Samsonite International S.A.

Thank you very much, operator. Good morning, good afternoon, good evening, everyone.

This is Samsonite's first quarter earning call. Today, we have our CEO, Kyle Gendreau and our CFO, Reza Taleghani with us.

And Mr. Gendreau, will begin with a few opening remarks.

Thank you.

Great. Thanks, William.

Thanks, everyone for joining us. So I am on Page 4 of our results announcement deck.

And our sales recovery and strong profitability has clearly continued into Q1 of 2022. In Q1, our sales improved to down 25.2% versus first quarter of 2019, and that's up from 28% down in Q4, so the trend continues.

Despite rising COVID cases, as we all know, Omicron showed up at the beginning of the quarter and had some impacts and some reinstatement of travel restrictions in certain markets world, particularly in Asia and particularly in China, where we were still recovering despite that. We continue to have some inventory replenishment delays in North America that had some impact to Q1, but that is getting better and we can cover that.

But despite all that, trend continues to improve. And we are seeing that trend continue into Q2.

We saw a very good April. Our April numbers excluding Russia, which we have suspended were down 22% for scale compared to Q1 down 25%.

So we continue to see an improving trend as we step into the quarter. We are seeing some impacts from China as we step into the second quarter and really China’s zero COVID policy has caused April for China to have a meaningful impact and we are seeing that start to improve a bit into May.

Our adjusted EBITDA was very positive, $73 million in Q1, representing an EBITDA margin of 12.8%. That's compared to a year-ago down or a negative 8%.

But more importantly, up 260 basis points to our Q1 2019 EBITDA margin. And it's really a result of all of the cost initiatives and actions we've talked about on several calls now that continue to deliver strong profitability and improved EBITDA margins.

During the first quarter, we invested in working capital, as we said we would, primarily inventory you'd expect we are bringing inventory in and that will continue into Q2 as we position the business for what's looking to be a strong summer travel season and as our recovery continues and will be well set up for the quarter and for the second half of the year. Given our strong profitability and cash flow and as you remember, we had very strong cash flow at the end of last year, we further deleverage.

We repaid $200 million of our debt in the quarter, but still leaving us with meaningful liquidity of approximately $1.4 billion at the end of this quarter. And then our focus on ESG and today we lined up the release of our earnings with the release of our ESG report.

And so we published that this morning as well. And I would say we continue a very strong focus.

We are really excited about the progress we are making. I highly recommend you take a look at our 2021 ESG report, as I said published today.

I think it gives a wonderful picture of the progress we are having in leading the industry on sustainability. If you go to the next page, so our net sales increased 75% compared to a year ago.

And I think that's the best measure as far as recovery on sales. But when we really look at the trend versus 2019 and that's improving for the quarter, as I said, and our EBITDA margin, as I said earlier, was 12.8% in the quarter from a negative 8% a year-ago.

But I think importantly, and I have it on this deck circled at the bottom. You can look at the journey we are against historic pre-COVID EBITDA margins.

So we’re 10.2% in Q1 of last year, I mean, 2019, we are at 12.8%, and that's with sales still $250 million lower than that time period. So as sales recovery continues to come in, you should expect our EBITDA margin will continue to improve over pre-COVID levels, very comfortable.

And moving to Page 6, we wanted to give you a sense, and I think we've shared this slide in the past of what we are seeing by region. And you can see across the page here, all regions are recovering very nicely.

North America, Q1 was down 21% about the same as Q4 of last year, but that's with some inventory delays. And at the notes on the bottom, we sell it out for you.

So our inventory – we think we missed sales in Q1 in North America largely around shipping container delays of around $15 million. So if I had adjusted for that, our North America Q1 would be approximately 16% down versus 21% down for Q4.

So again, continuing improving trend just for scale, our Q2 numbers is looking like it's going to be down for the full quarter in the 15% range for North America. So the trend continues to improve in North America.

In Asia, even with some of the challenges in China with zero COVID, we are really seeing a continuing trend of improvement. So you can see we move from Q4 to Q1 to down 38.6%, and Q2 is looking like – including China having some pressures down 35% and reality is we are seeing Asia open up.

I have a slide on that in a bit in the deck. But we are clearly seeing markets around Asia opening.

I was in Singapore last week with several of our U.S. team and all of our Asian country heads all in Singapore last week to give you a sense for the ability to travel into and around Asia.

And the only person that couldn't be there were our China team because of the challenges of quarantining on the way back. So Asia is really starting to move.

We can see – in our own business, we can see it in our own lives, as we are starting to travel around Asia fairly freely. The Europe trend continues as well.

And as we know from last year, Europe's trend really rapidly started to move as we get to the Q3 of last year, and that trend just continues. You can see Q1 were down 21% versus down 28% in Q4, and our Q2 numbers are into the teen, so down 18%, 19% is what it looks like as of now for Q2 for Europe.

