Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite International 2023 first quarter results earnings call. This event is being recorded. I would now like to hand the conference over to Mr. William Yue, Senior Director of Investor Relations. Thank you. Please go ahead, sir.
Thank you, and thank you everyone for taking the time to join the call. Today, we have our CEO, Kyle Gendreau, and CFO, Reza Taleghani, with us. Kyle will begin with a few remarks. Thank you very much.
Great. Thanks, William Yue. Thanks everybody for joining. We're quite excited about our numbers. If you've had a look, you'll understand why. 2023 is off to a tremendous start is how we've defined it. Our Q1 2023 net sales of $852 million is up 57% or over 57% from 2022 and up 18% from 2019.
I think importantly, all regions, including Asia, have surpassed pre-pandemic net sales levels in the first quarter, with building momentum for sure in Asia. Our positive momentum is carrying into Q2. Our April numbers are up close to 16% to 2019. You know, the trends really are continuing across regions.
Our Q1 gross margin came in 330 basis points better than Q1 of 2022 at 58%, a bit ahead of our own expectations. That trend is looking equally, if not slightly stronger in Q2 on the gross margin side. We had a terrific adjusted EBITDA and adjusted EBITDA margin, $156 million of adjusted EBITDA, a margin at 18.4%, I think a record high for us, and really for me represents, as we've been signaling, a fundamental enhanced profit profile of this business off the back of the work we've done during the pandemic. Our adjusted EBITDA is more than double that from the prior year, increasing $83 million. The EBITDA margin versus the prior year is up 560 basis points.
We're investing in advertising. I signaled that on the last call. We invested $50 million in advertising in Q1, more than double what we spent in Q1 of last year. As a percent of sales, that is, sorry about that. As a percent of sales, that is, 5.9%, up from 4.2% in Q1 2022. Importantly, we're guiding our advertising spend for the full year to be at 6.5%. We would've been there for Q1 other than sales coming in, continuing to come in stronger. My expectation for the full year is still be spending at 6.5% advertising.
If I move to the next slide 6, I think we've shown this slide before, but I think this really captures, this enhanced fundamental profit profile change in the business. If you look at the columns to the left, our Q1 sales and EBITDA, $832 million, with $84 million EBITDA. This year, $852 million, so just $20 million higher on sales, but our actual EBITDA up significantly, $156 million. If you look at margin profile on the bottom, Q1 of 2019, we were at 10% EBITDA margin in the quarter. We're 18.4% for the quarter in 2023. Tremendously strong.
If I might adjust that 18.4, if I had my advertising at the 6.5, this would be, you know, in the high 17s, which is what we've been signaling for the business, and we've comfortably achieved that in Q1, is the way to think about it. The next slide really on page seven gives a good historical view of where we've been.
Again, this really shows kind of fundamentally how we've shifted this business. You can clearly see the pandemic windows that we were navigating. When you look at Q1 and really kind of coming out into stride with Asia really starting to move, as we get into Q1, you can see, both on the sales side, I would call it a record number. I'll get to that in a second.
EBITDA, clearly a record number, $156 million at 18.4%. If I adjusted for currency, and I think this is, when I talk about Q1 sales really being at record level. If I adjusted for currency at 2019 currency levels, our Q1 number would've been $939 million in sales, higher than any of the previous quarters we've had. Really a tremendous sales number.
Our EBITDA, if I adjust for currency, would've been closer to $180 million in 2019 terms. Really an amazing story as far as where the business is as it really turns on from a growth perspective. On the next slide, let me show you what's happening by region. I'll also show you what's happening within Asia too, which has been tremendous.
By region, we're seeing real growth across all regions. As we said, Q1, everybody's positive. You can see where we were in Q3 and Q4 of last year. Really, if you go all the way back to the start of 2022, it's totally transformed. Our U.S. business is up on a reported basis 3.6%. If I adjust for eBags, which we've talked about in the past, where we culled our third party brands of eBags during the pandemic, the number is up 10% for North America, so a really healthy start. Some timing of orders has helped North America Q1, so a very strong North America, up 10%. Asia is the most transformative, up 16.5% in the first quarter.
I think importantly, if I read down in the notes below, the month of April is up 23.5%, to give you a sense for the trend we're seeing in Asia. If I adjust for China, which is having a good moment, and Asia is very strong, I'll get to that in a second. Adjusting for China, our April numbers are up 27%, and our Q1 would've been up 24% for Asia. Across Asia, we're really seeing a rapid improvement, with a trend that's continuing into the second quarter. Europe's been tremendously strong all along. Our Q1 number is up 29%. I think importantly, I'd have to adjust for some currency and inflation pressures within Turkey.
If I adjust for that, our Europe numbers are more like 13.5% for Q1 versus Q1 of 2019. Very strong and continuing story in Europe. April will be a little bit softer in Europe, but we consciously are implementing a new warehouse management system. By design, our April numbers will be a little bit lower, and then recovering in May and June. I think for the full quarter, Europe will be fine in the 2nd quarter. This is really around in the investments, the tactical strategic investments we're making within the business to be able to continue to support the growth we're seeing. Latin America had a tremendous 1st quarter.
We had a tremendous back-to-school season in markets like Chile, which are a big piece of that business within a year, up 73%. There's currency in here because of what we're seeing in Argentina. If I adjust for that, our Latin America business is still up 43% Q1 versus 2019.
