Samsonite International S.A.

Thank you very much, Operator, and good evening, good morning, everyone. Thank you for joining the Samsonite First Half 2021 Results Earnings Call.

We have -- today we have our CEO, Mr. Kyle Gendreau; as well as our CFO, Mr.

Reza Taleghani with us. And without further ado, well, we have Mr.

Gendreau begin the presentation with few opening remarks. Thank you very much.

Great. Thanks, William.

So starting on page four, I will lead in with, we’re quite encouraged with what we’re seeing in the recovery in the business in the first half, in particularly, as we move into Q2 and the start up Q3. Sales recovery in the second quarter improved to down 52% versus Q2 of 2019 and that’s compared to 57% in Q1.

And in June, we reached down 48% and that trend has continued very strongly into July down or just shy of -- just better than 41% down. The other really positive story for us is we’ve pivoted to profit starting in May with $3.5 million and then a very strong June EBITDA of $11 million for a quarter that delivered a positive $11.5 million of EBITDA.

And that trend really continued very strongly in July with our sales down again, 40.9%, but an EBITDA that’s north of $20 million for the month of July. So this really is a testament to all of the work we’ve been doing to get this position -- this business position for a very strong recovery.

Fueling the profit growth is a dramatic improvement in gross margin that we’ve been focused on. As you know, in Q1, our gross margin was 48.7% and in Q2, our margin moved up to 52.4% and we’re really heading towards normalized gross margin.

And for the month of June, our gross margin had reached 55%, which gets back into the territory of normal run rates for our gross margin that we messaged the last quarter. And that’s not withstanding pressures we’re seeing on raw material costs and shipping costs that we’re seeing with general inflation across the globe.

We achieved positive EBITDA, I said, for the quarter $11.5 million and that’s on sales that are still down for the quarter 52.2%, really a testament to how far we’ve moved the breakeven profile this business with the initiatives that we’ve had. We -- as we message, we had a press release and we paid down $325 million in debt, refinance our Term Loan B during the second quarter and produce -- and those two items produced $20 million in annualized interest savings on a go-forward basis.

We’ve dramatically decreased the cash burn in the business from $65 million in Q1 to $27 million in Q2 and a meaningful change in cash flows. I will cover in just a bit versus last year.

And it’s really reflective of the type of expense management that we have and really strong cash controls that we’ve left in place across the business along with positive EBITDA for the quarter. And I will tell you in the month of July, we’re seeing positive cash flow for the business all-in which is really a wonderful moment for us.

We’ve worked with our lenders, very supportive lender group to get further covenant relief, as the recovery is taking a bit longer than what we were anticipating and so we now have covenant relief that will help us right through Q1 and Q2 of next year as the business continues its recovery. And we have -- continued to have significant liquidity, even after repayment of debt, our overall liquidity is $1.2 billion, which is plenty for us to navigate the rest of the challenges as the pandemic continues.

Sales recovery, so I am on page five and the sales recovery, you’ve seen this chart before, our low of 80% down back in April of last year. And here you can see what we’re seeing for Q2 and particularly in June down 48% and July down 40.9%.

And I will tell you our look for August feels to be in the same zip code as July. So this recovery trend continues.

And that’s really at this moment being fueled by what we’re seeing in North America, in Europe, where in the month of June, North America was down 41% and Europe started to really catch up here down 47.8%. And in July, the U.S.

-- the North American business was down 31.5%, so really starting to move strongly into recovery. And Europe’s trend continued very strong, so in the month of July, Europe was down 43.6%.

So really these two regions are driving much of the recovery that we’re seeing right now. If we go to page six, this just gives a good snapshot of the trend here on sales, but importantly, the trend on EBITDA improvement.

And so, again, as we stepped in the pandemic over a year ago, in Q2, we had an EBITDA loss of $127 million. You can see we’ve made progress right along the curve some tied to the sales recovery, but mostly tied to the initiatives.

And as we get to Q2, positive $11.5 million and I’ve covered the month already, but April was slightly negative, but May positive, June strongly positive, and July, again, over 20% EBITDA or $20 million of EBITDA what we’re seeing for the month of July and EBITDA margin starting to get just shy of teens EBITDA margin in the month of July, business down 41%. The travel recovery around the world happening at different rates, I have a few slides on that.

So I am on page seven and there’s a lot of lines on this page. But what we can see here is, markets like Russia and China have been performing better.

Russia -- China has had a few dips, I will cover that in just a bit. And then the U.S.

market is kind of steadily improved. And you can see Brazil is improving, and Japan and India have had ups and downs as the way I would describe it, particularly India, which has had a very strong Q1 and then had a slip back to down 60%, 70% for Q2 and we’re seeing in the month of July, India is back to down 35% and really starting to move in the right direction again.

And on the next page, just a little deeper dive on the U.S. and China, and this is domestic travel, which is still today driving much of the recovery is domestic travel.

And the blue line is China and you can see China has really driven a lot of ages improvement over the past year. There was a small dip in Q1, we talked about that last time, this was really around the Chinese Government slowing down the amount of travel that happens in the Chinese New Year, but then it quickly stepped back up into the second quarter.

And you can see the fairly rapid improvement in the U.S. domestic travel story.

I’ve been traveling almost every couple of weeks in the U.S. and it is busy.

And you can really see it in the numbers as we go from February, March, April, May, June, really meaningful increases in domestic travel in the U.S. And on page nine, this is just another view of that, on page nine, this is number of planes flying, so this is daily flight, domestic flights in the U.S.

And the blue line is 2019, the orange line is 2020 and then the red line is 2021. And you can see we start to get close to the same levels and some -- in some weeks, actually in the same level as 2019 as far as domestic flight goes -- go and that trend continues in the U.S.

as we speak today. And so, on page 10, so we really achieved the positive EBITDA in Q2.

It’s really driven by the actions that we’ve been taking in this business, coupled with the recovery that we’re seeing. So positive EBITDA in Q2 on sales now 52%.

Our first half EBITDA was a loss of just $17 million and if I move to July, our year-to-date EBITDA for this business is now positive as we get into the back half of the year. And again, as I said, we’re really approaching -- in the month of July alone, we’re approaching kind of low-teens EBITDA margins as we move forward.

The recovery continued, so down 57% to 2019 and Q1 down 52%. And as I said earlier, June was 48% and July was 41%.

And as I also said, the margin story, it’s really been an important push of ours, and as you know, last year, our margin was under some strain as we were clearing inventories and reducing and generating cash. Here we are this year with Q2 margins approaching 53% and -- versus 48% in Q1 and very strong margin in June at 55%, July looks to be about the same.

And this is despite GSP in the U.S. not being renewed yet and the inflationary pressures we’re seeing, we’re seeing freight costs meaningfully up and raw material costs rising.

And as a company, as you know, we manage against those, so we are managing both the increases, we’re managing the price increasing where we need to and managing with our suppliers to move this business back to its traditional margin levels, which are having very good success at. We continue to manage the cost structure, as you know, we generated over $200 million in annual run rate cost savings and in the month of or in the quarter, the second quarter, I would say, we’re fully realizing those benefits.

We had some work we’re doing in Q1 of this year still closing some stores. But as we get into Q2 and we stepped into Q3, all of those actions are taking we’re getting the full benefit of the initiatives on the cost side.

We’re continuing to manage advertising very closely and you can see that in our numbers. But we are allowing markets that are starting to move to lean into advertising again.

So you’re seeing in our North America business, particularly us moving our advertising spend up for both brand Samsonite, brand Tumi and all of our brands in the portfolio. And we’re starting to lean in as Europe gets moving in the recovery, really starts to pick up in Europe, starting to spend more advertising dollars there as well.