So really a strong continuing trend, despite what we are seeing in Russia, the Rest of Europe is moving and recovering nicely, and we are anticipating a very strong summer travel season. And then Latin America, which is what positive, really at the end of last year, continues to be very strongly positive.

So we saw a very strong Q1 with a very successful back-to-school season. So up 28% to 19%, Q2 is up in the teen.

So it continued into Q2 and Latin America continues to move the needle, not only on sales, but really dramatic profit profile improvements as well for Latin America. So we are quite happy with the progress we are seeing across all of our regions from a sales recovery perspective.

I move to the next page, Page 7, we showed this slide before. So you can see the red line is domestic travel.

You can see domestic travels moved into kind of down 20% to normal. Many markets are in the positive territory and markets within Asia are still lagging a bit, but within North America and Europe, this continues to very strongly improve with domestic travel.

And I think the numbers that are really moving kind of the rest of the recovery is this blue line, which is international travel. And you can see every month other than for January, which is really where Omicron had a moment where that recovery stutter step this trend of international travel really continues to move.

And I think we will see that play out for the rest of the year as well, which will fuel much of the recovery that's coming in the back half of the year for us. And if you go to the next page, it gives a good picture by region and really what I was saying.

So you can see North America, Latin America leading from a recovery perspective, and this is revenue passenger miles or kilometers. You can see Europe really continuing its trend and from about the middle of last year and even strong trend in Q1.

And then Asia Pac or APAC on the bottom improving, but not quite at the same pace, but I do suspect all, but China, you'll see this really start to move into – indefinitely into the back half of the year. And then moving to the next page, really a little more color on Asia than what we are seeing.

So many countries in Asia really have been lifting and easing travel restrictions quite quickly. So again, we were in Singapore last week, it was very easy to get in, very easy to move around.

We're able to get teams together for dinners and drinks, and it was really terrific. And you are seeing very similar trends across Asia.

Our India business is full on. We're seeing our India business up above 2019 levels.

Australia is opening, Thailand is opening and even South Korea and Japan are starting to ease restrictions. So that will fuel a very strong, continued recovery for Asia as we move into Q2 and for sure into the backpack of the year.

China, which is historically our biggest market in the region continues to be following a zero COVID policy. And so as we all know, we can see that it's really delaying travel recovery for China, specifically and for all of Asia.

And it's causing Asia to lag behind, other regions. But I think, if you look at what we are seeing in April and May, and if I exclude China, you're starting to see real movements in recovery in the rest of Asia, starting to get into the down 20s versus we've been for the last several months down kind of mid to upper 30s.

And so really starting to move and I suspect that that trend will continue very strongly. And I do think governments are quickly relaxing travel and other restrictions, and really starting to get this region moving as we have said.

So moving to gross margin just quickly, so this is just a continuation of what we talked about on the last call. So we continue to be managing gross margin very well.

So we had a 54.7% gross margin versus 48.7% last year. That's a little lower than where we were in Q1 of 2019, but that's with GSP not renewed yet.

And in Q1 of 2019, we had GSP in place. So we continue to watch closely, for the GSP renewal in the U.S.

That taking time, I think it will continue to take some time, but despite that, and despite the increases in shipping costs and just general inflation, this team has been able to manage margins effectively back to historic levels, and we continue to be laser focused on maintaining our gross margins and really working with our suppliers and all of our vendors and our shipping contracts in price positioning and discount promotion policy to make sure that we deliver on the gross margin. And I suspect this will continue as we move into second quarter and the back half of the year.

So I'm really happy with everything our teams have done to manage that really well. And then lastly, for me, before I hand it to Reza.

I mentioned we launched, or we published our sixth annual ESG report, really sharing some of the accomplishments that we've achieved in 2021, and really starting to talk about priorities and next phase of our journey, our responsible journey for ESG. Here's some highlights, and we've talked about some of these along the way.

We launched Magnum Eco. This is our most sustainable, fully recycled post-consumer waste bag tremendously successful launch, really an amazing product.

We doubled our share of products with recycled material since 2019. So really a dramatic increase in the number of products that we are adding recycled content to across the board.

We are generating a meaningful amount of renewable energy with solar panels in many of our facilities. And there's more to come here as we continue to expand that.

We've set up a diversity inclusion committees, and really develop very customized regional plans with regional committees, moving the needle on our D&I strategy, and I'm very happy with the progress we are seeing there. We hired a new head of Global Head of Sustainability, who is reporting directly to me [indiscernible].

You can read about him in the ESG report, and I'm really happy with the direction that we have taken as we move into the next stages of our ESG journey. And looking ahead, we'll be very focused on when we talk about priorities for 2022 on ESG, we are starting to develop our circular economy, sustainability product strategy, really understanding all aspects of our product.

