Samsonite International S.A.

William Yue - IR Tim Parker - Chairman Kyle Gendreau - Chief Executive Officer

Chen Luo - Bank of America Anne Ling - Deutsche Bank Erwan Rambourg - HSBC Dustin Wei - Morgan Stanley Rosanna Burcheri - Artemis

Thank you, operator. Thank you, everyone for joining the earnings call today.

We’re very pleased to have our Chairman Mr. Tim Parker; and our CEO, Mr.

Kyle Gendreau with us to go through our first half results. And without further due, we will begin the presentation.

So, Tim will make some opening remarks, and then Kyle to take over. Thank you.

Thank you very much indeed William, and a very good evening to everyone from Hong Kong. And we’re very pleased and perhaps to present another set of record first half results for the company.

In fact the first half of this year has been very encouraging from a number of perspectives. We had a bit of a following wins from currency.

So the headline growth is 16.6% is reflective of an underlying 12.9% constant currency growth. And as we stripped out the effect of the acquisition of eBags where we were suggesting a period where we didn't eBags the underlying organic growth rates of the business with 9.9%.

So I think at all levels a very encouraging performance in nearly every territory of Kyle would explain in a moment. And some good progress with the gross margin as well, up 18.9%, 15% in constant currency.

And that reflected in part the further excellent progress that we are making with improving the gross margins assuming that partly around pricing and partly around our sourcing initiative. And the combined impact of all of that is being to move the EBITDA up by 14.5%, 11% in constant currency terms.

We're not for the impact of eBags, and eBags as I am sure most of you will recall is the business that we acquired with very little profitability with a view to improving significantly the return in that business. That business, of course, in the short-term has had a diluted effect.

If we exclude eBags, then our EBITDA margin would have moved ahead 10 basis points. And of course, underlying all of that, our adjusted net income has moved up 19.5%.

That in part reflects the increase in EBITDA, but also the excellent improvement that we have made in our financing costs and interest expense was down. And that’s contributed again to a very healthy improvement from $100.2 million to $119.8 million.

Next slide please, Williams. And I thought it would be just worth reminding people of the record of the business over the last five years.

We yet to see the -- we’re just waiting for the slide change. Bear with me everybody.

Could we move to the next slide please? It takes a little bit.

Okay. Good.

So moving to the next slide I thought it would be worth reminding at all of the five-year performance of the group. And you can see here that underlying growth over the last five years in organic terms has been 9.4%.

Obviously, if we add acquisition, that’s increased very substantially to 17.1%. And I think it's worth holding just to reflect on the fact that the results of the business have been driven mainly through the increased performance of our core brand.

And the company operates in the market, which has very good structural characteristics. So our brands which are the leading brands in the market have been able to participate in what’s been a very healthy growth of tourism and travel over the last few years, and is projected in the future, and of course, the impact that that has generally on luggage business bags and casual bags.

So, Kyle, it’s worth looking at the model for our business on the next slide please.

Okay. Everyone, thanks for joining the call.

So I am on Slide 6, and this page, I think does a very good job of capturing what we are working on in the business and what’s -- what successes we’ve had. So I am on Slide 6.

I don’t think it’s changed here, but it will change very quickly. If I think about strong constant currency sales growth across all regions, if you look at the top right, North America was up 12.4% that, obviously had eBags in that.

But if I adjust for eBags, that core North America business was up 5.1%, Asia up 14.4%, Europe 11.4% and Latin America 17% growth, so very strong double digit growth across all of our regions. When we look at our brands, all of our brands are performing very well.

So our core kind of historic brand Samsonite, which is well penetrated, up 5% growth to me, which is really starting to take stride in Asia and Europe and perform in North America, up16.6%. In American Tourister, as we know we’re pushing with the Ronaldo campaign and some terrific new products, was up 24% and other brands equally up across the business.

We saw a very good growth in our key categories. Our travel category, which is our historical strength, is up 10.8%, and as you'd expect with initiatives non-travel is growing faster, so 16.3%.

And you will see business, casual and accessories, all growing at a healthy clip. And then as we think about our channel strategy, we've been as we messaged in the past, very focused on our direct-to-consumer business.

And you will see that our direct-to-consumer business -- with retail sales -- is up 25.7% overall with retail up 14.4% and then our direct-to-consumer e-commerce up 74%, which has partial impact of eBags. If I just add that, our direct-to-consumer e-commerce is up 25.7%.

When we think about our overall e-commerce business, which is our direct-to-consumer plus or wholesale e-retailers, that has moved up from 10.5% in the first half of last year to 14.1%, so up 360 basis points as we’re very focused on driving both our online direct-to-consumer and online wholesale customers. We continue to invest behind the business and advertising.

It was about the same rate of sales, but up around 14.9%. That’s 6.2% of sales.

We are investing across all brands in a particular, we stepped up the Tumi advertising spend. So as we've now penetrated into Asia and Europe, our Tumi advertising is around 6.6%, and in American Tourister, we've invested as well to deliver the growth in American Tourister we’ve seen this past year.

And then center to all this is kind of the business' ability to generate operating cash flow. When we look at the first half of this year, its little lower than where we were last year.

We generated $56 million this year versus $152 million last year and that was impart due to some decisions to move -- to increase our working capital ahead of the summer selling season and kind of our push across the business. And if you recall, last year was unusually high because our working capital was little bit lower, so we have kind of the swing because of that, and I'll go through that more later in the deck.

On Slide 7, I thought it would be helpful just to kind of give you the building blocks of the growth. So you can kind of see it.

So we've gone from $1.586 billion to $1.850 billion. Our core business, which is core business, excluding Tumi and excluding eBags, was up 8.4% with Asia up in the core 10.5%, North America 4.1%, Europe was up 11.7%, and Latin America were up 15.9%.

So this is core business excluding Tumi, which is really a terrific result. Each and these regions are really executing.

It's a mix of American Tourister strategy along with just general growth across all of our brands. The Tumi business added $49 million in sales first half to first half.

And you can see by region, very strong growth where the core North American business up 8.2% slightly ahead. We had a very strong first half of Tumi North America, our own models had North America growing 6% to 7%.

So we're outperforming in North America. Asia, up 39%, a little bit of help from the distributor buybacks.

But if I adjust for that, Asia is up close to 32%. So really strong Tumi growth.

