Samsonite International S.A.

Thank you, ladies and gentlemen for taking the time to join the call tonight. We are pleased to have our CEO, Kyle Gendreau as well as our CFO, Reza Taleghani with us tonight.

And to start with, Mr. Gendreau will have a few opening remarks.

Thank you very much.

Okay. Thanks, William.

Thanks everyone for joining us. We are excited to be reporting some really good numbers.

So, we ended ‘21 on a high note and we really do have tremendous momentum as we step into ‘22. I am on Page 4.

Our strong quarter results, which I’ll cover in a second is real evidence that our efforts to navigate through the business – through the challenges of the pandemic are clearly working. In line with much of what we were saying at the start of last year have played out the way we thought they would.

We stepped into ‘22 with really good momentum. We are really well positioned to grow market share and we will fundamentally have a stronger operating margin as the business continues to recover in the years ahead.

So, we do expect and we are seeing continued travel recovery across all of our regions. Really, as the effects of COVID-19 start to wane down, including travel, we have seen countries moderating its restrictions, really off the back of effectiveness of vaccines and we’ll cover by region in just a bit on what we are seeing.

We are ending the year on a lean inventory position really driven by strong demand for our products, particularly in North America and Europe and Latin America. And we are investing more in working capital and as you can imagine and we are all fully aware of stock replenishment has some challenges with shipping delays, but we are well ordered and goods are coming in and we are seeing that play out as we step into Q1.

We have dramatically reduced our net debt position, $258 million at the end of 2021 compared to ‘20. We are generating meaningful cash.

You saw in Q3, we generated strong cash flow. In Q4, we generated tremendous cash flow I’ll cover in a second.

And for the second half of the year, this is the business that generated $290 million of cash. And so we are quite excited with what we have done there to get the business back on the right footing on the cash flow perspective.

And we have this amazing global platform, really a diverse set of product categories, complementary and leading brands, which we tailor products each region preferences. And we really are well positioned to benefit as travel continues to recover.

And so that’s really to set some tone for you. We are quite excited.

On Page 5, I thought I’d start with Q4 to give a real good indication of where we are trending. So, our Q4 sales improved to down 28% to 2019.

That’s adjusting Speck out. So, you have kind of the underlying improvement versus ‘19.

That’s up from down 37% in Q3. So, you can see a really meaningful improvement from Q3.

Our gross margin has continued to improve, very strong Q4 gross margin, 58.2%, that’s from 55.5% in Q3, 52.4% in Q2, and Q1 was 48.7% and all of last year was 46%. So we have moved effectively the gross margin back to historic levels despite the headwinds that we will cover in our presentation as well.

So I am quite happy with where we are there. We had tremendous EBITDA in Q4, $127 million of adjusted EBITDA, that’s up from $72 million in Q3.

Our adjusted EBITDA margin is at 19.1% in Q4. If you remember at the end of Q1 and at the half year results, we are talking about moving the margin profile of the business up into kind of mid and upper teens and we are seeing that clearly in Q4.

I’ll cover the half in a second. Positive adjusted net income, this is important.

This is adjusted net income of $112 million in Q4 and for the full year, we have positive adjusted net income, okay, for a business that’s been navigating real travel disruption. I think that’s a huge accomplishment.

Generated cash of $176 million in Q4, now some of that is working capital on inventory and strong demand for our products. But that’s up from $116 million in Q3.

For the half, this business generated $292 million of cash flow at the end of 2021. We have significant liquidity, as you can imagine.

So, we have $1.5 million of liquidity, that’s up from $1.3 billion of liquidity at the end of Q3. So, we are in a liquidity generating mode as we exit 2021.

On Page 6, just for a full year perspective, just to give you a sense. So 2021, we had sales of $2 billion, just a little over $2 billion.

That’s an increase of 35% from the prior year and it’s down 43.5% versus ‘19 and really driven by the increased vaccination rates that we talked about and really restrictions, domestic travel moving and really starting to see, and I’ll show you in a slide in a second, international travel starting to open up with plenty more of recovery to go, but we have seen a marked step up in international travel as vaccination levels continue to rise. We saw an accelerated recovery in the second half.

And so our second half sales increased by $422 million compared to the first half of the year. So, you can see a meaningful pickup in the second half sales, $1.2 billion in sales.

Gross profit margin increased to 54.5% just shy of – for the full year, just shy of historic levels of 55%, but that’s up dramatically from 2020 at 46% as we are really navigating through the height of the pandemic in 2020. Our adjusted EBITDA and adjusted EBITDA margin for the full year, $182 million or 9%.

When we started the year, I had set a target for our teams to get to 10% EBITDA margin. And I think with everything that came at us, I think this was really a remarkable achievement by the team, which I am highly appreciative of and really in line with what we were expecting to achieve for the year.

Our adjusted EBITDA improved by 400 – a little over $400 million compared to 2020 and it really underscores the positive impacts of the actions and the decisions that all of our team members made over the last 2 years to get this business position. I think this is an important measure, because Q4 was a really strong EBITDA margin, but the second half was up to an EBITDA margin of 16.3% second half results of $200 million compared to a loss of $17 million in the first half of the year, okay.

So you can really see the dramatic benefits of vaccination rates and the actions that we have taken to move the profit profile into the right place. And I think this – it isn’t the biggest number, but it’s an important number, positive adjusted net income for the full year ‘21 for a business down 43% for the full year, we delivered positive net income, again, off the actions.

And as I said, cash generation was very strong in the second half of the year. The full year cash generation was $200 million, an improvement of $560 million from last year.

And just for scale, all of 2019, which would be, I would say, our last kind of normal year, that’s higher than what we generated in cash flow in 2019. So we are really in a wonderful position from a cash generation perspective.

And then I will cover a few slides, but we are really ready for the recovery. We have continued to develop and launch new products.

We are continuing to evolve our products. We continue to prioritize sustainability.

So, we have a tremendous amount of products launching with sustainable attributes and really driving our responsible journey, which we have talked about in past meetings and we are really excited about that, and I’ll cover that before I finish as well. Revenue, I am on Slide 7, revenue and adjusted EBITDA continued the trend.

I think this chart captures kind of the start of the pandemic to where we are exiting the year. And you can see obviously in ‘20, which is kind of the middle of the page, how fast the sales dropped and the negative impacts, but then how quickly we started to adjust our EBITDA dollars to a positive point by the time we get to the second quarter of this year.

I mean, you can see the rapid improvement that we are seeing in Q3 and Q4. Just for scale and it’s not on the page perfectly, but just for scale, Q4 ‘19, $961 million of sales, $145 million of EBITDA, 15.1%, $300 million less sales, still plenty of recovery to go.

We are generating really close to the same EBITDA, $127 million and an EBITDA margin of 19%. And this is really off the back of the work we have done to fundamentally position the profit profile of this business in a better place and allow us to navigate through pandemic and get through where we are today.

So as you can tell, we are excited with what we have achieved and how we are stepping into ‘22 in a really strong spot. On Slide 8, I thought to give you some color, because regions are at different places.

What we are clearly seeing now are all regions are trending in a positive way. Some are a little ahead of others.

And so if you look at North America, you can see the rapid improvement in our sales from Q1 to Q4. And just to give you some sense in Q1 of this year, we look to be trending somewhere in the kind of mid to upper teens down, so a continued improvement.

And the U.S. and North America particularly is experiencing probably the biggest impact of shipping challenges of getting goods in.

So I would tell you we are missing some sales. So, these numbers would be even better if we were in full stock of inventory as we stepped into the year.

Asia, which as we have talked about is the long pole, it’s taking a little longer for Asia to recover. But I am quite encouraged with what we saw in Q3 and in Q4.

And just to give you a sense for Q1, it looks like it’s trending down mid 30s, so a continuing improvement from Q4 to Q1. And I expect Asia will continue a trend of recovery as we move through the year, but really encouraged with what we have seen in the last two quarters of ‘21.

Europe very quickly started to recover in the middle of this year. So you can see from a low of down 71% in Q1 to down 28% in Q4.