We started that in Gregory, we're doing some really amazing work with our European team, and that's starting to work across our whole company here. We are measuring our Scope 3 greenhouse gas emissions, and really starting to expand the measurement that we have in the business.

We are conducting a climate risk assessment, really targeting our business and making sure that we're evaluating all of the climate risks within that are business and what our business might face. And then really, from a governance perspective, this has moved to establish a really comprehensive cross-functional global sustainability committee, which I'm overseeing and sponsoring and [indiscernible] really running.

And it really is allowing us to continue to embrace our – get our entire organization embrace against ESG. And it's really a big piece of strength for our teams and we are quite excited.

So I do ask everybody to take a look at that report. It's a wonderful look into the progress we're making there.

So with that, I'll turn it to Reza and then I'll come back right at the end.

Thank you, Kyle. So we are on Page 13, just to recap the Q1 results.

So we are reporting net sales of $574 million, that on a reported basis is 61.7% improvement over 2021, on a constant currency basis, almost 75% improvement over the prior year. Gross margin at $314 million with a percentage of 54.7%, again, very strong increase year-over-year and the margin percent is in line with the prior quarters that we've had as well.

Adjusted EBITDA, very proud of the fact that the adjusted EBITDA is approaching 2019 levels, so we are reporting $73 million of adjusted EBITDA with a margin that exceeds 2019 at 12.8% and then adjusted net income again, profitability approaching 2019 levels as well. So we are reporting $23 million of adjusted net income, which is very much in line with 2019, which was at $27 million of adjusted net income and a percentage of 4.1%.

Going on to the next page, William, I'll just go through some of the financial highlights before digging in a little bit greater detail. So net sales increased from the prior year by 74.9% to $574 million, gross margin we've talked about and Kyle just mentioned that the 600 basis point improvement over Q1 of 2021, despite the fact that we still have some headwind as it relates to both inflationary pressures, but also GSP not having been renewed in the U.S.

Adjusted EBITDA increased by over $100 million, $102 million from a loss of $28 million in Q1 of last year, flipping to positive territory of $73 million in Q1 of this year and that brings the adjusted EBITDA margin to 12.8%. Going on to the next page.

Part of what's driving that adjusted EBITDA benefit is fixed SG&A expenses for the quarter were $88 million lower than Q1 of 2019. As you may recall, on many of these calls, we've been talking about having a run rate benefit of over $200 million of SG&A benefit due to the cost reductions that we've had, obviously we are running well ahead of that, if you were to simply multiply that 88 by 4.

Over time, there are some – obviously some variable SG&A and other numbers that come in as sales rebound, but we plan on maintaining that SG&A benefit through the remainder of this year and into the future, which is helping our overall margins. We are investing in advertising again, advertising spend increased by $13 million to $24 million.

Although the percentage at 4.2% of sales, there is still more work to be done in terms of further increasing that as the quarters pass for the remainder of this year. Our net debt position, $1.5 billion as of March 31, as Kyle just mentioned, we did have some voluntary debt repayments that we made as we feel more confident about where the stability of the business is and we continue our commitment to delevering the business.

We still have over a $1 billion of cash and cash equivalents on the balance sheet. We feel very strong about our overall liquidity position.

And as the strong recovery and profitability continues, we plan on continuing to monitor our debt levels and plan on bringing that down further as the year goes on as well. The debt repayment that we did, the voluntary $200 million was comprised of $150 million of repayment on our revolving credit facility, thus not impacting our overall liquidity.

If we ever need to borrow again, we can do that. But we also made some permanent debt reductions of $25 million of our Term Loan A and $25 million of our Term Loan B.

The net-net of that is that there's an interest savings of approximately $6 million that will accrue to us for the remainder of the year. As I just mentioned on the next page on Slide 16, significant liquidity of approximately $1.4 billion, our cash burn in the quarter was $58 million, we have said on prior calls that we've actively been trying to build our inventory levels and what was driving that cash burn was really the ability to finally get some stock in and to try to rebuild our inventory position.

We plan on doing that over the subsequent quarters as well. Thus our net working capital increased by $66 million to $265 million as compared to the end of the year, and we keep a very, very disciplined eye towards CapEx which was all of a whopping $6 million in the quarter, as we continue to be very disciplined.

Moving on to Page 17. Kyle has touched on this, so I'll go through this relatively quickly.

Overall sales higher across all regions, North America $215.8 million, Asia at $185.7 million, Europe at $126.5 million and Latin America at $45.3 million. As you can see all of the regions performing very well on a constant currency basis obviously more work to be done in Asia specifically impacted by China.

And we are starting to see that China shutdown still have some effect, as we said in April and May. But we hope that that will recover, but other than that every other region and every other country performing very well for us.