And then Europe where we finished the last bits of integrating the Tumi business into our European business [indiscernible] this year, is up 9.2%. And my expectation is the back half and into next year will be much higher for Tumi Europe now that we’re fully integrated there.

And as Tim said early, we had some currency translation, which added to the last bit of growth in the business. So really delivering at all cylinders when I look about where the growth is coming from.

And lastly I have eBags, just the extra four months of eBags here on the chart. So if I move by region, just quickly walk you through kind of regions, so again North America, increased 12.4%, 5.1% if I exclude eBags, and EBITDA margins were up in North America as well, and so when we look at the breakdown of the North America business.

Our wholesale business was up 2.3%, our direct-to-consumer sales was 31%, and 10%, if I exclude eBags. So you got kind of the underlying growth.

Our e-commerce business, as you would expect, was up 5%, with eBags at 98%. And if I take that out, very strong e-commerce growth in our core business, 13.3%.

Retail net sales, up 9.6%, was a very strong retail same-store comp at 5.2% for the first half. We added 12 new stores in '17 to get full year effect of those and then four stores in the first half of 2018, so all that fuelling a very good growth story for North America.

All of our key brands are growing very nicely. So Samsonite North America, as you recall, is very well penetrated for a long time.

It was the only brand we are operating in North America, up 4%. Tumi net sales of 8.2%.

And American Tourister where we start to get some inroads into pushing the American Tourister strategy, North America up 12%. And I think there’s much more to go in North America with the American Tourister strategy.

And then our other brands are up 36%, some of that’s around the eBags noise, and we had some other brands that we sell through that eBags platform where we caught another brands. From a category perspective, travel up 7.6%, and non-travel growth of 19.7%, that’s partly due to the impacts of eBags, which added to -- more in the business, casual, and accessories particularly where eBags is selling other brands that fit into those categories.

And then last year EBITDA margins were up 50 basis points. And if I exclude eBags, which was slightly diluted to the gross -- our EBITDA margin, North America would be up 160 basis points for the half.

We saw terrific growth in Asia, 14.4%, led by markets Hong Kong, China, Japan, India and generally across the market, all countries delivering very good growth. The wholesale channel is up 10.3%.

The growth in direct-to-consumer was up 32%, part of that is to do with the distributor buybacks. And when I look at e-commerce, up 40% for the Asia business in the first half, and then retail growth, again was up because of some of the new stores we took back through these distributor buybacks.

But our comp store growth up 10% for Asia. And we added 54 stores in '17, and we added nine new stores in the first half of '18, so really strong growth across both channels within Asia.

By brand, we saw our core Samsonite up 3.9%, Tumi, as I said earlier, up 39%. And if I adjust for the buybacks of 32% and 31.7%, really terrific growth in Tumi and we’re really getting into thrive here.

So you’ll see us continue to drive terrific growth in Asia with Tumi. Net sales of the American Tourister up 17.7%.

If you recall, if you go back to years in Asia, American Tourister had ended up close of to flat, and we now have American Tourister moving with the very good advertising, with the Ronaldo campaign, but also some really terrific new products in American Tourister. That’s fuelling very nice growth.

And then other brands up 19%, Kamillant, which is there entry-level brand, up 57%. And the brand High Sierra, we’re using in certain markets at an entry level kind of way, up 35%.

Travel is up 13.7% and non-travel, as you would expect, up a little bit higher, 15%, with business, particularly up 24%, and accessories up 30%. Our EBITDA margin was largely flat in Asia.

That is with a 30% increase in advertising. So as Tumi got moving, we stepped up some of the advertising in Asia.

So EBITDA margin largely flat but with 30% -- 30 basis points up in advertising expense. If I move to Europe, we had a terrific set of results in Europe.

This business is up $67 million or 11.4%. We had very strong American Tourister growth at 49%.

We're into, I would say, year three of a really solid push for American Tourister. And that fueled with the Ronaldo campaign is really helped drive terrific growth within that brand.

Also wholesale channel is up 11%, a lot of that to do with American Tourister, which is sold through some of these wholesale channels. But our direct-to-consumer retail or direct-to-consumer business is up 12%, with retail sales up 10.4% with a very good comp of 3.8%.

We added 32 stores in '17, and we added 28 stores in the first half of '18. In our e-commerce businesses we now have moving very nicely in Europe, up 26.6%.

If I go by brand, our Samsonite sales up 5.5%, Tumi, as we said, earlier up 9.2%, and really picking up momentum as we move into the second half, and American Tourister 49%. By category, travel is up 10.5%, and non-travel is familiar trend across all of our businesses where travel is strong.

And as you would expect, our non-travel growing faster. So in Europe, that was up 13.5%.

Our EBITDA margins in Europe were largely flat. We saw some growth margin improvement part to do with the Tumi mix and general growth in our direct-to-consumer business.

Some of that was offset by the increase in SG&A expenses high through the store opening that we've had in Europe as we push that. So I would expect Europe to start to deliver some leverage as we move into the back half of this year, and we're, particularly, as we remove into 2019 on the EBITDA margin side.

And then, Latin America is a market that's continuing to grow, I would say, mid-upper teens growth with 17% constant currency growth. It was lead by Mexico, Brazil and Argentina, which had very strong years -- had very strong six months.

We’ve seen a little bit of softness in Chile. And I will cover that in a second.

But if you look at our wholesale business, for Latin America, we’re up 18%. Our retailer or direct-to-consumer business was up 15.4%, retail net sales grow 13.4% of a comp of 0.6 with 11 new stores opened in the first half of '18.

And we opened 29 stores in '17. If I exclude Chile, where we've seen some pressures within the marketplace, our same-store comp was up 16%, which has really been driven by great success in Brazil and Mexico on the retail front.

Our Samsonite brand in Latin America up 18.9%, and American Tourister off the back of Ronaldo came more than doubled to 10.8%, so off of the small base, but really starting to move very nicely in our Latin America business. And then in our other brands, the growth was around 2.1%.

If you remember, in Chile, we operate some other brands, particularly, Saxoline, Xtrem and Secret as our Chile market have seen a little bit pressure, particularly off of two things: one, consumer sentiment's a bit off. There's been some currency movement within Chile, but also Argentina, as a market has opened up again.

And so Argentina, which would've been chopping in Chile, our back to shopping there in our core business in Argentina of a small base was up 168%, so we’ve seen some shifting where consumers are buying in Latin America. Travel is way up 20%.