As you can see across all regions, really, amazing story, all with trends carrying into the second quarter of the year, looking equally as exciting. On the next slide, just to give you a sense what's happening in Asia, and I think I'll start all the way off to the right, which is Asia excluding China. We'll soon not exclude China because China is really catching up very quickly.
You can see the trend from where we were, what we were seeing in Q4, we saw some really rapid improvements. Q1, up 24.4% with momentum continuing. Our April Asia numbers excluding China are up 27% to 2019, so really solid results. If we break down by country or subregions within Asia, it's important to note India continues a great story.
Markets like Japan and Korea, which need some Chinese travelers, particularly Korea, and markets that were a little slow to reopen and are starting to reopen, you can see that they have tremendous room for continued growth. Japan is now +3% for the quarter, but real opportunities for growth. Same for Korea, which is still down double-digit.
As China starts to move, I think we'll see Korea quickly accelerate as well. Southeast Asia has been incredible. Markets like Thailand, Singapore, Malaysia, Philippines, Indonesia, really all moving and continuing to move. Australia very comfortably into double digit territory for Q1.
China is really important. We look at China and we knew China in Q4 of last year was heavily constrained, down 54%. In Q1, we're down 11. If I peel back into Q1, May was up a little over 5%, I think 5.6%. April's up 9.5%. China's real rapid story of recovery is playing out in front of us. Domestic is driving most of that as international is still recovering, but still meaningfully down.
I'd say down kind of still in the 80% plus range as far as international flights and travel. As that fleet comes back on and people really start to move, you'll see, an accelerating story in China for the rest of the year from where we sit. Again, April is up 9.5% for Greater China.
Really, again, tremendous momentum. How that's translating to profit, I think we capture on the next slide. I'm on page 10. Again, you can see fundamentally by region, we see a shift in profit profile of the business. You can see North America at 18.5%. This is both North America, Samsonite, American Tourister, and some of the smaller brands, along with Tumi, which is performing really well.
You have a North America, EBITDA margin at 18%. I would call that record high for North America. Asia is getting back to where they've been, and it's even higher than where they were in Q1 of 2019, so 25%. This is the benefit of Asia really starting to move and move sales levels above on a, on a region that has a higher margin profile generally. I would tell you their advertising a little, is a little bit lower, in Q1 than where it will end up in Q2 forward, and so that's helping that number a bit. Asia's natural place is kind of the low 20% plus, EBITDA margin, and we're seeing that in Q1 for sure. Europe's been a tremendous story.
I think there's room to go on the EBITDA margin in Europe. We're at 16.5% in the quarter. That should continue to approach 18+% from an EBITDA margin perspective. As Europe continues to grow, you'll see us achieve that. As we've shown in the last call, Latin America has really been transformed, and they had a tremendous Q1 EBITDA margin at 17%, helped with the back-to-school business that was very strong. The underlying core business has moved into solid double digit EBITDA margin perspective. Captures kind of a deeper dive into why we're seeing the margin improvement in the business. Demand for travel continues. You know, I think there's real recovery going on on international travel.
I'll show in a second where that is. There's still recovery to go. I think that will continue through the rest of the year. That will fuel future demand for our products. As I just said, the pace of recovery in Asia, I might argue is remarkable, is the term I use here. Really quickly recovering, a little ahead of our expectations. You know, we're guiding for Q1.
We're at the high end of our guidance when we guided from Q1 a handful of weeks ago, and it's really around what's happening in Asia. China domestic travel has picked up significantly in Q1, I would say really approaching historic levels. International travel in China is yet to recover. It's really around pilots and fleets and airline routes coming back, still down 80%, but recovering.
I think every week that passes, you'll see further recovery there as well. I, you know, I think as the world, we're watching the world and watching inflation and recessionary concerns, what we can sense, and I think general market sentiment, not only in our space, but the adjacent space that we're in in travel, it really is travel recovery will continue to be strong.
I think the long-term prospects for us in the travel industry remain very, very high. We're excited about that. On page 12, we've been showing this chart for a while. It really shows kind of where domestic and international passenger miles have been. You can see domestics really starting to approach historic levels, you know, just shy of 2%.
I'd call domestic travel largely across the globe, recovered or ahead, when you look at the markets that are really moving. Domestic's been I mean, the international has really been moving. A lot of what we've seen in the last couple of quarters of our recovery have fueled with this international travel recovery. It's still down as of January, down 23%.
When we think about the rest of the year and the rest to go, there's still recovery to happen, and we're seeing that starting to play out, particularly led by Asia at this point. Very, very strong and more to come is the way I would describe it. On the product side, just a couple more slides for me, and Reza will do a deeper dive on the numbers.
I've signaled this on the last calls. We've continued to innovate all through pandemic. I think a measure that we're quite excited about is the products that we're launching, we were launching at the end of last year, we're launching now, some that are launching in the coming quarters, really have been recognized.
We've won 12 Red Dot awards for innovation on our products. It's across brands, Samsonite, American Tourister. It's across all of our regions. One of our products, which is IBON won two awards, Best of the Best in Innovative Product Award, designed by one of our most senior designers, Eric, in Europe, and really well done. You can see the assortment of products here that are really driving our business.
