Samsonite International S.A.

William Yue – Director, Investor Relations Ramesh Tainwala – Chief Executive Officer Kyle Gendreau – Chief Financial Officer

Anne Ling – Deutsche Bank Mariana Kou – CLSA Shen Li – JPMorgan Chen Luo – Bank of America Merrill Lynch Edward Lui – Morgan Stanley

Hello, everyone welcome. This is William.

I welcome everyone, this is William. We are very happy to be – to have our CEO Ramesh Tainwala and our CFO Kyle Gendreau to present our first quarter results.

Ramesh and Kyle will first go through quickly the presentation back and afterwards we will open the call to questions. Thank you very much and now over to Mr.

Tainwala.

Hi everybody. I'm happy to announce our first quarter 2017 results.

It has been a very satisfying quarter. If you look at - on the first slide, our constant currency growth was 29.3% and within that the underlying growth of our core business was around 5.7%.

There was also an improvement in the gross margin percentage points from 52.5% to 55.3%. Partly it has to do with the Tumi, which has a bigger retail component, but also stripping out the Tumi, there was also an improvement in the core brand gross margin as well.

The adjusted EBITDA margin increased by 20 basis points with increased gross margin being partially offset by higher fixed selling and advertising spend as a percentage of net sales, which is what we have also modelled within our own internal projections. Excluding - if you look at our numbers for the adjusted net income, the adjusted net income as a percentage of net sales was down by 170 basis points, mainly due to $19.3 million of increased interest expense, approximately around $12.4 million on tax-adjusted basis.

If you go by the regions. Asia had a growth of around 18% on constant currency.

Excluding Tumi it was 4.3%. North America 46.4%, excluding Tumi it was 0.9% negative, was mainly on account of timing of some of the large orders more particularly of a few key customers like Wal-Mart and Sam's Club.

Europe continues to have a strong - continues on their strong growth trajectory, delivering a 26.4% growth and excluding Tumi 13.4%. And Latin America, which is our smallest region, continues to deliver very handsome 23.5% growth.

Some of the key market numbers when we look at it. On constant currency basis, U.S.

Grew by 46.1%. Excluding Tumi, it was minus 1.6%.

As I already said, it was many on account of the timing of - few of the large customer orders, which is mainly Wal-Mart and Sam's Club. China had a good growth of 10.4% excluding Tumi, and including Tumi it's 4.6%, which is mainly on account of we are taking back some of their distribution business which has started to - we operate it as direct market from April 1.

South Korea, on a constant currency basis, the core business had almost a flat year, but continues to face some challenge on account of lack of Chinese tourists there, but otherwise the business seems to be in good shape. India have rebound with a growth of 9%, Japan 15.2%; These are all excluding Tumi numbers because Tumi numbers have been presented on a separate base and I'll cover up - cover them on a separate slide.

Germany continues to grow at 10.9% excluding Tumi. Hong Kong, is still degrowing at minus 5.1%, but the degrowth is slowly getting more and more moderated, when you compare with the degrowth of 2016 and when we are coming into 2017, we start to see that there is a deceleration in degrowth rate, but we are still finding the bottom in Hong Kong.

Chile grows at 21.7%, Italy 10.8% and likewise other markets. When you look at the brand business, Samsonite grew at 7.1% which is a very strong growth rate.

Tumi numbers are not there in the growth rate because last year it was not there in our business. American Tourister still had a small minus 2.9% which is mainly on account of TV home shopping business which is still challenged, and also there is a kind of a - we can say a drop in AUR, I mean there is an impact of deflation on the American Tourister sales.

When we look at our numbers, though the value degrew by 2.9%, but on the unit basis the business have grown by 10%, you know almost around 8% drop in AUR during the first quarter, which is partly on account of e-Commerce gaining at the cost of some other channel and also general deflation that we see at the bottom end of the market. Speck at 3.5% and High Sierra minus 19.7% which is maybe on account of - also that in some of the market, we have decided to temporarily withdraw High Sierra, which is mainly in Asia and Europe.

High Sierra is largely limited now to the key markets of U.S. And Australia.

