Inventories is another area. So if you remember Q1 of last year, we were basically in a period where we were increasing our inventory levels and stock levels, especially as it relates to TUMI. And then we're continuing to de-lever as well. So as you can see circles, you're looking at almost 200 million left of leverage compared to last year. Free cash flow on the next slide improved by 68 million year-over-year, 6.5 million in the quarter, but obviously a meaningful pickup from what we had last year. That's largely driven by networking capital, which you can see on the next slide. This point here you'll see on slide 22, just as we were talking about inventories, we circled that inventory number, that almost $33 million reduction year-over-year in inventory levels. The net working capital efficiency is something that we're focused on. We anticipate that continuing to improve over the course of the year, and we anticipate continuing to generate free cash flow that we plan to use to repay debt. And on CapEx, a slight tick up year over year in CapEx. As we've said repeatedly over the past few quarters, we believe that we have to continue to refurbish some of our store fleet. So we have retail CapEx of $8 million in the quarter. $5 million was for store remodels and relocations and $3 million for new stores. We continue to invest in product innovations. You can see that, you know, manufacturing and supply, $4 million versus $2.2. But, you know, and you should just continue to look at our CapEx number being, you know, somewhere around $120, $130 million for our target for this year. And with that, let me turn it over to Kyle so we can go over the outlook, and then we'll open it up for Q&A.

Okay. Thanks, President. So looking ahead, look, one, we're pretty excited about our results. And when I think and look forward, growth in global travel and tourism is expected to remain healthy throughout 2024. And as I said, I think it carries very nicely into 2025 and 2026, really sustaining demand for our product, which we're excited about. In certain markets, as we've indicated on the last call, we start to see consumer traffic and net sales returning close to historic trends, particularly in U.S. and Europe off the extraordinary levels that we witnessed last year. And so the business delivering well as we get to more normalized trends for consumers in this space. That said, our portfolio of leading brands and really these unrivaled ability to source trends and strong distribution network, we're really well positioned to continue to invest behind this business, both on product innovation and marketing to outpace the market. And we really remain focused on delivering profitable net sales growth, which I think you've seen in this quarter and you should expect from us as we move forward. We are targeting spending advertising at around 7%. It's the right thing to do to push this business as travel continues to grow, and we're behind that. The right thing to do with brands like Timi, which have outpaced growth opportunities for us, and we continue to lean on that front as well. You should expect us to deliver fundamentally higher profitability. We continue to focus on the efficient cost structure that we achieved over the pandemic period and the strong growth we're seeing from our higher margin brands, channels, and regions that will fuel a growth story that delivers expansion and profitability for sure this year. You saw some of that in Q1 for the year. You'll see it and something that we should be able to continue as we move forward. This business generates cash. We all know that. You've been looking at it for a while. We had significant cash flow in the quarter, really led by this absolute light model, creating real flexibility for us from a balance sheet perspective on capital allocation, allowing us to de-lever our balance sheet. We've made tremendous progress, even during pandemic and where we are today, ahead of my own expectations as far as what we've delivered. We can invest appropriately behind organic growth. You see us carefully and strategically opening retail stores, refreshing our fleet, investing in real product innovation technologies to continue to push the business organically. And we're back to returning cash to shareholders. And as I indicated, we'll have a distribution in July. And I think this business, off the back of this foundation, can continue to do all three of those things in a meaningful way and deliver a good growth story. As a sustainability leader, you should expect us, as I've said many times, to transform the luggage industry. And we're making real amazing strides with our responsible journey. And I think you'll continue to see the pace of progress towards our goal continue to accelerate in the coming years. And we're really focused as a team on that. And lastly, and I think importantly, this message that we'll make on listing venue, because off the back of our March results or our March announcement, we clearly indicated we're pursuing a secondary listing. The boards authorized the management team to pursue that. We've hired advisors. We're doing the preparatory work. There's a lot of work to do to get ready. And I would say we're in the early stages, and we'll provide a more thorough update as we progress and when appropriate. And so if you ride with us, we'll keep you updated as we're moving. But the work has started, and we're progressing in a meaningful way. With that, I'm very happy to open it back up to questions, William, if you want to manage that for us.

Great. Thank you, Kyle. Thank you very much. Operator, why don't we begin with the Q&A session.

