Samsonite Group S A

Thank you for taking the time to join Samsonite's first quarter 2025 results presentation. We have our CEO, Kyle Gendro, and our CFO, Reza Talagani, with us today. And Kyle will start off with a few comments. Thank you.

Okay. Thanks, William. Thanks, everybody, for joining us. I'm assuming you can see the slides. I'm on page five of our deck. And so let me start with just what we're seeing. And what I would say is we're confidently managing through market uncertainties with agility and focus. And I would say across all of our teams globally, as you'd expect, particular focus in North America. But everybody's very focused on the backdrop today. We're seeing a macroeconomic environment that's a bit more uncertain. That's not new news to anybody on the call. And it's risen considerably, I'd say, worldwide, and the tariff situation in the U.S. remains fluid. Basically, weekly we're getting a sense for updates. And that is impacting consumer sentiment across our markets. And our teams, again, around the world are managing the business with real agility and focus, real track record for managing through economic uncertainties in a really strong way. We have very strong industry dynamics. They continue to remain in place. So we're seeing softer consumer sentiment. It is affecting our business. I think it will continue to affect the business in the coming months. But our business, as you know, historically correlates really well with travel, which remains a priority for consumer spending and is expected to grow both in the near term this year, travel outlook for this year, 4% to 5% growth, and long-term still stays in place. Additionally, we have real opportunities, as you know, both in the short term, but particularly in the long term on non-travel, which we continue to grow. And that's a market we've been under-penetrated, and we continue to have good success there. One of our key strengths is ability to navigate challenges. As you know, we have a strong record of navigating. We navigated through the pandemic really well. We came out stronger. My expectation is we'll come out stronger on the other side of tariffs. We really have confidence based off the back of our really consumer-centric, iconic leading brands. Real importantly, leadership and product innovation and development. This global platform and scale advantages and nimble sourcing capabilities really allow us to navigate through this really very strongly and with confidence. We have a very strong financial position, as you know, and that continues to be super strong. And we're drive we're very focused on driving profitable growth and in the business we main focus on. Profitable sustainable growth, maintaining cost discipline and continuing our strategic investments to drive really long term strategic growth for the business. So as a backdrop, I wanted to start with that we've definitely seen some impact in Q1 the macro economic uncertainties impacted the business. But our sales in many ways have held up quite well considering. So we're just shy of $800 million of sales in Q1. That's a decrease of 4.5% to last year. But just for reminder, last year was a record Q1 for this business, both in sales and profitability. And our Q1 numbers came in line with what our outlook was when we were talking about the year-end results. We've definitely faced the toughest prior year comparison versus last year, so if you remember our Q1 last year was quite strong, and so that's off the backdrop of a strong Q1 last year that's impacting us. Despite the softening consumer sentiment, which has impacted demand, our largest core brands, Samsonite and Tumi, have performed relatively well considering the underlying basis. Tumi down 2%, Samsonite down 2.6% if I adjust for a larger wholesale customer pulling some orders into Q4. And American Tourist is down a little bit more, down just shy of 11%, really off the back of consumer sentiment impacting the value conscious consumer a bit more. And wholesale customers, and American Tourist is largely a wholesale brand, buying a bit more cautiously in this space. But, you know, a takeaway that Toomey and Samsonite, you know, really down just a few points considering the environment around us is a testament to the strength of the brand. in the strength of travel that continues as we came into the year. Gross margins held up fairly well. We're 59.4% for the quarter, down slightly from what we did last year, which was roughly 60%. And I would tell you, look steady in Q2. From where we're sitting in Q2, that gross margin continues to look very steady. Our Q1 combined SG&A or distribution and G&A expense was flat to Q1 of 2024, despite opening 64 net new stores in that comparable period. And so when you look at our combined cost management, you know, to be able to manage cost flat against a business that continues to invest in growth is a really solid testament to our ability to manage expense. As a percent of sales, obviously, it's increased a bit. That's just off of a slightly lower sales number. And our Q1 adjusted EBIT, $128 million, an EBIT margin of 16%, down off of a record Q1 of 2024, but again, really managed well, being impacted by a little bit lower sales and a slight decrease in gross margin with costs really well maintained. A view by region, just to give you a sense, and I think what I would