And Q1 looks to be down mid-20s, 25%, 26%, down Q1. So, this continues to be trending in the right direction.

And then we have had a really rapid recovery in Latin America. So Latin America, which was down 50% in the first half of the year, are almost to breakeven levels as we exit the year.

Q4 was high and up 7% to ‘19, but there was some unrest in Chile in Q4 of ‘19. So, the number is a little bit inflated.

But as we step into Q1, close to breakeven growth rate versus ‘19 for Latin America. So really strong and really amazing profit profile change for Latin America as well.

So, as you can see, the trends continue. And in my view, the trends will continue as we move forward, which is really the next slide to give you a sense for where we are in recovery.

And considering – for me, considering the effectiveness of vaccines and the high vaccination rates, you can see a chart off to the side, which talks about where the world is on vaccination levels. And the world really starting to moderate on its restrictions and ability to move and travel, we will continue to see an increased demand for our products and the demand for travel.

And so we are really seeing the benefits clearly in countries and regions where we have gotten to high vaccination levels, things are starting to move. We will – and I have a slide before I end on the crisis in Ukraine, because this has been obviously a really emotional and challenging situation.

We have business in both Ukraine and Russia as you know. And it’s added some uncertainty to our ‘22 outlook.

Just to give you a sense for where we are from a size, our Russian and Ukraine businesses collectively are about 1.5% to 2% of our sales, really over the last 3 years. And we do think that there will be some additional headwinds.

But as of now, we are not seeing those headwinds in the rest of our European business. And so we will continue to watch this closely.

And I will talk about what we are doing in Russia at the end of my section as well. And we are really hopeful that the headwinds that we are seeing here, a little bit of this uncertainty created by Russia and Ukraine and the ongoing kind of improvement in COVID will not really materially disrupt the recovery that we are continuing to see.

On Page 10, I just – you have seen this slide from us before, just looking at domestic travel and international travel, because our numbers are really trending very closely to the recovery in travel. And you can see, if I drew a line kind of in the February, March timeframe, the rapid improvement we saw in domestic travel, which is the red line at the top.

And really, as vaccination levels really got to levels and the world started to get vaccinated, this has recovered to really amazing levels in some markets above ‘19 levels. There is ups and downs, a lot of this was being driven by some of the variants.

You can see Delta and Omicron had a little bit of a dip. When Delta came, a little bit of a dip.

At the start of this year, with Omicron, we’ve seen that start to correct itself as we get to March. Markets like China, where we are seeing kind of more intense lockdowns and restrictions.

Those are causing some blips in the domestic travel. But all in all, domestic travel has kind of reached the level that’s continuing to improve, but getting very close to kind of down 20% to normal.

And then the big shift from maybe the last time we talked, we started to see this in Q3, but international travel really starting to open up. And so just for scale, Reza and I have been traveling around to our markets.

We have been to Asia a few times, Europe a few times. We are in Chile last week with all of our Latin America team.

And so you are seeing international traffic start to move, but still plenty of recovery to go. And again, as vaccinations continue to improve and really restrictions start to come off, you will continue to see international travel.

And I think this will fuel our recoveries as we get into Q2, Q3 and Q4 as that continues to open up. And so we are watching this closely and we are excited with the trends we are seeing.

I go to Page 11. This is just kind of a data source to really think about where do we think the world is from a recovery perspective?

And I might give you my outlook for ‘22 on this page, because our outlooks generally line up with us, but this is overall global demand for travel. And there is clearly a trend moving up.

There is scenarios obviously as you would expect. But the reality is – the takeaway is this baseline recovery, if I use the middle, I think will be slightly better than that would have us sat around 85% of ‘19 levels as we get to the end of the year.

And our outlook is about the same. I think as we exit into ‘22, we will be getting very close to historic levels.

Our full year expectation for ‘22 is to be down around 15% to 20% in sales from normal. So to give you a sense for where we are, where we are trending, this would show that we have some recovery in the back half, but we are not so bullish that it gets all the way back.

But I do think as I have said before, as we step into ‘23, I think we are right on the doorstep of historic levels of both domestic travel in our own business, I think starts to get close to historic levels from a sales perspective. On Page 12, just a moment on gross margin, really a few things on the Page 1.

You can see the journey that we had in 2021. I mean, again, we exited ‘20 at 46%.

We are exiting ‘21 at historic levels in many ways against some meaningful headwinds. So as you know, there are headwinds across the board.

Inflation, inflationary pressures that we have seen, we have new inflationary pressures. We have seen real increases in freight and duty costs and all the dramatic pieces of that.

We have had a GST program in the U.S. It’s not been renewed yet.

We think that will renew in ‘22. We think there will be retroactive treatment.

So that will be quite helpful for us. And against all of these pressures, we have been managing the margin profile back to historic levels with lower promotion and discounts as you would expect with pressure on demand, but also really moving on price where we have needed to, to cover the increases in product costs to get margins back to historic levels.

And so I would say we are working closely with our suppliers. This is off the back of really strong supplier relationships that matter as we are navigating through this.

And I myself and our team are really excited that we have navigated margins back to where we are. We will have plenty of work to do to keep them here in ‘22.

But the start of ‘22, we are clearly right in this. We are trending right in line with where we are exiting ‘21 at around 55%.

So, I think we are well in control, but this will be another year of real challenge on sourcing and supply teams to manage through. So, dramatic increase in margin.

We are seeing delays in shipping and it’s impacting the timing of product arrivals. We are ordered out quite dramatically for the business.

I would say, on average, we ordered out almost 9 to 12 months across each of our regions, which will help with us managing margin for one thing. And it’s really a function of the ability to flow through products with the shipping delays.

We are seeing some factory challenges in China today right now because of Omicron. So, you can see and you’ve all seen in the news, some closures and lockdowns within China.

That has some impact to us, but those we don’t think will really impact our forward kind of moving progression on sourcing, might be some short-term impacts just like we are seeing on the shipping constraints, but all well managed by our teams and moving in the right direction. And we will continue to take action.

We are laser-focused on managing gross margin at the historic levels. It matters for us.

And so we will be watching increased raw materials, oil prices are up, that will have a lag effect on material costs, there is higher labor cost, all of that we are factoring in and working with our suppliers and our team to make sure we manage margin at the right place. Moving to the next page, just – it’s another look at EBITDA, but also cash flow.

And I really think the key takeaway here is the actions that we have taken to deliver on cash flow and cash generation and move EBITDA margin clearly show up in this page. And so as you know, in ‘20, we took really aggressive actions to adjust the cost structure of the business.

We have over $200 million in annual fixed cost savings that we are carrying in. We had temporary savings in ‘21, which have helped us.

We are seeing some of those carry into ‘22, but they will start to falloff, but we will not lose the $200 million plus of fixed savings. And that’s allowed us to achieve this really strong EBITDA margin at the end of Q4.

So, sales still down close to 30% in Q4. We are generating an EBITDA margin at historic levels and $127 million of EBITDA.

That will carry into ‘22, for sure. Meaningful actions on cash flow.

So as you know, in ‘21 – I mean, in ‘20 and ‘21, we grabbed all the rains and that really showed up in the cash generation of the business. And so in Q4, $175 million, and I said earlier, for the full year, we generated more cash than we did in 2019.

And we are in this really strong liquidity position, $1.5 million, up a couple of hundred million dollars from even where we were in Q3. So we are in well control of our balance sheet and our net debt position.

Reza will cover some of that on the balance sheet section as well. From a brand perspective, we are seeing recovery across all our brands, some are moving at slightly different paces than others.

But you can see if you look at versus ‘19 or versus last year where we are, so Brand Samsonite is up 36%, down around 44% to ‘19, in line with kind of the overall kind of trajectory of the business. Tumi was up 56% to 2020 and only down 34%.

And if I look at Tumi, you have seen very strong recovery in North America, which is up almost 91% to last year and that trend continues tremendously strong, being held back a bit by inventory. So, this is a U.S.

North America with shipping delays clearly holding this back just a bit, but really strong momentum in Tumi. With even American tourists are trending right in line, up 38% to last year, in line roughly with the overall business.