We want to focus on Gregory for the time being and at some time at the later period we may relaunch High Sierra in some of the other market. So Gregory delivered a very handsome growth of around 41.4%, Lipault 27.9%, Kamiliant which is one of new small brand have delivered 162% growth.

The next slide really presents what we have been talking since the IPO days, our 50/50 strategic vision. You start to see that we are making good progress on that.

By channel, the direct-to-consumer part of our business have or the wholesale component of the business have degrown from 74% - the contribution has come down from 74% to 66% in the first quarter. Part of it is because Tumi has a larger portion of direct-to-consumer business, but even otherwise there is a lot of focus from our side as well in trying to grow direct-to-consumer e-Commerce part of the business which have - the contribution of that has grown from 3% to around 5%.

Same is true for the non-travel category. We have been talking that our express vision is by 2020-2021, we would like to see that direct-to-consumer business to be around 50% of our revenue pie and similarly, non-travel to be around 50% of our revenue pie.

In the first quarter already non- travel starts to make up for around 40% of our revenue pie. The first quarter results highlighting, that is excluding Tumi, in order to give more visibility into how our core business is doing it.

As I spoke before, on a constant currency basis, there has been a growth of 5.7% on net sale. The gross margin also improved by around 140 basis points largely on account of slightly higher direct-to-consumer portion of the sales, partly offset by negative impact on the product cost as a result of strengthening of U.S.

Dollar. The advertising spend, as a percentage of sales, have been more or less consistent as compared to the prior period and the result has been the adjusted EBITDA margin have increased by 30 basis points largely on account of slightly higher gross margin, partially offset by higher fixed selling expense as a percentage of net sales.

Tumi had a good start. The net sales grew by 14.6% which also includes partly the impact of the South Korean business, transitioning from a wholesale to a direct market business.

Excluding the impact of Tumi South Korea, the sales still grew by about 10.2% led by North American business which had a very strong growth of around 16%, Europe about 2.1% and partly offset by a negative number of 3.2% because we were negotiating with all other distributors to also go direct. The gross margin have seen an improvement of around 100 basis points.

We have dialled up the advertising expenses significantly from around 3% to around 5.5%. The adjusted EBITDA has been more or less in the same zone as 14.9% to around 14.8%.

Tumi acquisition integration update. Integration has been going largely as planned.

SAP conversion has been completed in May, 2017. We had dialed up our A&P spend already in the Q4 of last year and the same trend is continued in Q1, which is definitely helping to accelerate the growth in some of the key markets like North America.

And over the period of time as we grow more and more direct, we will see similar growth numbers coming in other markets as well. South Korea we have completed the buyback of the - completed with effective from January 1, 2017.

China and Hong Kong has been completed from April, 2017. Other smaller markets also more or less we are on a direct basis.

The sourcing initiatives also are going well. Additional gross margin improvements are anticipated in 2017 and beyond.

Timing of certain sourcing cost synergies intentionally has been delayed to be careful not to disrupt the business. Estimated synergy savings to-date of USD8 million or approximately $18 million on an annualized basis is more or less in line with what we were expecting.

Expected full year run rate cost synergy is in line with our original estimate and largely coming from headcount reductions and post implementation of SAP most of those things will be in place. I'll pass it onto Kyle, who will take you through some of the balance sheet items.

Thank you.

Okay. Hi everyone.

Yes, thanks Ramesh. Hello everyone.

So from a balance sheet perspective on the balance sheet slide. The balance sheet looks great.

We are operating with working capital slightly ahead of our targets, even with Tumi included now. We had strong cash generation in the first quarter.

We generated around $35 million of operating cash flow, which we used to fund the Korea buyback which was about $35 million and normal CapEx for the quarter around $14.7 million. But from a leverage perspective, our net debt ratio, so we have borrowings of $1.9 billion and our net leverage ratio improved from where we were at the end of the year at 2.84x, were now 2.8x and heading in the right direction from a leverage perspective.

Moving to the next slide on working capital. So we're quite happy to see our March 2017 working capital at around 13.4%, an improvement from last year March of 14.7% and that's including again the Tumi integration where we had some work to do to bring vendor terms in line with what we operate at Samsonite and that is going very, very well.