As we think about recovery, we're capturing recovery. A huge piece of our success is we're capturing it with really amazing products that we continue to innovate and launch within the business. We're quite excited for this. Just lastly for me, we published our ESG report in April. I highly recommend reading it.
I think it, as I've said in the past, it gives a really good lens on who we are as a company and what we're doing on sustainability within our business and within our industry. I'm quite excited, the leadership position that we're taking as far as moving and transforming our industry. On the next slide, I wanted to point out one piece here, which is really helps us continue to drive our story.
Our ESG journey is called Our Responsible Journey. You can see we had a slight change in the way we look at our compass. This is a compass. Really, refining the message, but the topics are exactly the same. We're focused on products, planet, people as real drivers to our sustainability story. As you look at that report, I would guide you to look at that and see how we've positioned it.
It's really the same initiatives, but allows our teams and everybody to really understand where we are. All grounded by a very strong governance program that's part of our full circle of Our Responsible Journey and our ESG strategy. Again, very exciting stuff there. I'd highly recommend taking a look at the report. I will turn it to Reza to do some financial highlights.
Thank you so much, Kyle. We are on page 17 of the presentation. Again, just to recap, really outstanding results for Q1. $852 million of revenues, net sales increasing by 57.4% compared to last year. Gross margin, 58% gross margin percentage. Last year, we were pleased that we were getting back to historical levels at 54.7%.
Despite what we thought might be some inflationary pressures, the teams have been able to adequately mitigate those and 58%, increasing 330 basis points compared to last year, which was already a healthy number. That's rolled into an EBITDA number of $156.4 million. As Kyle said, really approaching the record numbers.
adjusted EBITDA margin increased by 560 basis points, and that's after investing another 170 basis points in advertising as a percentage of sales as well. You know, we invested about $50 million in the quarter in advertising, which was higher than what we did last year. Last year, at the same time, we did about half of that, around $24 million.
We're investing more in advertising than we did in 2019, and our EBITDA is almost double. really great results overall. On slide 18, strong growth from every region, as Kyle just said, particularly Asia. We, we are very heartened that Asia hasn't even fully realized its potential for this year. We definitely think that there's more to do this year.
adjusted EBITDA, 18.4%, despite the investment in advertising, as we said. fixed SG&A expenses, a huge focus, a huge reason why we are delivering these great results, both on EBITDA as well as net income, as we'll see as well. fixed SG&A expenses, 23.5% as a percentage of sale, 430 basis point improvement for Q1, a 6.2% improvement from Q1 2019 overall. On the next slide, as I just mentioned, advertising, we're investing $50 million in advertising. Back in 2019, we did about $47.2 million, which was back in 2019, that was about 5.9% as a percentage of sales. Same percentage. Our desire is to increase this number even further.
Our plan is to get to 6.5% by the end of the year. That does mean that in Q2, we will anticipate a catch-up to basically get back to that level. I anticipate us continuing to invest behind the brands. Our net debt position of a little bit over $1.4 billion, $570 million of cash, ample liquidity overall, that with $2 billion of debt. Continued focus on delevering the balance sheet. As we said at the year-end, we were just around 2.85 turns of leverage at the end of the year. We are now down to 2.5, continuing to delever over the course of the year as we generate strong free cash flow as well.
We feel very, very good about our balance sheet position as well. The other note that I do wanna raise is, we oftentimes are very focused on adjusted EBITDA. I should just also highlight adjusted net income for the quarter. $81.2 million of adjusted net income, you know, compared to last year where we were $23.3 million. Really solid number.
The $81 million, if you go back to 2019, we delivered $27.3 million of net income. Even from a net income standpoint, you know, that flow-through is happening at $81 million of net income for the quarter. On slide 20, strong net sales across all of the regions. Kyle mentioned this, maybe every region delivering.
I think the message here is that we're very proud of the team, we're also recognizing that this is continuing as we see it in April, as we continue to see it in the beginning parts of May. Asia is where we're very optimistic as China reopens, these numbers should continue to improve going forward.
Just to quickly go across the page, constant currency growth, North America 32.3%, Asia 89.4%, Europe 62%, Latin America 33.9% growth compared to last year. On slide 21, a little bit of a bridge bridging from last year's quarter to this year. Again, as you may recall, last Q1 of 2022, we were finally realizing that we were in a good position from a recovery standpoint.
The good news is that recovery has only accelerated. From a sales perspective, you know, we started at $573. There is an FX impact, and we've outlined those currencies there. There's a $38.5 million impact on currency on those sales. It's largely euro and a couple of other currencies from a translation effect. Obviously, we exited Russia, so we no longer are operating there, so there's $7.7 million of impact on that. What you see in all of the green bars is every single region delivering.
In terms of sales, with Asia being the largest component at year-over-year, because obviously Q1 of last year, Asia was still very much impacted by COVID, and now we're pleased to see them finally rebounding as well. On slide 22, net sales growth in D2C also a great story here. If you're looking at it by channel here, we're looking at wholesale, retail and D2C, e-commerce. 62, I'm on the left-hand side of the page here looking at the Q1 2023 number. We're looking at 62% for the e-commerce channel. Up 69.3% in terms of retail. Wholesale also holding its own with 52.3%.
The one comment I will make on wholesale is as you're looking at the U.S. market, as you're looking at the month by month, and especially looking at April, we are starting to see some of the wholesale channel in the U.S. specifically, not in terms of the category performance, but just overall open to buy.