And other has some noise, but other includes us exiting Speck, which is why you see a number that’s flat to last year and down 50%, but that’s largely to do with the Speck transition brands within that, other brands within that continuing to perform well like Brand Gregory continuing to perform very well for us. From a product perspective, just a few touch points here.

We have continued to innovate. We have continued to develop exciting products.

We are starting to really see some of these products launching as we get to the end of the year. And I would tell you, we are so ready to capture demand as travel continues to recover.

I just grabbed a few pieces of products. Just there is quite an assortment of what we are offering.

This is against a very active SKU reduction process, we have taken in the business over the last 18 months. So we dramatically reduced SKU count, but we are still launching in with really amazing products that incorporate recycled materials.

I chose Ecodiver, which is really a fallout of Paradiver, which has been this tremendously successful product assortment as you can see to the right of the page. This is a product that’s now made out of 100% recycled interior and exterior fabric with recycled PET or water bottles basically.

This is our Recyclex material technology. So, the full material component of that bag is recycled.

It’s a waterproof product. It’s really an amazing product and just a real indication of what we are stepping out and launching with on, I might say, the non-travel though it has some travel components.

There is a minter collection, which is a really beautiful collection, which incorporates recycled material on the inside to all the interior fabrics. It’s got tremendous suspension wheel.

And again, our very commercial product launching as we get into the back half of this past year. You can see in the U.S., we have Elevation Plus.

We are quite excited about this amazing product launching in the U.S. market.

Again, interior aligning 100% recycled and really kind of one of the best polypropylene collections we have launched in the U.S. and really excited to see this playing out with interesting features.

And even brands like eBags, like through eBags here, the CTS collection that we are launching with eBags, incorporating recycled materials, both exterior and interior for many of the products. This is bags that have convertible features, which our eBags customers really like and it’s really an extension of the ongoing story of getting eBags allowed to utilize the design team from the Samsonite team.

So, really exciting is even carrying one of these bags now and quite like the convertible backpack, so really a terrific collection. So, again, just to give you a sense of what we are launching, a huge launch for Tumi.

Tumi relaunched it’s really popular, it’s over a decade of real innovation here, it’s Alpha Bravo collection at the start of ‘22. And this has been a homerun right out of the gate with following a campaign life and forward motion.

Really amazing celebrity endorsements from Lando Norris to Gracie Abrams, a songwriter, really powering kind of the launch of this product really, really exciting. If we haven’t seen the product yet, check it out.

And what’s really key for this is one continues to deliver on kind of the innovation. It’s got modularity pieces to it, so you can add features to this bag.

And it’s sustainable, amazingly durable and much of the exterior and interior of these collections is made from recycled materials. So, this is a terrific launch and it is off to the races as we step into ‘22.

We have continued to prioritize sustainability in our responsible journey. We are taking tons of energy off of this within the business and our consumers are reacting.

And I think we really do have the ability to transform this industry across all the aspects of our responsible journey. Just one little snippet, we are testing kind of the circularity of products.

So in Belgium and Netherlands, we tested at the end of the year, a turn-in recycle program, where we are working with our recycling partners to take in bags and effectively disassemble and recycle those and offering of voucher to customers to use the discount going forward. This was tremendously successful.

Pretty small launch, 300 bags were turned in. We will continue to look at this.

And just to give you a small sample of the level of work we are doing here to think about the full circle of our products. As we think about ‘22, what are we focused on?

We will continue to expand innovative products using recycled to renewable material. You are going to see a meaningful increase across all of our brands on this front.

To get into more of the details, we are estimating our full Scope 3 greenhouse gas emissions for the first time, really taking it to the next level. We have conducted a formal climate risk assessment for our business and we are looking at the recommendations for that and continuing to push the business.

We are expanding the use of our product life cycle assessment. Actually, Gregory is one of the early launches of this for us and we have now started to work this into our European design teams and looking at the full product lifecycle for our products and really tell us interesting things around how we can impact our carbon footprint in the world.

We conducted our first diversity and inclusion survey globally. We just did this a few weeks ago, still gathering results, but the response from our teams was tremendous, higher than I think anybody would have anticipated.

And we are quite excited and we have the whole organization focused on this vision is thinking about kind of diversity, inclusion and development, how do we develop our teams and continue to create the amazing culture that we have in this business, and we’re very focused on it and taking feedback from all of our employees. And it really is, for me, the sustainability structure.

We have created enhanced governance structure and the whole organization is focused here. And I think you will continue to see exciting things as we continue on that journey.

And just last and I will come back at the end with some highlights. I wanted a page on our response to the crisis in Ukraine.

And as you can imagine, we are deeply concerned. We have employees, as I said, in both markets either through partners and distributors in Ukraine or our teams in Russia and highly emotional challenges for all of us.

We thought through and we have really been focused on the impact to our employees, our families, our partners, our customers. We took the action this week, really this weekend to suspend our commercial activities in Russia.

So we have temporarily closed our stores. We have closed our e-com site.

We have stopped all shipments of products both into and within Russia and we stopped all further investment to advertising as you would expect. We have really temporarily discontinued all operations there as we watch what’s going on.

We are very close with our teams. This is challenging for us.

It’s challenging for our Russian team. We continue to stay very close to our teams and suspend operations and really continue to watch out for the well-being of our employees there as well.

And so I have spent a ton of time on this as our European teams have. And I think we have made the right decisions as we continue to work.

We have made a large donation. We literally finished it yesterday to the humanitarian effort.

I think everybody has a responsibility on this front. So we have made a $1 million donation to a UN Relief Agency Fund, exactly the right thing to do.

Equally as important, and I’m saying here over 10,000 pieces of luggage and bag. We are moving bags to the crisis.

You can imagine with the refugee crisis that we have here really making sure that we can have an impact there. And I’d say over 10,000 pieces it will be much higher than that as we are moving bags and excess bags and backpacks to the region very quickly.

This number will grow. So, we have kind of an impact in what we should on the reaction to this and helping with this crisis.

And just from a scale and I covered this just a bit earlier, it’s not the biggest piece of our business. It’s 1.5% to 2% if I look at the last 3 years of our sales.

It will create some uncertainties. The world is watching carefully across many fronts.

I don’t think it will dramatically impact our recovery. It might have moments and pockets of disruption.

But the reality is I think we will navigate through this as best we can. And as I said earlier, we are not quite seeing it in Europe, excluding Russia and Ukraine.

Europe continues to move in the right direction. But we have taken the right response.

We are staying close with our teams. We are very – we are following very closely both our partners in Ukraine.

I have daily interaction with teams to keep up with where they are and are they staying safe. And we are staying in touch with our Russian colleagues.

They are part of our family. If you think about where we have been over the last 2 years, everybody has participated, including our team members there.

So, that’s our reaction. I think there maybe questions at the end, but that’s where we are on that.

And so with that, I will turn to Reza and I will come back, right at the end with outlook.

Thank you so much, Kyle and we are on Page 21. So, just to recap on the numbers, finished the year, very strong in the second half, final results are a little over $2 billion of sales.

Gross margin of $1.1 billion, with a gross margin percentage of 54.5%, as Kyle noted, leading to adjusted EBITDA of $182 million and adjusted net income of $17 million. But I think really the story here is the quarterly progression.

So if you are looking at it quarter by quarter on EBITDA, we were negative $28.5 million in Q1 that we made it to breakeven. We were at 11.5% in Q2.

Q3, we were very proud at $72 million of adjusted EBITDA and now Q4, $127 million. So, that trajectory is what we have been waiting for, especially that we have had the cost cuts fully baked now for a little while and that trend is what we are basically rolling forward as we start this year as well in pretty good stead.

And I will just say the same thing around net income, to sit here and it may not look like a big number when you look at a net income with a little bar of $17.4 million, but bear in mind, the Q4 number was $112.4 million of that, so really shifting it from negative territory into positive territory. We were slightly net income positive in Q3, but the real strong results in Q4, resulting us in a profitable year for 2021, which means basically coming out of this pandemic, we had 1 year where we weren’t profitable.

So, we are very, very happy with that result. Going to Page 22, just to go through some of the highlights.