Hence you can see our blended payable days even with Tumi we're at 96 and I expect that to get back above 100 by the end of the year. Receivable days have come down because Tumi has a bigger retail mix, so you'd expect that.

And so, again from March last year at 47, we're at 40 days this year and inventory turns at a healthy 116 days or inventory days not inventory turns, 116 days versus 128 last year, up a little from the year-end because of the buildup we have typically leading into the summer peak period. So the end of March is typically higher than the December inventory levels.

And then just lastly, subsequent to the end of the quarter we closed on eBags. We put a press release out on that.

We're quite excited with this. EBags is a business that's very focused to North America on direct-to-consumer e-Commerce.

They are a business, from a sales perspective, was around a $159 million, which was up 23.5% from last year. So it's a business that has some increment sales growth and we're quite excited because it gives us immediate kind of resources and digital know-how to strengthen both our core North America business, and then as eBags settles in with us, able to benefit the rest of the regions, because that may - and the purchase price on that was around $105 million.

So with that, I will turn it back maybe to you William and we can go to questions?

Yes, I mean as Kyle said, I mean, when we look at our business for the first quarter, it is exactly in line with what we were expecting and what we were guiding it. Maybe we're doing a little bit better than what we were expecting to do on Tumi.

But on the core business, it is very much in line with what we were expecting, and what we were guiding when we were - we last met our Investors for our annual result announcement. So with this, I'll pass it back to William for the Q&A.

Yes. Operator, we are now open for Q&A.

Hi management team, I have a couple of questions. I think first one is focusing on the U.S.

Market. I think, like you know lot of clients are a little bit like you know concerned about the fact that some of the department store are talking about shop closure.

So we understand that some of your wholesale clients are actually like the common stock. Maybe Ramesh, you can share with us like, what is the 1 - is the current like network structure in U.S.?

And number two in terms of like what is our plan moving forward in sense of like, some of your channels - they are actually facing some rationalization. So that's my first question.

And my second question is on essentially like on this shift - in terms of the slowdown in the U.S. Market, based on the shipment issue, would you explain a little bit more on that?

Is it because of a seasonality on Easter or Speck or what are you seeing in the second quarter in terms of the order book so far. So should we be like expecting a pick up in the second half or for the remaining for the year for the U.S.

Market. This was my second question.

So maybe that's for now.

Yes, okay. So U.S.

Wholesale, I mean, if you really strip out, let's say, 2 of these large accounts which is American - which is Walmart and Sam's Club, all other department stores are all in the positive territory. So there is - we don't really see - definitely feel the doors on Macy's are getting closed or feel the other department stores also closing their doors.

But the value of business which is sitting there is miniscule for us, and we find that that business shifts to some other doors. So we haven't seen in any one single wholesale customer that there has been a much less degrowth except for these 2 guys and here - these are the 3 customers we can say where we have seen a degrowth.

Now coming back on Walmart and Sam's Club, clearly there is nothing wrong in their business, other than that - that there is a timing issue on the orders you know like last year the new collections of American Tourister were bought by them in the first quarter which has moved into second quarter. And as you rightly said, they will be reflected in our Q2 number, which will look to be much stronger than the Q1 numbers.

When we look at our retail business and e-Commerce business, everywhere there is - I don't see any material change which is happening here. Definitely on our own, we do - we are paying, let's say, they are paying more attention to trying to grow our own direct to consumer e-Commerce part of our business and eBags acquisition was one of let's say, key element of that strategy, because we were definitely witnessing that we were slightly behind the curve in our understanding of a direct to consumer e-Commerce business and I believe that eBags will be able to bridge that knowledge deficit that we had within the management team to get us to the speed.

Of course those numbers on what it can do to Samsonite business, you will be seeing over a period of time, maybe more so in 2018. So when you look at Q2 number of U.S., I don't think there is anything wrong in the press there.

And then, the business is fundamentally going to deliver mid-single-digit kind of growth, what we have been guiding, not only in Q2, but if you look at it for the full-year of 2018.

Okay, thank you. And just back to and again on the U.S.