Moving to Slide 18. And again, Kyle, mentioned this a little bit earlier, so just repeating the point really that our adjusted EBITDA margin and material improvement from Q1 of 2019, and even greater improvement compared to Q1 of 2021.

So our adjusted EBITDA margin has increased 12.8%. Obviously, there is some seasonality in the business, as many of you are aware and in Q1, the margin is typically lower than you would see it.

For instance, at a year-end at Q4, but on a quarter-over-quarter basis, I think we feel very good about where our margin stands largely due to the fact that we've taken aggressive, actions on SG&A, but also maintaining a very strong gross margin profile in the quarter. Moving to Slide 19, growth is across all channels.

So the DTC channel has opened up meaningfully as we move into the year as COVID restrictions start to subside in most regions. There's an acceleration in the travel category as there's this bench travel that we've been seeing.

So if you're looking at individual SKUs that have been performing really a lot for Samsonite brand, and American Tourister, the travel product has been performing very well for Tumi non-travel, the one point of note, which Kyle mentioned as it relates to North America, but I think it's what appropriate to mention, and in terms of Tumi overall, there are some supply chain issues that we still have. So these numbers could have been probably even better if we were able to get even more inventory in.

Moving on to the next slide, really the SG&A story remains something that we are very, very proud of. We are continuing to maintain our discipline across all lines of SG&A that includes store openings that includes maintaining headcount, and retaining the cost savings that were implemented over the course of the last couple of years.

So $88 million in terms of fixed SG&A savings, that's just on the fixed line. So if we are looking at Q1 2019, we had $247 million of fixed SG&A that has been reduced to $159.6 million in this quarter.

There is a slight increase as compared to Q1 of 2021. And that's natural because we have some temporary savings that roll off, things that we had either government subsidies or temporary rent savings that we would have negotiated with landlords.

But we do anticipate these fixed SG&A savings staying with us going into the future and rolling into the next year as well. Moving to Slide 21, just a bridge, just to look at the progression of SG&A savings and really what the impact of that.

So if you are looking at where we were Q1 of 2019 from an adjusted EBITDA standpoint, $84.6 million of adjusted EBITDA, there was some FX impact of $7.4 million, if you are looking at it compared to where we are today, but really the largest block of difference year-over-year, if I'm looking at 2019 versus 2022, is that gross profit decrease from the lower sales. Obviously our sales have not recovered to 2019 levels.

Still, we hover anywhere between in the mid-20s depending on what region we are to the 30s, depending on Asia and some countries there. And then there is some slight amount of gross profit decrease from lower margin that $10.4 million.

But that is all more than covered by the aggressive actions on SG&A. So obviously with lower sales, there's some lower variable SG&A.

So there's a $30.4 million pickup on that. But the largest component of it is really that fixed SG&A, so $81.3 million of benefit coming from fixed SG&A reductions, which are permanent savings, as well as some decreased advertising of $24.8 million.

So that would really be the walk to get us from where we were from $84.6 million to $73.2 million. And again, the point really on the margin, I'm going to hammer it one more time, 12.8% on EBITDA margin, which again, as we are starting to see as each dollar of sales comes in, we are covering all of our fixed cost base and we anticipate that margin improving further as well.

Looking at Page 22, the cash burn of $58 million, obviously we have been forecasting this and saying this on many of our earnings calls over the last year, every quarter we were hoping that we would be able to build some inventory stock this quarter, some of the supply chain issues subsided, and we managed to get the stock in. So this cash burn is absolutely healthy for us.

It's something that we anticipated and we were able to finally get some of our warehouses full a little bit, so that we won't be missing as many sales. Again, as we forecast, if we are looking at Q2 and Q3, we do anticipate having some level of cash burn again, as we try to build stocks on inventory.

But we do remain disciplined on all of those uses of cash, including CapEx. Moving to the balance sheet on Slide 23, really the primary story here is more than ample liquidity continues for us liquidity of approximately $1.4 billion.

And this is still after a voluntary debt repayment that we did. Net debt of $1.5 million, decreased by approximately $258 million from March of 2021.

I will actually just a point of note, we did a little bit of a calculation of how much debt we have increased. Basically if we look back at December of 2019, our balance sheet, we had $1.3 billion of debt.

We were looking at June of last year, June of 2021, we had added $511 million of debt and sitting here in March, we've actually decreased that by $292 million. So the net-net of that is if we were to go back 27 months to December of 2019, our net debt position is only about $220 million or $219.4 million to be precise, higher than where we were.

And again, we are continuing to delever and pay down debt as the year continues as well. And on Page 24, working capital, really inventory days, we are at 141 days of inventory days up from 138.

And net working capital days, we're at 52 as compared to 34. Really the point here is just in terms of inventory.

So as compared to December, we had $348 million of inventory in December, we are up to $406 million, there is still more work to be done here. In terms of trying to get inventory stocks up, we are still below March of 2021 inventory levels.