Thank you. Ladies and gentlemen, the question and answer session will now begin. If you wish to ask a question, please press star 1 on your telephone keypad. Our first question has come from Auburn Ramberg with HSBC, and please go ahead.

Hi, and good morning or good afternoon, depending. Thanks a lot for taking my questions, and congrats on Q1. It seems that Q1's comp was pretty tough, and so I'm just wondering what should we expect in terms of possible acceleration in terms of pipeline growth from here? And if you are expecting an acceleration, can this be visible as early as Q2? And how do you think about that acceleration on the, you know, looking at the different geographies? And then maybe just picking up your last comment on a dual listing process. I imagine you can't say much right now, but any surprises in that process? Any thinking about how long this can take? And maybe related to that, any – intentions of organizing maybe an investor day or capital market day in the next few quarters. And then maybe lastly, I think you made the case that this would be a year of ad performance for both Asia and TUMI. TUMI, for the reasons you explained, was slightly behind relative to other assets in Q1. Should we expect TUMI to start to ad perform now? Thank you.

Okay. Just from a top-line perspective, we definitely knew that Q1 was going to look like this. I think we indicated last quarter off the back of a very strong Q1 last year. I would tell you Q2 is strong last year as well, but we see an improving trend. And I think what you'll see from a growth rate perspective is that this is a business that will deliver, from my view, will be in the upper single digit for the full year. You'll see a Q2 that will be stronger than Q1, but let's not forget Q2 was very strong last year. You're going to get the benefit of Europe, and I indicated earlier that Europe will deliver a stronger Q2 as we anticipated, and we've seen a very strong April for Europe as well. So I would say a building trend, Erwin, you know, where Q2 will be better than Q1, and the second half should be in a zip code that's really close to double-digit growth for the business for the second half, blending to a full year that I think will be really upper single-digit growth expectation for us. So really, really in line. Q1 was a little shy of what I thought it was going to be, but that was really some timing issues. I'm not so worried about where Q1 ended up. I would have probably guessed 5% or so. We ended up at 4.1. There's a little bit of softness in traffic that we're seeing in pockets around the world. That carried into April a bit, but we're seeing a better May, June expectation. So blended, I think it's heading in the right direction. From a dual listing perspective, if you can just bear with us, we probably won't be so specific on timing. There are no surprises, though. There's a bit of work we need to do to get ourselves ready. We're doing that. We've lined up advisors, and all of that work stream is going. Nothing that surprises us other than there's a good deal of work to get yourself really in the right place to get that right. And I would say there are investor days coming, but I can't be so clear on timing yet. So if you can bear with us, we'll have all those moments at the right time. And then Asia and Tumi, I think blended, if you really take medium-term views for Asia, And for Tumi, these are both pockets of our business that will continue to grow at a rapid pace. You know, Tumi's really off the back of what was this kind of recovery in inventory last year, so we definitely felt that. In Q1, we're seeing a little bit of that in the start of Q2 because that carried into Q2 last year. But I think for the full year, you should expect that Tumi delivers, and particularly for the back half of the year, Tumi continues to deliver well. Not just in North America, but in a bigger way in Europe and Asia, where we continue to get the footprint right and have that moving in the right direction. Asia saw a very strong China Q1. It's a little softer Q2 in China. India, as we've indicated in our materials, if you read them, India had a slow Q1, which was actually negative, I think, 8% or 9%, if I remember the numbers right. India is off the back of, and I think we talked about this a bit on the last call, off the back of a business that for two years had outside performance, more than double what it was and continue to be double what it was in 2019. And I think we have a period of this moderation in India. That will have some overshadow for Asia, but the blended Asia number will be very close to double-digit growth for the full year for us. And you can see, I think, in Q1, Asia is up 7.5%. So that would tell you that you'll see a building trend for Asia in the back half of the year for Asia in general and also for Tumi in Asia. And then blended Tumi will look different second half of the year than it did in Q1, which was really against this inventory replenishment. that really boomed it. Our Chumi business was up 56%, 57%, really rapid recovery because we came back into stock. That will normalize, and Chumi will get into a more normalized growth story for us in the back half of the year for sure.

Very clear. Thank you so much. Best of luck.

Yeah, thanks, Eric.