On the margin story, I am on page 11. I thought a page on margins important because there’s a lot here.

One, we -- as I said, we’ve really moved the needle on the gross margin, you can see Q1 of last year, I was actually, Q2 of last year was 33.4% as we stepped into pandemic and where we are today Q2 of this year at 52.5%, and again, June at 55%, really speaks to the work that we’ve done. And it really is against some meaningful pressures, we’re seeing raw material costs, labor costs, general inflation, working against us here.

And we’re taking the actions that we need to manage that. The freight costs have increased substantially and container availability is very limited at this moment.

We’re actually seeing challenges in getting goods where we need them right now. And so we’re staying ahead of the curve, but we’re really seeing the impacts of shipping delays, port congestions, and our teams are managing that very closely and we’re pushing our sourcing teams to order ahead and really get ahead of this so that we’re in a strong place as the business continues to recover.

The non-renewal of GSP, which we fully anticipate will be renewed, it’s been delayed and so we’re managing that. And that really had an impact in the first half numbers that you’re seeing of around $6 million against the gross margin.

So as that gets renewed, we will see the benefits of that moving forward as well. The weakening U.S.

dollar, in many cases, we are buying in U.S. dollars in Asia until we’re working with our vendors on that to manage the impacts of a weakened U.S.

dollar. And really leveraging the strong longstanding relationship with our suppliers to collectively manage the impacts we’re seeing on cost increase.

So this is this will be an ongoing effort for us. When I look into the back half and into next year, gross margin, it will be a very large focus here for all of our regions.

And what I would say is, we’re on top of it, we’re not -- we’re looking at every avenue here to make sure that we maintain margins at historical levels. And on page 12, really is decisive actions that are building strong momentum in this business for us, significantly reduced our fixed cost structure with over $200 million in savings, all being achieved.

This is what really is fueling the adjusted EBITDA positivity in Q2 and that continues, and we continue to manage the business very, very closely. We continue to manage temporary savings and advertising and cash flow items like CapEx and working capital to maintain and minimize our cash burn.

And as I said earlier, it looks like our July cash flow will be positive. Maybe I haven’t said that yet, but July cash flow from where we’re sitting today looks to be positive back against all of these efforts.

We’re managing liquidity and capital structure with a very, very supportive bank group. And as I said earlier, we repaid debt.

We refinanced our Term Loan B. We reset covenants.

And we’re sitting with $1.2 billion in liquidity, which really gives us ample capacity to manage through the rest of the pandemic. We’ve continued to invest in products and product development.

And we -- I think on the last call, we talked about exciting launches of products with recycled materials or collaborations with other brands to drive the business. And on top of investing in product development, we’re also simplifying the business with a very robust SKU management initiative to really kind of enhance the performance of our SKUs with -- in our inventory and all of those are playing into our success story on the margin side.

We’re fully committed to transforming and leading this industry on the sustainability front with our responsible journey. We published our ESG report in May and if you haven’t read it, I strongly recommend, because it gives a wonderful picture of what we’re doing to move the needle from a sustainability perspective and an ESG perspective for that business, and all of our teams are well trenched behind that.

And just lastly, in July we sold Speck. So Speck was a business we acquired a few years ago and we took a decision to really allow the North American business to focus on its core and sell Speck.

And on top of that, and I’ve got a slide on it, and on top of that, it enhances the profit profile of our overall business and our North America business as Speck was slightly diluted on the profit side of the business. So we took a decision to sell that business in July.

Another big piece, I will call it, plumbing in the background, as we’ve established the Singapore, Singapore is a brand development and sourcing hub in our new Asian -- Asia regional headquarters and really this follows and builds on our 25-year history in Singapore. It followed a global study where we really looked across the globe, at our business and our areas of growth, and really where we’re taking the business on a forward basis and we determined that Singapore was the best location for us.

We will leverage this as a sourcing hub for Asia and the Middle East, and it will also provide sourcing and administrative benefits for the North American and Latin American business. Our Samsonite Asia leadership team is moved to Singapore is in the midst of moving to Singapore and really to help establish and create this hub and drive our Asian business on a go-forward basis.

In the midst of that, we’ve shifted the economic rights to our IP, which is sitting in Luxembourg and continues to sit in Luxembourg, really to get a sustained -- a really sustainable global tax structure on a go-forward basis that aligns with the evolution of our business and the drive -- the growth drivers in Asia, as well as rest the world and as Reza will cover a bit later, we’ve also shifted the economic rights of our European business to Belgium from Luxembourg as well to really reset the structure from an IP perspective in business. All of that completed at the end of June.

And as I said, already we did, we divested Speck in July. This was a business that we acquired about four years ago.

We sold at $36 million and it really was a non-core brand for us and it allows our U.S. North America team to focus on driving the core business.

And on page 15, despite the pandemic, we remain committed to reaching our sustainability milestones. As you know, we want to start responsible journey as the pandemic was getting started.

It’s a journey that focuses on four key highlights innovative products, I will talk about that in a second, carbon actions and reducing our carbon footprint, our supply chain and we’ve labeled our thriving supply chain and our engagement with our suppliers, and really people focus and how do we better engage our people and teams, which is one of our best assets in the business. So we continue to be focused there.

Again, our ESG report captures a lot of the great work here and we continue to really significantly develop products using sustainable materials. And if you go to page 16, this will be kind of a first glimpse, more to come as we continue to build on our story here around how far are we moving the needle here on products that are incorporating sustainable attributes.

And in 2000 -- first half 2021, almost 15% of the products that we sold or the sales in our business, were from products that have meaningful, sustainable attributes, that compares to 7% in the first half of 2019 or the full year of 2019. So really amazing progress and you will see more of this coming, and you can see with core brands, every brands having an impact, Samsonite 10%, Tumi is already approaching a fifth of its sales 22%, Gregory at 34%, American Tourister at 5% and more to come on that front as well So the teams and the business are very focused.

I can see the forward pipeline of innovation and products that we will be launching into the end of this year and next year and for sure this as percent of our sales will continue to rise. And on page 17, really, right, my take hard and kind of the recovery in our position and our ability to continue to drive our leadership position industry.

We are set and have launched really amazing products over the past six months, particularly Magnum Eco, which hopefully you’ve seen by now, I think, I was talking about this during the last call. This is a product that’s made out of 100% recycled material post-consumer, so the outer shell, the inner lining, all with post-consumer waste, either water bottles or post-consumer waste polypropylene.

And then you can see Roxkin, which is a product that we’re producing in our Hungary facility made out of material that is fully recyclable, the outer shell and the inner linings are using RPET as well. So really two wonderful stories of product innovation.

On page 18, this is IBON. This is really quite an interesting product with a frame case, with a single point of opening in the middle.

And what makes this product quite interesting is it changes the way you think about packing, it opens up the product in a really interesting way where it takes more space, less space when it’s open and you can pack deeper into each side of the case, has a ratcheting system. So you can really secure what’s in within the product as well.

Inner lining is made out of RPET recycled material and really a very fascinating product if you get a chance to see it from a travel case perspective. And then, this has been out there for about a quarter now, but we had a really successful and exciting product launch with a collaboration with McLaren.

We have silhouettes here that capture kind of the racing spirit incorporates carbon fiber within the products, interesting colors and it’s been better than we anticipated. And we have more exciting launches against this collaboration coming in the fourth quarter and it’s been well received across all regions that Tumi has sold.

And then, lastly, we’re celebrating our 111th year. Last year, we had 110th and we have lots of plans.