So as we keep harping on the need to basically use some cash to build inventory levels, that's where you are going to be starting to see as some of that cash burn happening in the quarters to be able to replenish those stocks. And just quickly on CapEx, very, very disciplined, $5.8 million of CapEx on CapEx $4.8 of total CapEx plus $1 million on software.

As the course of the year continues and as we especially go into next year, we'll start to get to more normalized operating levels on CapEx. But we are still being very disciplined, in the shorter term.

So with that, I'll turn it over to Kyle for some outlook, and then we can talk again at Q&A.

Okay. Thanks, Reza.

So I think you get a good sense for where we are. For sure, our momentum and financial results from the end of last year into Q1 has continued.

And I think we're really well positioned to grow market share and really at fundamentally higher margins, as we've talked about, so our operating margins are improving. And as Reza said, as every next dollar a sales come in the recovery, you should continue to see that operating margin improving and we are laser focused on it.

We are very focused, as we've said on managing our gross margins through reduced discounting and promotion, pricing, working closely with our suppliers. And this is against the backdrop of tremendous pressure, as everybody knows with inflation costs and product costs.

And really the cost of freight globally is tremendously higher than where it's been, but we've been able to manage this as the market leaders and are setting the pace for the market to be able to maintain our margins in its historical zip code, which is important. As we talked on the last call, we had suspended our Russia business from mid-March, that will start to show up in our numbers ahead, little effect in Q1, but in Q2, you'll start to see that, and we continue to monitor the situation very closely and we will be ready to take further actions as necessary.

So we are monitoring that closely, but you'll start to see the effect of that business, those revenues, not in our numbers as we really move into Q2. From a China COVID policy, we are clearly seeing pressures within Asia, particularly from China and that has carried into Q2 as well.

So probably one of the lowest kind of months of recovery during the entire pandemic for China has happened in April. It's improving in May, but still significantly down.

So despite that the rest of Asia is really starting to move nicely as we've said. And I'm highly optimistic with what we are achieving and I can't wait to go back and visit the teams as now we are able to do that in a much easier way.

And I think agents are ready to travel as well. So moving to the next page, we intend to increase our investments in marketing in 2022.

So we've been managing it very closely. We are around 4.2% for I think, Q2 and year-to-date we are running about that.

You should expect that that will come up in the back half of the year. As we continue to see recovery, we'll start to move this back up to – closer to historic levels, as we can capture the recovery and really capture all the demand that we can capture with well supported brands.

And as Reza covered, we are really proud with what we've been able to achieve on the SG&A side, particularly fixed SG&A. And we really are – all of our teams are focused here very closely on managing this.

We will start to make some select investments in store in classic, or in core strategic initiatives and functions. So we are carefully evaluating and making the investments where you'd expect us to make them, but still being able to deliver on that run rate fixed savings that we've talked about many times.

We are moving on working capital. This is really a function of not just bringing inventory in, but really being ready for the rest of the recovery that's coming here and we are clearly seeing it.

Part of our issues at the end of last year is as we were bringing inventory in, it was selling because the recovery was really accelerating. It's continuing into Q1 and clearly into Q2, we are now able to get ourselves back into good inventory position.

It will take us a few more months to get to where we need to get to, but we are navigating it really well. And each month we are getting stronger on this front as well, which will really allow us to capitalize on all of the recovery as well.

We've made a really concerted effort to get our teams back together. We are largely together around the world, working in some work flexibility for our teams.

I think one of the strengths of this company, and one of the real pieces that you maybe not get in the financial results is the strength of our team and the energy of our teams. And I'm quite excited, we are getting around the world here to see everybody and I'm in Europe next week as well.

And really getting teams back together, getting the energy, moving along with our amazing brands, our focus on sustainability. I really do think we are in a terrific position to continue to drive long-term market share gain as the world gets to pre-COVID levels of travel.

And then lastly, as Reza said, we continue to be in a really strong balance sheet position. We are de-leveraging.

We have a meaningful amount of liquidity. We are really positioned very, very well to get to the end of the recovery here and into positive territory with the business that we are ready to drive and push forward in the back half of the year and what you've been seeing at the start of this year.

So I am quite excited with where we are in the business. So with that, William, we are happy to take the few questions, it would be great.

Thank you, Kyle and Reza for your remarks. Operator, we are now open for Q&A.

Thank you.

Thanks a lot for taking my questions. So first of all, we'd like to clarify some of the numbers that management talk about.

So in terms of the April likely down like about 22%, is that on the basis of excluding Speck and excluding Russia sales? And similarly for the Europe to down about like 18% to 19% in second quarter, is that also on the basis of excluding Russia sales?

And also I think on Asia, Kyle, mentioned number like down like 20% - were down mid-20%. Is that on the basis excluding China?

So just want to clarify some of the number that we talk about?