There is a little bit of a slowdown there that we're monitoring, specifically only in the U.S., but across every other channel we feel really, really optimistic in terms of how things are progressing. Obviously, comparison of travel versus non-travel, we see from a non-travel perspective up 40.6%. That travel component really driving great results up almost 70% as well year-over-year.
In terms of looking at the brands, on slide 23, as you can see, every single brand performing, a 57.7% increase from Q1 of last year for Samsonite. Tumi, 66 as well. American Tourister, 48%. The smaller brands, Gregory, Lipault, and all the others doing their part as well. The good news is as Asia opens up, we have the Tumi stores that are in China and in some of the other markets in Asia should help to perform, and that should help our gross margin story as well as we look at Q2 and the rest of the year. Slide 24, we've shown this slide in the past, just specifically looking at the SG&A story.
We have a commitment to maintain the fixed cost structure that we've put into place through the pandemic. The important point here is really looking at it as a percentage of sales. As you can see, Q1 2023, the fixed component of our SG&A is 23.5% as a percentage of sales. That is a further improvement as compared to last year, where we were 27.8%.
The absolute numbers of SG&A, obviously, there's some inflation in wages and other things that are there, and there's some store openings that we're gonna be looking at going forward. As a percentage of sales, our commitment is to maintain these levels and improve them over time. In terms of the balance sheet, very healthy position from a net debt position, $1.4 billion.
We're basically back at pre-pandemic levels, actually even better now. Liquidity of $1.4 billion. Basically our revolver is entirely available to us. We've repaid all of the debt there. Net leverage is 2.5 turns. We anticipate that continuing to improve over the course of the year, but we feel very good about where our balance sheet is.
We are contemplating looking at the capital structure and how we set it for the future as well, and that's something that you should anticipate us looking at over the coming months. In terms of working capital on slide 26, very good inventory levels. As you may recall, Q1 of last year, we were very much chasing inventory, especially as it related to Tumi.
We feel very good in terms of all regions as to where the inventory stock levels are. You, you will see that in terms of working capital, we are continuing to invest in working capital. This quarter, it wasn't an inventory story so much as we basically paid off some of the payables as well.
You know, working capital efficiency is going to continue to trend to historical level by the end of the year as the sales are going to come up over the summer. I think, I think the message here is that we feel very good finally in terms of where we, where we are with inventories, and we're not chasing it anymore. On slide 27, CapEx. We, we remain very disciplined in terms of CapEx.
To be frank, we were actually anticipating this to be a little bit higher because we are really starting to invest in some stores and refurbishment of some of the existing store fleet. You know, you should expect this $9.6 million in the quarter, which is, you know, not that much higher than what we did in Q1 of 2022. As we enter Q2 and Q3, you should anticipate that this will increase back to historical levels because we do have a fleet renewal program that's underway as well. With that, let me turn it over to Kyle to touch on the outlook, and we'll open it for questions.
Okay. Thanks, Reza. Just from an outlook perspective, not that different than the outlook I gave on the last earnings call. With the strong performance in Q1, we're excited about the prospects for the rest of the year. You know, could travel continue to rebound. We see Asia kind of becoming a fundamentally bigger piece of the story and all of this at a fundamentally higher operating margin.
We're quite excited about this. I might, because people typically ask, I think our Q2 numbers are looking fairly similar to Q1. We'll see growth of around 15%-19%. That trending is looking good. I gave you our April numbers, you can get a sense for how I'm guiding. And that's excluding eBags, at which we typically do. Again, Q2 is off to a terrific start.
As I said earlier, I think there are concerns around inflation and recession, but our general view, and we're seeing it clearly in our numbers, is that travel continues to be very strong. I think with a growing profile, the prospects look very strong for us for sure, the rest of the year into next year as well. We're seeing, again, quick recovery in China, in Asia. I think it will continue. I think importantly, as international travel continues its recovery, I expect there's some acceleration in the coming months, particularly within Asia. You can see that in our April numbers.
I think as China really moves from 9.5% up in April to double-digit as the rest of the year moves on, I think that will fuel not only growth within China, within Asia, but I think the rest of the world will start to get the benefit of that as well. Excited there. I do think international markets within Europe and U.S. will continue to grow. I think as flight capacity, it's really around flight capacity and pilot capacity continues to build. I think that's gonna fuel recovery for our industry. We're excited for that. We're very focused on investing in marketing, okay? We were at 5.9% in Q1. You'll see the full year end up around 6.5%.
As Reza said, Q2 will be a little bit higher as regions catch up. It's exactly the right time to be stepping up our advertising as we go into summer travel season in much of the world. 6.5%, I think, will fuel our story and really allow us to continue to accelerate our growth profile. We'll spend well over $200 million in advertising this year. You know, you think about where we've come in the last two years, that will only fuel a great story against a great product offering that we have to talk about. We are and continue to be laser-focused on SG&A and managing our costs. We are making tactical strategic investments within the business in the areas you'd expect us to.
Really this commitment to delivering on SG&A and particularly fixed cost SG&A in the business, our entire team are focused on. I would tell you, the teams are highly energized, and I wanna thank all of our team members for their perseverance off of a couple of really challenging years. More importantly, the excitement they have in the business. As I move around the business and meet with our teams, the energy levels are very high, and we're really geared to drive success in this business across teams, that are well placed across the entire globe for us. Again, thank you very much for those team members that are listening.
