Morning, good afternoon, good evening, ladies and gentlemen. Welcome to the Samsonite International 2020 first quarter results earnings call. Please note that this event is being recorded. I'd now like to hand over the conference to Mr. William Yue , Senior Director of Investor Relations. Thank you. Mr. Yue , please go ahead.
Thank you very much, operator. Hello, everyone. Thank you for joining our first quarter earnings call. Today we have our CEO, Kyle Gendreau, and our CFO, Reza Taleghani, with us. Our CEO, Kyle Gendreau, will begin with a few opening remarks. Thank you very much.
Okay, great. Thanks, William. Thanks, everyone, for joining us, and good morning, good evening, wherever you are. I'm on slide four, William, and really wanted to give you an update. Reza will walk through some of the details. What we're doing in the business right now is actively managing through the challenges in front of us, in front of many companies. When I think about what we're doing, first and foremost, we are paying close attention to health and safety of our employees and families and customers and our suppliers, all very important to us, and we continue to keep that in front of us. We're really actively and responsibly managing our store operations. As you know, most of our stores around the globe are temporarily closed.
We're starting to see some openings around the world, including this weekend in the U.S., we'll start to open a few stores. Many of our wholesale customers are in the exact same spot, where stores are closed. We're starting to see some openings. We're following the guidance and the guidelines from the countries or in the U.S. from the states, which are important as well and following that very closely. What I would say on the storefront is, we're not rushing to be the first to open. As we see stores opening in the U.S., we're being very careful around opening. There's no need for us to be first in the center to open, so we're watching that very closely. We'll open in a very conservative way as we see things move.
Our key focuses, as you can imagine, are around preserving cash and adjusting the organization from a cost perspective and a cash perspective with the pressures we're seeing. We're very aggressively reducing our operating expenses. We'll go through much more of that in the presentation. We're doing what you'd expect us to do, and that's we've had very quick actions, and we have ongoing actions to right size the business for what's in front of us. We've pulled some big levers, and I think when we were together in March, we talked about some of this when we were talking about the year-end results.
Okay.
We very aggressively have pulled the levers that we've often talked about as having. We've significantly reduced advertising. That will generate well over $125 million of in-year savings. We put a near freeze on CapEx, significant drop in CapEx. It will be largely what we spent in Q1 . The rest of the year will be largely locked down. That'll generate close to $90 million versus what we had planned. I think we mentioned this at the year-end, we won't have a distribution to shareholders. Last year's number was $125 million. These actions alone generate pretty close to $350 million in immediate cash savings. We're tightly managing product purchases. One of the strengths of our business is this wonderful outsourced supply network.
We produce ourselves only 10% of what we sell, so we've been able to very quickly and actively push back on our product purchases, which is helping us manage cash flow and the balance sheet quite well. We did a lot of work in the last three or four weeks. From the last time we talked to folks off of our year-end numbers, we've done a lot to shore up the balance sheet and put us into what I would label as a terrific liquidity position to navigate a prolonged crisis in front of us. On March 16th, we amended and extended our existing facilities. We also stepped up availability under our revolver. On March 20th, we drew down most of the revolver to put cash in hand, $810 million. In the last two weeks, we've negotiated and secured covenant relief with our lenders through Q3 of next year.
What I would say is through the end of next year, we've got amazing covenant relief with great support from our lenders. We're very happy with that, and our lenders were wonderfully supportive. Reza will go through the details of that a little later, but we've really built the room on the covenant side for a wonderful period of time through the end of next year. We then decided to take advantage of the markets that had opened up in front of us and took what I would label as some additional security and closed an additional Term Loan B facility for $600 million at good pricing in this market. Reza will cover that as well. When you add all of these actions on the balance sheet and liquidity, we're sitting today with $1.8 billion of liquidity comfortably in hand for us to navigate through the challenges.
Our view is that gives us runway all the way through much of next year. For us, there's a lot of cushion here, but it was the right thing for us to do, and a lot of companies have done that. I'm quite happy with what Reza and the team was able to pull together here on that side. As I said, our supplier is very important to us. We outsource a lot of our suppliers. We're working very close with our suppliers, and we're watching as they manage through the crisis as well. As we've pushed back, they've pushed back. Many of our suppliers have closed their factories temporarily, which is exactly the right things to do, and we stay close to them.