Our non-travel was around 14%. And that's really little lower than travel because of what we're seeing in Chile where the Secret brand, for example, which is a women's handbag business has grown at a slower pace than the travel business.

On adjusted EBITDA, margin largely flat, slightly down. And that’s really around kind of laying the footprint for retail in Brazil, particularly, and slightly lower advertising across that business.

And slightly lower gross margin as the mix of the business shifts a little bit. So we’ve seen American Tourister growing faster that has a little bit lower gross margin in the Brazil, where we are driving and pushing that market.

We are pushing with a little bit more promotion to drive the growth in that market, which puts a little pressure on gross margins. If I move to Page 12, and then look at by country.

Across all of our countries, we’ve seen very good growth and won’t read across the page. And I just point out that Germany looks a little funny at negative 18%, but that, as a footnote, has more to do with shifting of where we are booking our -- some of our Tumi sales and also some of our e-commerce sales, which we will look -- make Germany look like it’s the growing.

If we adjust for that, Germany has a bit of growth. And then if we look at our combined growth in our emerging markets as we define them, we continue to have really strong run there, 27.8% growth in emerging markets, and big markets like Russia, Brazil, Turkey, all doing really well.

And you can read across the page, every one of our emerging markets is growing, as you would expect them to be. If I move to Slide 14, and I've covered this already, but I’ll just point out a few extra points.

Our direct-to-consumer sales are growing as proportion of sales for the first half of 2018 at 33.6% versus 30.2%, up 340 basis points. eBags helps a bit with that.

Our direct-to-consumer business was up 25%. As I said earlier, we saw a terrific growth in retail, so our net retail growth across the business up 14%.

Our combined same-store comp is 5.4%. And in the first half, combined, we added 52 stores in '18 and 127 stores in full year '17, including the 30 from the Tumi distributor buybacks.

As of June, business operated 1,219 stores, of which 283 of those stores are Tumi. Our direct-to-consumer e-commerce, really strong performance, up 74%, with eBags up 26%, and this is the pace that you should expect to continue.

We really focus on driving our direct-to-consumer e-commerce business. And as I said earlier, the blended mix of our business, wholesale and retail, our sales e-retailers is our direct-to-consumer shifted to 14% of sales from 10.5% last year first half.

And then if we go by brand, you get a sense for this as we are growing through the regions, but our core brand Samsonite, while these are all of our core brands, but Samsonite brand up 5%, reported up 8.9%, Tumi up 16.4%, American Tourister 24%, and we’ve grouped in as other brands, which are brands like Speck and High Sierra, Kamillant, those were up 22%, just under 22%. So really strong growth across all of the brands in our portfolio as we deploy our multi-brand strategy across the business.

On Slide 16, I try to capture here for you Tumi, so you can get a sense for Tumi all in one place by region. So as I said earlier, North America really strong growth of 8.2%, slightly ahead of our own expectations.

The business is really driven by very strong e-commerce growth, up 18.4% for Tumi, and the retail business up 8.4%, with same-store comps plus 3.2%. For Tumi in '17, we added seven new stores and we added four stores in the first half of '18, and this is just in North America.

And the wholesale channel increased by 3.6%. A little slower wholesale growth in North America for Tumi, and you’ll see the same thing in the second half as we’ve stocked some shipments to distributors that were actually selling into Asia and Europe.

So as we have now got our foot on the ground in Asia and Europe, we wanted the stock some of the leakage of product being sold from North America into these other regions, so that will put little bit of a strain on the wholesale growth within Tumi North America. We've seen very strong gross margin movement in Tumi North America, we're up 370 basis points.

So we’re getting pretty close to the 70% target that we have in mind for that region. I would expect as we move into 2019, we should be very close to that 70% margin.

When you think about the retail wholesale mix of that business, that's a natural place for the Tumi gross margin. Our regional business, up 39%.

Again, if I adjust for the buyback, it's up 30%, roughly 32%. And we’ve seen really strong growth in all of our channels here with retail up 76%, e-commerce up 211%, and wholesale up 23%.

We had a very strong same-store comp for Asia 11%, same-store. We added four stores in the first half of '18, we got 38 last year, which, 30 were from the distribute buyback.

So we continue to penetrate and I expect this case to pick up now that we’re pushing both in Asia and Europe the two new strategies. And the gross margin for Asia up dramatically, 1,100 basis points from 62.8% to 73.8%, that has a big piece to do with the distributor buyback.

So we shifted from wholesale to directly operated margins for a big portion of those. And on top of that, some of the synergies around sourcing and are benefiting margins as well.

In Europe, we had 9.2% growth, a little bit lower than the other regions, but we're still integrating Tumi within Europe. So we were kind of shifting the brand ownership responsibility through Europe across each of the countries.

And so we’ve seen 9.2% growth in retail, and e-commerce up 14% and 17%. We added nine new stores in the first half of '18.

So really starting to push Tumi, within the region, we had seven stores added in all of 2017. So you can see the pace within Europe is picking up.

And we've seen the same store comp that was slightly down. And some of this is around some cannibalization as we open stores we end up with market that have more than once store and then the calculation of same store comparable to put a little pressure on that number.

But we’ve also seen some few pockets, American Tourister, and the brand has presented in Europe historically was largely catering to travelers as we position that brand to be more of a brand within market we will see much stronger growth. And I anticipate the second half for Tumi Europe to be very, very strong double-digit growth for Tumi in Europe.

And we've seen gross margin improvements just like the other regions as we shift from some distributor and some wholesale markets to more direct-to-consumer, so 800 basis points improvement in gross margin. We normally have a bunch of slides of product that reside kind of narrowed that down to just a handful of pictures to give you some flavor for some of the things we’re working and very exciting from product perspective.

So we have the Samsonite Eco-Glide, which is a 100% recycle bag that we had very good traction in North America. If that picks up in Europe and Asia, under different names, really, a terrific product that personally but mine to get all my nephews to try out and it’s a wonderful product and I think worth looking at.

This American Tourister carrier were sandbox, this was kind of the headline of the Ronaldo campaign. This is a terrific American Tourister product doing well in all markets that we presented it.

In the U.S. we've added Samsonite backpack at a very interesting price point for the North America business.