Market, I'm sorry. Maybe like you know you can share with us what is the current sales mix in terms of retail, wholesale and then how much is it from the - some of the departments store like mass market or like Macy's [in question]?

So, if you look at our core business of Samsonite today and to me it's slightly different. So when you look at core business of Samsonite, excluding Tumi, today 80% of our business is largely wholesale and 20% of our business; 20%-22% of our business is direct to consumer, which includes mostly - it is the brick and mortar retail, with this factory outlet business that we do it, about 3%, 4% of the business is coming from the e-Commerce part of it.

Right now the contribution is, we can say 80-20 kind of a number. Whereas when you look at Tumi's business, it is more like 75% of the business is direct to consumer and around 25%, 30% of the business is the wholesale part of the business.

So, when you blend both the numbers together, it will look more like 40-60 kind of a number and the 40% is direct to consumer business for the North American business and 60% is still wholesale. But the direct to consumer business is growing more rapidly and more particularly the e-Commerce part of the business, both for the core business - core brand, with is Samsonite American Tourister as well as for the Tumi.

So I think if you really ask me how do I look at it over next couple of - handful of years, it will be more like, maybe 50%, 55% of the business will be coming more from direct to consumer business. Now between the wholesale part of the business, there are almost, let's say 10 big box retailers, which will include department stores and some of the hyper chains and warehouse clubs like Costcos and Sam's club.

10 of them put together will make up for that 50% of the business as of now about - that's approximately the number. But it's not that they are degrowing, their growth is moderated, so far 8% kind of a growth number.

But we would like to see a bigger growth coming from direct to consumer. The way our business in Asia is to [offset] and that is what we are doing it everywhere.

So trying to grow our multi-brand omni channel strategy, which is both brick and mortar expansion as well as digital commerce expansion.

Okay, thank you.

Hi management. Thank you for taking my question.

Just wanted to ask a little bit about Tumi in terms of the accelerated A&P spending. Could you actually try and share with us a little about what sort of percentage in terms of target that you're thinking for the full year?

And then secondly, it's on eBags. I know - I noticed on the slide, you mentioned that you already closed the deal.

How should we think about the margin impact from this transaction. And I guess lastly, just real quickly on the Speck product, and I know previously you had an announcement saying that you're reviewing the strategy for Speck.

Maybe if you could share with us any color that you could. Thank you.

Yes Tumi A&P, for the full-year, you'd look at it more like 6.5%, 7%; About 100, 150 basis points higher than our core business, because there are parts of the market where we see there are under - there is opportunity by dialling up A&P, we can get Tumi to deliver bigger growth numbers. We started to do that in Q4 of last year as soon as we acquired the business in August, and you can see the numbers, you know like North American business is delivering about 14.5%, 15% kind of growth number which is partly on account of [starting] up the A&P spend.

As we grow, more and more markets go direct like China, Korea some of the bigger markets. So full-year basis, you look at it more like say 7% to 7.5% of the Tumi sales to be invested behind A&P.

I think most of it would get funded by - through the cost synergies and the gross margin improvement that are expecting in 2017. There could be timing issues.

In the beginning you may find that the A&P is getting dialed up first and the savings or improvement in the gross margin is happening over a period of time. But on a full year basis, this is what the numbers will look like.

EBags; the impact of eBags on the gross margin and on the profitability, it will have an impact in the beginning as we go through the restructuring and remodeling the business. We have acquired eBags for two primary purposes.

Number one is that today it is the most credible and efficient platform in the business of bags and luggage, which is about a business of around $170 million of sale, but largely North American business. We acquired eBags to be able to bridge the knowledge gap in how to get the e-Commerce business - how to manage e-Commerce business, not only for eBags but also for our own branded site like samsonite.com and things like that.

So in the beginning, it may look like that it may be a marginal profit dilutive, but over next handful of years, the eBags when we look at our business, will be very much similar to the profitability of our core brand business. So eBags in North America, I have no doubt will start delivering similar profitability as our North American business.

Similarly, not immediately, but over next couple of years as we launch eBags in other parts of the world maybe Asia, Europe, the margins will be very much similar to our core business. But that'll happen over a period of - handful of years, next 3 to 5 years' time.