We have a wonderful supplier base, and our teams are doing a great job of staying connected there as well. Lastly, and I mention it because we launched it just a few weeks ago with the issuance of our ESG report. We launched Our Responsible Journey, which is our enhanced ESG program. That report, I'm very happy with. I would highly recommend people take a look at that. It really lays out the direction we are in moving this business to be the leader in sustainability in our industry, which I and the team have high confidence in. I go to the next page. It's clear COVID-19's having a significant impact on our business. Our sales for Q1 were down 26%. We had guided a range of 25%-30%, I think, at the year-end numbers, and that's where it played out.
March was down 55%, and April, I'll cover shortly, was down more than that, as you'd anticipate. Most of our stores globally are temporarily closed. We're just starting to see some open China a handful of weeks ago. In the U.S., they're starting to open, and just in a few isolated spots in Europe. Largely, our stores are closed, and largely, as I said, our wholesale customers are closed. As you know, travel restrictions are reducing demand for our travel products. One of the strengths of our business and what we've been working on for the last 12 years that I've been involved in the business is kind of diversifying the mix of the business. Today, we're 41% non-travel and 59% travel. We've got a nice mix of business we're seeing both under strain, but I'm quite happy with what I see in the non-travel category.
That'll be important as we start to step out of here, as travel maybe moves a little slower, our non-travel products will be well-positioned to help us navigate as the world starts to turn back on. We will see significant impacts in Q2, as I said. What we're seeing in April, in my view, will carry into Q2. We're seeing travel virtually stopped in April, and my sense for most of May, it's virtually stopped. Though we see some slight movements, as I see even in the news clips in the U.S., the planes that are traveling in the U.S. are quite full. I do think people's desire and propensity to travel will come back as it starts to open up. Despite quick actions, and we did take quick actions in March, I might say starting at the end of February and into March.
Our EBITDA was down quite significantly in Q1, down $79 million, but still positive at $5 million. Most of the benefit of the actions we've taken really will be felt Q2 forward. That is largely without the benefit of significant actions that we're taking, including the big levers that I talked about. As I covered, we amended the credit agreement which really was important to us to move covenants out of the way. At the last call we had, we spent a lot of time talking about what the covenants look like. Again, with this terrific support from our lender group, we've been able to reset a covenant path for us that just gives us the flexibility we need to navigate the business to the other side of the world moving again.
That really does carry us well into the end of next year from a covenant relief perspective. As I said, we had $1.2 billion in cash at the end of March, and we topped that up with a $600 million Term Loan B with favorable terms and also allows us a repayment option on the other side of this so we can repay that without significant penalties when we see the business recovering. That gives us wonderful liquidity for what could be a prolonged pressure on our business. On slide six, we have taken immediate actions and we continue to take actions. I think it's very important to realize the actions we talked about in March and the actions we're taking in April are deep and aggressive.
As I talk to our teams, I tell people to be bold in decisions, and these are tough things to do. These are headcount reductions and everything you expect a company to do, we're doing. Largely because many of our team members here have experience in navigating the business when it has little bumps. This is one of the bigger bumps we've faced. We're being aggressive here and that will continue. We have seen some business starting to return to normal, but I'll tell you, as things open up, it's very slow. Even in China where we've seen things open up, the sales levels in locations we've opened are very low, and I expect them to stay low. I think Q2 will be largely challenged. Our retail operations largely shut down with mandatory lockdowns. Our e-commerce business generally around the world is moving.
We've had some distribution centers needed to close, but e-commerce has continued and under strain, but performing just a bit. Part of the reason why we're not down more. Our wholesale customers had some sales as we were into March. As we stepped into April, they've continued a bit, but largely the sales that have continued were things in the flow. Our wholesale customers, as you'd expect for the same reasons our stores are closed, they've pushed back on ordering as well, though the relationship and the dialogue with our bigger customers stays very fluid and active for later in the year. From a trend perspective, this virus started in January. I remember exactly where I was when I heard about it. We were together at a senior team meeting. Our January sales were down 8%. February was down 15%, largely from what we were seeing in Asia.
March quickly became -55% as the rest of the world got plugged into the situation. Our April sales are down 80%, and I think that gives you a sense for the impacts. We're not alone. Many companies are in this same boat. I would anticipate our Q2 number largely looks like that. Down 80%. May is feeling about the same. We're starting to see some openings here as we get to the end of May. Maybe June is a tad better, but I think for purposes of thinking about the business, I think Q2 will be down in that range. I think it's important because we're managing the business against that backdrop. I do think Q3 and Q4 will show levels of improvement, but I think they will be still highly challenged quarters, and it will be better than Q2, but still kind of meaningfully down.