Our ongoing commitment to sustainability, innovation, and really the teams around the world really allow us to drive long-term market share gain in our business and really to capitalize on all the growth that we're seeing within our travel space. We're excited there. We have the liquidity, the balance sheet's perfect.
If you can imagine through the entire pandemic, our liquidity stayed exactly in the right place. Now you see our leverage profile coming down. We're below where we were from a net leverage ratio pre-pandemic. As Reza's indicated, you'll see that continue to improve as we move through the year and really approach close to 2 x leverage at the end of the year, which is what we've always been guiding.
We're in a wonderful position there, and we have the liquidity to manage, invest, and navigate this business perfectly. Lastly, we had some questions on this from the last earnings call. We do have an intent to put dividends back in play in 2024. As you know, since our listing, from 2022, I mean 2012, through 2019, we had a dividend program.
We rightly suspended that during pandemic. As we come out and see where we are today, and you can feel it in our Q1 numbers, I think we're in the right position to kinda reinstate that. You know, subject to our dividend and distribution, really distribution policy, we will, we'll be managing that. Our intent is to put that back into play in 2024. With that, William, we'd be happy to take questions from anybody.
Great. Thank you, Kyle and Reza. Operator, can you see who is on the line?
Thank you. Ladies and gentlemen, we will now open for questions. If you'd like to register for a question, please press star one on your telephone. Thank you. Once again, ladies and gentlemen, if you'd like to register for a question, please press star one on your telephone. Thank you. Our first question comes from Justin Wang with Morgan Stanley. Please go ahead. Thank you.
Hey, thanks a lot for taking my questions. I want to start with Europe. Could you elaborate a little more about this warehouse system implementation in April? Is it just a short-term impact on such as a shipment to wholesale customer? Are we still seeing very strong demand, like in the retail channel? If I just look at the first quarter number sales for Europe, you know, I realize that the sales in first quarter this year is actually larger than fourth quarter last year. Seasonally, first quarter in Europe should be a little weaker. Just wondering if there's any local color that you can share with us.
Like what is that still more foreign travelers into Europe or just, like why that Europe continue to be, like, so strong? Other region will sort of also going through this, warehouse system implementation. We should also expect some of the, you know, very short-term hiccup in terms of the sales in the coming quarters.
Okay. On the warehouse management system, it's impacted April. It'll trail into May just a bit, really by the back of May. Just for scale, our April numbers are slightly down to 2019. Still tremendously strong, but slightly down. You'll see, you know, May will be, you know, getting back on track. In June, I think you'll see a lot of that made up.
If you think about where this is, it's largely wholesale customers, and it's not that that demand typically is lost. You will see some acceleration in orders really ahead of the summer travel season. What we're really making sure, Justin, is by the time you get into kind of end of May, June and July, we're delivering on the summer travel season.
I think it's all well in hand. It was well planned. We had anticipated this timing and impact, so we're not tremendously worried about it. There are no other warehouse management system implementations going on. Each, as you know, each region kind of manages that separately.
What it really does when we think about tactical strategic investments, Justin, is it allows our European team to really accelerate its efficiencies within the warehouse so that we can continue to deliver on what is a growing demand story. We've not seen any fall off in demand. We've not seen any fall off in kind of travel. It really is around us managing that. Part of their Q1 is some orders pulled forward, so wholesale customers anticipated. Europe had a very strong Q1.
There was a little bit of order pull into Q1 so that people could navigate, what was gonna happen in April. That's all been well managed by the team as well. I would tell you, Europe, is very strong. The your comment on Q1 being higher than Q4 is really around the trends we're seeing in Europe.
I would argue, I've been to Europe a few times in Q1, clearly there's traffic, clearly there's foreign travelers, but I would argue that the Chinese travelers are not there yet. I would anticipate actually foreign travelers to benefit more, end of Q2 and into Q3, as Asia travelers, particularly Chinese travelers, return to Europe, which I think is definitely coming. I think the trend will continue to be very strong, and the blip is just a blip that we had anticipated on the system.
and Justin, just to give a little bit more granular on that last point. We obviously analyzed the credit card data at some of the stores that we have there in Europe. What you saw initially was if you're going back to this quarter last year, it was first this domestic, and then it was basically the U.S. travelers first, then Middle East travelers. Now you're starting to see some Asia, but very, very little Chinese still. To Kyle Gendreau's point, if you go back historically, you would have had a lot more Chinese.
Yep.
We still anticipate really healthy numbers in Europe as the Chinese travelers go to Europe as well, especially this summer and beyond.
Great. That's great. Thank you. In terms of the sales by channel, the sales in retail and the e-com much faster, not much, but faster than wholesale, is there any, like, indication about the trend, like wholesale are feeling good about their inventory, so they're kind of not pulling in inventory as much, or just simply as a result of the mix shift because now we are seeing like, you know, sales in Asia pick up?
The first point is sales in Asia. Obviously, as Asia starts to rebound, we're much more DTC in Asia as we are wholesale. That mix shift will happen. That's the number one driver of it. There is. I made the comment as it relates to wholesale, and it really is a U.S. wholesale phenomenon, not anywhere else.