Coming to Speck. With Speck, we are still in the process of evaluating that what is - what are the options that we have in terms of - what should be our strategies baked in the Speck business.

As we had expressed in the past also, that is one business which we do find that it is slightly out of our core competence area. But to add to that - that there are no decisions taken that what is best for our business.

I think it will take us a few more weeks before we will be able to conclude and decide as to what we feel should be our strategic direction with Speck.

Hi, gents. I just have 3 questions.

Firstly on the core ex-Tumi business, in terms of EBITDA margin there was about a 30 basis points expansion in first quarter. Is that something we should be expecting for the full year?

Secondly, on the Tumi sales acceleration, are you able to give us a bit more color as to what's been doing really well? Has it been the luggage, which is something we've been focusing on since the acquisition or is it just everything?

And - those are 2 of my questions.

Okay. Now the EBITDA on the core business, you can expect it will be more or less be similar to what is happening in the Q1, which is partly on account of slight expansion of the gross margin we had.

As the mix of the business is changing, there is a slight - a higher proportion of direct to consumer. So I think EBITDA margin will be more or less similar to what you're seeing on the core business and that Q1 will probably be what will prevail over the whole year.

Tumi. What is working for Tumi, it's the - Tumi is not the one particular category, I must admit that as far as the luggage part of the business is concerned, as we had guided to the market when we met last time or even before that, that it is by end of 2017 and more so in 2018 that we had expressed that we will be able to bring new hard-side collections for Tumi.

So the first collection of hard-side is yet targeted to be launched in Q4 of 2017 now. But new launches, as you know that sometime you can flip the targets.

It can move from Q4 of 2017 to Q1 of 2018. So what you see today, the growth which is coming from Tumi is largely from their existing business and existing products.

I must say the only thing that we have added to what Tumi was already doing to their business was that we have dialed up their A&P spent which is what is helping the sales growth. It is not that there has been a material change in the way the product strategy.

There hasn't been any change in that. It has been a continuation of the previous product strategy.

The impact of more travel products will be more visible in 2018.

On the EBITDA growth, this is Kyle. For the full year, for the core business, I think EBITDA is going to be more like flat to slightly up.

Well we have some advertising that will come in at the back half of the year reporting initiatives for brands like Lipault. So core business EBITDA, I think will be flat or slightly up, which is what we guided at the end of the year for the business.

So, just to clarify that.

Okay. That's what I want to clarify.

Thanks.

Hi, management team. I've got two questions.

First of all, can you give us some color on the trading situation or the organic sales growth of the Group in Q2 so far? And secondly, it's on Tumi's margins.

So, if my memory is correct, we were previously guiding higher GP margin for Tumi, but at the same we are actually reinvesting the cost synergies into the higher A&P in 2017. So eventually if you look at the OP margin, Tumi should see largely flattish OP margin in 2017.

But if you look at Q1, it seems that the A&P spending is actually growing at a faster pace than the GP margin expansion. Just now, Ramesh mentioned that there might be some timing differences at the beginning of the year, but on the full-year basis, are we still looking for largely a flattish margin, OP margin for Tumi brand?

Thank you.

Yes, absolutely, what you just said, this is how you should look at Tumi on a full year basis that the operating margin will be flattish compared to last year because the gross margin improvement is happening over a period of time whereas A&P dial-up is happening immediately, but - so you already answered that yourself. What else was your second questions?

Q2, what we are looking at?

Yes.

When we look at our Q2 numbers, I think the guidance remain more or less the same that Asia is more like you know mid-to-high single digit more like a mid-single digit, which is similar to the first quarter numbers. Europe could be high single-digit going into double-digit their number, slightly lower than that is set in question, because we want to be conservative in guiding on a forward basis.

[indiscernible] the only change we're going to find in the Q2 will be an increase in the growth rate of North American business, the core business. Otherwise, the core business will remain more or less similar as Q1 which is mid-single digit.

The mix could slightly change here and there.

Well, Ramesh and Kyle, thank you for taking my questions. I've got 3 questions on Tumi.

First, just want to better understand. So after taking back the distribution rights on South Korea and China, what are our next steps in these markets?