Thank you. And our next question has come from Kaisheng with Hightone Securities. Please go ahead.

Hi. Thank you for taking my question. My question is we can have more color on the EBITDA margin performance for different regions. And my second question is because we have seen the SG&A expenses are quite close compared to the fourth quarter of last year. So if It's a possible design. We can see more leverage effect maybe for the second half of this year because we have seen maybe the expenses and acceleration is actually a bit faster than the revenue growth. Yeah, thank you.

So overall EBITDA margin, I think we talked about it previously that we're expecting to see an improvement in EBITDA margin year over year as we get towards the back half of the year. If you're looking at it by region, obviously there's region and then there's TUMI as well. So the EBITDA margin that you would see in Asia is higher than some of the other regions, so that blending effect is gross margin improves and that region flows through. The SG&A point that you raised obviously flows into that as well. As it relates to SG&A, the absolute dollar amounts are not increasing. So if you're seeing it, there's a very modest amount. Obviously, there's some payroll increases and things like that that you see in the natural course year over year. So that works its way as the year goes on. And the other point that I'll raise is the new store openings that we talked about. So we have 77 new stores. We're continuing to add stores as well. That adds to the fixed cost base. And keep in mind, as that comes in, there is a ramp period for each of these stores where there's a lag between when the stores have been established and when the revenues start to come in. So we do expect that to normalize as the year goes on. We're obviously very focused on looking at SG&A as a percentage of sales. So there should be operating leverage that comes into the business, which is why we expect the EBITDA margins to improve as well. The one area that we're looking at is gross margin. Obviously, gross margin is running ahead of our expectations. And we're looking at that in line with also what's happening in terms of sales as well to make sure that we're not missing out on sales as we look at that very high, historically high gross margin level as well. So you have to look at those two things in concert with one another. The other point that I'll just raise as it relates to the overall EBITDA margin is we are saying that we're increasing it year over year, but that's after an improvement in advertising as well. So that's We're absorbing the increased expense on the advertising line and still delivering operating leverage in excess of that.

I think on the cost structure, one of the things, we skipped over it on the slide, but it's on the slide. You've got to look at, and it's well in the past now, but we're running 480 basis points lower than we were pre-pandemic. And really our task is to make sure that we continue to deliver this kind of modified cost structure that we've created for the business. And I think we've done a tremendous job in many ways ahead of our own expectations. And we're very focused on ensuring that we continue to deliver that. So you get a bit of leverage on growth margin. You get a bit of leverage on our fixed cost structure, which will fuel ability to invest heavier in advertising and still deliver some bottom line operating leverage.

Okay, I understand. And I have a follow-up question. Just wondering, do we still keep the guidance for EBITDA margin for this year at this point of time?

Yeah, I think we're going to deliver 20, you know, I'd say anywhere from 10 to 30 basis points of EBITDA margin expansion for the full year. You know, pick the spots. I think I got it last call, 20% EBITDA margin expansion for the full year, and I think that's what we're looking at still today. Yep, that has not changed. Yep.

Okay, thank you, thank you.

You started Q1. Q2 will do a similar story for us.

Okay? Okay, thank you.

Thank you. Thank you. And our next question has come from Dustin Wade with Morgan Stanley. Dustin, please go ahead.

Hey, thanks for taking my question. First question related to sort of sales and the demand. So, you know, based on sort of the upper single-digit kind of sales target for this year, it sounds like overall consumption environment a little weaker for the company. So just wondering, like, which region that you are currently seeing that's kind of a little weaker than expected, this kind of from Asia? And sort of what's your sort of drivers to, like, improve the sales? I guess, in the second half this year, is that through the store openings, store upgrades, or, you know, continue to expand more into the AMD? That's the first question. And second question, I think, in one of the slides, you mentioned that, you know, comp sales up, like, 2% in first quarter despite declining traffic. And I compare that information to sort of the strong GP margin in first quarter, right, up YLY and the QOQ. So it feels like company, you know, is not doing much of the promotion to drive the traffic. So, like, should we say, you know, company's focus is that, you know, if overall environment is not as good, then so be it. But we want to focus on the margin. We want to focus on profitability. So if it's not necessary, we don't want to do extra discount. We want to protect our sort of EBITDA margin per se. That's the second question. Third question is related to the distribution costs. So in the past few quarters, the distribution cost has been increasing by quarter over quarter. I guess that's related to better sales. And you have been opening more stores, especially starting from last year. And in this first quarter, we saw distribution cost decline quarter over quarter. So is that because of why some of the distribution cost is kind of the variable cost? So with those sort of softer sales, And then that cost, distribution cost, was just naturally a little lower. Or it's sort of related to the timing of the store upgrade and sort of the fixed cost. So essentially, how should we think about the distribution costs for the next few quarters? Three questions. Thank you.