Again, some of this is repetitive, so I will go through it relatively quickly to make time for questions. Net sales increased from the prior year by 35.1%.

We have got into how that was spread by the various regions compared to 2019. Q4 net sales were down 28% compared to Q4 of 2019, but that’s a consistent improvement quarter after quarter if we are looking at the progression.

Adjusted EBITDA increased by $401 million, shifting from a loss of $219 million. So, we have negative EBITDA of $219 million in 2020 to positive territory of $182 million and again, sequential improvement quarter-after-quarter as I just went through.

Fixed SG&A expenses, we have talked about this on all of the calls, $371 million lower than 2019. Obviously, that includes a component of the fixed and then there is some temporary savings that are in there that are continuing to roll forward.

Again, as a guidance matter we have told you on previous calls, and I think that guidance still holds that if we’re looking at going forward, we should have at least $200 million of fixed cost savings as we enter Q1 of this year as well. Advertising spend was relatively tight at 4.1%, but we are investing in advertising, and that’s been improving quarter after quarter.

And as we look at Q1 of this year, we’re having advertising budgets that are in line with what we’ve had at historical levels, and we hope to invest in the back half of the year as well. On the next page, Kyle mentioned that the net debt position improved to $147 million as of December.

We have $1.3 billion of cash and cash equivalents, $2.8 million of debt. I have a slide specifically on the balance sheet where I will cover that.

We repaid a total of $370 million of borrowings. So we’ve talked about this at the last quarter as well where we had $125 million of term loan A pay down, $100 million of term loan B, $100 million of the revolving credit facility.

We disposed the spec and use the proceeds of them to pay down another $40 million of the revolving credit facility as well. We are in a very strong balance sheet position.

So liquidity of over $1.5 billion, which is as good as it’s been. We have $177 million under the revolver available to us as well.

And that’s largely due to the fact that we’ve had tremendous cash generation. Every quarter when we get together, we’re expecting to have more inventory build and some net working capital build – and somehow the team to sell everything that comes in as soon as it gets off the dock.

And so that trend has continued. So great cash generation.

I will say, again, as we enter this year, there is to try to invest some of that cash back into the business via CapEx, but really in terms of building inventory and stock levels. But as we sit here in the quarter and then we’re looking at January and February, this trend of cash generation is continuing as well.

On the next slide, on Page 24. Again, the net working capital point.

Net working capital in December was $157 million lower than December of ‘21, with net working capital efficiency of almost 10% at the year-end. That’s an improvement from 23.2% at the end of last year.

Reduction in inventory is the primary driver and we have this delayed stock replenishment issue. So there isn’t that much inventory in the channel.

And as soon as it arrives here, it really is taken by customers and the end consumer as well. So that trend and the fact that we have some supply chain delays even in Q1, that sort of inventory build is still not happening yet.

CapEx, we’ve been very tight, and we’ve basically been very focused on making sure that we don’t have a lot of extraneous CapEx. At some stage during the course of this year as we get into recovery, we should expect the recovery and going back to normalized CapEx levels we are starting to selectively look at refurbishing some of the stores that haven’t been touched in a little while, especially now that we’ve rationalized the fleet.

But again, CapEx for 2021 was $25.9 million, which is well below historical levels. During the course of 2021, we did have some restructuring charges that we talked about on previous calls, total restructuring charge of $17.7 million.

That’s – some of that is due to the IP restructuring that we did as well as setting up our brand development hub in Singapore as well as just general cost initiatives that we had. And then we also have had net impairment reversals happening in 2021 of $32 million.

Due to IFRS accounting standards, we have to basically do valuations of our assets. And we have to basically reverse some of the impairment that we had taken in prior years as it related to some of the trade names that we have as well as some of the store impairments that we’ve previously taken as well.

Going on to Page 25. Covering it by region in terms of the constant currency growth, I think really the progression, again, is the important point here.

North America contributing $807 million for the year, Asia $687 million, Europe $419 million, and Latin America, just shy of $105 million. But I think if you’re looking at the constant currency growth compared to 2019, and we’ve highlighted the Q4 numbers, really, really strong performance.

Kyle mentioned that the North America number is down 21%, would have probably been higher were it not for some shipping delays. All that means is some of that flows into this year and even month by month, we’re seeing some of those delays still happening in the North America business.

As the Asia under a little bit more strain as compared to some of the other regions, primarily due to the government lockdowns have in some of the larger countries there. We hope that, that improves this year, but we ended the Q4 with down 39% in 2019.

And Europe, really strong recovery coming in starting in the summer and ending the year at down 28.4%. And Latin America, strong, strong 7.7%, up compared to 2019.

And again, as we look at Q1, that trend is absolutely continuing in Latin America as well, both due to the cost reduction that they had, but really strong sales environment as well in the regions. Page 26, I won’t go through – Kyle covered most of this already in terms of the quarterly breakdown by each of the regions, so we can go on to the next page.

On Page 27, it’s really the channel mix shifting. We are seeing a shift back towards wholesale and retail.

Obviously, if you’re thinking about where we are now compared at the end of the year compared to we were sitting in Q1 and Q2, we do have our fleet of stores fully open now. So the shift from e-commerce towards – it’s just – there is still growth in all of the channels, but really, when you’re looking at the overall percent split between the different buckets, you see that the retail stores will have picked up significantly over the course of the year, but really on the back half of the year.

So if you’re looking at the mix $1,240.5 in terms of wholesale and other and then our retail fleet delivering $53.6 million with DTC e-commerce at $243 million, again, an improvement in each of those sales channels, but obviously, the mix is starting to shift a little bit more so to brick-and-mortar retail over the course. And then the travel, non-travel nexus exactly as you would anticipate, there has been a greater shift to travel products.

So if you’re looking at the SKUs that are performing, we do expect there is going to be even more going into the summer in terms of this revenge travel after people have been locked up for a couple of years, and we started to see that already in the markets that are open in terms of travel products performing as compared to backpack and non-travel. Moving to Page 28.

The SG&A story is something that we are very proud of over the course of the year. This improvement, if you look at it at every single quarter, we ended – if I could just highlight the Q4 number.

Overall, we were $371 million lower than 2019 in terms of SG&A. But what we also focus on is the trend.

And if I’m looking at Q4 specifically, we are still $84 million better as it relates to our fixed cost base. Obviously, there is some benefits that we’ve also had in terms of the variable component of it.

We expect variable to increase, obviously commensurate with sales. But that fixed cost number.

So if you look at fixed cost and admin, we are very disciplined about maintaining that cost structure. Yes, there will be some additional stores that will selectively come into the fleet over the coming years, etcetera.

But we’re – the process that we go through to making sure that everything that’s entering our fleet, very, very disciplined in terms of those selected stores that we may look at. And overall, we fully expect that over the course of this year, we will maintain the benefit that which well into the EBITDA margin.

And as it relates to advertising, we are concentrating on improving the percentage, so we’re trying to get back to historical levels. And on the back half of the year, actually even trying to do above that.

So if we can get it back to high 5s, even maybe low 6s, as if we’re thinking about the back half of this year, that’s where we would like to be in terms of advertising as a percentage of sales. Looking at Page 29.

Kyle covered in his remarks, what we’re looking at in terms of the gross margin improvement that we’ve had. The teams have done a remarkable job in terms of deferring some of the costs that have come in by having very disciplined, very limited promotional activity as well as making sure that we maintain price, the passing on price increases to our end customers to make sure that it offsets whatever inflationary pressures that we face.

So the gross profit improvement of $214 million was the impact of that, as we do the bridge over to our adjusted EBITDA. And then from the gross profit increase from the higher margin, that’s the $172 million.

So a large component of it is in relation to what we’ve been doing on sales as well as improving the gross margin profile of the business over the course of the year. And obviously, the benefit of our fixed SG&A.

So that decreased fixed SG&A of roughly $65 million, offset some of the other pressures that we felt overall. So our adjusted EBITDA basically is going from about negative $218 million to $182 million, largely on the back of improved sales as well as discipline around gross margin and SG&A.