Are we going to just maintain a kind of existing POS? Or are we going to aggressively increase the number of POS we have?

And if you have any guidance on just the top line growth as that happens. And my second question is just going along with that, if you could quantify the savings of converting some of these distributor around the stores to going direct.

So what kind of savings are we looking at? And also if, what kind of one-off costs should we be expecting this year as we kind of terminate these third-party distribution rights?

That's my second question. And just final question also kind of going along that line.

What are the other markets we look to take back for the remainder of this year or maybe next year? Thank you.

Okay. Coming on the distribution, I know that the 3 large market that we've taken back right now is Korea, China and Hong Kong.

There are few other markets also we have taken back you can say or we've changed the structure there which is market like Indonesia, U.K., Russia, Thailand, but they don't really move the needle that much at this side, that's why I didn't specifically comment about them. So I'm coming to your third question first, and then I'll cover up the others also.

I think at this stage when I look at it, all those markets where I wanted to be direct, we are direct. So the market where we are not direct, that's smaller markets and we - there are legal impediment like Middle East, you cannot do direct.

So Middle East is continuing to be distributor market, but we have reached to a stage where we wanted to be in direct market or going direct part of our strategy was a concern for Tumi. Coming in terms of the distribution and expansion, the different countries for Tumi are at different stage of evolution.

So for example, in Japan and Korea, in Japan, when I look at it, Tumi's business has been there for a long time. It's a mature business.

But what we find Tumi is largely known in Japan as a luggage brand where - since in most cases, they are sold in the department store on the luggage floor or on the men's floor. So as a result, the contribution for the non-travel is much more on luggage.

If you look at it, our U.S. business, you will find that the non-travel make up around 60%, 65% of business, that's not so for Japan.

In Japan, the number of doors may not increase, but the location of the doors will start changing. So we already started to negotiate with the department store to say, we cannot be on the luggage floor, we must be on the ground floor, together with other luxury brands.

So that change is starting to happen, but in Japan, it takes some time. Japan is also under represented in terms of the independent standalone stores.

The first store, we will open in Japan is on Ginza, which will open somewhere in September/October of this year. So I think the total number of doors in Japan may not increase, but the quality of doors will go through a material change in Japan over next 3 to 5 years' time.

Coming back on Korea, Korea business was another hightlight - want some clarity that almost 75% of the business or even more than 75% of the business was duty-free business in Korea. So it was catering largely to the - let's say the tourist traffic.

We are going to rationalize that business. In reality, when I compare Tumi's business with our own business, like Samsonite brand business in Korea, which is also very well distributed in Korea, we will look at this way that about 25% to 30% of the business will come from duty-free and about 70%, 75%, of the business will come more from the domestic market.

So there would be - additional doors will be opened in Korea in terms of the departmental store presence. Again, we want to be located on the ground floor together with the luxury brand.

So there will be a change in the way the brand is represented, but their entire process is about 3 to 5 years' time, few doors will happen now and it will keep happening over a period of time. Coming to Hong Kong.

Hong Kong they - the number of doors that they have is about 18. I think that's more than sufficient.

Again, there may not be a big change in what is happening in Hong Kong, maybe again, we may shift a few doors here and there, because we feel the locations are not necessarily the most appropriate, but largely, it will be in terms of number of doors, it will be what they are. China is the only piece where Tumi is grossly under represented.

I mean, it's one market where there is the biggest opportunity both in terms of distribution, as well as in terms of the sales. But again, it's a process, will take over next 3 to 5 years' time.

The number of doors, well they have it. When we have taken the last call of it, according to our call, probably 75% of the doors are inappropriately located in wrong locations.

So they will be shut down by us over next couple of months. But it will be relocated, I will not say shutdown.

Maybe the departmental store and the malls are right, they're not in the right place. So we already start to do the negotiations with both the department store and the mall.

Same kind of thing you will find it in Europe also, wherever you're going direct. Like, I was in Russia last week, they had 2 doors and both the doors we will consider to be inappropriate.

There are different places where a brand like Tumi should be presented. First door in Russia will be opened already in the month of September/ October.