I'll take the middle question, Dustin, which is around getting the balance right on the business. And I think importantly for us, we've delivered tremendous transformations in things like gross margin, which have to do with our positioning of our brand, but also the mixed effects And the balance of delivering bottom line EBITDA and the balance of delivering top line sales growth all feed into what are we doing to manage the levers, right? So I think that's what you're trying to get to. We guided up the year end results. It would be high single, low double digit growth for the year. I think that's exactly where we are. We're in a little bit lower area there because I think generally consumer traffic around the globe, not just for our space, but generally consumers are moving a bit slower. But I still have real conviction that we can deliver this high single-digit growth for this business. The levers for us, you know, advertising is one. Amazing products are probably number two. And third is, and as we've indicated, it's around our positioning. The competitive environment is back a bit, you know, so many of our competitors who weren't. really in good footing last year are back to moving. And so our real task is to manage, you know, how we're selling, how we're positioning, what are we doing with promotion and discount while still delivering a good margin story for the business and delivering sales growth. And so the real levers for us, because we'll continue to push advertising and product because that's, all tied into the right long-term strategy for this business, and you should expect us to push it. Because in many ways, those are not just for sales today, but sales for next year and the year after. And it's one of the foundations of the business that's tremendously strong. Our real task is managing gross margin and the right zip code to make sure we deliver a sales growth that allows us to keep the brand's position in the right place. And so as you'd expect, as a team, we're looking at that to make sure that we're managing those levers as well. I want to do both. I'm going to deliver the sales number that we've indicated. And we're going to deliver margin expansion and all of that with plenty of capacity to properly invest in the business. And that's really how we're managing the business and our teams are managing around the globe. So that's kind of the middle question. I'll let Reza take kind of question one and three. Yeah, thanks, Dustin.

So as it relates to the pockets, the number one one that I'll highlight for you is India. So if you're looking at Q1 of this year versus last year, India was down 9.9% constant currency. Now, you also know that over the last couple of years, the India business has doubled. So some level of that was to be expected, and we guided to that on the last call as well. We had a really strong result in China. China was up 23% in the quarter. And I've been obviously following some of the other companies out there on the retail landscape. So we were very happy with our China numbers. But as we look at April and we look at it, we're monitoring the situation because we're looking at store traffic specifically, as Kyle just mentioned. Our conversion is pretty good. Our revenue growth is pretty good. But we are seeing some pressures on traffic in some of the locations, and we're monitoring that. So as we think about the year, look, obviously the summer is a core season for us, so we're going to see how that does the performances in all of the channels for the summer. And then we do expect and the teams expect that Q4 is going to be very strong this year as well. So as we're thinking about the phasing of the revenue growth, it is back-ended and not dissimilar to last year, actually. As you alluded to, comp sales in the quarter, it was up 2.2%. So even though we talk about traffic, et cetera, the team still delivered on a pretty good number off of a very strong quarter. So we're happy with that. And then if you're thinking about the other regions, Latin America continues to deliver a very strong number. Europe is having a great moment right now as well. And North America, we have said it's going back to kind of the historical growth levels, and that's what we're seeing in North America. So the one pocket that I would highlight for you is that India number that we said that's basically working its way into the Asian number. And then we'll see how the rest of the year goes. But obviously, the advantage of managing a very diversified global business is, you know, if you have one country that may not be performing, usually there's somewhere else that offsets that.