And it's doing very, very well, very well received. And I think probably the biggest kind of change from our product perspective is this Tumi Latitude, which is on the right side of the page.

And this is the first Tumi product using the technology that Samsonite had as far as producing really, really lightweight hardside luggage that the Tumi brand has needed and the early reception of this has been tremendous. So I highly recommend you go check that out in stores.

It’s now fully penetrated around the globe. And I think a wonderful product that I am using myself.

And then I quickly, Lipault which is a bit of a woman's first strategy, and Lipault, we are pushing in select markets in Europe to get that move in the right direction. From an advertising spent perspective, we’re up 14.8% or 14.9%.

It’s about the same percent year-over-year, 6.2%, last year it was 6.3%, if you can see by region it's fairly consistent. It's down just a bit in Europe as American Tourister has got into stride.

So it started to do in Europe. Look like the rest of our regions and up just a bit in Asia as we start to spend a little extra on Tumi advertising, particularly in Asia, where we’re often running with driving Tumi in that region.

And this on Slide 19, just so if picture that Ronaldo campaign. And again this campaign really did great things for Europe, Asia, Latin America, little lesser extent, North America, where we call it soccer isn’t as prevalent.

And we saw 24% growth in our American Tourister business off of this Ronald campaign. So I am on Slide 20, I am not sure the pages have changed yet, but I’ll put my Interim CFO head on, these are typically the slides where I kind of highlight some of the financial highlights, we’ve covered some of it, but I’ll repeat.

Again our core business, when we think about same -- when we think about constant currency growth, up 13%. If I take eBags up just under 10%, 9.9% growth in our business, as we said Tumi grew 16%.

And if I exclude Tumi, our growth was 12.1%. So really terrific growth story, as I’ve said across all of our kind of avenues for driving sales growth.

Adjusted net income up -- was up 19.5%. And our -- we had strong adjusted EBITDA growth of 14.6% growth as well.

Operating cash flow, a little lower than where we were last year 56% versus 152%, largely off the back of working capital, which ended up with little over $100 million investment when we think about first half '18 versus '17. In '17 we had an inflow, and this year we’ve an outflow.

I'll cover working capital in a second. The working capital efficiency was 14%, still in line with our target, but slightly higher than the levels we have been running ahead of us.

Lot of this was around kind of having product leading into the summer selling season, and also with the American Tourister campaign, making sure we have the right product. You’ll see by the end of the year this will balance back on to our working capital level that’s more consistent with where we were at the end of last year.

We completed a refinancing in April, so we covered it off the quarter. But we closed in April of this year.

I think this was a great refinancing where we are able to lower the interest expense for the business on an annual basis, approximately $9 million, extended the maturity and we’re able capitalize on effectively improved churns across all of our credit facility. We’re able to tap into the European market with the euro bond, which is really attractive pricing, and also lined up some cash flow -- from just the natural cash flow hedge, against our debt facility.

Our leverage ratio is at 2.57, which you recall at the time of the Tumi closing, we were roughly three times. And so we continue to deleverage, and I think we’ll see more by the end of the year leverage ratios coming into the 2.3 or thereabout trending just the end of 2018.

Capital expenditures $41 million, largely focused on driving this direct to consumer, and a bit of investments in kind of industry kind of product development. And I’ll cover that in a second as well.

Our tax rate was up slightly 28.5 versus 24.5 of last year, a lot of that has to do with the accounting for share-based compensation. And as we saw our share price come down at the end of June.

That will impact kind of the differed tax asset that we're carrying which show the rate up just a bit. Our full year expectation for the tax rate is in line with where we were last year maybe a shade lower at around 26% to 27% effective tax rate for the business.

And then from a cash distribution prospective, in July, we paid out a tax distribution of around $110 million that was up around 14% or 13.4% through the previous year. When you look at our reported balance sheet, we think about profits to equity holders.

I think, I thought this graph would be helpful to people to understand the one-time impact of the debt refinance where we wrote off the deferred financing costs from the original debt issuance when we did the two new deals. So if I look at our kind of core growth in our profit to equity holders, we saw growth in net income, we also had lower acquisition costs.

So our reported -- our profit to shareholders before the write-off to the differed was up 28.8%. And you can see here if I put in that differed net of tax, our reported profit to shareholders is slightly down.

But that underlying growth of 28.8% is how we’re reviewing the growth in our profit to shareholders. And that's part of the reason why adjusted net income is up close to 20% as well and that other as well.

From a balance sheet prospective, we've largely covered this debt, reduced 20%, I mean, $20 million, leverage continues to down 2.58 times on the leverage, and we have $603 million available under our revolver new revised credit facility. If I move to working capital, really -- here as we see that we’ve invested a bit to the inventory.

So we look at June of this year to June of last year, we're up to 140 days of inventory versus 124 last year. I would argue last year this was slightly lower, at this year were slightly high.

I think we'll end up somewhere around 125 to 130 days, I’m hopeful, by the end of the year it will be in that. And it was really around this kind of anticipated step up in the Ronaldo campaign and summer selling for business.

There is a little bit of timing of payables, but that usually normalizes up in a full year view from the capital's perspective. And that's from a CapEx perspective, again, a large part of this, as you'd expects is going to our direct-to-consumer push.

It's not a significant spend when you look at the first half of $22.6 million where we’re selectively opening retail and markets where it makes sense. And we continue to invest in product development R&D and supply that was $8.7 billion.

We had a bit extra in the IT side as we shifted one of the two main offices, which had some IT spending, and we also put in some tax software for managing our tax provision, which added a little bit in the information technology side. And then if I just conclude on strategy, and I think about business I’m sitting in a different seat but if then actively involved in this business for many years as you know.

And our strategy is largely intact where we have the benefit of operating in an industry that has terrific growth profiles, international tourist arrivals, which we think is a pretty good measure, up 6%, that's even higher than it was forecasted around 4% to 5%. As you can see across regions that growth is very, very strong.

We continue to drive, what I would say well diversified multi-brand, multi-category, and multichannel strategy across multiple price points now that we filled in Tumi, and we're executing very well with American Tourister. So that multipronged strategy will deliver terrific growth for us.

We continue to focus on direct consumers we covered, and we can see the result of that. And we see -- it's a natural transition for our business like many businesses, but we’re embracing and driving the business for as driving this direct-to-consumer, particularly direct-to-consumer e-commerce.