label here, and I'll give you a little bit of a look into Q2 here as we're talking through, but the business really is sitting in a very steady or stable position. Our Q1 numbers for Asia, down 7%, very similar to what we saw. We're seeing a slight improvement into Q2 of this year for Asia. And I want to remind you that Q1 for Asia last year was a record number with growth just shy of 8% and an all-time high for us. So when you balance that in and considering some of the economic or the consumer sentiment, I think that's a good result. And again, slightly improving to steady for Q2. Our North American business was down 8% for Q1, a market that you would have expected consumer sentiment to have some impact. If I adjust for the wholesale customer that pulled into Q4, that number is down around 5%. And I would tell you steady going into Q2. And if you think about the tariff noise really kicking into April and having a steady view on Q2 for North America, I think it's a positive statement. We'll cover that a bit more in a second. Europe's been very strong. Europe growth in Q1, 4.4%. Looks steady for Q2 again. We'll be in a growth position for Europe in Q2. And it's been performing really well. In many ways, it's a market, when you think about the diversification of our business geographically, it's a market that I think will benefit from what is ongoing travel demand that I think Europe will have a good year on that front. And then Latin America was flat in Q1 for us. Our normal trend for Latin America is double-digit growth. We're seeing double-digit growth in Q2. Flat Q1 was really around a back-to-school softness. And then that market, particularly in Chile, a bit into Mexico as well, has a very strong back-to-school season that was a bit flat year over year, which drove the Q1 number. Just a bit more on page 8, a bit more color on regions, and I covered a lot of this already, but if I could just walk through it. So again, Asia down 7% in Q1, really off this record Q1 of last year. If you remember, we had a China in Q1 last year, it was up 20-something percent. and overall was up quite strong versus the previous year. We've seen a very good improving trend in India. So as you recall from last year, we saw India under some pressure. India for Q1 has positive growth, 2.6. Q2 is looking good for India as well. And just as a benchmark, it was down 26% in Q4. So a lot of the initiatives that we've put in place in India are really carrying out quite well, and we're seeing a shifting trend in our India business in a positive way. Certain markets were soft in Asia, particularly South Korea, which was down 18%, really off the back of a lot of the political instability in that market. We're expecting that to improve as we get into, I think, the re-elections in June. and then hong kong and china we're soft um but you know relative to what we're seeing and relative to what we've seen from other brands our china business is down around five percent year over year and that's off of again that very large china q1 last year so our china business is actually performing well but is down um and impacting our overall asian numbers as well i mean north america down eight percent um i really kind of covered this this is really around softening consumer sentiment real meaningful uncertainty causing wholesale customers to buy more cautiously. We see that. As you know, our North America business is largely a wholesale business, and that's under some pressure of buy-in we see good sell-through of our category sell-ins a little slower and I think we'll we'll see some of the benefits as we move to the second half of the year and there is greater caution on the consumer sentiment we're seeing that in retail traffic that we're messaging at the end of the year in q4 and that carried into q1 as well Europe continues to deliver strong results 4.4 I think we'll see something similar in q2 We had a very strong, all of our brands up, Samsonite up 1.2%, very strong Tumi number, offered the push to further penetrate Tumi up 11%, and American Tourist was up 11% in Europe as well. So in general, Europe is trending well and holding really well for us as we go into Q2. And then Latin America I covered, really just a bit of softness in Q1, but we're back to, in my view, from what we can tell, double-digit growth for Q2 and really remains on track as a region that has real kind of long-term growth opportunities to further penetrate across Latin America. On page six, just the brand lens, I've covered the numbers already, but again, Samsonite reported down 4.5. If I adjust for this one wholesale pull-in from Q4 in North America, it's down around 2.6%. Tumi is down 2%, but within Tumi, we have growth in the rest of the world. So we saw growth in Latin America, almost 16%. Europe's up 11%. And we saw, even with some of the softness and sentiment within Asia, Tumi delivered growth of 0.4%. And as you expect in a similar trend to what we're seeing in Q4, the North American consumer sentiment and demand and retail traffic is definitely lower. We're seeing growth or degrowth of 6% in North America for Tumi. And the American tourist rate covered down around 10%, really around wholesale and consumers. Just a few call-outs in the next few pages. I think these are important. I'll cover tariffs, and Rez will cover it in more detail as well. Particularly