I think the reason I say that is because how we're executing the strategy on pulling levers and adjusting the cost structure of the business. We're being bold and not pretending that there's some recovery in the back half. I think smart companies will act that way, so we set the cost structure the right way for the business. As I said, we're very focused on cutting operating expenses, not only to conserve cash in the short term, but really to rightsize the business for the future, which is really critical for us to get this thing set up. That as we step into next year, we're in the right place for this business to step in. We will step in. We will be the player in this industry and the brands in this industry that will be in that position to do that.
That is largely off the back of, and I won't cover all the numbers again, off of what we've done on the balance sheet side to give this business the time and liquidity to navigate through what's effectively the external pressures of the business. In the background, be assured we're working full speed ahead on making sure our cost structure is in the right place for when we start to see the business meaningfully recover. Slide seven, Reza will cover this more, just a backdrop of what Q1 looked like. Again, down 26% constant currency. You can see the sales number. Our gross margin down slightly, really has to do more with mix than anything. Our margins have kind of continued to be in the right zone. You can see the EBITDA impact from that dip, largely off the back of the margin drop.
Reza will cover in more detail the bridge for Q1 for you. On slide eight, you can see it really affected all regions. Obviously, Asia started earlier, a bigger impact for Q1 for Asia. Europe and U.S. largely look the same. Europe a little bit higher on a reported basis. Latin America was slow to kind of catch up to what was going on with the virus, but they definitely caught up by the end of the quarter, and they were down constant currency around 8%. I'll finish here on just some positives, because in the light of everything, there's a lot of really wonderful things going on in our business. As I think I said on our last call, Samsonite [and Mark] celebrated its 110th anniversary, and really this heritage on innovation and what makes our portfolio of brands and our business wonderful.
We also, on the back of that, have launched Our Responsible Journey, which is our ESG program. Again, this is a program that I think has been well thought out, well presented in our reporting. It focuses on key quadrants of the business, really people-focused, innovation-focused, which is kind of built in our 110-year heritage, this thriving supply chain and how we manage that supply chain in a responsible way, and carbon actions. Just on carbon actions, as we've started and stepped into this, we've already reduced our carbon footprint by 6.6%. For our owned and operated facilities, we're not so far off from being carbon neutral for the business. We significantly are expanding the use of recycled materials.
Recyclex is one of the materials that we're using. We've launched quietly over the last few years, 50 lines that are incorporating this, and we've diverted over 52 million bottles as we've really just started to step into the story here on recycled materials. If you were in my office, you would see a wonderful collection of really amazing products that starts to heavily incorporate recycled materials into what we do. I have no doubt that we will be the most sustainable luggage company in this industry. We are very focused on it. Our teams are very energized. As we step out of the crisis, it'll be one of these wonderful stepping points that we'll have as we start to move forward. I'm quite excited to share that with the world as we start to step out as well.
With that, I'll turn it to Reza, and I'll kind of jump in right at the end to give some further outlook stuff.
We're on slide 11. Just to add a little bit of color to the quarter results. Kyle mentioned the sales were down obviously 27.7% or 26.1% on a constant currency basis. It was across the world in terms of the breakdown, and you saw the regional breakdown on an earlier slide. Just to give you a little bit of color on some of the countries that we've talked about on the last few calls. The U.S. was down a little bit shy of $68 million. China was down 28.8%. South Korea down 22.9%, and Hong Kong down 13.9%.
The reason we highlighted those is just to give you the benefit of, we've talked about those specific markets on previous calls, so roughly around $133 million of it was in those markets, and then the rest of the world down $84, which adds up to that $217 million down. The pressures are being felt across the globe, obviously. As Kyle said, China, at least the stores are 100% open now, which is good news. It's very much in its infancy, so the traffic numbers are starting to grow slowly. As we sit here right now, we don't anticipate a major recovery sitting here in Q2. It's really the back half of the year where we're looking forward to some of that starting to reverse itself, but we're managing this business for cost right now.