There's a little bit of, I'll call it lumpiness. What'll end up happening is there'll be some of the sales will end up getting pulled forward. For instance, some of the sales that we would have normally seen in Q2 are getting shifted to Q1 in the U.S. specifically. The 1 example I'll give you is Amazon is one of our largest wholesale customers in the U.S.
The way Prime Day used to be is, the timing of Prime Day in terms of picking up the orders, now Amazon actually picks up the orders in Asia from us as opposed to waiting for the ship to arrive in the U.S. In terms of booking the sale, the sale gets booked a little bit earlier. As a result of that, there's kind of a quarter-over-quarter differential that ends up happening.
In terms of stock in the wholesale channel, they are running very tight as it relates to department stores in the U.S. specifically. It's not an issue in terms of our categories. If you listen to the earnings calls of the other retailers that are our customers, the category is actually one of the best performing categories. The issue is really having an open to buy overall.
If you're looking at some of the larger wholesale customers, they're trying to maintain their inventory levels because they're being impacted in other categories, and there's a knock-on effect that happens just overall if the entire corporate view is don't buy much this quarter.
Our team's been managing it really well, Justin. What it causes is little bumps. You know, you might have a month that's down and a month that's up because somebody's managing timing. A lot of it's around timing. This category is driving really wonderfully in these stores, and so they're very attuned to that as well. We've been here before when open to buy has become a challenge for wholesalers.
What's clear is demand is still there. It's not a function of demand. It's really just a function of navigating the balance sheets of some of our bigger wholesale customers. That's not a big piece of the percentage driver that you're seeing in our Q1 numbers for wholesale. Wholesale is still up tremendously. What we'll see is the little bumps, between months or between quarters, but all of that is well in control by our U.S. team, with these relationships.
Got it. Thank you.
Yep.
Related to the working capital, indeed, that was the payable days, I think that down a lot and the balance of the payable down a lot. Is that kind of we are in the cycle of we already built up inventory that we like, and then-
Yeah
... looking at the presentation that, you know, inventory number will continue to go down. Now because we're not ordering like more and more products from the factory, so we kind of set out some of the
Yeah
... side of payable. We kind of get cycle.
Yeah. Q1.
Yeah.
Yeah. Q1, you're seeing us, you know, if you really think about the recovery in inventory and the recovery that we achieved really in Q3 and Q4, we have roughly 105 day payable terms. We're paying in Q1, largely what was coming in at the end of last year, and now that will normalize. You know, this is the quarter that you're seeing kind of the payables catch up to the inventory inflow, and then it'll be more balanced going forward. Inventory will trickle down. The order flow will be more consistent now. One of the real strengths is we got ourselves into position really fast.
If you look at how well our sourcing teams executed on shutting inventory as we, and you, and you follow our trends for quarterly recovery last year, you know, from where we were in Q1 and the recovery we saw right up to the end of the year, which was really approaching 19 levels.
Our teams perfectly brought in inventory to match that so that we are not missing any sales as we get into the end of Q3 and Q4. All of that build was perfectly timed, and it's why we're winning and delivering now. You know, it's really well executed. This is all you're really seeing in Q1 is the payables off of what was achieved at the end of last year.
The, the way to think about it, Justin, is from a balance sheet management standpoint, we've essentially at amazing stock levels, and we've already paid for it now.
Yeah.
If anything that should have just a knock on effect for the remainder of the year in terms of the benefit that we'll see.
On the cash flow. Yeah.
On the cash flow.
Yep. Yep.
Got it. Got it. last question for me is about a GP margin. Like, you kind of mentioned that a GP margin in second quarter could be similar to first quarter, if not stronger. It made me wonder-
Yeah
... you know, what's the expectation for the second half? Like, we're going to see a little bit of the volatility of a GP margin like, you know, third quarter, fourth quarter, a little weaker.
Yeah. I think it'll hold in this kind of.
Yeah
... 58 plus range is the way I describe it. We're seeing it naturally buoyed, particularly as Asia moves and Asia's gross margin historically is higher and currently is running a little bit higher than history. The mix effect of Asia will definitely move. All the regions are doing a really amazing job of managing margins at or above historic levels.
Imagine in Asia moving at a faster clip on the recovery for the rest of the year, that'll move margins up a bit. Tumi's continuing to perform well at excellent margins. I wouldn't necessarily change the guidance. I think kind of, you know, 58 +. We feel very comfortable about it is the way I would tell you, Justin Wang. It's we're in a very good position. Shipping costs are dramatically lower. Commodities are lower.
We're seeing some opportunities on the sourcing side. If you imagine what we're selling in Q1 was stuff we paid, that we bought last year. We might have been paying for it now, but we bought it last year. We're, you know, still impacted by freight costs and some of the inflationary costs, and that's kind of settled out for the back half of the year. I think we're in a really good position on the margin side. And the weighting of mix, which is, you know, really you're seeing mix in Q1, and mix will continue to improve, in my opinion.
You could talk yourself up in the margin, but we're pretty cautious guys on margin, so I think we're feeling really confident in that guidance of, you know, 58% + kind of range, which is really above historic levels at this point.
Got it. Thank you so much. That's all my questions.
Great. Thanks, Justin.
Thanks, Justin.
Any other questions?
Yeah. There are a couple of questions from online. The first one.
Okay
... is around the around our store opening plan. What is the store opening for the rest of the year? What are the economics of the store looking like?