with Tumi in China, we're seeing a really good growth story as we further penetrate Tumi within China. You can see the journey here from Q3 of last year to Q4 where we were positive to a positive almost 11% for Tumi China. We've had some great store openings. We have some store openings that are coming. We've got some store opening coming for Beijing, Shanghai, Shenzhen. These are great stores. I was visiting the Shanghai location pre-opening that will open in the middle of Q2. And these stores are really setting flagship locations within China that are really delivering some good story for us. And we're quite excited with the momentum we're seeing within our Tumi China business. Just to call out for a store that we opened in Chengdu. This is opened in Q1 and really serves as a flagship store in the western part of China. Really quite an amazing store. Off to a good start out of the gate is the way I would describe it. From a tariff perspective, and again, Reza will cover it, but I just want to, and I'm sure people have questions on this, but what I would say is we're taking decisive actions to mitigate the impact of tariffs, as most companies in the U.S. are, and really carefully managing. It's very fluid. The timing of implementation, scope of tariffs, as well as how it's affecting supply chain and consumer demand remains unknown. A lot of our ability to think about the back half of the year is really challenged because it's such a fluid situation. But we are taking actions with what we see, which is what you'd expect from us. Incremental tariffs are going to increase product costs. We're seeing that today with what we're seeing in the 90-day period with effectively a 10% increase on tariffs from most of what we source for the U.S. And we will take actions on that. We believe our extensive, diversified, and strong sourcing platform allows us to have strength in this and really gives us some competitive advantage to move quickly to manage this. And we have taken action, and we're planning on taking actions as the potential tariff kind of journey continues. We're sourcing, as you know, a significant part of our products for the U.S. outside of China. We see some opportunity to even expand that further. We're roughly 10% sourced from China today. My sense is by the end of the year that will be closer to, you know, 1% to 5%, you know, much, much lower. We are taking strategic price increases on products that are significantly impacted. And so we're doing that today. We're in the midst of that. We're partnering with our suppliers to manage costs. We have really longstanding relationships with our suppliers. We're in many ways in it together with suppliers. And suppliers are reacting and helping us with some price adjustments on products as well to help offset. We re-engineer products all the time. That might not have an immediate impact, but our ability to really continuously innovate and introduce and re-engineer products allows us to maintain margin profiles in the long term as well, and we'll be working on that as well as we always are. And in a very smaller a smaller way, but we have done this we capitalize by bringing some for inventory forward. To leave it, and so, when you look at our working capital you'll see some slight increases in inventory. Really, to be just ahead of it, like lots of companies, and I think we've done that at the right levels in the visit. Res will cover more of this in detail in his section, but I want to give you a sense that we are taking decisive action managing this very well. And just a few slides to call it, because I think these are important, I said it on my first page but. Scale advantage will help us manage and navigate through the tariffs and the impacts. And I have strong belief we'll come out stronger, as we often do, as we leverage our advantages in the business. Real advantages in product innovation and design, which I was just talking about, our real ability to constantly innovate and manage products to margin profiles with real strategic investments in design and development, a huge scale advantage for us. Marketing advertising is a big lever for us. So we can be pushing the business, but it's also a lever that we can manage. And you'll see us manage the advertising just a bit this year to help offset maybe some of the softness in sales, some of that in Q1. You'll see that through the rest of the year as we manage that carefully while still investing and driving growth through marketing and advertising. Our go-to-market strategy is probably one of the best globally. It is the best globally. I don't have to say probably. It is the best globally in the world. We touch every part of the world with local execution, with really diversified organizational structure that allows us to execute within each market perfectly and I think that gives us advantages as we're managing North America wholesale customers buying a little differently or what we're seeing in a China or what we're seeing in in India we're able to do that in a very localized way and react to what we're seeing and again that's a huge skill advantage and it goes without saying on on our sourcing and manufacturing capabilities in the sheer scale and ability of to work with these really deep rooted long standing relationships with our suppliers to manage through what we're seeing from a pressure