In terms of gross margin, obviously there was some gross margin pressure as well. The direct-to-consumer channels were impacted more seriously at the beginning of this, so some of the wholesale markets were still holding up. Given the fact that DTC, as you closed all of the stores, you start to see some of that gross margin decline due to that. When you flow that through to EBITDA, obviously, we've taken very aggressive actions on cost, and we're continuing to do that, and you're going to continue to see us do that through Q2. Those have run rate benefits that you'll see in the back half of the year. If we take out a lot of headcounts and some expenses sitting here in March, you don't necessarily see the benefit of it in Q1. As time goes on, that'll flow through.
More importantly, as the business recovers in next year, we're looking forward to some permanent savings that'll position us well in terms of improving the gross margin profile of this business going into the future. This is not just about managing a crisis, but it's also about setting the foundation for having a good gross margin going into the future. Working our way to the adjusted net income line. The biggest component of that decrease is the tax effect of the adjusted EBITDA decrease. If you're looking at that $27 million going down to negative $38.6 or rounded to $39, $80 million of that is just the tax effect of the adjusted EBITDA decrease, and that's partially offset by some net interest expense improvement and taxes as well year-over-year. Moving to page 2. I'm sorry, page 12.
The net sales have decreased by 26.1% for the reasons that we've talked about. Adjusted EBITDA decreased by 79.8%. Adjusted net income by 65.8%. We did have a restructuring expense of $6.7 million, primarily associated with severance and headcount reductions. You will continue to see some of that rolling into Q2 as well as we continue to adjust our cost structure. We did recognize an impairment charge of $819.7 million. I have a separate slide to go through the calculation of that. That's basically comprised of $68.4 million, which is the lease right-of-use assets. Obviously, as the store performance has come down and the projection of some of the stores, we have to continue to monitor those and look at the impairment levels for those. $19.3 million of PP&E related to that.
Then, due to basically where our market cap has been and looking at the future prospects of the business and the projections, we've had to basically take an impairment charge on goodwill and trade names. That's largely a write-down due to the Tumi acquisition that was done a couple of years ago, just in terms of adjusting the values there. Again, I have a breakdown of that on a subsequent slide. Most importantly, all of this is non-cash, so just be aware of that. Cash flow from operating activities was down $57 million compared to last year. Obviously, we had a very good year from a cash flow perspective, and we're hyper focused on managing cash flow and looking at how we manage net working capital during the course of the year as well. Net working capital efficiency, this is just a report.
It's largely due to the fact that if you're looking at the sales number and the decline, it's at 20.1%, which is obviously higher than our targets, especially given where we were. We were very proud of where we ended December. When sales drop like this, it has an impact on that metric. CapEx in Q1, Kyle mentioned this, $17.9 million in Q1. This is largely being frozen for the remainder of the year. There was some stuff that was already in flight in Q1 that we had to basically complete. As we think about the remainder of the year, there's a virtual freeze in terms of what we're looking at for CapEx. There's a little bit that'll still roll into Q2. Beyond that, we're really shrinking that amount down.
There's a $90 million reduction expected from our original plan of $129 million for this year, which Kyle alluded to earlier as well. Our net debt position is at $1.4 billion as of March 31st. This is before we did the additional $600 million raised in the Term Loan B market. Our cash position was $1.168, and then we had some revolver availability, so we had about $1.2 billion of liquidity coming in at the end of the quarter before we did the raise of the additional term loan. With that, we're about $1.8 billion of liquidity. On page 14, we got a lot of questions around covenants on the last call, so I thought I would just spend a minute just walking everybody through it proactively. From a covenant perspective, we were fine at the end of the year.
Sitting here right now, even though we've gotten these amendments, we still are in compliance with our covenants. Just for awareness, as we finish this quarter, we are not having a waiver or anything like that of our covenants for this quarter. We're doing it proactively from next quarter on forward. Our debt covenant, if you're looking at our pro forma total net leverage ratio, it's 2.68 times, and our interest coverage is 9.24 times. Again, this is what's on our compliance certificates that's submitted to our lenders. Just to give you a sense for that compares to 2.63. It's just a marginal difference compared to where we were at the end of the year. From a cash interest perspective, we were at 8.16. The benefit of our covenants is that we can basically take add backs as we take aggressive restructuring actions.
It looks at it on a pro forma basis for those actions. I just wanted to be clear that it's not like we had covenant pressure sitting here at the end of Q1, which is what we said at the year-end results a couple of months ago as well. Having said that, and looking at the revenue environment and given the fact that just to, quite frankly, de-risk the concern around this, we felt that it would behoove us to proactively go and work with our lenders to get covenant relief. As expected, but very much appreciated, everybody was super supportive. Our entire bank group, almost every single lender, I think it was like 98%, ended up signing up to this.