But COVID clearly took those off course. But this is a business that’s been around for a while and knows how to navigate and so we’re excited for it.

We’re excited as we see travel starting to open and we really have a commitment to a sustainable future in this business. And with that, I will turn it over to Reza for some financial highlights and then I will come back at the end.

Thanks so much, Kyle. And we’re on slide 22.

So, overall, the first half results, obviously, sales interestingly were basically very similar to our sales in first half of 2020. But as you may recall, the pandemic really kicked in full swing in the second quarter of 2020 and now we’re pleased to be seeing that actually this quarter, we’re starting to see the reverse and so we seem to be heading out a little bit in some of the regions, as Kyle said.

So reporting sales of $800 million and sales for the half, the split of those Q1, you may recall that we did $355 million and Q2 $445 million. So that trajectory is improving.

The story is really around the EBITDA, which Q1 we had negative EBITDA of $28 million -- negative $28 million, Q2 positive $12 million. So for a total adjusted EBITDA of negative $17 million and that trend is continuing into July, as Kyle noted.

So if you go back in time, the quarterly evolution of the EBITDA, if we were looking at Q2 of last year, we were negative $127.8 million. So when we sit here with positive EBITDA of $12 million, we feel really, really good about how quickly this business is turned around.

And again, it’s still in an environment with sales materially down. Net income, it’s a loss of $104 million on the half.

We do expect that once we get into further territory and adjusted EBITDA that will flow through the net income as well, so we would expect full profitability shortly. Looking at page 23, it gives you the split and details between the two quarters, I touched on the sales split a little bit, as well as the EBITDA, really around gross margin comments a little bit earlier and I will have a slide on it as well.

This is a point that I do think bears mentioning, which is really the improvement in the gross margin between the quarters. One of the things that we’re seeing in the market right now is demand is picking up and inventory levels in the channel are very low and so all of the teams have been very good in terms of trying to manage the gross margin profile.

So limiting the discounting that’s happening, as well as trying to improve and manage the cost pressures that we see in terms of gross margin as well. So gross margin coming in at 52.4%, which is a very good pickup from the 48.7% that we had in Q1.

And obviously, Kyle mentioned, that in June that has improved further and that’s that -- we are maintaining that in July and hopefully going forward as well. On page 24, just to recap the financial highlights and then I will get into it a little bit of greater detail.

Obviously, we’ve covered sales, in terms of how the recovery has been going. We will get into the regional breakdown of that on a subsequent slide.

Adjusted EBITDA of negative $17 million favorable to prior year by $106 million, even though sales are flat and that’s really the power of the cost cuts that we had taken early and very aggressively. We’re pleased that we have adjust -- positive adjusted EBITDA in Q2 for the first quarter since the pandemic began, even though net sales are down 52.2%.

And that operating leverage is something that I think we can all expect to continue going forward as well in terms of every improvement in sales really the flow through of that down to EBITDA is very material. Fixed SG&A expenses, we are actually seeing the total flow through of all of the aggressive actions that we’ve taken.

So, obviously, we had talked about $200 million in annualized run rate fixed cost savings. You’re seeing a $97 million reduction on a constant currency basis in these results.

And again, there are still some temporary savings that are still flowing through. So we had expected a lot of those to run out.

But that permanent base of $200 million of fixed SG&A savings is something that I think we can all count on going forward. Advertising spend for the first pass is $16 million lower than the prior year, we are planning on leaning into advertising as the sales recovery begins.

And in the quarter, we were little back budgeted levels and we expect that to improve going forward as well as long as we get an adequate return on the advertising spend. On page 25, our net debt position of a little over $1.8 billion.

As Kyle mentioned, we did make $325 million of debt repayments as we feel better about the recovery around us and we are going to continue to evaluate that going into the end of the year and beginning of next year as well. Strong cash position with over $1 billion of cash and cash equivalents and liquidity of approximately $1.2 billion, have plenty of cash cushion.

And again, we feel pretty good about our cash burn levels. Really the cash burn, which we will see on a subsequent slide is really due to -- we’re getting some inventories and just to make sure that we can adequately cover sales that are coming in, in the remainder of the year.

We paid down $125 million -- about $325 million has broken down as $125 million of the Term Loan A, $100 million of the Term Loan B-2, which was our most expensive piece of debt. And we also paid down $100 million of the revolver in Q2.

We also refinance the Term Loan B-2 debt, the pricing was brought down from LIBOR plus 450 down to LIBOR plus 300 and the floor was reduced by 25 basis points as well. So it’s about 1.75% of improvement on the margin of that instrument.

Again, reflecting the better growth credit profile of the company as we emerge from the pandemic. We also secured further relief of our debt covenants, which ensures our compliance through next year.

Cash burn has improved by approximately $200 million as compared to last year. And again, the cash that we are burning is really around a little bit of CapEx, as you will see, and really trying to build some inventory levels, as we’ve talked about over the last couple of calls as well.

Net working capital at June was $161 million lower than June 30th of last year. With a sales environment that has been under pressure, we have aggressively managed to keep our net working capital numbers in line and improve it.

Not an easy feat. And that’s one of the reasons if you think about cash burn is the reason that we feel that we need to make sure we have adequate inventory as sales rebound.

CapEx still very, very low levels, we spent $6 million in the entire half, which as you can remember from prior year as the trickle compared to what a normal run rate. But again, it’s one of those things that we have the ability to run an asset-light model when we need to and that’s what we’ve been doing and been very disciplined around store remodels, et cetera.

On page 26, Kyle mentioned that we sold Speck in July. The cash proceeds were approximately $36 million.

There is also an earn out of $4 million, if sales for the company end up being north of $107 million by the end of the year. So there is a potential for that.

And basically what that allows us to do is to focus the North America business on the higher profitability components of it. And you should be aware that Speck was losing EBITDA and so this is an accretive transaction to us that we’re removing a loss making business from both North America and the consolidated results as well.

So it improves the overall profitability of the business and we managed to secure some additional proceeds, which will be used to further delever. So you should expect approximately a $40 million pay down in debt that should happen in this quarter as well as a result of that transaction.

During the first half of 2021, we have restructuring charges about $6 million associated with severance. So, we continue to focus on SG&A, not huge numbers compared to what we saw last year.

But I think the message is that we do continue to look around the edges and manage SG&A and there was some restructuring related to that. And also we have some non-cash impairment charges, largely driven by Speck.

And total impairment charges were about $30 million, of which $25 million was due to the Speck transaction. Even though Speck closed in July, we moved into an asset held for sale at the end of the half and that’s why you see that impairment there in the North America CGU .

On page 27, as we’re looking at sales broken out by region, you can see that overall all of the regions are starting to perform in terms of sales is, when you looking at the quarterly breakdown, I think you will start to get a better feel for how Europe is starting to come back again. If you’re thinking about the half, it really started, whereas last year, we have Asia and really Asia is driven largely by China and India, until India had a bit of a hiccup, driving the sales recovery, that we think about what’s happening in Q2, you’re starting to see North America really firing on all cylinders, both brands, both in terms of Tumi, American Tourister, Samsonite, everything is trying to recover in the North America business.

And we have absolutely seen that, although, it’s behind by about a quarter as compared to North America, Europe is starting to perform very, very well right now as well. Asia, there is still a tale of haves and have not.

So there’s certain countries that are still in lockdown, the vaccination rate isn’t where it needs to be. And so the Asia numbers and you will see this a little bit later on is driven largely around China performance, Tumi performance across the across the region, as well as India starting to come back again as well.