perspective together. Not just on where we're sourcing, but what we're doing to manage through the impact that we're seeing. Again, all these things the teams are using to our advantage to really manage through the pandemic, the pandemic, the tariffs, sorry. And then lastly, there's real diversification in this business. When you look at our business and you're looking at it from a global footprint, two thirds of our business is outside of the US. One third of our business, we're managing the impacts of tariffs, and I think we're doing a really good job. But you can see and you know that the diversification from a geographic perspective is a benefit to us as we navigate the business. We're diversified from a product category perspective. Today, non-travel is 34% of our sales. When I started quite a while ago, it was something less than 10%. And there's real opportunities to deliver some outsized growth in non-travel category. We continue to push that. And real strength within travel as well, as you know. And then we've got a diversified channel mix. And so, again, we manage that very diversified. We're very local to market. And it's been evolving over time, really evolving to consumers' preferences on where they buy. And again, that gives us a wonderful advantage from a diversification perspective in the business as well. Just to call out on travel, this slide, you've seen this tried before. I think the two takeaways here is, again, we correlate really well to travel. Okay, you can see our journey, which is the blue line. The red line is the overall global passenger travel numbers. And the correlation is very strong and I think importantly the outlook, even for this year, when we look at travel and we look at even within North America, the travel numbers are positive for this year. The overall outlook for travel for 25 still remains 5% growth in travel and again this this directly correlates to our business when we think about where we are strength of our business. The consumer sentiment's a bit softer. They may be buying a little bit differently, but they are definitely still traveling, and that's really positive for us, not just for this year, but all the forward indicators for next year and the years ahead are really strong from a travel perspective. And then lastly, just a couple of product call-outs because we, you know, in the midst of, you know, what will seem like pressure, this business is continuing to innovate and develop and really starting to launch some really exciting products for this year. We have a couple of collections that are coming, Parallux and LightGeo. Parallux is really this amazing bag that will launch globally. It's a Red Dot award winner. It's heavily recycled material. It's got really interesting packing, front-end packing, split-case packing. I'm actually testing this product now, traveling with this before it's launched, and it's become one of my favorite bags to travel with. This is launching as we get into Q2, into Q3, and I think it'll be very successful. Within Asia, we developed a super lightweight, light geobackpack. This is really an amazing product with recycled material. but distinctively lightweight and really with a really fascinating look that I think will do some amazing things in our non-travel space. I'm launching in Asia. The rest of the world, I'm sure, will pick it up. It's going very, very well. And then Octolight Neo, really interesting with max capacity for packing. And ZenPod, these are both launching in Asia. These are really interesting products with a different lens, but delivering on everything that we do really well. And these are just a small sample of what we're doing from the innovation perspective to continue to launch products. On page 17, we launched 19-degree light. I mentioned this at the year-end results. And this is off to a good start. This has been very well received. It's Tumi's lightest weight luggage, I'll say, yet. More to come. More to come on lightweight for Tumi. And this bag, and I'm traveling with this bag a bit as well. This is really a terrific bag. Every component of the product's been engineered to deliver lightweight. And we're now pushing it with meaningful campaigns and marketing support across the globe with really good success. So keep your eye out for that. If you haven't seen that, have a look. And then lastly, and this is a limited edition collection, but I wanted to show this product in light of sustainability initiatives that we continue to push. We launched this product in a limited edition around Earth Day. This is our proxies case using rock skin material. But importantly, 70% of this shell is made from effectively recycled cooking oil where we're collecting The producers are collecting recycled cooking oil, turning it into the rock skin material and then making it into luggage. And it really talks about this real amazing bio-circular material opportunity for us. And because of our skill, we're able to do this. And so this really speaks to the level we can push on the front of innovation and real sustainability in our products. And I think this has been terrific. If you get a chance to see this product or look at it online, I think it tells a really amazing story about what we're capable of doing on the innovation side. With that, I'll turn it to Reza, and then I'll come back to just a brief outlook.