And we’re excited with what’s to come there for us. We invest in our brands with advertising, and that will stay impacted.

So you should expect us to spend around 6% on advertising, we’re spending it across all of our brands, particularly focused on Tumi, Samsonite and American Tourister, which are key brands. And we’ve a terrific decentralized management structure with very strong regional presidents and regional and country level teams.

They really do make a difference in driving the strategy of this business at a very local level with really understanding the markets and the channels, and the way advertise in these markets. And then lastly, as you know, we continue to invest in R&D.

And that is -- that will not change. We’re working on lots of new initiatives.

And as a team we’re always focused on really delivering true kind of innovation to the marketplace. So you’ll find that that strategy is largely intact.

And we’re -- and its delivering results as you’ve seen off the first half. So with that, very long winded, no-pause presentation, I wanted to leave time for questions.

So, if we can William, I'll open it up for questions.

Yes, please. Operator, can we start -- can we have the first question?

I’ve got three questions. First of all, on the North America side, we noticed that in Q2 there has been some slowdown, this compared against a very strong U.S.

consumer market. I guess this may have something to do with Speck business, but if we strip away Speck business, what was the underlying trend in Q2 for North America?

And the second question is on the -- can you give us some most recent trading update, some color on Q3 so far? And certainly, in terms of EBITDA margin, if my calculation is correct, in Q2, actually our adjusted EBITDA margin actually improved by maybe around 50 bps.

For first half because of the dip in Q1, the adjusted EBITDA margin was flattish. Are we still sticking to our full year guidance of at least 50 bps improvements for EBITDA margin?

So North America, I think we started off with a very strong Q1. And when we generally look at our North America business, we think that it’s a business.

If I strip out the eBags noise, should grow around 4% to 5%, so we’re quite happy with the growth; we did see some discount channels in the second quarter, slowdown on some buying. We also had a larger customer bond time that business went away.

And so when you look at our wholesale business, it’s up around 2% whereas our direct-to-consumer business was up nicely. So I think you’ve a little bit of shit in that kind of wholesale discounter channel that caused a little bit of strain in Q2.

When I think about North America for the full year, I think, it'll be in this kind of 4% to 5% range. And so -- but you’ll always have little pockets of kind of momentum as customers buy in and out.

What was the second question? I wrote, but I can’t read my own writing.

Future trading? Oh, yes, future trading.

So generally, we see good momentum in the business. There is a little bit of what I would label kind of macro uncertainty in the market place within certain pockets of the business.

So if we deliver kind of double-digit growth for the first half, I think, Q3 will probably be high single digits, and then when I think about the full year, I think, we still be in label consolidated double-digit growth. But there are some macro pressures in a few markets.

We’ve seen a little bit of a consumer sentiment changes in market like China were we had a really strong first half, we’re now seeing label kind of higher single-digit growth from a double-digit growth. Korea has become a little bit noisier as we go into the second half.

Korea is a market but I think we've talked about in the past that’s had its challenges with consumer sentiment in Chinese travelers. We were feeling optimistic in the first half with a little bit of positive growth in Korea, but we see that have a little bit of strain in -- as we lead into Q3.

Past that, I think, generally this business is performing well. Our Europe business continuing some amazing trend.

We -- just for color, we have this strongest month we ever had in Europe in the month of July just in total sales. So a lot of the strategy in Europe playing out very well.

In Latin America that core business is really performing well. Chile is still under little bit of strain, as we saw in the first half.

We start to lapse that noise for Chile as we get into Q4. So I expect Latin America full year still be in this kind very solid high teens growth maybe a little bit of noise in Q3 ahead of leading into Q4.

And as far as EBITDA margins goes, my outlook as I sit today as I think we will deliver operating leverage if I was to kind of rebase my thinking is probably in the kind of 20 to 30 basis points. I think we're probably thinking closer to 50 basis points.

I mean at the end of last year, I still think we will deliver good operating leverage to core business. If I just eBags, was up 10 basis points, and I expect from the back half, which is typically our stronger than the first half in our business, we'll have to deliver some of that leverage.

But I probably moderate from the 50 basis points that we're thinking at the end of last year. And I’m still getting by arms around kind all the moving piece of the business.

So as you know, I tend to be a little bit more conservative in my thinking. And that's where I would estimate we come in at this point.

I have one question regarding the GP margin. Just to check in, for the first half, is it correct that for the GP margin, for Samsonite ex Tumi business flat year-on-year, most of the growth is coming from this -- from Tumi.

And that -- should that be the case? How should we look at in the second half in terms of margin given the further maybe some of the raw material prices have move up.

So I'd to get a little bit of guidance in terms of your price hike strategy as well as your margin assumption on the gross profit side?

So for the first half what I would label are kind of pre-Tumi business was about flat. We have two things going.

We have direct consumer that’s growing very nicely that will bring up our gross margin, but we also have American Tourister growing very well, that will actually bring gross margin down. So we have some mix effect in there, but the way I think about our core ex-Tumi business is we should say fairly consistent.

We do see some cost pressures on kind of the material side, but we also have currencies that’s in our favor in the back half as well. So our teams are pushing on both that and making sure we get the benefits of currency in our pricing.

So our view is we should be able to maintain the gross margin for the back half we have kind of normal price increases baked into some of our business, but nothing unusual. And for Tumi, we’ve seen a lot of this leverage that we’re expecting in the core Tumi margin.

We think there’s a bit -- just a bit more to go in North America, and that’s a big piece of the business currently. So that margin moves all the way up to, let’s say 70% or run rate 70%, exiting '18, we’ll get a little bit more uptick from Tumi as well.

So I think, when I think about margins for the back half of the year, I think it’s going to stay fairly consistent with what you saw in the first half from an overall margin perspective; maybe a shade higher for Tumi, and maybe neutral to a shade lower in the core, but blended, we should be in this kind of 56.5% range for the full year.

Two questions please. It’s nice to see some margin expansion in Q2 and you just mentioned what you’re expecting for the full year.

I am just wondering, it seems that margin at Tumi has been quite tremendous, but it's not the case for the other businesses. So I am just wondering how you think about operating leverage opportunities for ex-Tumi, not this year, obviously, but further out.

Where do you see those margins going and what are the puts and takes in terms of that important expansion? And then secondly, I am just wondering if you could tell us about your leveraging of eBags, where are you in terms of your own brand within the channel, other brand where is that going to?