Let me take the second part first. The economics for the stores, there's always this question around, you know, wholesale versus store. You have to think about it as the wholesale gross margin is lower. Obviously, the DTC gross margins are higher, then we have SG&A that comes in. When you normalize for those two, the two channels are relatively similar.
Obviously, the store channel is a little bit better overall. The expectation for store openings is we do have a focus in terms of store openings in Asia specifically. The countries of focus would be China, India are two of the major markets, and you have some emerging markets. For instance, in Indonesia, we're starting to have some store openings.
We have taken over from our local distributor, the Tumi distribution rights in Malaysia, Singapore, Australia. Those are gonna be reflected in our own store count as well. There's a push for additional Tumi store openings in Europe as well. I think the overall message on store openings is you should expect us to invest, which is why I'm saying as you think about the fixed cost SG&A in absolute terms, it's gonna be increasing, it's gonna be more than offset in terms of from a percentage standpoint because of the revenues that you're gonna get from that.
Very disciplined because what I think we went through a very arduous exercise of right-sizing the fleet during the pandemic. The approval process in terms of the stores, we're very disciplined in terms of the stores that we look at from an analytical standpoint and trying to make sure that we have profitable store growth that's gonna be coming on.
We aggressively repositioned our store fleet. I would tell you if there's a handful, I'm talking in the single digits of stores that maybe aren't in the right profit profile. That's the level we're at. You know, we took out, you know, 250 + stores and all of our stores, I would tell you, are delivering at this point. The teams are laser focused. We, you saw in Q1, we opened, I think nine stores.
We closed five or six. Don't quote me on these numbers exactly. You know, this is the normal cycle that you would be in in a retail business now. That's the way I would think going forward, that that's kind of the pace that you'll see, with maybe less store closings now and, you know, store openings that are well managed, within a quarter and a year. I think we're well positioned here as well.
Great. Thank you. Second question from online. Can you provide some color around unit sales by different regions, where we are in terms of recovery?
Yeah, we don't disclose it by region, but just overall, we're still running about 15% below 2019 levels in terms of overall unit sales. We ended the year around just a little bit north of 20% below. We are catching up, but there's still room to run. Obviously, the cost increases that we've had have helped.
That's the reason that you hear the optimism in our tone that we still see a lot of recovery happening in overall unit sales. If you look at the overall travel stats that we have in the deck, and if you follow the industry overall, the expectation is that overall travel should actually exceed where it's been at 2019 levels, which should also have an impact on our business. We should actually get back higher.
Yeah. As you exit, I think as you exit 23, units will start to catch up to historic levels. There's still recovery going on, and it matches perfectly the recovery left in the travel industry, as Reza saying, as far as kind of passenger miles, it's really around this international flights that are continuing to recover. The units are trending pretty close to that. I would say we'll exit step into next year at units that are getting back to historic levels as well and continuing to grow.
Thank you, Kyle and Reza. Operator, I think, can you see if there are any anybody else on the line waiting for to ask questions?
Sure. Our next question comes from Yvonne Chow with Nan Fung Trinity. Please go ahead. Thank you.
Hi. Thanks so much for taking my questions. Congratulations on very, very good results. I just have two questions. It's on margin. Following up Justin's question on gross margin. If this year we can do 58%, next year, I think inflation should be coming down further compared to this year. Can we, you know, barring a bad recession, like, can we say 58% is a safe assumption to ask for next year or even more than that? You know, same would apply on the EBIT margin, I guess, will be, will stay structurally higher than competitive pre-COVID, like 70%, 80%? Thanks.
I would say on both fronts, we're doing a really good job of managing margin within regions. Mix effect will probably put some upside pressure on the gross margin side. I think a safe assumption, 58%. I think you'll see as we exit this year, we'll probably be a bit better than that. That's really effects of Asia continuing to move at a faster clip with a very good margin profile.
Tumi, which will really fuel a lot of growth in the next two, three, four years with a higher margin profile, will also pull this up. If you're modeling conservatively, 58%, I think is an okay place to be for us as you step into next year, could be a tad better. EBITDA margin, in my view, fundamentally will continue to grow.
You know, we were guiding EBITDA of 17.5%+ for this year. I think that's still the guidance, but I would tell you that we're really approaching 18%. You know, I think somewhere in the high 17s for the full year on EBITDA margin. If you just model out, assuming the mix effects that we're talking about, with regions or pieces of our business growing at faster clips that have higher margin profiles, and our commitment to managing SG&A expense, fixed SG&A expense, EBITDA has the chance to continue to grow as well. You know, that's really a function if you're doing your own modeling, you'll see that it just naturally happens that way.
Our task is to make sure we manage all of our cost structures and margin. I think what we've shown is a clear ability to do that, not just reset it, but manage that really well on both the gross margin side and for sure on the fixed cost side of this business and the cost structure of this business that will continue to deliver. You know, this is it exactly to my point where I started my presentation, fundamentally enhance margin profile of the business. We're laser focused on delivering on that.
Great. Thanks.
Thank you.
Thank you.
Thank you. Our next question comes from Melissa Hsia with CLSA. Please go ahead. Thank you.