Thanks so much, Kyle. And we are on slide 20. Just a quick recap of the Q1 results, which Kyle mentioned. So sales came in at $797 million for the quarter. That's down 4.5% constant currency. Gross margin ticked down about a point off of a very, very high number in Q1 of last year. So we were 60.4 last year. We still delivered 59.4% on gross margin this year, largely due to geographic mix. So obviously the Asia sales were down a little bit, and that's our highest margin region. So that blend brought that gross margin level down. Adjusted EBITDA, adjusted EBITDA margin of 16.0%, delivered 128 million of adjusted EBITDA, decreased by 34 million from the record number that we had in Q1 of last year. And then adjusted net income, delivering 52 million of adjusted net income in the quarter versus 87 million last year. Going to the next slide, I am sure we were going to get questions on tariffs, so Kyle covered a bit of it up front, but just to get into a little bit of greater detail. As you can imagine, we are managing through tariffs. The first thing that I'll start by saying is that please bear in mind that we run a very well-diversified business. So the U.S. is roughly a third of our business, so we benefit from having a globally diversified revenue base. And we are navigating tariffs, and it is one of our scale advantages having dealt with this already through the first round of tariffs that we had several years ago during the first Trump administration. We do anticipate tariffs being lower than what you see on the page here, but we thought we would give you, you know, if you literally took the news from the first day of the Liberation Day tariff, it would have meant on the cost side of the equation, it would have been somewhere between 40% to 50% increase on the goods imported to the U.S. in terms of the cost component of it. That's if literally we did nothing. Obviously, we take actions against that, and oftentimes we get questions in terms of what the impact is on cost of goods sold. What you should bear in mind is that, first of all, we don't anticipate these numbers being 40 to 50 percent, and we had put this deck together before the good news that came in yesterday or over the weekend in terms of what's happening with China specifically. But immediately after this 40% to 50% impact was announced, what would have been the impact for us, immediately everything was put on pause. So if anything, we're running well below these levels. Ultimately, as we look at over the course of the year, we expect that tariffs will resolve, but we just don't know what it's going to be as yet. So what you should be focused on is the actions we're taking on the cost side. So we're working to fully neutralize the impact on the cost side between price increases negotiations with the suppliers and over the medium term, re-engineering product to hit the certain price points that we have. Again, this is a scale advantage that we have. So what we're very focused on is the actions that we're taking. What you should also look at is we have put the product sourcing components here in terms of China, non-China. It's less about the China versus non-China story. It's really around how nimble we can be because Depending on how tariffs shake out, depending on which countries will be more favored nation versus less favored nation, we will obviously work with our supplier base, and our supply teams really are industry leading in this regard in terms of trying to shift production to where we need to know. So where we are today, we don't know where it's going to land by the end of the year. The good news is it seems to be trending in a positive direction compared to where we were several weeks ago, and we will manage through it. So it's less a component of in terms of cost. It's really around where we're focused on is what is going to be the net impact to the end consumer and what's going to happen to consumer demand. So as we sit here right now, consumer confidence is definitely impacted in North America. There's pockets in Asia where we're seeing consumer confidence impacted as well. And that's where we look at it in terms of weekly sales reports and looking at how the consumer is behaving. And we'll see how it shakes out over the course of the year. But the good news is, as Kyle mentioned, we are seeing a level of stability so far in terms of the consumer confidence that we're seeing. So it doesn't appear that things are getting any worse is the way we would characterize it. Looking at slide 22 in terms of the other financial highlights, just to go through some of the additional metrics. Distribution and G&A expenses of $318 million, flat compared to Q1 of last year. That is not an easy thing to do when you add 62 net new stores, but it just gives you a sense in terms of the discipline we have around the cost side. So the levers that we have at our disposal, we are definitely managing. Advertising spend in the quarter was $42 million, 5.3% of sales. That's $11 million lower than last year, but as a percentage of sales, we were 6.1% last year. We're at 5.3%. Advertising is a lever that we're going to continue to monitor over the course of the year. Obviously, if we feel the consumer confidence is impacted, we're not going to over-index on advertising if the consumer isn't shopping. But