And Latin America is starting to perform as well. So we were very pleased to see that all of the regions are back -- basically back in positive EBITDA territory as we head into July and that includes Latin America, largely driven by the Chile business recovering.

So as you -- on page 28, a little bit of greater detail, just to show you the quarter-by-quarter progression of the sales, here you can see basically the North America business, as I just mentioned, going from down in Q1, almost 58% as compared to 2019, down 44% and in July were down -- a little bit north of down 30%. So, meaningful recovery, making the point that really when sales do -- when people start to travel and move, sales come back pretty, pretty quick.

You -- Asia, it’s been a little bit less of a recovery, it’s done a bit of a stutter step if you’re looking at it and we put the ex-India numbers on there as well, because you will be aware of the last time we got together we did have India in the middle of the Delta variants and impacting their sales. The good news is that we entered July India’s trying to pick up again as well.

And then Europe, so really just about a -- we expect a similar recovery that we saw in North America happening in Europe, albeit a quarter behind. So you can see that in Q1 we were down almost 71% in Europe, Q2 down 60% and then July already down 43.6%.

So that trend that you’re seeing should continue in a similar fashion. And Latin America is basically in July a meaningful recovery just from the end of the quarter.

So, as we get into some of the back-to-school season there, et cetera, we hope that that trend will continue as well. On page 29, just to speak around the channel and the mix between travel and non-travel.

And I do think it’s helpful to probably give a little bit of flavor by quarter as well. So in terms of the half, you’re basically seeing similar performance by channel in terms of what we saw last year.

Although, basically wholesale has started to come back again, largely driven by the strength of the North America business, as well as retail, so if you’re thinking about compared to last year, when everything was shut in Q2, Q2 of this year, the stores are all open in most of the areas, obviously, there’s pockets in Asia, where there’s still some restrictions. But generally speaking, most of the retail outlets and wholesale doors are open.

And so that’s driving a greater push in those channels. In terms of the travel and non-travel mix, non-travel has been performing very, very well for us during the course of last year and especially in Asia.

As we think about the split right now, Q2 of this year, non-travel is now 50 -- is 43.9% and travel 56.1%. Just to compare it to last year’s numbers that 56.1% travel in Q2 is up from 44.6% last year.

So what you really starting to see is people that have been cooped up, really desiring to get out and move and that’s basically driving the luggage side of the business right now and we expect that trend to continue to those geographies that are opening up as well, so in Europe, specifically. On page 30, we’ve talked about gross margin a little bit.

I think it just bears repeating, in Q1 gross margin at 48.7%, Q2 now 52.4% and you can see the breakdown in June, we’re already up to 55% and that sort of number is continuing into July and to the beginning part of August as well. We have lower inventory obsolescence this year compared to last year.

It is an important point that this about $6 million of GSP pressure is not in these numbers either. So that has a bit of a negative drag for us.

We do hope that gets renewed and we hope that it gets renewed with retroactive benefits as well, that could give us a little bit of upside there. But so this gross margin improvement is despite the headwinds that we’ve seen on GSP in North America specifically.

On page 31, SG&A, obviously, we’ve been very proud of the actions that we’ve taken and really the message this quarter is you’re seeing it fully in the numbers. So in previous presentations, we’ve always outlined the actions that we’ve taken and what the run rate benefits are.

Here you can actually see that they’re showing up in the result, the fixed SG&A expense of $89 million lower than prior year, not even 2019, as compared to 2019, we’re about $200 million better. Now, we talked about run rate benefits that were north of $200 million, obviously, this is just the half year.

So there’s still some temporary benefits that are flowing through here as well. So I do think the guidance that we have given previously that expect just on a run rate benefit or EBITDA improving by about $200 million is definitely the same zip code that we’re in right now and you’re starting to see that play out into the numbers that we’re reporting.

On page 32, fixed SG&A specifically, one point of note here is, so you see a red bar. So this is basically giving you a bridge in terms of adjusted EBITDA and the benefits that we’ve gotten out of basically reducing our fixed cost base.

The first thing that I’d say is, keep in mind, the constant currency sales for the period. We’re $25.8 million lower in terms of sales and if you multiply that by our gross margin percentage of 49.4%, we have $12.7 million of gross profit decrease that comes just from the sales, our constant currency sales from the half to half.

And then what we’ve managed to do is that we have higher margin of about $9.4 million to offset that. So even though we have sales pressure, we’ve managed to improve our gross margin to offset that and that would have been $6 million even higher.

So we would have more than recovered all of that if we had the GSB renewal. Increased variable SG&A spending is not a bad thing, it means that sales are coming back.

So that just flexes up a little bit of sales come up. And then really the rest of the story is $113 million of SG&A savings between advertising and about the $97 million of fixed SG&A improvement, which really gets us to this bridge of down $17 million for EBITDA.

In terms of cash burn on slide 33, every quarter we expected to have a little bit more cash burn in terms of inventory build between Q1, between Q2. Where we sit right now, actually we’ve managed to keep the Q2 cash burn even better than Q1.

And so -- and again, I think, part of it is due to the fact that as inventory comes in, it goes right out. So…

Yeah.

… the sales is basically driving a lot of this working capital benefit that we get. And so negative $27.3 million, we feel very good about these cash burn levels.

It’s all driven by us in terms of trying to build our net working capital position, and so as you think about Q3, et cetera, we’re still going to try to build inventory and but we don’t expect the cash burn levels to be anything material. Page 34, it gives you a sense in terms of the benefits of the cost reductions that we’ve talked about both on adjusted EBITDA and then looking at the cash burn.

I mentioned some of these numbers a little bit earlier in terms of the adjusted EBITDA that’s happened quarter-over-quarter and really the benefit on cash as well. I think this is just largely driven, as you get to Q2 of this year, the positive $11.5 million of adjusted EBITDA resulting in cash.

That cash if we weren’t building inventory, we would definitely be in positive territory. And so it’s -- I think the message overall is we feel very good in terms of where the business stands both from an adjusted EBITDA perspective, because of the cost actions that we’ve taken and cash is not something that we’re overly concerned about nor liquidity.

On page 35, Kyle alluded to this a little bit earlier, I will just spend a minute in terms of the tax impact of the change that we’ve had in terms of selling the economic rights from Luxembourg. First to Belgium, so our European IP has the economic rights of that have been sold to Belgium from Luxembourg.

Obviously, we have significant operations in Belgium, so it makes sense to have that there. And the remainder, the Americas and Asia IP has been moved to Singapore.

That’s in support of a brand hub that we’ve created in Singapore. We did a global review of the best place to locate that given the growth in our Asia business and the availability of talent in Singapore, we felt that that would be a good place to have that brand and sourcing hub.

That’s been set up now. As Kyle mentioned, in order to support that we relocated some of our employees from Hong Kong to Singapore to support that effort and the net-net benefit of this from a tax perspective is that our effective tax rates should remain within the historical range.

And what that means is, typically we’ve had an ATR of anywhere around between 24% to 26% has been the range over the past few years, excluding one-time large items that we’ve had. And as a result of making these actions, we expected that to be the ATR that we can expect going forward as well.

Page 36, in terms of the balance sheet, I think, we’ve been very careful in terms of managing the cash level and the net debt. So net debt at the period in June, down to $1.8 billion, obviously, we had the $325 million debt repayments.

The other point of note is the covenant relief that we thought, I could touch on that on a subsequent slide. But basically, we’ve secured additional covenant headroom through, which we think will last us through next year and beyond.

On page 37, as part of the transaction, so we paid down $325 million, obtained covenant relief and got better pricing on our Term Loan B. These were all individual press releases that you saw since the last time we had our earnings release, but just to recap everything.