On Page 30, we are very proud and when it bears repeating again in terms of the cash generation of this business. Q4, $175 million of cash generation, just in the quarter alone.

That’s on top of $116 million generated in Q3. If you think about where we are, sales are at $2 billion compared to $3.6 billion, yet we’re generating even more cash than we did in 2019.

Again, we’re very disciplined in terms of SKU reduction, that’s helped us in terms of inventory levels as well. We do expect some level of this cash being reinvested in the business as we think about Q1 and Q2.

But I can tell you, sitting here having seen the January and February, results already, that hasn’t reversed yet. So as soon as some of these supply chain issues open up, we do expect there’ll be some inventory build and won’t be at the same sort of levels.

But for now, we’ve enjoyed really, really strong cash generation over the course of the year. On Slide 31, again, Kyle has covered this one, so I won’t spend too much time on it, but I think the point is really that EBITDA has sequentially improved as well as the cash flow that generates that comes out of that.

On to the balance sheet on Slide 32. A couple of points to note.

I’d just like to highlight both – let me start with the net debt point. So if you’re looking at the columns here, we ended December of 2019 with net debt of $1.3 billion.

That net debt over the course of the pandemic increased by $430 million. So that’s the difference between the $1.3 billion of net debt and the $1.735 billion that you see on the page.

Over the course of this year, we reduced that by $258 million. So we’re ending with a net debt position of $1.477 billion.

So in 24 months. If I just add those two numbers together, in 24 months, we’ve gone – our net debt is shy of $172 million.

Which if you think about the sales impact of what we’ve been going through, I think that’s a very, very strong result. And obviously, we’re hyper focused on de-levering this business.

So as this cash generation continues to happen. We’re applying that cash generation to repaying debt, and you’ve seen that with Speck, the proceeds went to repaying debt.

And this is going to continue over the course of this year. So de-levering is definitely a strong focus for us.

On Page 33, working capital, we have covered a fair a bit of this. The inventory days if I’m looking at where we are, we’re almost in line with where we were in 2019.

So inventory days are 138 at the end of 2021, which is almost the same level of 132 that we used to have in 2019. Net working capital days, 34 as compared to 59 in 2019.

So I think in terms of balance sheet management, I think the teams have done a truly, truly exemplary job in terms of managing the balance sheet and working capital. And again, as we sit here at the beginning of this year, this trend is continuing as well.

Inventory turnover decreased by 63 days year-over-year. Inventory at the end of December, $107 million lower than December of 2020 despite the sales environment things.

And on Page 34, just on CapEx, again, we’ve been very disciplined. If you look at both the 2020 and the 2021 number CapEx for those of you – most of you have been following us for some time, CapEx in a normalized year, we would be in the $90 million to $100 million, etcetera.

We’ve been running at just around $25 million for 2 years now. That’s why you’re right now and the business is really starting to get into full recovery.

You will see that number pick up again because we do want to make sure that we’re making the right investments in our business. But the good thing about this business is we have flexibility.

And if we need to dial up back, we will, which is what we’ve done in the past. So with that, I’ll turn it over to Kyle to talk about the outlook, and then we will open it up for questions.

Okay. Great.

Thanks, Reza. So as I said, to start, our strong ‘21 results and really what we’ve seen in the back half of ‘21 and as we step into ‘22.

I think clear that our actions have had a meaningful impact in our business, both in kind of recovery, cash generation, profit profile, positioning. And as we step into ‘22, we have great, great momentum to gain market share, fundamentally higher operating profit for this year and clearly, as we step into ‘23.

We are seeing – just a caution, we are seeing in ‘22 ways of new COVID cases. So we saw Omicron as the start, I think the latest news in the last couple of days as Omicron BA2.

Which, again, we’re not through the woods on COVID and we continue that closely. But what’s clear to me is that kind of the propensity to travel and the recovery to continue, I think, is here.

And we will see some markets that will continue to be under strained. We are going to talk a lot about it, but China has clearly stepped into some new lockdowns that will have impacts on our business.

But again, recovery and overall momentum, I think, will continue. And additionally, as I covered prices in Ukraine, I think, adds to a degree of uncertainty to our outlook in ‘22, but I think we will manage through that.

And I think we’re really well positioned despite COVID, despite Ukraine to continue the recovery that we’re seeing. And as I said in Q2 and where we’re stepping into Q1, that looks like it’s continuing to play out for us as well.

As far as focus, as I said earlier, we really do remain very focused on maintaining our gross margin at historical levels. And really, with all the levers that we have around promotion and discounting pricing increases to mitigate cost, inflationary costs, shipping challenges and the cost of freight, which has been dramatically increased, but our teams have been able to work through this, and we continue to work very closely with our suppliers to manage those pressures.

And I have a good degree of confidence that we will continue to maintain our gross margin our teams well across the globe at historic levels. As Reza said, we do intend to increase marketing spend, we’re stepping into the year careful.

So we’re spending at about the same levels at the start of the year as we were at the end of 2021. But I do have an ambition to increase.

And as we see recovery pick up in Q2 and particularly Q3 and Q4 you should expect that we will be bringing this back to historic levels. And I think it’s the right moment to do that where we’ve stayed very disciplined as we see recovery, we’re ready to lean in here as well.

And so you’ll see that. But with that said, we remain highly disciplined on expense management on our SG&A and our fixed SG&A.

And because of uncertainties and outlook and the ongoing, it means we keep our guard up and that’s what our teams are doing. We are making select investments in core functions, we’re pushing, as you’d expect, e-commerce and our teams there and really making sure that we are set up for opportunities are to capture but against a really disciplined team and cost structure.

And we will make some investments in CapEx, as Reza said, we’ve started to make an improved decisions on expanding production capacity in our new plant in India. We’ve also started to purchase new equipment in Europe as we see demand growing.

And so we are moving forward here, but we will be managed very closely as said and we want to get back to historic levels this year, but we should expect CapEx in the back half of the year to start to creep up from a very tight CapEx spend for the last 2 years. We’re ending in a very lean inventory position, really driven by two things.

Demand has been really strong in the U.S., Europe, Latin America, really starting to pick up in Asia. And so as we are bringing goods in, the goods are selling through very quickly.

But we’re also seeing real constraints on shipping in freight. Generally, our suppliers are okay.

The recent kind of lockdowns in China, we’re watching closely within our production capacity. But we’re ordered so far forward.

As I said, in most regions, we’re 9 months plus orders, and it’s really a function of navigating through the supply chain challenges and we will build inventory, but there’ll be some delays. And we’re seeing some of that as we step into Q1 and Q2.

And but that will catch up and we should be well positioned and we should be well positioned ahead of our competitors as well, and our teams are really leading forward. And we really – I often and this way, but we really do have amazing brands, coupled with the best team in the industry.

The team in this organization across any function you could list, in my view, are the best in the industry. And our ongoing commitment to sustainability, innovation, new product development and will really help strengthen our long-term market position.

I have zero doubt on that as travel recovers, pre-COVID levels, which we will see play out for the rest of the year. And then as Reza said, we are in good control of our balance sheet.

We have meaningful liquidity. We’re generating cash.

We’re reducing net debt as we move forward. We started to repay some debt.

And I think we’re sitting exactly where we need to with the balance sheet to navigate the business through what’s left to go on the recovery. So with that, William, I think we can open it up to questions.

I’ll turn it back to you.

Sounds good. Great.

Thank you, Kyle and Reza. And operator, we can start taking questions.

Hi, there. Congrats, gentlemen, on the great results, notably on cash and operating leverage quite impressive.

I’m just wondering if you can tell us a bit about how you see the full year developing, obviously a lot of moving parts. I think you implied that we could see a level of 15% to 20% below 19% this year.

But how are you seeing trading so far? And how do you see the differences quarter by quarter, I think you implied that the back half would probably be stronger.

So that’s my first question. Second question would be around how do you think about oil prices and oil derivatives?

And how does that impact your cost base? And how are you offsetting that eventually with price increases?

And then lastly, you exited last year with a pretty phenomenal high-teen adjusted EBITDA margin. I think you mentioned last time that you could hope for mid-teen margin this year in ‘22?