Hi, management. Thanks for taking my questions. Can we have some color on the latest performance by brand, please? I mean, have we been seeing accelerated growth for our brands like American Tourister by second quarter this year to catch up a bit with like Tumi and Samsonite as Asia continues to recover? My second question is that, now that we are on a very good track to score stronger performance ahead, what do you think could still be our key challenges for the rest of this year, and how do we get better prepared for them? Thank you.
Why don't I take the brand one and then, Kyle, if you wanna talk about the challenges. We had it in the deck on slide 23 in terms of the brand performance. What you have to keep in mind is as you're looking at the sales, we just talked about the unit sales. Keep in mind that obviously the price positioning, the unit revenues that you get for Tumi and Samsonite are higher than American Tourister. You know, with the units not fully recovered yet, you're getting a higher sales performance that comes out of Tumi and Samsonite. Those two brands are outperforming as it relates to American Tourister. We fully do expect American Tourister to rebound as well as the units start to come back.
Let's not talk about even rebound. It's still up 50%, almost 50%.
It is.
It's a very strong number.
That's right.
If you look around the globe, what we're seeing is, you know, higher discretionary spend from customers that are spending in this kind of premium and luxury space than what you're seeing lower. If you think about inflationary pressures of the world and those types of things, consumers at the entry level of this market are probably impacted a bit more. That's not us, that's just general sentiment. You know, 50% growth for American Tourister is tremendous actually. I fully agree with Reza. It continues to be a huge success story where the product offering we have is significantly enhanced every single year.
I continue to be really pleasantly surprised at what we continue to achieve with American Tourister, and I think that will continue. And I think as, you know, China continues to recover, that'll fuel American Tourister, and all the regions across the globe are delivering on this. I'm not worried about American Tourister at all. You know, and Samsonite's been super strong, Tumi's strong, and I think everybody's continuing to build momentum, which is terrific. The first challenge is for the rest of the year. You know, it's kind of a funny thought because, you know, we're so well positioned, we're so well-versed in dealing with challenges now.
If you imagine a team and a management team, not Reza and I, but our whole team, that have just navigated almost the impossible when you think about the things that were coming at us. I think the key is we understand our business better. You know, all of our team members really understand the valves and levers. So I think Reza and I's task is to make sure that we don't lose sight of that. So we spend a lot of time with our teams making sure that we're focused on the levers and drivers and things that we need to manage. For me, you know, and I've mentioned a few times, you have kind of recession fears, inflation fears, you know, does that impact travel?
We're not seeing it, nor are we anticipating having it meaningfully impact, what's a continuing recovery story. If there were, we know the levers to manage the business, and so I'm not so worried about that. I'm really comfortable with, the thoughts we've given on the full year performance because we think we can navigate all of that. Our supplier base is very strong. We're managing kind of the flow of orders with our suppliers because we were ordering a lot to get back, and now we're kind of at back and toward normalizing, volumes with our suppliers. Those are really in good, position. Those supplier relationships are terrific. You know, we spent a lot of time with them and it's really been amazing. We're not seeing any impacts on materials.
We're actually seeing, you know, the benefit on the cost side there. I think that will continue. I think shipping position, you know, will continue to be in a good place for us through the year, so we're not so worried there. We're not seeing any real competitive pressures, though competitors are starting to get back into inventory, so we see that, but that's totally fine. Our momentum continues to be tremendously strong as we gain share across the market. I think a year or two ago, you would have had people issues, right? People around getting people back to work and how do you manage the pressure, and there were people kind of trying to manage home and work and all these things. All of that has settled out really well.
I would tell you on the team side and the people side, I think we're really well-placed. In the last handful of calls, I've talked about energized teams because teams and people really matter. A year or two ago, part of our risks and challenges were, are we managing that right? Today, I would tell you, that's not in my radar as well. I think everybody's in exactly the right place, and are excited as I am around, what's going on with our business. There's not too many. Other than the macro things, that are hard to manage, you know, we're really well-positioned from a challenges that we'd have to really think about for the rest of the year because things are going so well.
That's very good to hear. Thanks very much for the update. Just very last thing. Can I have some updates on our outsourced manufacturing for the U.S. market, please? Thank you.
What's the question again?
I just want to check on, you know, the proportion of our manufacturing that we outsource from Asia for the US market. Say, for example, China-
To the U.S.
Yes. I remember-
Yeah.
You mentioned earlier it's about 50% perhaps by now. Would that be the case?
US manufacturing, Chinese imports to the US are down.
Right.
About 10%. It used to be the inverse of that. If you were back kind of pre-tariff days, 90%-95% of our imports to the U.S. were from China. Through the pandemic, our sourcing team literally moved all of that outside of China. That's not to say that China's still a very important manufacturing hub for us for the other regions, but as it relates to the impact of tariffs to the U.S., it's about 10% is only coming from China now.
Right. I see.
Amazing, right?
That's great progress. Yes.
Yes. Yes.
Yes. Thank you so much.
Yep.
Congratulations again.
Thank you.
Thank you.
Thank you.
Thank you once again, ladies and gentlemen. If you'd like to register for question, please press star one on your telephone. Thank you once again, ladies and gentlemen, dial star one for questions. I think, operator, I'm guessing that's it.
Uh-
Just a quick thank you for Reza and I. William, thanks, everybody, for joining, look forward to catching up with you on the next earnings call.
Thanks, everybody.
Thank you. Thank you for your participation. This concludes the conference. Thank you. Goodbye.