I am sure we will get a question on it. So I will just try to cover it right now is, the way that our EBITDA is going to be calculated, we have the deemed EBITDA, so now we’re sitting in Q3 of this year.

So the Q3 number is a deemed number. And so that will be -- basically be plugged in and the actual numbers that -- so the Q3 number will be an actual number and then the historical numbers will be deemed numbers.

And what we’re able to do as a result of the covenant release that we got is to add another $65.7 million add back to each of these quarters and the logic around the $65.7 million is, we have repeatedly talked about the aggressive SG&A savings that we have achieved. What the banks and lenders were able to get comfortable with is that, those run rate savings should effectively be treated as this -- their -- as their permanent improvement in our EBITDA structure.

And so if you divide $263 million by 4, you get $65.7 million per quarter and we’re able to basically have that as a run rate benefit on those deemed periods. In addition to that, but the exist -- so other than that the existing financial covenants remain unchanged.

So we’re shifting from the liquidity covenant that we had, as we entered this quarter, we’re getting into back to our net leverage ratio, which needs to be less than 5 times for the remainder of this year, stepping down to 4.5 times next year and an interest coverage ratio, which needs to be greater than 3 times. Again, I think we feel really good about our covenant levels, and if there is anything, we’ve just secured additional cushion on top.

The $325 million, you have the breakdown of the instruments that have been repaid here. We’ve obviously reduced the pricing as well on that Term Loan B-2.

The net-net of all of this is at least $20 million of interest rate savings on a go-forward basis as a result of that we factored. And again, this does not include the fact that we’re also going to be paying down another $40 million of debt once -- in this quarter as a result of the Speck transaction.

On page 38, very tight working capital management, really two points of note here is, in an environment where sales are down, we’ve managed to get our inventory levels down by $185 million. And this is the reason where as we look at cash burn, we are aggressively trying to make sure that we source products, make sure that we’re in a good inventory position, because sales are coming back and there’s very little inventory in the channel and so we want to make sure that we’re able to capture that.

Again, net-net -- net working capital improved by $161 million and our working capital efficiency continues to improve and actually we’re getting close to our historical level, even though the sale base is significantly lower than it’s been.

Yeah.

So, all-in-all, a very good story around that. And just a couple more points just in terms of CapEx, again, we touched on this a little bit earlier, $6 million of CapEx, $2.1 million of that was in Q1, the remainder in Q2, very, very tight management around that.

We have a little bit of ERP stuff or EPM stuff that we’re doing, as well as a little bit of store remodels, but other than that, we kept it very, very tight overall. So, with that, I will turn it back to Kyle for the outlook.

Okay. Thanks, Reza.

So for an outlook, just a couple of pages. One, as I started, we’re very encouraged with the recent improvements we’re seeing in our sales, particularly in U.S.

and Europe. And we’re extremely happy to see positive EBITDA as we get to Q2 and as we’ve stepped into Q3, a really strong start for July and August looks like it’s going to do the exact same thing.

So we’re really, really encouraged by what we’re seeing. With that said, COVID-19, as we all know, continues to pose challenges, recent surges in cases and the Delta variant, kind of across the globe at this point.

Some markets with slower vaccination rates. So we look at Asia, which has been a bit behind on vaccinations really country-by-country, but mark -- big markets like Japan and Korea, which have more to go and approaching vaccination level.

That math kind of Europe and the U.S. probably into Q1 and Q2 of next year, will delay some of the recovery in some of these key markets.

Nonetheless, our expectations are we will see -- continue to see strong recovery in the U.S. Clearly in the second half, we’re seeing it, as I covered earlier.

And we’re very encouraged in Europe where we’re seeing, one, the pace of vaccinations really moved. We’re seeing stores open now.

We’re seeing many of our major markets really opening, markets like Germany that had been locked down, more than other countries within Europe are really moving. And so we’re seeing a second half recovery that will really resemble what we’ve seen in the U.S.

maybe in Q2. So we’re quite encouraged with what we’re seeing there.

India, as we said, took a backward step in Q2 and really had an amazing Q1. India Q1 was almost level to 2019 and then ended up down close to 60%, 70% for Q2, and we get to July and it’s down 35%.

And a really good story within India, which really helped drive our Asia story. In Asia, as Reza said earlier, markets like China and India, I think, will fuel a lot of what we will see for recovery in the back half of this year.

And some of these other markets will take a little bit more time as vaccination levels move up, particularly big markets for us, like Korea, South Korea and Japan, where the vaccination pace has been a little bit slower. But that will all fuel into a stronger recovery in Q1 and Q2 for Asia from where I can see, and I think, China and India will prop up the rest of Asia as we move into the back half of the year.

And then Latin America has really started to move again as well with a very strong July, Chile, for example, in July was down 11% and that was down in the kind of 50% range in Q2. So as Chile gets moving, which is a really important market for us.

That will have big benefit for overall Latin America. And I was quite pleased to see our Latin America business have positive EBITDA as we stepped into July, along with all of our regions in positively EBITDA territory.

So despite the challenges that continue, we’re quite optimistic with what we’re seeing across all of our regions. As I said earlier, our gross margin remains under pressure, particularly with things like GSP not renewed, global freight costs really significantly up year-over-year, raw material costs rising.

But our teams are doing an amazing job and this is one of the real strengths of our organization and our teams and the ability to manage kind of the sourcing and costing. We have industry-leading brands.

We can manage where the position -- price positioning of those brands are to really make sure that we continue to manage on the gross margin side. And you can see what we’ve achieved really in Q2, and as we stepped into June and July, getting really back to historic levels.

And I might take a moment to just say our sourcing teams have done an amazing job of one bringing inventory down and their new task now is the challenging with shipping and the challenges with cost increase. But this team just continues to deliver.

We are seeing challenges with shipping with container delays, port congestion and these are having impacts on timing of products. And so, as Reza said, we’re bringing inventory in, but it’s going out as fast as it’s coming in.

And our sourcing teams are really taking forward actions to get ahead of this in order quicker to mitigate some of that risk. And really remaining nimble and making decisions and bringing in products that are drivers of the business and prioritizing what we’re shipping in so that we get the full benefit of that.

And so, again, I think, we’re well in hand and managing through this, though it’s a full time job for sure. We’re managing the product cost increases.

We’re taking pricing action where we need to. The whole industry is under the same exact pressure point and so every -- everybody’s in the same spot as far as moving and managing through that.

As Reza said during his presentation, we may -- we remain very diligent and discipline on controlling expenses, not only on the fixed costs, but everywhere where we can have temporary benefits, we continue to manage those, which has been very, very helpful. CapEx completely tight, as far as what we’re spending and really we’re going to stay in this mode right through the end of the year, really staying disciplined on everything that we can manage.

We are looking at marketing and marketing expense, and we continue to manage that very, very closely. It’s one of the biggest levers we have.

But as we see, certain markets starting to move, we’re pushing forward on marketing. And so we’re still well below the kind of run rate historic levels on from an advertising spend.

But you will start to see us lean in as the market starts to move comfortably into profit territory and those markets start to move, we want to be out messaging our story with our core brands. So you will see us continue to lean in on that as well.

We’re highly committed to our sustainability efforts and our innovation. And as I said, with a few products and I look at our forward pipeline, one of our real strengths will be what we deliver from a product offerings perspective for the back half of the year and really as we step into next year, I am quite excited about what we have in front of us from real kind of innovation and products and a sustainable story.

So more to come on that and we’re very excited as a team collectively. We have tremendous liquidity.

We’re at $1.2 billion of liquidity. I think at the moment where we stepped into this, we were at $1.5 billion of liquidity.