Are you still comfortable with around the 15% level or should we hope for a higher Q4 type margin for this year? Thank you.

Okay. Great.

Thanks, Erwan, and thanks for the compliment. We are pretty happy with the numbers as you can tell.

So full year development what we’re seeing at the start of the year, is a trend that’s slightly better than what we saw in Q4. So we’re running down in the kind of 27% range, I think, is where we will be January had a little bit of a stutter step with Omicron as you could expect, but then we’ve seen February and March improve.

And so exiting Q1, I think we will be down roughly 25% kind of trend. That will improve in Q2, for sure, and really Q3 and Q4.

And so if you think about where I am at the start of the year with a slightly improving trend, and I think we will be somewhere in this kind of down 15% to 18%, I think the code of where I’m thinking. You can kind of do the math on the recovery with clearly a step-up in Q2, but still kind of constrained.

And then as we get to Q3, Q4, as we went through the regions, it’s clear that you need Asia to move a bit more to start to get to those levels. And I think, as I said Asia will be a long call.

But I’m starting to look and watch it markets in Asia. But China aside, we’re seeing markets open.

Our teams are now able to travel with in Asia. And so I think that’s really good indicator of the lag effect of Asia.

I think North America will continue a really strong trend. I think Europe will have a very strong summer travel trend.

And I think we are well positioned in Latin America, as we said, is performing really well. So if you blend that all together, maybe we’re fairly cautious guys.

I think that’s where we will end up. Could we be a tad bit better?

Yes, but there is enough uncertainty around us that we want to be cautious. As far as oil prices go, we’re watching this, right?

There is been tremendous pressure across the board, I would say, in ‘20 and particularly in ‘21 on costs for the business and our ability to manage all of that and deliver margins at historic levels to exit the year. And really, Q1 is trending right in line with our historic gross margin level.

So we’re managing quite well. I do think oil will have its impact.

But as you remember, maybe from past discussions, the material component of our costs are meaningful, but not a tremendous percentage of the mix. It’s often labor and freight and everything else that goes along with it.

And we will be able to pass on pricing. So we will be watching that closely.

There is a lag effect of that. So it takes a bit of time.

The other pieces were ordered pretty Erwin, so you get the benefit of forward ordering on pricing, but we will be watching because if the pressures come in strong, we will have to work with our supplanting and think through that. But I think we will manage well, and I think there will be increases on the offset, I think there’ll be moments where shipping will correct itself.

So I think the blend of it will allow us to navigate that just well. And then adjusted EBITDA margin, I have full confidence in mid-teens.

Maybe a tad better is the way to think about it. I would caution in Q4 of this year, it’s very high 19% but the gross margin was a little bit high as well.

We had some inventory adjustments, reserve adjustments that slightly inflated. That’s why that margin is – gross margin looks a little high, like 58%, but the underlying number is probably more like 56.5%.

So it’s a strong end of the margin – gross margin. And that’s why you see Q1 kind of in that 55% zip code, which is the right place for it to be.

Blend that all together, we’ve exited very strong in Q4, blended second half of the year if you use that as some indicator, Erwan, was 16.3%. And so it’s up quite well.

As you know, our Q1 be a bit lower because of just the sales volume in Q1, but we’re seeing a really strong carry through in our Q1 numbers of this year. So I think we’re set up for a story that clearly delivers mid-teens for the year.

And maybe a tad better, and we remain very disciplined on what we’re managing. So I think we’re really in control of managing to that number.

Erwan, just a couple of points and then just to add to that for color. So FOBs, I think the point that Kyle made is very important that depending on which region, like the North America business is fully ordered out to the end of the year, and so we have locked in those FOB prices.

If we were to go out today and be ordering, you’re about 3% or thereabouts higher so far just to directionally give you a sense for it. But that’s the portion of it.

It’s the freight rate that we’re very focused on. And freight rate this is not getting worse so far, but it hasn’t exactly improved that much either.

So – and all of that has been managed. The North America business creases is basically managed the gross margin remarkably well.

And so that’s been passed on.

Yes, one of our advantages is our scale advantage to manage this. So if you can imagine our competitors are in maybe a bit of a tougher spot.

And so this is where scale does matter in our ability to manage our win and it’s showing up in our numbers.

Great. Thanks a lot for the color.

And best of luck.

Thanks, Erwan.

Hi, thank you. Thank you, management for taking my questions.

So my first question is about our latest development trend. Actually, it’s very exciting to hear that we are still seeing improving trends, although there are so many moving parts.

So just would like to check like even in March, we don’t see any negative impact, particularly in European markets from the Ukraine crisis, is that correct? So this is first.

And the second is on the GP margin. So, excluding the one-off inflation in Q4, the 56.5% is still a very high level compared with the previous quarters, even before COVID.

So, what do you think is the key impact here or a key difference between current – between what we did in Q4 last year and pre-COVID? And also, I mean talking about the – is this because of the price hike we did in last year – so in this year, if we see increasing challenges from the raw materials, do we have any chance to do the incremental price hike?

So, this is my second question. My third question – sorry, my second question is also related to the OEM part in China.

So, we have been talking about the OEM shifted from China to outside China. So, just I would like to check the latest percentage from China.

My third question is about our balance sheet. So, do we plan to continuously pay down the debt in the upcoming quarters?

So, what is the interest cost to – I mean considering our initiatives? Thank you.

Okay. One I think for sure, Reza, can take the last one.

So, our trends, as I said earlier in Q4, is running a bit better than what we saw – I mean in Q1 is running a bit better than Q4. We saw a blip in January and this was really Omicron and so our January numbers were softer.

Some of that also had to do with timing of shipping. So, we are seeing heavy shipping delays in – at the end of the year, which carried into January that caught up a bit in February.

But I would tell you, our March exit trend is roughly looks like it’s going to be down 25%, 26% for March, okay. And that’s a kind of improving trend when you consider January was down kind of in the low-30s with the Omicron blip that we saw.

So, the trend continues. And I do think even in Europe other than the impact of maybe our Russia-Ukraine business, the rest of Europe continues to trend in a good way, as I have said and I gave you an indication of the trend versus Q4.

So, I think the trends are okay. We really do think this kind of propensity for travel were coming into effectively the quarter that carries into the summer holiday season.

So, I think we will see a building story in Q2. Our historic numbers, our Q2 are good numbers and I think the only hold back for us will be shipping challenges.

And so we are seeing some of that even in the numbers I talked about in Q1 from the back of shipping challenges. Those numbers would have been better through that for some delays in goods coming in.

So, I think the trends are looking just fine. And knock on wood, I think they will continue.

And I do think people’s desire and propensity to travel will continue to drive the business forward despite some of these uncertainties, there are uncertainties in the marketplace. But we are able to navigate them is what it looks like to me, and I don’t see it going out.

We will watch. I paint that picture of uncertainties because the whole world is watching to see things like Ukraine and if there is spillover or whatever.

But from what we can see today, what we are managing, we feel very comfortable with that. As far as gross margin goes, Q4 was very high at 56.5% adjust for reserves.

And really the reason the reserves are adjusting is because the sell-through is so strong, even products that we had put reserves against, we have been selling. And so you get the benefit of effectively reversing that.

But the right way to think about gross margin going forward is roughly 55%. That’s what we are seeing comfortably at the start of the year.

That’s where the ton of work the teams have done an amazing amount of work. We will be watching for pricing and taking action and I do think we are able to take action against the market.

Again, the whole industry will feel that if there are impacts. But you should expect to deliver historic gross margin for the year with a lot of effort from the team.

But we have clearly shown off of ‘21, we know how to do that. As far as kind of shift from China, really the shift from China is a U.S.

phenomenon, and we have made tremendous progress here. I think it’s – it went from kind of 95% to something like 15%.

Yes, 15% for the U.S. or from China.

So, it’s really an amazing journey that Moss and the team here in the U.S. have taken over the last few years.

But it’s not that China is not important. We are still sourcing to Europe from China, within Asia from China and we are watching it very closely.

And so more recently, we are watching kind of shutdowns or lockdowns in some of our plants were affected there. But the view there is, those will be temporary.