What we have now, all of our covenants, if you're looking at our net leverage as well as our cash interest coverage, are effectively suspended. Starting with Q2, the only thing that's being measured is minimum liquidity. I know there's two different minimum liquidity thresholds, and I want to be clear on this because I think there's questions around this with the Term Loan B. As it relates to our senior secured facilities, our revolver, our Term Loan A, we're basically being measured to a minimum liquidity of $500 million. That's it. There is separate and distinct, a minimum liquidity that's lower than this for our Term Loan B, but it's not like you add the two.
The way to think about this is the only covenant that we have to worry about 'til literally, I think the next time we measure it is going to be November of next year. It's basically Q3 of 2021 is the first measurement period, and that certificate usually goes out around November 15th. At that point is the next time we would revert back to the original covenants that we have. Between now and then, which is over a year and change, five quarters effectively, the only thing that we're looking at is minimum liquidity of $500 million. That's it. At that stage, once we revert back, if we haven't repaid the Term Loan B, there is a minimum liquidity covenant in the Term Loan B that's lower than this, so it's like $200 million, $250 million or thereabout.
Our expectation, quite honestly, with the Term Loan B is we have it as insurance, and assuming that the business recovers, we have every intention of repaying it and de-levering again. That was one of the main advantages of being able to access the Term Loan B market is the prepayability of it as compared to a high yield bond. That's an important point of note as well. We've renegotiated a covenant relief with all of our lenders. We're focused on minimum liquidity and the new facility that we just basically raised was $600 million Term Loan B. The pricing on that was LIBOR plus 450 with a 1% LIBOR floor. It was issued at an OID of 97.
Basically, what that would mean is the net proceeds that we would get are approximately net of fees and expenses et cetera, would be about $575 million of cash being added. I'm sure if there's other questions on that, we can cover it in the Q&A section, but those are the highlights as it relates to the balance sheet. On page 15, we get into the details of the goodwill. Again, it's a non-cash impairment charge of $732 million. The way that's broken up is goodwill, we're writing down goodwill of $496 million, primarily in North America. It's basically done by business units. It's primarily in North America and a portion of it in Asia. Trade names are being marked down by $236 million. Again, as I mentioned, it's primarily due to the Tumi acquisition.
The largest component of that is the markdown on Tumi of about $207 million, if memory serves. In addition to that, we have impairment charges of $87.7 million that are attributable to retail locations. This is similar to what you've seen in previous quarters. Thanks to IFRS 16, we have to basically look at the projections of our entire store fleet every quarter. Obviously, due to the impact of COVID-19, we have to look at a reasonable estimation of not only what we're looking at today, but also what the recovery would look like next year. That's led to an impairment that would trigger that. Similarly, the trigger for the impairment that happened for the trade names on the goodwill is the same thing.
One of the largest component of it is where our market cap is right now due to COVID-19 again, and that's the triggering event that's caused us to do this right now. In addition to that, we have restructuring expenses of $6.7 million. We covered that a little bit earlier. That's largely due to the severance that we're paying due to our headcount reduction. On page 16, Kyle has covered some of this. There's about $340 million of cash savings already beyond what's our fixed operating cost savings. That's the cut in advertising that we talked about. We suspended the distribution to shareholders, $90 million cut in CapEx and software purchases. That's already been actioned. In addition to that, we have a lot of activity really around how do we get annualized cost savings.
We're starting to look at headcount reductions and looking at the store fleet as well. As we look at that already in Q1, and again, you have to bear in mind, this is basically a month's worth of work in Q1 with a significant amount that's happening right now in Q2 as well. There's run rate savings of about $21 million that's also been added to that due to the permanent headcount reductions that we've done there. There's other restructuring initiatives that are in play. We've already closed 29 stores in Q1. You should expect that there'll be a further reduction in that in a material amount in Q2 as well. We're absolutely aggressively negotiating rents. To the extent possible, we like the variable model, so we try to negotiate to see if we can go to a variable rent structure if possible.