And this is a business that’s just navigated through one of the biggest travel disruptions you could imagine and we’re sitting in a liquidity position that gives me full confidence in what we need to do to kind of get the business all the way to the other side of the story. And I might just end on a last slide, which is an IATA projection, which we look at and really gives a kind of picture of travel trends and what the forward trends are.

And I think this captures how I am feeling about 2022 and 2023. So this would say 2022, as far as kind of global passengers or travelers, whereas we went into pandemic around 4 billion, we think that will be at 88% level 2022 to 2019, okay, gives you a sense for what we see, which is a tremendous recovery from what we’re seeing in the year that we’re in right now.

So this recovery will continue. And as I’ve always said, I think, when you come out of travel disruptions and our history -- historical views would tell you, when you get all the way out, it comes back even stronger.

And so my view on the forward basis is we really get to the end of 2022 and step in 2023, you will see growth and travel numbers that start to get ahead of where we were before pandemic. And so all of this kind of lines up with what we’re seeing, it lines up with what I think our expectations are, as we get into next year and into 2023.

And as you know, we’ve changed the profit profile of this business. So as we get into these levels, you should really start to see a profit profile that comes out stronger than what we were stepping out of 2019 and we’ve got the team laser focused on that.

So that’s what we have. My last slide is on Q&A.

As travel is coming back, we’re seeing it all over and we’re quite excited to see it coming back. And William, I will go back to you.

We are very happy to answer any questions anybody might have.

Great. Thank you very much, Kyle and Reza for your presentation.

And we are now open for Q&A. And I think the first one on the line is Dustin Wei from Morgan Stanley.

So, operator, why don’t you let Dustin ask the question? Thank you.

Hello, management. Thanks for taking my questions.

So first question related to sales, I think, it’s really quite positive to learn that that July sale is only down 41% versus 2019 and also positive to learn that August trends stay. But just given the, so called, Delta variant is really having a lot of impact, especially in China.

So is that the situation where in China, the August sales kind of went down, but got offset by the pickup from the U.S. and Europe sequentially?

And when we look at the TSA data from the U.S., actually in the past few weeks, the number of the air travelers is not growing sequentially, just in the past few weeks. But do you see the demand for luggage is still picking up despite that maybe Delta variant, I guess, in the U.S.

also kind of dampened a little bit on the domestic travel? I just have a second question, if you look at the second half, I remember last call, we talked about maybe 30% plus decline for the second half of this year and if we in the third quarter having a decline over 47%.

So should we look for a light decline of like 20%, 25% for the fourth quarter? And if we look at the next year 2022, I also remembered, Kyle, we talked about the full year 2022 management will look at decline of 20% to 30% versus 2019, and if that equation still hold, what’s the assumption behind the sort of the recovery rate of the international travel?

Does that need to be a lot of the recovery of the international travel or in your equation of that down 20% to 30% versus 2019 is still mainly depends on the full recovery of the domestic travel. So I have got this one question on the sales side and on the sort of the last question on the…

Hey, Dustin. On those we will come back, just so we don’t lose track of your questions, if you don’t mind.

Yeah. Yeah.

Because of lots there.

Thank you very much.

Yeah. Yeah.

Do you want to start with it?

Yeah.

When you get the sales -- yeah. It’s -- so Dustin, let’s start with your China question.

Q1 China sales down 27.6% compared to last year and if you’re looking at Q2, it’s the same zip code. So we’re down 26.7% is where China is Q2.

So the important thing about China to realize is, with China down in the mid-20s, it’s in teens EBITDA margin already and again that’s the power of the cost cuts that have happened there. So don’t only think about it in terms of the sales realizes that flow through benefits EBITDA happening as well there.

So and China is continuing to be in that area right now. There was a little blip for a couple of weeks.

I know there’s some certain provinces in China where there was a little bit of COVID that started to wane again. And this is all on the back of just domestic travel in China without any international as you know.

So we feel pretty good about the China business, with no international travel being kind of down mid 20s level, but still being in the mid-teens, even upper teens EBITDA margin. That was the first one…

Yeah. And I think, Kyle, we’re clearly seeing when we look at kind of July and August.

We’re clearly seeing kind of Europe continuing to build. The U.S.

story continues to be very strong as well. We have in the U.S.

where there’s a large kind of base of the wholesale customers, wholesale customers are very quickly ordering in. So we’re getting some of the benefit of that which will continue into Q3 and Q4 as customers start to reopen kind of the luggage categories themselves for us.

So that will fuel growth. And so I think you might see kind of weekly noises ups and downs maybe on travel, but for us I think the trend will continue as everybody gets repositioned for the recovery that’s playing out.

Delta variant is impacting everywhere and I think that’s really kind of the chapter here. But we continue to feel in markets that are really starting to move, they continue to move.

I do think Asia is going to be a bit more stock, I think, India and China will fuel a lot of what we’re seeing. But these other countries as I was saying in my concluding comments will probably take into -- take yourself into kind of Q1 and Q2 before we see some kind of better movement there.

So you will see Asia probably stay in the zip code of down 50%, maybe a trending a bit better in Q4 and really as we get into next year it can start to achieve the results we’re seeing. North America for Q4 July, if I remember the number is right, is down 31%.

This is just continuing and the team is just as energized about what we’re seeing in August. I think the big question will be, what do we see September, October, November, as we get out of the summer holiday travel period.

And our view -- my view is Q4 is probably going to be down in the zip code of 30% to 35% and that’s really what Asia kind of stuck into. It’s not so far off from I think what we had guided for the full year when we were talking last and that’s my best kind of view as we sit today.

And as you know at 40% -- down 41% we’re producing a margin that’s starting to get into really close to low-teens and if we can get into this kind of down 30% 35%, you will see a continuing improving profit story for us as well. And I am still on the plan for next year, down 20% to 30%, somewhere right in the middle of that, as I think, what we will end up from an outlook perspective.

I showed you that last slide which was IATA chart, which is kind of what the expectations are. And the reality is that it’s going to be fueled largely by kind of the domestic travel moving and it’s really as we get into the back half of the year that I think you will see international travel starting to move a bit more.

I’ve already made, Reza and I were in Belgium two weeks ago due to go to Italy in two weeks or three weeks and we’re seeing international borders start to move. It’s clearly moving between the U.S.

and Europe, but still well below kind of normal levels. And I think Asia will be a bit longer before we see international borders there, which will be important for Asia, because I think that will kind of untap some of the Asia growth as we get into Q2 and Q3 of next year to see some of that going.

But we’re not so bullish on the timing there. I think that’s going to take a bit longer to play out.

And I am just trying to get to and I think we will get to Singapore in the month of October just, for example. You can start to move.

It’s just that it’s not kind of moving at the pace of historic levels. So that’s the net sales side.

So you can ask your next questions if you like.

Yes. Thank you so much for all the details.

So just lastly on the sale of Speck, so could we have a little more details for the profitability of the, so called, non-core brand. So were they generally just lower than three core brands in terms of the profitability?

And then is there something that we can’t rationalize further to improve the overall group’s margins going forward?

Speck was the only real drag, Dustin. The other the other brands as you know we’ve been kind of shifting and adjusting.

And so when I think about a brand like Gregory that’s performing amazingly well. It performed very well during pandemic.

Gregory’s in a zip code that’s not dilutive and it’s probably our best performer on kind of other brands and continues to perform very well. We -- as I think I talked on the last call, we rationalize eBags and enfolded that into the business and eBags as a kind of portfolio and a brand which is smaller in size as a business because we called the third-party brand, but is now making profit margins that will line up right with the North American business as we get into the back half of the year in nondestructive.