Yes. So the 22% is excluding Speck and Russia.

And for Europe, it's the same thing, we're excluding Russia, not just to give you a true sense for the underlying growth. Russia numbers aren't so large in the grand scheme of our overall business, but we are taking those out.

And then for the China and for the Asian number that I gave, what I was really indicating is if not for China, I think our Asia business as we step into Q2, would be showing down in the high-20s, 28% or so. And it's really a kind of a stepping point because before that we were really running kind of down in the 30%, 35%, 38%.

So we're seeing meaningful recovery in the rest of Asia. And so that's why I called that out verbally to you, so you can get a sense for rest of Asia moving.

And China, once China really catches up, you'll see the rest of the total Asian number get into that zip code. And it's really important for Asia because as you get in there, you really get the leverage effect of those additional sales off of the cost structures.

You'll see a pretty rapid continuing improvement in profitability for Asia as we start to get into the same zip codes as the rest of the region. So yes, Dustin, you're right on those clarifications and we are excluding those just to give you a sense for that.

Yes. Of course.

That's super helpful. So in that sense, could you sort of provide a little more update on China from both demand side and the supply side in the sense that, not sure if you're able to talk about the sales trend in first quarter and how that compared to what you see in the second quarter to date.

And the supply side, like, for the domestic market perspective, is that a lot of the disruption and as well for China as a big supplier to your global other markets, how does that impact your business or actually is not a lot of impact?

Yes. I think everybody is watching that closely, right.

So just from a trend perspective for China, China, for the most part was in a recovery range of around 75%, right. So let's say running down 30% to 35% probably was the blend for the months leading up to April.

And then April, China went into a pretty deep lockdown. It was the most dramatic reduction in sales in China for us during the entire pandemic down almost 80% to 90%.

But we've since seen that move, so in May, that's looking like somewhere down 65% 70%, and the expectation is as we move into June and July, that will get easier. It's really purely a function of everything was closed.

The stores were closed, the distribution was closed, even e-com orders we had issues shipping because there was no real way for people to move around in China with the lockdowns, particularly the lockdowns within Shanghai, but really across the country. And so it doesn't mean that the demand isn't there, we're clearly seeing demand.

It's just the physical inability to sell, which is why we think as things start to ease up. And I think it will take a few months, but as it starts to ease up, you'll see an improving story for June.

And I think we'll see a much improved story for Q3. But I think China has got a long road until they get to the other side of zero COVID policy that it will continue to be challenging.

But what we had seen pre the April lockdowns is our China business had really got into a zone of performing and moving despite no real international travel in and out of China, clearly moving. And I suspect that we'll get back to that as we get into Q3 and Q4, for sure.

And the real win will be when international travel and the levels of quarantining required to move in and out of China, starts to come down because I think that's very prohibitive for people traveling out of China.

Thank you so much. So to clarify, you said, before the month of April, so it is about like 75% recovery rate right, and April down like 80% to 90%?

Yes. But then we think close.

I think you can see it in any business you're looking at. Of course literally pros – and we're starting to figure out how to ship because we're still getting decent demand on e-commerce, but just physically being able to ship with distribution centers closed, but that's starting to free up a bit, as we got into May and I think it will continue into June and for sure into Q3.

But the worst blip, if you had a chart, the worst flip for the entire pandemic for China was month of April.

So from the supply side is. Yes, sure, please.

Yes. I just want to add one more.

Yes. Go ahead, Reza.

Yes. I just want to say Dustin, just when we're talking on sales that are down in the mid-30s in China, you should just be aware that given the cost structure of the business, it's still delivering EBITDA margins that are close to 15%.

So just be aware of that, you know, we're talking sales, but on the EBITDA side that there has been a reset in that market as well, obviously as the sales, when you're down 80% in sales or whatever for April, that makes a huge difference. But we do expect that to rebound as the quarter progresses as well.

Sorry, Kyle…

Yes. Now we're seeing some of the rebound now.

So on the supply side, Dustin, we're watching China very closely. I think there will be a blip in really throughout the supply chain in China around raw materials and components because as you move around these restrictions and the inability to move things is probably causing a little bit of a blip clearly four or five weeks.

And many of our suppliers free buy materials. So they're able to continue.

Our finished good suppliers continue to move. And we have a significant amount of orders on the way to most of our locations, along with orders, that are in hand with our suppliers that are being produced.

So what we're really watching Dustin is there a ripple that carries into Q3. I think Q2 will be fine.

And everybody's watching does that little ripple cause a slight delay in some of our finished goods producers within China. And it's broader kind because some of those raw materials and components are being used outside of China as well.

But I think we will – because we lean forward so much on ordering on inventory to get ourselves in the position. I think if there is a blip, we'll be able to navigate that fairly well.