We are dealing with those over the last 18 months already and they are temporary and come back. So – but we have made tremendous progress on the U.S.

As I said earlier, we need GSP to renew in the U.S. and that will have a benefit to our business as far as a retro reversal, and it will also allow us to take some pressure off on the pricing because GSP will kind of carry through the U.S.

business as well, so that we are expecting to renew as well sometime this year. And then on the balance sheet, I will turn to Reza.

Yes. So, as it relates to the balance sheet, as we generate cash, obviously, the use of that is really to repay debt.

We have been hyper focused on liquidity levels. When we are looking at $1.5 billion, obviously, we feel really good about that.

So, I think you should expect us to take some of that cash and repay that over the course of the year. Every time we say that, though there was some sort of pocket of uncertainty that pops up, so we were a little bit gun-shy about it.

So, there has been some negative carry as it relates to that. But Kyle and I have discussions about this regularly.

I mean $1.5 billion, I think it’s fair to assume that over the course of the year, we will whittle that down something to get back with the normalized levels for us, which is $1.1 billion, $1.2 billion there about, over the course of kind of the summer months. But we monitor it because every time we finish a quarter and we generated even more cash and liquidity levels paid up, it just only makes sense for us to do that.

But there isn’t – I know one of the questions that oftentimes comes up is with this amount of liquidity are you going to be acquisitive and other things. Right now, the focus is debt repayment and maintaining very disciplined in terms of our credit profile.

Thank you very much. So, just a quick follow-up on the GP margin side so if we still see more incremental raw material cost pressure, do we plan to raise the price further or do we have any chance?

We plan to maintain our gross margin at historic levels. So, that will be a combination of actions, working with our suppliers, maybe some pricing action if it’s offset by other benefits that we might see.

But if we need to, we will, and we will maintain the margins at this historical level. That’s really the directive for the team.

And that’s what we were directed to do this year. We are working very closely this year to get to where we got to as a team.

And I have really high confidence that we will be able to continue to manage at the historic gross margin level. With all the tools in the kit, it’s not just a pricing action.

Got it. Thank you very much…

Thank you.

Great. Thank you very much.

And at this point, we have a couple of questions from investors online. The first one is on, are there any more concrete guidance about CapEx for 2022?

I think we are going to be somewhere in the $50 million to $70 million range for the full year, William. We are managing it very closely.

We are starting cautiously to start the year. So, I think you will see in Q1, the lowered number, but we have made some commitments for equipment purchases, and I think we will start to do some store refits in the back half of the year.

So, I think we will end up somewhere in that zip code William, probably still well short of kind of the $100 million, $110 million historic level.

Thank you. The second question, how much of our temporary cost savings are going to go away in ‘22 did we expect?

I think, we are still seeing a little bit as we trickle into Q1, William. But I think by the time you get to Q2 and the back half of the year, the temporary will fall off.

And I think that’s why we always focus on what we think are the real permanent fixed cost savings, which are a little north of $200 million, and we can – we have good visibility to those. I think we are well in control with those.

I think that’s the way to think about it. You will see a little bit of SG&A benefit above that as we start the year in Q1 that will start to wane off towards the back half of the year.

There is only so long, we will be able again things like reductions or maybe some compensation benefits in certain markets, but they are largely kind of wrapping up as we step into Q2.

Okay. The last question, when are we going to start looking at paying a dividend again?

Well, that’s probably a longer term question, not this year, guys. I think this year we will be focused on leverage liquidity.

I think as we get back to historic EBITDA levels, and we can get the debt kind of repositioned, I think we will get there. So, I think a very good chance we could think about it in ‘23, but I would really like to get our leverage profile in the right place while we get the business fully recovered.

So, I know that’s not crystal clear, but I think what is clear is the ability for this business to generate cash and get back to kind of historic if not slightly better than historic cash generation with a higher operating margin, we should be able to get to that. But I think the priority for us would be solid footing and move our leverage profile, ideally 2x or less is probably the right place to be before I think the Board might consider that.

But I don’t think we are so far away from that a handful of years away, a couple of years away, I think William.

Thank you very much, Kyle. And operator, let’s get back to the callers sitting in line.

Thank you.

Hey. Thanks for taking my questions.

First question is regarding the GP margin. So, I think management talked about that for the North America market is almost fully ordered out for the full year, so could you provide some update for other regions?

And if you will guess that based on your projection, you need to sort of aggressively reduce the promotion or increase the ASP, because of the cost inflation and what quarter that would be. I am just a little concerned about that you just finished increasing ASP by like 7% to 10% in end of the third quarter.

If you just need to raise the price again, I am not sure if your demand will get affected. So, that’s the first question.

The second question regarding the supply chain. Just could you please provide a little more sort of underground information about what’s sort of the challenge in the supply chain is still short of the cargo, or is the port congestion still very bad in the U.S.

and the freight costs continue to go high or some of the colors that will help? In terms of the production, I would like to know that the China.

So, I still want to know in terms of for the whole group, not just to the U.S. market, but for the whole group, what kind of like sourcing breakdown for the group now, like China account for, how much India and our own factories in Europe, so sort of trying to get a sense about it.

And I guess lastly is about just in case if there is some of the uncertainty, either from the top line or from GP margin this year. From the SG&A perspective, like how much flexibility that management has to strike this mid-teens EBITDA margin?

Thank you very much.

Why don’t I start off Dustin, and then Kyle, please chime in as we go. So, GP margin, I think I got most of your questions written down, but if I missed anything coming out.

GP margin for the other regions, so we covered North America. The one thing that you should just know about North America is just the GSP renewal has about a 70 basis point impact on the GP margin of the group.

But be aware that if that comes back, obviously, the North America businesses largely hold there, so a lot of that our wholesale customers would ask for as well. So that lever, when we talk about the North America business, it is very price driven in terms of trying to make sure that the price increases have compensated for that.

The GP margin in all of the regions has been improving overall. The one thing that I would just highlight for you is if I am looking at Asia specifically, there is a question around country mix and what’s happening.

So, I will give you one example of India. Because India historically has had a different margin profile because of the present brands that we sell in India versus some of the other regions, that mix and the fact that India is performing versus Japan and Korea that have been largely shutdown.

All of a sudden, you start to see a GP margin that the average of it starts to shift because of which markets are performing and which are closed. So that could only get better – that should only improve over time because, if anything, the more the world opens, the more you get back to a historical level of the normal mix that you have in terms of the different brands and in different countries that are performing.

So, that will help us over time. You asked about price increases.

Most, if not all of the price increases have already gone through. There is a little bit left, specifically in certain markets in Asia, but most of those were done Q3, Q4 of last year.

And so all of that has been in and there has been a negligible if zero impact on demand. And again, I will just anecdotally tell you, if you think about most of our products, if you are looking at travel products, it’s not like you are going into a store every year or every quarter to buy a piece of luggage.

And so – and in an inflationary environment where everything is more expensive, consumers will show up to a store and they will take whatever is available. And if that product, it was normally a $199 price point and now the only one on the shelf that’s available is $249, they take the $249 bag because that’s what’s available.

And frankly, most consumers won’t even remember what it cost last time they were there to buy a bag. So, long-winded way to basically saying, if you are thinking about price demand, that relationship, we haven’t seen a drop off in demand due to the price increases, which I think is great, and that’s what’s helped our gross margin overall.

As it relates to the supply chain, look, there is definitely port congestion. So, if you are thinking about the regions that are impacted the most.

Initially, I would say North America, especially if you are thinking about Los Angeles and that port, which actually recently just went finally to 24 hours of operation. But before that, there is definitely a backlog there.

And I can tell you, sitting here in Q1, and if I am looking at February results, there are still sales that were supposed to happen in February that have shifted to March because we couldn’t get the ships offload in the month. Latin America has a strong back-to-school season.

We were very nervous whether all of those back packs would actually end up getting delivered on time due to congestion. The good news is they actually managed to get them all off, met the back-to-school season had a great start to the year as a result.