It’s just folded into our core team. And the only other brand really to talk about is high tier, which is North America business, again fully folded into the business a year and a half ago here in North America and performing at the same zip code as what we would see in North America.

So really non-distracting and they’re more in line with kind of our core business. Speck was just an outlier because it wasn’t really lined up and followed different industry trends to us.

It was really following kind of the launch of phone devices, it had distribution channels that were different, whereas everything else is in the similar distribution channel for us and really non-distracting. So we’re quite happy with them.

And the brand Lipault, which is very small for us, but we’ve fully folded that into our French team and we have reset strategy there and even brand Lipault, which is very small is in profit territory and again is in line with our core product offering. So I don’t think you will see any other rationalizations, but Speck was the one that was obvious for us to kind of move on.

And from an EBITDA perspective, I think, Reza has…

Numbers -- yeah. Just so you get a sense for the Speck numbers, so as of December 30th or December 31st last year, the net loss before tax for Speck was $29.8 million.

Net loss after-tax was negative $21.5 million. Just to give you a year-to-date numbers of it, just so you get a sense for it, the year-to-date 6/30 numbers for Speck were around $5.5 million, $5.4 million negative.

Okay.

Yeah. So and for year-to-date last year was negative $15.7 million.

So out of all of the brands that was the one that was the most, biggest drag for us, so we looked at it as, it’s non-core, it has negative EBITDA and we can get a decent amount for it and repay some debt with it. So it just seemed very logical to dispose of it.

Great. Thanks for this detail.

That’s very helpful. Thank you very much.

Great. Thanks, Dustin.

Hey. Hi, management team.

And on the EBITDA -- adjusted EBTIDA margin, just to follow-up the assumption that you just mentioned on Dustin’s question on year 2022 estimate, so if we are assuming like versus year 2019, a 20% to 40% decline in topline? So is it fair to assume that we should be able to go back or even exceeding that of the year 2019’s adjusted EBITDA margin, which is around mid-teens, 13%, 14%, given the covenant cost savings that we have been doing -- we have done?.

Yeah. So we will be better than the -- 2019 was an off year for us, because if you remember, we had tariffs working into the U.S.

business.

Right.

And so we will be better. We will be comfortably mid-teens, is really starting to kind of move into the territory that I’ve been doing this for a long time here at Samsonite, territory that I’ve always thought we could get to.

And that’s where the business still having room to recover. So the actions we’ve taken have moved us there.

I wouldn’t be surprised in Q4 we’re at the same levels as what you saw us exiting 2019 at and that’s where the business down, let’s say, kind of 35% or something like that. So it’s -- it definitely is going to play into the EBITDA margin for next year.

We can see it. We’re kind of pacing in July right now and it looks pretty good.

Okay.

You’re already seeing the gross profit margin in the mid-50s already and so you should expect that to continue and then to probably even improve.

Okay.

And then, given the cost actions that should flow through to the EBITDA margins to get to the mid-teens.

Yeah.

Sure. So regardless of the rise in the raw material price, you still maintain your previous guidance about, like, on the mid-50s in terms of GP margin for…

Yeah. We’re very focused on that and we’ve had periods of increasing pressure and we’ve been able to manage margins.

There’s a lot coming at the group, but we’re very clear on what we need to do to manage that. So it’s a lot of work, but we’re feeling very good.

We’re working very closely with our teams to continue to deliver on that.

Right. Great.

And then my second question is on, like, competitive environment. Do we know, like, the pace that we recovering, are we like better than market or like -- or some other like players are stronger.

The reason why I ask is that, lots of clients are interested in the company and then they were looking at like some of these market share data maybe and I am not sure whether data like Euromonitor has got -- whether the number are correct or not if they’re somehow that for some markets like U.S. for the whole Samsonite group, it’s -- the market share like off loader in the past couple of years.

Are we -- do we need to look at market share these days? Do we follow it or at this stage the focus is more about the whole market recovery, at this stage, this is not the key focus?

Well, it’s always a focus, right? And I think the way I described in my concluding statement is, we will continue to build on our leadership position.

Right.

We have this amazing portfolio of innovative products that we’re bringing out. We’ve got the scale to drive this business.

Many competitors haven’t really been able to move much during kind of the pandemic and we’ve continued to in the background invest and drive our business. So my expectations is, we will continue to gain share as we move forward, and probably, even at a better pace off the back of what’s been a really challenging.

I said on the last call it’s not that, we’re not going to have competition. It’s all around still.

It’s there are. Many competitors have just trenched in and are navigating.

But we will be driving this business with this amazing sustainability story, amazing product offerings and I have every intention with our team to gain share. And one of the advantages we have now is, scale matters and we’re bringing in inventory and selling and so as we’re getting placement and moving and bringing products in where many of our customers with us, the U.S., for example, wholesale customers are struggling to get supply from others that we’re able to gain share just by the sheer nature of our advantage to bring products in.

So we -- I am feeling very good. I -- my expectations are we will continue to drive overall growth in the business that will be in line or slightly ahead of the trends and we should be gaining share in that scenario as well.

And I would say across all markets is my expectation.

Okay.

And the advantage of being the segment leader is as factories start to come back on, obviously, we have deep relationships with our suppliers. So typically we get favorable treatment in that regard.

We have our own factories. So in an environment where it’s hard to get supply, we can actually turn on our own factories a little bit to help with that.

And we’re in a very good financial position, thankfully, as compared to our peers. So I think from a market share perspective that should continue.

Yeah.

I see. I see.

So as of first half, we do see market share gain was even better than the industry?

Well, I am going to be clear. I think we can sense it.

We’re not sitting here studying market share gain, right? We’re studying recovery, cost management.

But we can sense it around the edges and we really see the recovery turning on in the last two months. It’s clear that we’re able to get placement and gain share as we move forward.

And this is when markets really, like markets like Europe just really starting to get going and we should be really well-positioned both from an inventory perspective and a story and capacity perspective to drive the business. Many of our suppliers weren’t paying their vendors during this and we kept our vendors whole, we kept things open, we kept very strong relationships.

That wasn’t the case from what we hear in our relations with our vendors. And so, as Reza said, when things turn on, who do they want to partner with, it will be us.

Great. Yeah.

Thank you very much. Thank you.

Yeah.

Hi, there, and congratulations. It would be a relief for the teams to see a profit.

Well done. So three things I had, you were very clear on the margin profile for next year.

I am just wondering for this year, given the very slight loss in H1 and given that you are close to low-teens in July. Is it fair to assume a full year margin between 7% or 8% for the full year?

Secondly, with inventories being so low, I understand there’s less discounting going on. I am just wondering if there’s any pricing power that you can exercise.

Are you willing or are you able to increase prices on existing products in the market? And then, thirdly, I really enjoyed your sustainability tables by brand and I am just wondering if you have any internal targets on where the different brands should go to and if you’re able to share some of that?

Thank you.

So, I think, as we get into the start of the year, I had an ambition to try to get the overall business margin for this year in this kind of 9% to 10%. And I think I probably said somewhere along the way that was what I was pushing the business for.

I think we will be short of that, because of what we -- the stall we saw in Q1 and the start of Q2, Erwan. But I still think we will be in mid-single digits full business for the year.

So somewhere between 5%, 6%, 7%, maybe on the low end of your range is what I think you can expect for the full year. And you can do the math, let’s say…

Yeah.

So that means we’ve got a meaningful kind of improving trend for Q3, which I’ve indicated. And I think Q4 will be slightly better than that.