And is there a possibility to leverage eBags or possibly under another name outside the U.S. potentially?

So Erwan, as we’ve talked in the past, I do think there’s operating leverage in that core business, like we generally think that it should be in this kind of 20 to 30 basis point range. When I think about Tumi, we’ve seen there -- we’re losing the ability to report EBITDA margin for Tumi as we integrated in the business.

But let’s say that Tumi EBITDA margin was up around 400 basis points, maybe just a shade below that for the half. As we push the direct-to-consumer business and our core business we -- there’s a lag effect of getting kind of the leverage for that.

And so if you look within our SG&A expense, for example, that’s up as a percentage of sales versus the prior year as we really push some of this direct-to-consumer strategy selectively in key markets like Europe and a bit in Asia. And so I do think that that will catch up.

One of my views on -- when I think about Kyle's view on strategy, you’re going to see me have a focus to balancing sales growth with delivering operating leverage in the business. And so I think on a go forward basis, the right way to model this business is, we should be able to deliver those kind of 20 to 30 basis points of operating leverage, particularly as we move into '19, I’ll be focusing the business on that with the balance growth.

So we have growth that’s sustainable while delivering profit. I'd like to get to the point that we’re delivering operating profit growth faster than kind of the sales growth.

And we know that that can happen in this business. We’ve modeled it -- we’ve modeled that as well.

So I think that balance growth story is what I’ll be focused on and you should expect that kind of range. I think there’s a little more to go with Tumi.

Again as we squeeze a lot, it’s a margin, and we get it moving in some markets where it’s not has penetrated. You will get some leverage for Tumi as well.

But if you land the business together, I think that range of operating leverage is what you would expect. That's what I’m expecting through the full year and it's quietly lower than what I originally anticipated.

And -- but I think that's kind of in line with where were suggesting on the SG&A expense when you look at our SG&A expense year-to-date June numbers. So as kind of the new appointed CEO, you will find me very focused on balancing the sales growth with delivering operating leverage on a go forward basis.

And on the eBags front?

Yes, I would say we are not quite at mid stride with eBags. So eBags, we have been shifting the mix, eBags is profitable from where it was.

But for the half, it's something like $70 million in sales and around -- don't quote on me the number. I don't have it in front of me.

Let’s say kind of $1.5 million profit. Obviously, still diluted to the business but moving.

A lot of that's coming from the shift in the mix of brand, but we are probably still in this kind of 40% range of brand for their own brand. And the reality is, I think eBags really starts to look very attractive as you get the mix of our brand into kind of the 60% range and above.

We’ve seen that work really well with the Rolling Luggage, as you know, and Chic Accent, which are a little bit different business, but again a multi-branded kind of acquisition that we brought in. We’re really excited about leveraging eBags across the rest of our business.

And so we’ve recently made a leadership change where eBags is seating in to our core North America business. So we’re now integrating the way we think to manage businesses with our core direct-to-consumer e-commerce business within North America.

So we can really start to leverage both sides of the business, both eBags into our own business and getting eBags now push some of our core business as well, which is really what we always wanted to get through the eBags. And so we’re now able to kind of make that transition.

And I think over the next 12 to 18 months eBags start to really move up both in the profit by being able to benefit the rest of our business. We haven't quite decided for pick eBags outside the U.S, we might use the concept, but maybe use a different name.

We’re testing some of that in Europe right now. And so that’s to be decided, so it doesn’t mean the concept we won’t consider using outside of the U.S.

And as you know, within that eBags business, there is a terrific brand called eBags, which has some really great products. And we think that we can really leverage that brand to new other things on the technology side of the bags and consumers as well.

So we’re focused there a bit with eBags as well. So, but I’d say we’re still cooking.

We’re not quite at half stride with eBags, and it think there's a lot more excitement to come with eBags.

Hello and thank you for taking my questions. First of all I have to ask.

Excuse me. Will you please speak up a little bit?

Is that better now?

Yes.

I have to ask, can you comment on the situation with the reports made by Blue Orca? Are you currently investigating yourself or you investigated by any other authority or entity based on any executions, which has been made in May, especially on your accounting or on corporate governance?

So is there any risk that you have to restate any financial items, any financial statements?

No risk. We put a very kind of concise answer to Orca a few months back now.

We’ve made in this interim report just this one adjustment to the supplemental disclosure around -- in our VC, you can see that in our results, but that had no impact to our reported profit or financial statements within the business. It’s a supplemental disclosure.

And we see no reason to think there’s anything we’re kind of moved as a team off of Blue Orca and on to driving the business. And as you can see, our first half results; the business never missed to be.

So, and we’ve kind of put through work behind us just a way to think about it.

And you’re not sort of investigated by any auditors or reaudited or whatever?

No.

And what you said at the end of the financial year you’ll have leverage around 2.3. Is this your desired leverage or what shall happen afterwards with your free cash flow?

Well, I think this will continue to deleverage. So when we talk about kind of free cash flow and the bill that we pay debt, that’s always, been part of our story.

And I think it’s naturally will project down below two times. I'm just giving you some sense where I think it’ll be again the year based on kind of the growth in profits and cash generation of the business.

So it'll be somewhere between 2 to 3 and 2 to 4 at the end of the year. And if you remember we were around 3 times.

So it’s doing, I would say, exactly what I anticipated it would do. And you should assume on a go forward basis borrowing any acquisition that that deleverage will continue.

We typically get the M&A question. You should know as a team we’re very focused on the brands that we’ve in hand.

There’s a lot to do with Tumi. We’re very excited about what’s next for Tumi as we really continue to push it in Asia and Europe.

And eBags, as I was just talking about is there's plenty to do there to really kind of capitalize on this broader direct-to-consumer e-commerce strategy and really pushing that as well. So we’re not actively pursuing anything.

It doesn’t mean we won’t consider things that come along, but as a team we’re super-focused on delivering this growth story with what we’ve in hand and letting the balance sheet continue to delever.

Any best guess what could happen -- what could go wrong? What could go wrong?

What could stop your growth trajectory?

I think we’re really fortunate we have so many tools in our kit to deliver growth. So you could have some of these macro economic or political noises impacting pockets of the business.