If you're just showing up to market to order, that's probably a problem we've been as you know, for the last five months well ahead of this. And so I think we will navigate it, okay.

And we're working very closely with our suppliers and our Tier 2 and Tier 3 suppliers to get a sense for it. And even with lockdowns, many of our finished goods suppliers kept operating because they were able, they were in a bubble that they could keep employees moving and maybe not at full capacity, but continue to produce.

So I think we'll be fine, but we're watching it closely.

Thank you so much. I just have last two questions.

So on the global scale, your business, just on the supply chain, you mentioned that North America business kind of missed like $16 million sales because of that. But on the other side, we also see your inventory level in the end of first quarter actually become higher.

So it looks like underground is a lot more complicated like you have the products, but you can now sort of make the sort of timely shipment. And also in the presentation, you mentioned that you expect to have the overall supply chain disruption will be significantly improved in the second half of this year and what's the assumption behind.

And lastly, if I may is on the cost inflation and the price increase, I think, last call you kind of mentioned that for the 10, 11 month of this year, you guys already order a lot of the products ahead, but if you start to talk about the fourth quarter products or the 2023 products, what kind of FOB inflation we talk about and what's the necessary price increase that we need to do in order to continue to deliver like 55% GP margin for 2023? Thank you very much.

Okay. I'm not going to answer the FOB because the FOB everybody's evaluating.

What you should understand for FOB and pricing is that we are laser focused on maintaining our margins. So whatever tools in our kit that we need to do that, I think we'll be able to do that.

And so I might leave it at that. You should also just remember that we're constantly engineering and producing products.

So products that are coming in at the end of 2022 and what we've got targeted for 2023 have already factored in that. So it's not that it's necessarily a price increase, but we will be delivering product that will deliver the margin that we want.

So I think that's how we'll manage that Dustin and I think we're well positioned with our scale to do that. As far as you comment on inventory's increasing, but us not able to get inventory into hand.

The reality is, that's a very oversimplified view to that because, really a $15 million miss, which is what we saw in North America, isn't that we're not shipping goods that have come in, it's really around certain products to get to certain customers that might have been on a container that was delayed or just sheer capacity for shipping and the amount that we're bringing in to capture the recovery. So it has more to do with timing and container delays as it does in getting the goods in the right hands because many of our customers, particularly in the U.S.

will take orders directly from factory. And they're having the same challenges of just getting enough shipping capacity.

So it's really a function of that. Not that we're having an issue shipping when it arrives here, if anything, the ports in the U.S.

are moving more freely, trucking is moving more freely, every month it's getting better. And so that's not the issue, it's really just around the timing delays of containers, all of which will improve.

Now, I would say Tumi had some capacity issues. So Tumi’s recovery is super strong in the U.S.

and not only do we have some of the shipping challenges, but just production capacity because it's improved. As you saw, it was improving dramatically at the end of last year.

So our actual suppliers are moving full speed to deliver to us. And so that has a little bit more than just shipping.

But even that's starting to catch up now. So as we get into April and for sure in May, our Tumi teams are feeling very excited about the fact that inventory is now starting to show up, where we might have been actually behind on some of the production that's starting to catch up as well and I think will continue to improve over the next few months.

Tumi in some markets are – is already well above 2019 levels, which is why we're chasing it so much on the Tumi side. It's really performing very, very well.

I would just add one of those to that, that some of the inventory numbers that we are talking about, Dustin also include inventory that's in transit. So we have taken ownership, therefore it's inventory, but it's literally on ships coming over as well.

So that's the other thing.

Yes. That's all.

Very helpful. Thank you very much.

Thank you. Thank you, management team.

Actually, like now lots of questions have been answered. Just a couple of things also want to clarify.

Kyle, in some of your earlier comment for North America, did you mention about like second quarter, you expect that the sales will be like 15% of that decline versus year 2019 level. Is it like a good – which is a good improvement?

Does it mean that some of these like delayed or lost in sales because of the shipment delay, this will be able to be filled in the second quarter? So how are we looking at like North America in terms of a pace of the recovery?

And for the full-year, back in March, we were guiding 15% to 20% decline in sales in local currency terms versus year 2019. I think like, that's excluding Speck as well as Russia.

So based on the current trends, do you think that this guidance is a bit conservative, and also like, based on the run rate, in terms of the fixed cost saving run rate that meet teams adjusted EBITDA guidance for the full-year. Do you think that we should be able to get higher than that?

Thank you.

Well, I'm conservative right on my guidance. I think that's a place to be, but with everything in the world's not a steady ship at the moment.

As you know, there's plenty of factors around, inflationary pressures around the world, you have Russia-Ukraine conflict, you’ve got COVID still kind of navigating its way. And so I think there's plenty of uncertainties in the world, but I can tell you from where I sit, I still feel good about our convictions to down 15% to 20% for the year.