In other cases, with the threat of shutting down stores, we're getting significant reductions in rent. We really are trying to do this, not necessarily only temporary, but to try to get run rate benefits that roll into next year as well. We'll leave it as we're expecting significant savings for the remainder of the year to come from all of these initiatives. In year, we have about $16 million that have already been actioned in Q1. Again, there's definitely much more that you're going to be seeing as this rolls forward. On page 17, just a little bit of a bridge, taking from Q1 last year to Q1 of this year. Obviously, the biggest component of it is the gross margin decrease from lower sales. $123 million of the decline is due to that.
You have about 11.4 of gross margin that has to do with lower margin, but the primary component of it is lower sales offset by the reduction in advertising, which we actioned in March. Already some of the SG&A decreases are showing benefit as well. You have about $41 million of SG&A decrease improving our position there. We've spent a bit of time on the balance sheet already on page 18, but I think the biggest components are, we've talked about the fact that we drew down on the revolver. Again, this is the balance sheet as of the end of the quarter, so it doesn't reflect the incremental Term Loan, that $600 million that's come in. I think the real point here is really around liquidity. Our net debt position stands at $1.428 billion at the end of March.
There is a little bit of a carrying expense as it relates to the incremental debt. We just felt more comfortable and felt more secure having the cash actually in our bank accounts as opposed to revolver availability, just given the environment. There is a little bit of negative carry that comes with that. We feel that it's insurance that we feel comfortable carrying in the shorter term. As the overall economic environment improves, maybe we'll revisit that. For now, we feel pretty good about our overall liquidity position of $1.8 billion that stands as we sit here today. Working capital on page 19. We have been very aggressive in terms of trying to make sure that we manage to make sure inventories don't start to balloon here. We've worked with our suppliers.
Our suppliers have been super supportive in terms of trying to maintain and hold back shipments and hold back deliveries. We're not basically placing a lot of orders until we start to work down our inventory levels. We feel pretty good. Sitting here a couple of months ago, we had some questions around our supply network. The good news is the supply network is functioning, and it's available to us. It's actually the reverse as we sit here now, where we're basically trying to say we need to be very disciplined about placing new orders. I think as we look over the next couple of quarters, you're going to see us only trying to basically open that spigot up as the stores reopen and to make sure that we manage inventory levels accordingly.
Obviously, if you're looking at year-over-year, which is what you see on this slide, there is a $76.8 million differential between where we sit this year versus last year as well. I'm sure we might get some questions around bad debt, so I'll just proactively try to address that now as well. As of Q1, we basically have reserves in place, and we've increased that, so we're at $20.7 million is the bad debt reserve that we have at Q1. There really hasn't been that much activity. If you're thinking about the people that we have as our wholesale customers, and the retail channel is obviously fine. If you think about our wholesale customers, some of our largest wholesale customers are retailers like Amazon and others. If you look at the U.S., it's very the Walmart of the world, the Costco of the world.
That's the case around the globe. You do have exposure to some smaller mom and pops as you think about Europe and some of the other areas. So far, actually, we've been in a pretty good position. We are looking at increasing the reserve, just expecting that some retail channels may have difficulty. It hasn't been anything major for us, and I think you should just be aware of that we've only had literally one customer in Europe. In that case, we just took the inventory back, and it was a few hundred thousand EUR of exposure. There really hasn't been much in that department so far. Looking at slide 20, CapEx, we've covered this. Again, this is looking at a Q1 over Q2.
There was an increase because we were basically operating the business, and the largest component of it was a bunch of R&D because we had a lot of new product introductions that we were looking at for the back half of the year. Some of that spend already happened in Q1. I think the point really here is that as you're looking at the remainder of the year, this number is going to be significantly lower than what you saw last year. That just shows the operational flexibility we have in terms of having an asset-light model. With that, I'll turn it back over to Kyle.
Okay, great. Thanks, Reza. We're really in phase 2 of what we're focused on, and I thought here for outlook, I think near-term focus is probably just as relevant as kind of our normal longer-term focus, and I'll give you a little of both. Initial phase was really around making sure that we followed the protocols and we kept everybody safe across our whole family, so ourselves, our employees, customers, and partners and suppliers. It continues to be at the very top of our mind and our list, particularly as we start to open stores in certain markets.
We've moved into really next phase, and I would say we had moved into it at the end of Q1, and we're deeply into it now, which is really around making sure we're taking significant actions to adjust the cost structure of the business, preserve cash, as we said. I think the right way to think about this is rightsize the business and the cost structure for the future, which I think will have some long impacts from this even as we step into next year. We're very focused here. As we said a few times, we pulled these immediate levers, generate some immediate cash savings. What we're really focused on today is these actions to ensure we optimize the business on a go-forward basis. We have really significant liquidity, guys.