So, it is very much a little bit just in time right now, which is not the way that we love it, but at least thankfully, things are still moving. But the problem with that is we are not able to do the replenishment into the channel that we really want to.

As soon as things arise, we are basically selling through and delivering it to the customers.

It’s one of the upsides to be honest with you, Dustin, is that we have – there will be a moment where we are able to replenish and we think about our wholesale customers looking to replenish – and so I think that’s to come here. And we are probably thinking that would have been Q1 and Q2.

I am hopeful in the back half of Q2 we are going to get to that. So, some upside because what we are doing today is really just selling through – so there will be a moment where it catches up and that will carry into our numbers on the wholesale side.

As it relates to production, so we typically are on a factory do about 12% to 15% of our own production here in Europe and in India. So, we have the three plants.

We have Belgium, Hungary and then India. What I can tell you is some of the CapEx that we were talking about, we have increased the capacity of the India plant specifically, so we have added some additional warehouse capacity and some additional lines there to try to be able to boost production there.

But generally speaking, so we are doing about 15% for ourselves. The remainder is various countries mostly in Asia.

In terms of the mix of it, it varies by brands. And honestly, depending on what’s open.

All I will tell you is it’s the same partners that we have historically used. So, even to the extent that was the earlier question from Luzi.

But basically, to the extent that we have been shifting production to Indonesia, it’s the same people that we are working with. And so right now, just given what’s happening in terms of supply chain in China, what we are trying to do is, I will give you Tumi as an example, which isn’t necessarily in China.

We are trying to source factories that have capacity to be able to boost it in order to meet the supply – the demand that we have on our side. So, production generally is within Asia, various countries.

If GSP renewal happens, obviously, that will help us. And if you are thinking about different countries that were looking to do more in, Indonesia is one example, Thailand, we are looking to do more in, but obviously there is a ton of capacity that’s available.

The good news about being the top producer is to the extent lines are available, they typically are offered to us first or they end up kicking somebody else out in order to accommodate us. So, that’s the good news.

It impacts the entire industry, but us a little bit less so, but we also have more production demand. So, that’s there.

You also asked about SG&A. Look, we always have levers.

The biggest one is advertising. So, we are talking about boosting advertising.

If we were to have some headwinds, that would be the first thing that we now back on. You have seen that we are not shy about being aggressive when we need to be, but I don’t think that’s the environment that we are in anymore.

I think we are managing SG&A at the same levels, Dustin. So, we are managing closely.

There is not a big aha in SG&A because our teams have delivered on that. But I think Reza is right, advertising is probably one of the levers.

But I don’t think we will have to go there for managing closely at the start of the year. We will only throttle forward when we clearly see the recovery happening.

So, we will be able to manage that with discipline as well. So – but on the SG&A side, we have clearly managed and we continue to manage that very close to the best.

Thank you so much. Just to follow-up on the GP margin, the price increase.

So, you previously mentioned that for the North American market, I think you ordered for the full year of the products for the North America. So, even the cost inflation hits, you then probably wouldn’t affect the, I guess the GP margin for North America.

So, I just wonder what’s the situation for the other region, do you also order well ahead for other?

Yes or at least nine months for the whole business forward. It’s not a perfectly linear line, Dustin, because if there is real inflation our suppliers and partners.

And so we work with them, but it helps us manage that. And so again, I think we are in well – we are in very good control of where we are on the margin side.

And you can see the progression we made. We have actually stepped out of ‘19, maybe even a little ahead of where we thought we would be, and so I have geared up.

But as I said in my presentation, this team is working very hard. There isn’t a moment that our sourcing teams aren’t paying attention to all of the moving pieces.

So, that’s always been one of our strengths. If you look at the history of our company, take out 2020, we have the ability to manage margins kind of in the ZIP code that we need them to be to deliver.

And that’s no different today. Probably the most turbulent moments of the world where kind of in the last 15 months, and here we are kind of back to historic levels.

So, I think I have a high degree of confidence in our ability to manage that, Dustin.

So, is that fair to say that for the first nine months of this year, unless there is a dramatic change in retail environment, actually, company GP margin is pretty much safe? And then if we need to reduce the promotion or increase the prices again, that’s probably the task for like fourth quarter of this year?

Yes. But just realize there is seasonality.

So, don’t expect the Q4 GP margin to be the Q1 GP margin. I mean obviously, look historically with the seasonality of what the business is, if you are trying to model it out, yes.

I agree with what you say in Dustin, but the world is in a different place today. We have seen shipping costs up 3x historic levels.

That’s all sorting out. It’s much more fluid than what it’s been in the past.

So, it’s not as simple as just saying we have it in the bag. But what I am telling you is we are very actively working it.

And I have this tremendous confidence level in our teams to deliver on that. So – but, I don’t want to try to paint some picture that it’s just in the bag.

There is work every day on this front, but we have got it. We have the best suppliers.

The relationships are tremendously strong. We work very, very closely with them on the pressures across the board.

It’s not a vacuum. So, I don’t want to give you an answer that oversimplifies the question you just – or the statement you just made.

It’s real work, but we are going to do the work.

Great. That’s very good to hear.

Thank you so much. Thank you.

Hi. Thank you, Kyle and Reza.

A couple of questions here. Could you share with us what is the current operating environment, or I mean in terms of like how competitive are we gaining market share in different areas?

Maybe like some highlights on this part. Secondly, on the cost structure, which show us the cost structure for example, how much of it’s from the raw material, like that is all related?

How much is the freight cost and the others? Lastly, I would like to add – just to clarify, in terms of the quarterly sales target that you mentioned at the beginning of this call, that – so first quarter, you expect that it will be around like 25% of year 2019’s level.

Is that correct that for the next few quarters, you are expecting about like 15% to 18% down versus year 2019? Thank you very much.

Okay. From a market share perspective, I think we have real opportunities as I said in my presentation.

So, I won’t get so specific. But if you can imagine scale and the ability to have products to put on the floor against the tremendous pressures that are out there, we are clearly winning on that front.

And so I think we will continue to have opportunity to gain share. I think the real trick is gain share and maintain it as we get to the end of the year and into next year, and our teams are very focused on that.

So, I would say, scale matters, and we are leveraging that scale against an amazing assortment of products. This is a company that continues to innovate and we are launching products, and we are launching with new products against the marketplace that you won’t see as much of that for sure.

And so I really am highly confident in our ability to gain share our teams are. And I think you will really see that play out because it’s modeled today, but it will really play out back half of the year into next year.

As far as cost structure, I think maybe I wll have William follow-up with you because we don’t have the level of detail that you probably want there. So, let us get back to you on that.

So, William if you could take that for me, but I just don’t have it in front of me. So, I don’t want to just kind of arbitrarily give you percentages, but we can get that because it’s not right in front of us.

And I think did you have one other question?

Quarterly sales.

On quarterly sales, so again, the guidance I have said is we will be somewhere down 15% to 20% for the full year. I gave you an indication for Q1.

And we think it will continue to kind of sequentially get better. If you do the math, there is a real opportunity.

We can be a bit better than that. But as I have said earlier, we are cautious guys.

And I think with everything around us, that’s the range that I would have for the full year, knowing that we have got an improving trend. In Q1, and just to clarify, Q1, somewhere down 26%, 27%, I think with a little bit of tailwind, it can be 25%.

But it’s a bit better than what we saw for Q4 with a stutter step in January, as I said for Omicron. So, we are seeing an improving trend into March for sure.

So – but I will let you kind of map out an improving trend, because I think you will see a better Q2, a better Q3 and clearly a better Q4. And again, I think it will step into ‘23 probably getting very close to historic levels is the way I would do the math.

And so – but we will see. There is enough uncertainty around the world too.

But I think in that range, I think we have the ability to get to that the teams and our numbers and everything we are seeing would indicate that should be how it plays out.

Okay. Thank you.

Thank you. Good.

So William, thank you. I think any other questions are ready to go?

I think that will be it for today. Thank you very much, everyone, for joining the call.

Thank you, Kyle and Reza, for doing the presentation.

Great. Appreciate it, everybody.

Thank you, as always.

Have a great night or a day. Thank you.

Bye-bye.