And really what it does and we were on a senior team call this week, it really just sets us up for the story for next year, right? If you can exit kind of…

Yeah. Yeah.

… that kind of low-teens with a business that still has plenty of recovery coming and in full control of its cost structure and the real question will be can we manage margins, which is really your next question around pricing power. Because we need to make sure that we’re delivering on the gross margin side to let that all the way play out and there is pricing power.

We’re seeing general inflation price increases. We were seeing general inflation everywhere.

It’s -- Tumi is very real, because there’s underlying cost increases around labor and materials. And one of the things I’ve always said is, this is affecting this entire industry.

It’s not affecting Samsonite and so we will be adjusting prices and the whole industry will be adjusting prices. So there’s clear pricing power in our brands, but it’s also just pricing power within the space and we operate with a decent margin profiles, often our small competitors have very narrow smaller profit profiles and so you can imagine the challenges of significant cost increases in shipping along with raw materials and labor challenges are positioning.

We will be that much better to kind of manage that and we are taking those actions. So we are taking actions across regions as needed to make sure that we maintain the margin in the right place.

And then I think there will be some power with all that and there’s a lot of uncertainty on things like shipping costs and when did that start to settle out. But the power of all that is that we moments where that starts to adjust and we will be adjusting within our brand.

We won’t take advantage of that. We will look to manage our margin profile in the right zip code which is that historic run rate.

The real kind of historical run rate for this business is 56%, 57% and we’re touching on that in June and July right now.

Yeah.

A lot of these pressures and costs will really carry into Q4 and Q1, and we’re taking the actions as we speak and as we get into Q3 and Q4, so that we’re well positioned for stepping into next year. And as far as internal targets…

Yeah.

… I am still working with the teams on it. It will clearly be a story of growth and just anecdotally within one of the brand’s core innovations that I am seeing over 50% of the products that we’re seeing for kind of new introductions just for scale are incorporating sustainable components.

And so you can do the math to know that this thing will move. Tumi is a good example of a brand that’s a little bit ahead of the pace and so, if Tumi is at 22% and Samsonite is at 10%, if Samsonite moves that direction, Tumi is continuing to move forward, that’s not unreasonable that we’re north of 25% of our products not so far off in the future incorporating sustainable materials.

But the real question is, is where how far can we take that and we need a little more time as we continue to play it out. But it will continue to grow Erwan.

And Erwan to that point you obviously know we have a base of products that have already been the better global runners that are selling. So for those that’s how do you introduce sustainability into it.

Yeah.

And when you look at Magnum Eco and some of the others, so when you have new products coming in, obviously, the mix of that is going to be a lot more driven towards sustainable and -- but then you have the existing product lines that you’re trying to weave it in essentially.

So I have in my office…

Yeah.

…and you’ve been here before. I have sitting right across from me 19 degree polycarbonate for Tumi, okay?

But I have and this is an inline change that we’ve moved the shell to post-consumer, I mean, post-industrial polycarbonate into that shell and the liner made of RPET. And this will be an inline change that that’s a real runner for Tumi from a luggage perspective that we’ve now incorporated recycled material.

And if I showed it to you, you would -- if I didn’t tell you wouldn’t know that we’ve made an inline change fully incorporating recycled material and that’s starting to work through many of our product lines. And maybe you don’t get all the way on a shell right away but we can get the liners right away and we’re playing around with zippers and zipper tapes and using recycled components there.

We have a ton of work going on on packaging to make sure that all of our packaging is maximizing kind of a sustainable story. So there’s a lot going on here and I think you’ve heard me say it over the last couple of calls in the whole organization and it has engaged.

So it just naturally is going to continue to move in a wonderful direction here. While delivering on everything that we always deliver on our products, durability, quality, stuff that’s going to really last, which has been our longstanding sustainability story, but then really giving materials a second purpose within our products.

We’re starting to really think about kind of the full circle and how do we recycle products. And so our European team is doing a lot of interesting work with third parties on the full circle and how do we kind of take things back and fully recycle.

And I think that will be a wonderful story over the next…

Yeah.

… five years as we continue to move on that front too. So there’s a lot going on here.

Yeah.

I am very excited about where we’re going.

Okay. Looking forward to it.

Thanks a lot. Take care.

Thanks, Erwan.

Thanks, Erwan.

Hi. Thank you for taking my questions.

And my first question is still on our expectation on the second half trend in the next year. So I remember that last time when we gave this guidance I think the COVID situation is not that severe right now.

So did I miss anything here? So we’re still like very confident to maintain this expectation given the current situation?

So secondly is about our GP margin, so we just mentioned that our GP margin improvement is partially due to the stocking up from the channels, because they won’t have this enough inventories when market comeback. So if this is a case so can we expect to the GP margin improvement can proceed in the second half when the market remains relatively stable level?

So my last question is about the balance sheet, so do we have any plan to pay down the other debt within this year? Thank you.

Okay. So from a confidence perspective, I think, my concluding comments also cautioned about everything that’s around us.

COVID is still here. It’s still a challenge across markets.

And so I do think we take those on Board, but we’re cautious about our kind of forward views. But we’re seeing markets like the U.S.

continue and Europe continue and I’d caution that Asia is going to take some more time and that all factors into roughly these ranges that we’re seeing. So I think where I sit today I feel pretty good about the guidance, but I would also caution that the world’s in a very different place today and so we base it off of the trends we’re seeing.

We’re basing it off of reactions but we’re not being super aggressive in our expectations. So I think it’s just that the flow.

I have my own models like say it could be better than what we’re saying and we’re tending to manage cautiously. I’d rather manage cautiously and manage the cost structure against that and over deliver and that’s kind of what we’re thinking.

But the reality is we’re all watching this together. So we’re going to need to see how it plays out in managing -- manage our levers, which is why I said, we’re managing everything close to the vest still as far as cost go and cash flow and CapEx to just be cautious.

But I do feel pretty comfortable with what we’re seeing as far as outlook, particularly for the back half of this year. Again, next year we will see, but I think we’re feeling very good there.

As far as gross margin goes, I don’t think that has anything to do with people buying in. Gross margin story is really around the transition from kind of rationalizing inventory levels and some discounting that was happening in the marketplace at the end of last year, really getting back to kind of normal flow from margin perspective and so just because we’re selling in to wholesale customers that’s not being done in a way that’s artificially driving up gross margins.

So it really -- we’re starting to get back into the normal course. A lot of the margin pressure last year was around reserving for inventories and really kind of taking more aggressive stances on obsolescence and getting ourselves in the right position, really in stride now on margin and so, again, there’s a lot coming at it on the gross margin side.

But I feel very good that it’s really a function of something that we can manage on a go-forward basis. And then far as debt goes, as Reza said, we’re going to pay $40 million or so off of the Speck sale and we will get to a moment where we step into next year, probably, Q1 to Q2 where we will really be assessing what we do, because we’re obviously sitting on plenty of liquidity.

I want to see us get into the zip codes of what I guided as we get into the start of next year before we fully decide on that front. But you should expect sometime next year, I think, ideally in the first half, they would probably be some further debt pay down.

But we are -- we will be kind of managing that closely, so. Okay.

Hello?

Thank you. Thanks a lot.

Okay. Great.

Thanks.

Great. Thank you very much, Kyle and Reza for your time.

And I think this is a good point for us to conclude the call today. Thank you very much, everyone, for dialing in.

And as usual, if you have any further questions, feel free to reach out to us. Thanks again for joining the call.

Thanks again, Kyle and Reza for the presentation.

Okay. Thanks, everyone.

Thanks for joining.

Thank you.

Bye-bye.