as it stands right now, as we get into the busy summer season, we're continuing to invest behind our brands. But on the back half of the year, we're going to revisit and see how that plays out. And we may dial that back to maintain margins. depending on how things are shaking out with the consumer. Operating profit of $110 million in Q1 2025. That's compared to $150 million last year. That's driven primarily by lower gross profit that we talked about, and it's offset by a reduction in the advertising spend period over period. Adjusted free cash flow. We did have $41 million of negative free cash flow in the quarter. This was largely due to the fact that we pulled it forward some of the inventory purchases that we were doing in Q4. So if you looked at where our inventories were and specifically our accounts payable balance. At the end of the year, we did do a lot of pre-purchasing, especially ahead of Chinese New Year, but especially for North America. And in the quarter, we ended up basically paying those bills. So that affected free cash flow in the quarter. Net debt, healthy balance of just shy of $1.2 billion of net debt. That's after returning cash to shareholders of $350 million. So obviously, we paid the dividend. We did $200 million of additional share purchase, but the net debt balance well under control. Calculated net leverage, 1.8 turns of net leverage in the quarter. Obviously, we feel very comfortable with our overall financial flexibility that we have with our net debt position, our net leverage, as well as ample, ample liquidity, just shy of $1.4 billion of liquidity, which is a number that we feel very good about. Moving on to slide 23, just a graphical depiction of how we've been managing our distribution and G&A expenses. Again, if you look at Q1 of last year, we were 317.5 million of distribution and GNA expenses. So really looking at kind of the fixed cost base of the business. If you're looking at Q1 of 2025, we're basically at the exact same number, through 17.6, despite adding significant stores and having salary increases and some inflation on costs, et cetera. So managing the cost side of the equation, I would say, very, very well, with a lot of focus from all of the teams globally. On slide 24, just to give you a sense in terms of how our sales mix has been shifting, our DTC net sales were definitely more resilient, although we are seeing some wholesale customers. I would say it's a bit lumpy in terms of the product purchasing that we're seeing, especially in North America, but DTC is still remaining fairly resilient. If you're looking at the composition, the DTC net total, 38.2% in Q1 2025. an uptick compared to 37.1% in Q1 of the prior year. Overall, e-commerce sales continue to grow. It's about a 7.5% on a constant currency basis of growth in terms of what we're seeing in terms of overall e-commerce. I'm looking at both direct to BTC as well as sales to the e-tailer channel as well. So e-commerce still remaining resilient as well. On slide 25, we continue to focus on diversifying our category mix. We have touched on this at the year-end results as well. We will see a real opportunity in the non-travel segment where we are under-penetrated compared to the overall market, so it remains a focus area. Each quarter, we look at increasing that slightly. We're up to 36% of net sales compared to 35.1%. last year in terms of that non-travel component and that market share continue to hopefully grow as we move on over the course of the year on slide 26 the balance sheet uh again i think we feel really good about our overall balance sheet position you did see a slight uptick if i'm looking from q4 to q1 of this year in terms of net leverage you know going up from one to just drive 1.6 to 1.8 uh that's just the flow through that you're seeing from the ebitda where i'm replacing a really strong court the record quarter last year with with this quarter But I think we feel really, really good about where our overall leverage profile is and in terms of where we stand overall in terms of liquidity as well. On slide 27, looking at working capital, you can see the change year over year. Obviously, year over year down to 20.8 million in terms of net working capital. But I think what's more relevant is looking at net working capital was higher in the period ended March compared to December. And that's due to the lower accounts payable that I just mentioned as we reduced the overall account payable balance that we had as we kind of shifted some of the inventory purchasing ahead of what we anticipated to be tariff pressures. And then looking at CapEx, we're continuing to invest in the business on slide 28. As you can see, quarter over quarter, relatively similar to what we had last year. We're a little bit shy of what we did, 11.4 versus 13.2 last year. But you can see we're continuing to invest in retail. That retail CapEx is refurbishment of stores, broken out by store remodels as well as relocation. and then new stores as well. They continue to invest in terms of software and some of the other R&D, but largely the CapEx number in the quarter was largely on the retail store footprint, which we're continuing to invest behind. So with that, let me turn it over to Kyle for Outlook, and then we'll open it up for questions as well. Okay. Thanks, Reza.