We’re seeing a little bit of that in Q3 and a handful of spots. But we’re pushing the business in so many avenues that for our ability to kind of deliver sustainable growth story where we might have some distractions here or there in the business makes me feel very good about our ability to continue to deliver.

I think there’s not much -- we’re very focused on the strategy we’ve or continuing to invest behind the business with advertising R&D and all that fuels into the strategy that’s been delivering great results for us. As Tim started the presentation with the last five plus years, I can expect that to continue with what I can see in front of me today.

So my first question is related to the same-store sales growth. I think the second quarter same-store sales growth is stronger than the first quarter, especially for the North America and Asia.

Could you comment the recent trend that you’re seeing for the July and August?

If we go to North America and look at same-store sales growth, it was very strong in the first half. We’ve seen a little bit of cooling in the comps, I don't have numbers right in front of me, but as we moved into Q3, particularly in gateway cities, we’ve seen some softness there.

But we’ve also seen Europe picking up a bit. So we’ve seen this really terrific Europe number.

And so, I think, particularly when you see at a gateway city, where, I think, international tourists might be kind of shifting where they were for the first half versus the second half. So you will see North America tops where kind of landed, let’s say 3% or 4%.

I think we're still in positive territory, but maybe not quite as strong as what we saw for the first half. I talk to the guys.

We think it’s a bit of kind of a summer incident. And I think we still feel very good about kind of our overall prospects for the comp growth in North America for the full year.

So it's quite strong. When I think about first half, the results were really, really strong.

And when you look at the comp story across all of our regions, it was super strong. I’m not sure that if I were kind modeling, I would say that that's the sustainable story.

So -- but blended together, we still be in a very positive comp basis, but we had a really -- as you pointed out, really good first half and Q2 had some really great moments as well.

How by Asia?

So Asia, as I covered earlier, a little bit of kind of uncertainties where I described it for China and Korea that will have a little bit of impact, but the rest of Asia is continuing to do really, really well, markets like Hong Kong, the growth rates have been incredible and they have continued into the second half. And so blended, it's probably not that for what the blended story was for Asia and then Tumi really is continuing to be in stride in Asia.

And we started to both see kind of comps within our own existing stores as we continue to drive product advertising, but we’re also starting to push pace of new stores of -- I’m sure some of you guys travel to Hong Kong, that new airport store we added in terminal five is off to the races right out of gate. It's really terrific.

So you will see a lot of kind of retail footprint playing out for Tumi in both Asia and in a bigger way in Europe and the back half of the year as well.

And my second state of the question regarding the GP margin, may I clarify on just based on the disclosure of your GP margin for Tumi by region. I'm kind of getting that 70% GP margin for the first half.

And that’s sort of imply that as GP margin for the non-Tumi was at 52%, and that’s compared to 53.6%. Is that my calculation right for the non-Tumi GP margin decline?

I’m not sure how you’re doing that math but our math would say our core ex-Tumi was maybe down 10 basis points. So you might have something wrong with your math.

We need to follow back up with you and point it out for you. I just don't have kind of the actual number right in front of me.

How about, could you provide the breakdown for Tumi revenue by wholesale and retail? And what’s the GP margin difference?

If you look at the Asia of after Tumi, I think that give a pretty good picture of what’s kind of driving wholesale and retail by region. And so, and generally when we think about kind of the retail mix, to me historically the heavier retail mix business, and that should continue.

So Tumi business is probably today at 70% retail and 30% wholesale. And from a margin perspective, the overall kind of retail margin for Tumi, if I look at North America, for example, overall is getting close to 70%.

And I would say our retail gross margins are probably just a little above 70% for North America. So from a mix perspective, that's why you get to this blended 70% that I think it will end up for -- when I get to 2019.

And that mix probably won’t change. We will continue to drive wholesale, but retail and direct-to-consumer e-commerce will be key pieces of the drivers for Tumi on a go forward basis.

Right. So going forward you are going to see higher Tumi gross margins going to be like-for-like improvement in the same channel, and not going to be treat them by the mix shift for different channel.

Yes, I think, we -- there is a bit more to get out of the margin. So as we’re kind finalizing what I would say the kind of sourcing benefits, we will get a bit more, but it's not going be mix that will drive to the margin, I think, on a blended basis the retail wholesale mix will look largely the same.

We will see as it plays out. I think Asia and Europe will be learning as we go.

It's really kind of early days in the market like Europe. And so I might reserve the right to change my opinion a year from now once I see kind of where the drivers of the business are, but in theory it should look very similar with a strong push on the a direct-to-consumer brick and mortar and also e-commerce, which has been one of Tumi's historic trends, so the mix should stay largely the same as it grows.

My third set of the question is on the expenses. In terms of the AMP, are you going to sort of maintain the 6% for the full year?

I think, it will be right in that range, let’s say plus or minus 20 basis points. It kind of shifts around, but as a business, you should be thinking about a spending around 6% on AMP.

We were a little higher than that in the first half, but a lot of the Ronaldo campaign for American Tourister was more first half weighted as we got that moving. So for the second half of that, as a percent of sales, probably will be a slightly lower number.

I think as my models look right now, we’re probably just to shade under 6% for the full year, and last year, I think we were at 5.8%. So we'll be generally in line with last year.

And that should be where you expect us to play right in the 6% range.

And for the distribution cost, I think the first quarter or second quarter stayed a similar trend that's being above 100 basis points up year-on-year. Is that related to the D2C?

And is that going to continue with that kind of continued increase of the distribution cost ratio?

Well, I think, we talk about kind of balancing growth and get into kind of some operating leverage. I think the exact pace will come down overtime, and also two happening with the distribution expense in the first half of this year versus last year.

The Tumi distributor buybacks in Asia which naturally brings up the SG&A because we’re kind of managing those things directly versus the wholesale. You had eBags, which has a disproportion of mix as we fold eBags first half of this year versus first half last year.

And you have some of the direct-to-consumer push, particularly in Europe where you will see their kind of SG&A, slightly higher as to those retail stores. We were kind of rapidly moving to add towards in 2017, and into the first half of '18.

And so those will take a little mature up. I think that pace will balance up and you can see that the lot of the leverage that we’re talking about will come from this area.

So that sort of suggesting that for the second half of this year or next year, distribution cost ratio we’re not expanding as fast as what we’re seeing now?

That's my read at the moment. So I'll be -- we'll be working on financial next year, but in period that what’s should be happening.