And if you look at where we are just at the start of the year, you might draw some conclusions that we can be on the lower end of that range. And I think I feel chance for that, but here we are with China.

And so one of the things we're watching is, when does China start to kind of get out of the little dip that it's in and how fast does that happen. That can impact that.

But I think even with that, we can be in this same range. We've carved Russia out, Russia will be carved out, but it's not such a big piece of the puzzle.

So I'm not so worried about that. So I have good conviction for that range.

And you can decide where on the spectrum you want to be given all of the moving pieces in the world, but for us, it continues. If you look at the travel trends on the slides today I showed you, all of that continues to move.

We've just mentioned that Asia, ex-China is really starting to move differently now all of that will continue to fuel a back half that should look in line with what we're guiding to get into that zip code. And a little bit of tailwind, it can be a little better, a little bit of headwind, I think will still be in that range, which is really why I range the guidance.

On the EBITDA side, I think mid-teens is the right way to think about it. Don't forget we are going to put some money back into advertising.

But I think what you will see is mid-teens for the year, but maybe an exit run rate that's stronger than that. And that we've talked about in the past too.

So at least every incremental dollar sales come in, the margins moving in the right direction. We will put some of it back into the business on advertising, but I think our exit run rate trajectory can be a bit stronger than what I think our full-year expectations can be for the years, which is really what we've always said that this will continue to add operating leverage to the business as I said in my concluding remarks.

So you had a North America question, but I can't remember what it was.

For North America, I think, in your earlier comment regarding second quarter, like…

Yes. So what we're seeing?

Some of the reason it looks the way it does for the second quarter is there are some shifts into the quarter just on the timing of things arriving. We are seeing our e-com business do really well.

We're seeing our, what I would call our domestic retail stores doing well, though traffic’s still down a bit, but all the other metrics are very strong. What hasn't quite happened yet in the U.S.

is our gateway stores. So we have stores that foreign travelers come into and they really like to buy products here from us.

And those still are lagging. They're still down 50% to normal.

Whereas some of our own retail stores are starting to get very close to 2019 levels. And so until those start to move, I think that will be the piece that will fuel the ongoing recovery for North America.

And so I think you'll see an improving trend in the back half. But I think, as of now the bit of improvement you're seeing from Q1 to Q2 is some of the delays that we saw are in Q1 catching up in Q2.

And the demand is still very, very strong across all of our markets, across all of our brands. Wholesale customers really anxious to get inventory.

They're bringing it in, it's turning out as fast as it's going in. So we're really in a chase of making sure that we continue to bring in inventory to capture all of the demand that's in front of us.

And I'll tell you, our teams ordered really well. We are ordered on the inventory side, sort of full-year already with some buffers so that we make sure we don't miss anything.

And so I think that will continue to fuel a good story from North America and the teams are highly energized. We just were with the teams this week for meetings, and it was terrific meetings with our teams, really excited for the recovery that we're seeing.

Got it. And just also another question regarding, like some of the markets, for example, like, India, and also like later, ourselves is already exceeding that of the year 2019 level.

So moving forward on a more normalized basis, what sort of like growth rate we should be expecting from these markets?

Well, I think it will continue. Obviously it won't, once you get past kind of recovery territory, it'll probably settle out, but these are markets that have real opportunity, particularly Latin America, where we're.

So we have so much more penetration in markets like Brazil to achieve, there's no reason why these don't stay into double-digit growth territories. I might throw in the Middle East, which is really booming for us as well.

These are markets that really can be very strong, low double-digit kind of sales numbers on a go forward basis. And we're seeing something much more than that now, obviously.

And so I think our teams are excited. We've been able to gain markets here in the midst of pandemic.

I think that will continue and we're just really well positioned. And we didn't talk a lot on this call because it's a quarterly call, but we have some amazing products coming to market across the globe.

And so not only is it recovery and people resuming to travel, but it's also really amazing products that we continue to produce and launch again in the marketplace. And there's plenty coming in the back half of the year, maybe at the half we'll show you some of that as I usually do at the half or the year end, and there's plenty we're working on for the end of the year and into 2023 that our teams are really, really excited about.

And the launches that we've had have been tremendously successful. We launched Proxis bag, which is made out of Roxkin technology.

That's performing well across the globe. This Magnum Eco has performed very well and I can list 10 other products that are really performing well as we're launching them in the businesses recovering.

So don't underestimate this amazing product story that we continue to drive. And I think we're one step ahead of the industry for sure.

I'd say two steps ahead. So I think that will fuel additional growth for everybody.

Yes. Thank you.

Looking forward to your new products.

Yes. Thank you.

Thank you.

Great. Thank you very much, everyone for taking the time to join the call today.

Thank you, Kyle and Reza for your remarks. With this, we will complete or we will conclude the earnings call today.

Thank you.

Thanks, William. Thanks everyone for joining.