Yeah. I think the only other thing I'd add is China consumers are moving a little bit slower. We're still delivering. You saw the Q1 number. Our full year expectation for China, as I indicated earlier, I'd say mid-teens, maybe a tad better than that if the trends are right. But it's moving a little slower than what we probably would have anticipated, but that's still in the range for our overall growth number. I think if one thing that does stick out for China is that the travel demand is very strong. So if consumers are cautious in spending, what's clearly still moving and building momentum is travel, Chinese travel, not just domestically, but international travel. They're starting to move more. I think we'll start to see that construction to Europe a bit more this year for sure. And across Asia, we see them showing up in markets like Japan in a meaningful way, which kind of our space that we're focused on, which is kind of the correlation to travel, which has been and continues to build over time in China.

And then you asked about distribution expenses. You actually answered your own question when you were asking it in terms of what this was. You're absolutely right in that it's that variable piece as you're looking at it. So just to give you a breakdown of it for variable selling, as a percentage of sales, it was 10.7%, so it was $91.8 million. in the quarter. Fixed selling, very much similar to what we had at the end of last year. So 162 million of fixed selling, which is a percentage of sales at 18.8. You know, that as sales start to increase over the course of the year, the percentage of sales, that's something that we're monitoring. But be aware, we do have plans to lay down some additional fixed selling costs in relation to the store footprint. But we do expect that the sales will offset that over time. But as we're kind of in this build mode, you should expect to see some additional fixed selling distribution expenses working their way. And then you have the normal course, you know, salary increases and things like that that just year over year you would normally see.

Yeah, particularly in dollars. You'll see dollar increase, and if we're doing it right and they're ramping, and stores that we've been opening really have been ramping very nicely, the offset as a percentage of sales should be pretty neutralized, but these ramps. quite quickly, and we've laid this foundation this past year. All those stories are ramping very, very nicely. I'd say out of all of them, there's maybe a handful, one, two, three, that we're watching, but most of them are performing really, really well, which feeds to a good long-term story on the fixed cost side of the business.

So is it safe to say, you know, for a distribution cost standpoint, that if we deliver, you know, a company delivers a high single-digit sales growth, then the sort of distribution cost ratio should still see some of the leverage effects? should still go down a little bit for the four years.

I think on distribution costs, just as a line item, you should see it similar to last year overall because we're purposefully trying to add some into the investments to lay down the footprint for what we need for additional sales growth. So I think it's fair to say if you're modeling it to look at what it was as a percent last year and just have that.

Got it. All very clear. Thank you so much.

Thank you as always.

Thank you. And our last question has come from Chris Gar with CRSA. And Chris, please go ahead.

Okay. Thanks, Benjamin, for taking my question. This is Chris Gar from CRSA. I only have two questions. So the first question is related to the 2Q recovery magnitude. So theoretically 2Q could be unisequentially better than 1Q. So firstly, we'll say this is more coming from an even stronger central net brand or a much better to me versus first quarter, or it is both the case. And by region, I think that Europe would have an easier base in 2Q since you have a $5 million U.S. dollar shipment with new warehouse management software that was conducted in 1Q23, which is supposed to be in last 2Q, right? So on the basis of that, you have an easier base in Europe. In terms of, you know, the summer holidays coming, do you see a stronger U.S. restocking trend? So in this case, can we assume that U.S. and Europe are better, while Asia might look a little bit normalizing, maybe according to your latest comments, in China and India, right? So is it the way that we need to look at regional performance? And also in India, you didn't comment on Japan and South Korea, so also wants a bit more color from that front, too, since Hong Kong has been performing very good. So this is a bit more color on 2Q. The second question is related to India. As I said, India saw a high count, which dropped by 10%, while a wide count on currency. So right now, I just want to confirm, what could be your full-year expectation on India now? Because previously, you talked about an upward trend in India from American Tourister to Samsonite Brands. So does it mean that the drop is mainly from American tourists, while the growth of Samsonite brand is now still catching up and not able to fully compensate? So right now, what do you see the trends in India growth by brand? So these are the two questions from me. Thank you.