If I just suggest for the distributor buybacks and eBags, for sure you will see that effect.

Thank you. And on G&A, I think you're down quite a bit in your second quarter versus the first quarter.

I know this state -- there is no more advisory fees paying for the limitation of accounting policy change. So should we expect sort of the low 6% kind of range what you’re now going forward.

Yes, I think, that's range we'll continue to deliver leverage. We finish the revenue recognition accounting standard, but we now have the lease accounting standard.

So you should and assume that some of the noise on these kind of -- this accounting pronouncements is gone. So that leaves transition, which is effective 2019 as a big piece of work as well.

So I won't actually say that line will shift, but we should be able to continue to deliver some leverage on the G&A side.

Can I have a little bit more color on the inventory position because I noticed from the publication of the results that the operating cash flow before networking capital is actually increasing half-year-over-half-year. So it's -- there is really slow down in terms of networking capital.

And I remember that Tumi had higher inventory days when it was quoted. But I just wanted to try to understand there if -- with removal from wholesale to direct to consumer it's actually a trend that we’re going to keep on seeing.

Are we going to see even more seasonality during the year just to be comfortable on the free cash flow generation over the long-term? Thank you.

Yes, so, I would say, I think about kind of the inventory and working capital is little bit of pendulum. And we consciously made a decision to bring inventory up at the end of last year of the back of start of last year where we were slightly lower than we wanted to be.

If I were critical of us, the pendulum maybe swinging little too far to the right, so we have 140 days of inventory at the end of the year. That’s higher than what we historically feel like we should be at.

And so I would anticipate that our inventory days will play. It's just kind of 125, 130 days.

And if we do that, our working capital efficiency is somewhere in the 13% range, little plus or minus 10 or 20 basis points, which I think is a good place for this business to be. You obviously have timing of AT, but on a blended basis that's the right kind of range.

A lot of our direct-to-consumer, when you look at our direct-to-consumer push in the business, a lot of it's actually coming from e-commerce, which can be managed with our kind of central inventory. So it’s not that e-commerce and the shift in direct-to-consumer with our kind of e-commerce portion growing very rapidly.

We will have a big impact on the inventory levels. Tumi when we bought it, had slightly higher inventory days, but we have managed to bring those down more in line with the days we have today.

So I think even with Tumi blended in, thinking about the business, that's got 125 to 130 days inventory versus 140 days the right kind of suitable level for the business. We don’t see that changing.

We don’t have a lot of seasonality swings in the business, and we don’t have a lot of seasonality in our products. So you don’t have these kind of unusual directions in inventory because of kind of fall and spring challenge.

It exchanged a little bit from where we were three or four years ago, but as a mix perspective, not enough that it moves the needle on kind of the working capital a measures between quarter per say. So you can see it swing down.

The other thing is when you look at the cash flows, last year was unusually low. And so you get the kind of swing effect of that within our cash flow as.

A team and being personally we’re very focused on kind of the cash generation of the business. So you should see this kind of dynamic change as we get into 2019 for sure.

I have two more questions. The first one is on the American Tourister.

For the first half we have a very good set of results with a very successful campaign. So how should I look at like -- in the second half, should we view -- should we think that it should normalize?

And how should we look at the brand's growth in year 2019 and onwards? And also in the presentation, you also mentioned about widening the price range for your products.

Does it mean that you’re planning to move it higher or lower? I understand that for different price points you have different brands in terms of position -- in terms of positioning.

So when you talk about widening your price range, does that means that you’re referring to that -- each of the brands you’re trying to expand your range either up or down. Would you help me understand a little bit more on this part?

Thank you.

So it's always a good question when you have a great first half of the brand once you're going to play out to, right, so it's very strong first half for the American Tourister, 24%. We've seen very good momentum carrying into the second half.

So as I said earlier, Europe had a kind record growth, Latin America had very tremendous success with American Tourister, and Asia continues to. So from a blended basis, I don’t think we will keep that pace, but you will see a strong double-digit growth from American Tourister for the year.

I probably say in the kind of high teens level for the full year. And that’s kind naturals as you’re coming off kind of the push of the campaign.

When you get to next year, I think, American Tourister, as a brand has lots to go. And this really feeds into the widening price range topic.

It's less around thus taking brands and stretching their price points, but it’s pushing brands that play into price points within markets where there is opportunity. So we’ve been seeing that play out in Europe.

We’re seeing it play out in Latin America. I still think there is an opportunity in North America and we saw American Tourister, up 12% to North America.

I think that should continue. And it’s a bit of a wide space for us within North America.

And as far as Tumi goes, I think the price position is right. We’re not looking to dramatically shift that.

It's really around executing Tumi at that price point. I think the one brand that there might be some range to push up a little bit is Samsonite.

And so we haven’t kind of baked into our model, but there is a pretty good gap between Samsonite and Tumi. And so as a business, we will probably be looking at that as well.

But that won't be anything other than filling in some opportunities. It won't dramatically move kind of the outlook for the brand Samsonite.

But I think there might be some opportunities there. The rest of the brands, I think applying in the right price zones within the business.

I kind of have a question that I kind of hate to ask, but I sort of have to. This is about the trade tensions, the tariff.

So I know there is a lot uncertainties going on. But just want to know in terms of your analysis if sort of the worse case happening as far as going to deal with the potential tariff increase?

Are you going to pass through that cost to the customer? Or you -- what kind of strategy that you currently have in plan?

Yes, so it's -- we’re watching closely. And as you know we’re already subject to some tariffs, but there's a step-up in the tariffs in the latest proposals for our industry.

So the reality is, I think if it goes through, it will have an impact to cost, and it will impact the entire industry within North America. And so you should assume that we will be pushing enough of that increase through to kind of maintain the margins of our business.

And we won’t be alone in that space. So the shame of that is consumers kind of lose out on that front, but we will be doing everything we can to maintain kind of the margins and maintain the total balance of kind of cost of products to manage the pricing of our product, but the realities have pushes through us like everybody else in the industry, we will be feeling exactly the same pressures.

Okay, operator, I think we’re good.

Okay, I wanted to thank everybody for joining the call, with little different format this year. But hopefully we’re able to get everybody in different time zones.

And so appreciate you all joining. And look forward to seeing some of you as we move around over the next few weeks.

So thank you very much.