So I think this whole process is something like 3 to 5 years, what we have been guiding in the past also. So you may find that our numbers for Europe and Asia would be - [cannot] be able to look like, more like delivering 15%, 20%, 25% kind of growth numbers before they start with a smaller base.

On a longer period, we look at it, their business we - as we have been telling in the past also, we see no reason why Tumi should not look in terms of the revenue contribution on different region that is similar to what Samsonite is doing there. Today for Tumi, almost 65%, 70% of the business sit in North America.

May be over a period of time, it could be more like a third to 40% of business in North America, the other markets have to catch up with that. Coming to the cost and the savings of going direct.

I think going direct is not so much about the savings or something like that because they've been very small, other than Korea and Japan where we want to restructure the business, and the cost are not that much. It's just a matter of pacing, it's a matter of putting right resource in terms of the people in place.

It's not going to make a big difference in terms of - immediately in terms of our profitability of the business or CapEx or something like that. It will remain more or less in the same zone as it is now.

So, these changes do not happen that rapidly and overnight.

Right. But just recapturing that kind of loss margin that we used to give to the third party distributors.

So is that kind of - is that a few percentage points boost to the margin or is that not meaningful?

Yes, it moves the gross margin up, definitely, because when you move the business from wholesale to retail, the gross margin will move upwards. But it's also a market which is under invested.

So as we had guided for the North American business, we would like to guide the same way. The improvement in the gross margin needs to be invested back behind the brand.

So the A&P investment in Asia and Europe is, let's say, 1%, 1.5% of their sales. We would like to dial that up to also around 6.5%, 7% over a period of time.

Of course you cannot start dialling up the A&P spend first. So you will not see that there will be gross margin improvement, but I think when you look at the operating margins, that will be more or less same as it was last year.

But when we get to the scale, so if you really look at it over next 3 to 5 years' time, slowly the operating margins will also improve when they will get to the scale. So the gross margin improvement, what I'm saying is, would help to invest more behind the brand.

So the operating margin would remain in the similar zone as it was last year.

Got it. Thank you Ramesh.

Also you need to understand that - I just want to add one thing that when you take the business direct, your denominator is also changing. So the sale which you are booking at 50 when the retail price was 100.

So when you move it to 100, so as a percentage, the margin improvement may not look that high in the beginning. Secondly, we are also buying back the inventories from the distributor.

They were carrying about 3, 3.5 months of inventory. So those inventory, when we buy now, actually is drops our gross margin in the near-term, let's say for the first quarter or something like that or the second quarter - first quarter after we buy back the business, but over a period of time, definitely the gross margin will move up.

Got it. So it's definitely kind of one-off expense that we need to book this year for [indiscernible] or buyback?

I think it's not going to be a big deal. So it don't really change the needle that much.

So you don't need to

The buyback kind of looks like a purchase to us right? So the - what we paid for these will effectively end up on the balance sheet.

Okay, got it. Thank you Kyle.

Thank you Ramesh.

Hi Gents, sorry, I just had two follow-ups. I don't think I see it - head clearly.

Can I just confirm, you mentioned North American second quarter today is around 5% growth constant-currency, ex Tumi?

Yes.

Okay. And then, the top 10 big-box retailers represents 50% of your North American wholesale business?

Is that the number?

Including Tumi. No, they make up for around 80% of the North American wholesale business.

So the other - 80% of the wholesale business. But the wholesale for the core business, when you really look at it, combined together with Tumi, you can say that 60% is wholesale and 40% is direct to consumer.

Of that 60%, almost 80% to 90% of the business will fit with this 10 big-box retailers.

Okay. As we said before, we feel like Q1 has come in exactly in line with our expectations.

On the core business, there have been a little softer number on the U.S., but we know definitely that is timing issue because we have the visibility in our order book for Q2 and going forward. So the whole North American business will be still mid-single digits on a core business basis.

As with Tumi numbers, which are coming in stronger and better than our expectations and we believe that similar trend would continue. So the Q1 numbers, as we see it, would be more or less very similar to look at our businesses going forward for rest of 2017.

Different pieces of the businesses maybe slightly different, but overall numbers will look very similar to what we see in Q1. Thank you.

Thank you very much.

Thank you, everyone.