Great. Why don't I start and then Kyle can add as we go ahead. So Q2, we're expecting an improving trend as it compares to Q1. So we're still going to be in that mid-single-digit sort of comparison as you're looking at a constant currency year over year. You're absolutely right in that Europe will be outperforming because of the warehouse management system. And Europe just generally is doing extremely well right now. So we're seeing a lot of traffic in Europe. And we expect to have a strong summer season there. Asia, it's hard to say Asia as an entire region is normalizing because it's really country specific. So we can say that about India. And I'm kind of blending your two questions into one. So what we're seeing in India is actually a general trend in India. And keep in mind, India is the one market that we have where there's a strong number two, number three competitor as well. What we're seeing in India is a lot of promotional activity. Our competitors are also discounting. They're in high inventory positions as well. And so the overall market in India, there's a lot of bags, candidly. And by the way, but that's off of the fact that the India business has already doubled. So when we're saying that it's down, compared to historical levels, it's still extremely high for us. But it is lower year over year in that regard. So just to play out the India point overall, if India was down just shy of 10% year over year in the quarter, we expect that to improve over the course of the year. But you're still going to be down, just given the fact that Q1 is already baked. You're probably going to be down in the mid-single digits for India. So if you're modeling it, that's what we would suggest. You asked about Japan, Korea. Japan in the quarter was up 26.4%, a very, very strong performance. Korea was up 13.3%. I'll add Australia. Australia was up over 21% in the quarter. So as we talk about Asia, I think it's really important to look at the individual subsets of the region. So, you know, If you're looking at the quarter, you have a China up 23%, but you have an India that was down 10%. So all of that blends to an Asia that's up 7.5%, which I think is in line with what we were expecting. It's just a mix that shifts a little bit between those countries. Overall, for the course of the year, again, we anticipate that those markets will continue to have an improving trend. The one that we're watching is obviously we are watching China because China had a very strong start out of the gate. But as we're looking at kind of April numbers and we're looking at Q2, there is some lower traffic levels that we're seeing, so we're monitoring that one specifically. But some of the other markets are also doing a little bit better than we would anticipate.

So let me just pause there. All I would say is I think – Our Q2 will be kind of in this kind of 6%, 7%, 8% range, I think maybe towards the middle to high end of that. That's kind of what we anticipated. Q2 last year was still a booming moment, if you remember the resurge in travel. And so just like we saw in Q1, but you'll see a building trend there. Europe will be 15% plus growth for Q2, which is what we anticipated, a tremendously strong April, well ahead of that, as we modeled. So that feeds into Q2 as well. North America continues at a good trend, and Latin America, you know, continues to be tremendous. So blended, that's what it looks like. Our full year outlook of high single-digit growth, that's with a back half that should be closer to 10% plus growth, you know, is how we're thinking about the business. And Q2 is kind of on its direction, heading exactly in that direction, as we anticipated following last year's trend. So I think we're in a good place. Definitely a few pockets of softness, as Reza said, but offset by a lot of pockets of really good results as well.

Thank you. This is very helpful. So just want to follow up a bit on that. So for U.S., definitely we're seeing some restocking impact in Q2 as well. And also for Japan, Korea, Australia, are they also upholding the strength in Q2? Thank you.

The U.S., yes. And, again, the U.S., you have to look at it both in terms of the wholesale side of the business but also in terms of the DTC side of Tumi and some of the other locations as well. But, yes, generally I think we're anticipating a similar to improving trend overall. We expect Q1 to be better than Q1 for North America overall. And, sorry, I forgot the second part of the question that you just asked. Could you repeat it?

Japan, South Korea, and Australia's rents.

Yes, yes, yes. So Japan, again, the back half of the year, we're expecting China to be doing better as compared to some of the other regions that we just mentioned. When I say the back half, Q3 and Q4. So on a blended basis, the expectation is that Japan will end up being Low double-digit growth for the year, similar to Korea, both Korea and Japan. That's where on a blended level. Basically, Korea is looking at that level already. Japan, we're forecasting the back half will be a little bit softer than what we have right now. Again, we're being somewhat conservative in that number, but that's the expectation given the unbelievably strong Q1 that they had. And Australia, it should be kind of high single-digit growth for the year as well. Yeah. Again, they seem to be running ahead of that trend right now, but, you know, to be conservative, that would be our assumption for the year.

This is very clear. Thank you so much.

Thank you very much. Good. William, back to you.

Well, thank you very much, Colin Reza, for the Q&A. And with this, we can wrap up the call for today. And thanks, everyone, for taking the time to join us. Thanks, everyone. Thank you.

Bye-bye. Thank you. The conference call has been concluded. Thank you for your participation, and you may now disconnect. Thank you.