When I sit here today, I have all the confidence that we will navigate through what the cycle will be for this, and we've got the balance sheet to do that. What we accomplished in the last few weeks, I think just as Reza said, laid on the right level of insurance for us, and we're very confident. We're not taking it lightly. We're being aggressive on actions, but we clearly have the balance sheet to be the player that's here on the other side of this. Many of our smaller competitors will not, but we will be, and that gives us great comfort as we're pushing ourselves forward. We have a recovery plan in place as far as opening stores. I think one of our more challenging moments will be when we start to open and traffic's down.
I'm putting a lot of pressure on the business to make sure that we're careful on the reopening so that we manage our costs the right way, and we keep everybody safe. As it starts to open, we'll be very diligent on ensuring that we're optimizing on the saving side. Again, I do think many small players will have nowhere to go on our space. As you know, we operate in a very fragmented market, and I think that's important. We have a very global business, both from a geographic perspective, but we've also been diversifying the business over the years, as you know. We've got a mix of brands that play across price points. Each of those will turn on and operate differently, and so I'm quite happy to have that diversity.
We've got this amazing piece of business that I would label as non-travel. If we see travel luggage a little slower to turn on, the rest of our business is wonderfully positioned. Even in the moments that our sales are under pressure, we can see the non-travel categories playing well. For brands like Tumi, where more than 60% of its business is non-travel, that's very powerful, and it's spread across the globe that way. This piece of business, I think, will turn on faster. That'll be one of the benefits we have against the backdrop of our business. Our teams are doing some really hard work right now. We all are, as we take costs out of the business. When we talk about it, we're being very aggressive here.
One of our jobs is to ensure we stay energized and empowered to navigate through this. We will. Our teams are. I talk to our senior team on a very regular basis, and we're all very much locked arms here to do what we need to do. We're all thinking the same way. We've known each other for a long time. We're excited to step out of this with this innovation story that I said around sustainability. I think it'll be one of these amazing pieces of the puzzle here as the business turns back on, and we will have a wonderful platform to be stepping on as we do that. Our teams are focused there as well.
In the backdrop of everything that's going on, we're looking at innovation that's tied to how do we add protection to our products, antibacterial, maybe antiviral protection to our products. Our teams are doing a lot of work on that front as well. We'll be launching stuff very quickly on the antibacterial side. There'll be consumers that are focused there. There's some very exciting opportunities on the antiviral side that our teams are starting to think about. Maybe a little bit longer tail, but it'll be a piece of what you'd expect from this kind of business. From who we are in this industry as far as leading with innovation, you should expect that we'll be leaning into that quite heavily as well as our businesses turn back on.
Again, we'll be the only guys in this industry that have the scale to make that happen. With that, William, I'll turn it over to you for questions. Thank you, everyone.
Great. Thank you very much, Kyle. Thank you very much, Reza, for the presentation. Now we will go to Q&A. Operator, can you check who's online?
Sure. Ladies and gentlemen, if you wish to ask a question, please press star one on the telephone keypad. Our first question is coming from Irwin with HSBC US. Irwin, please go ahead.
Hi, good morning, gentlemen, or evening, depending. Three questions, if I can. A lot of consumer companies in different sub-sectors, whether it's cosmetics or sporting goods or others, are talking about a few green shoots in mainland China and Korea. I understand April was dramatically down, and that's probably across the board, across industry. I'm just wondering if you can mention what you're seeing more specifically for these two markets, if there are any green shoots there. Secondly, maybe I missed this, I think you said you were down 26% in Q1. Could you give us the split between travel and non-travel, if you have it for the quarter? Thirdly, if we think about inventory management as the majority of the world is shut today. When things reopen, notably in the West, how do you think about dealing with the inventory?
I.e., should we assess that you'll be keeping the product longer on the shelf because part of it is carryover product? Or should you be shipping to outlets, or should you be discounting in the existing stores? How do we get to a point where inventory to sales gets to a more comfortable level towards the end of the year or maybe early next? Thank you.
Okay, great. Thanks, Irwin. I'll take two, and I'll let Reza, because I think he has the numbers, the travel, non-travel split. I think for Asia green shoots, as I said during the call, I wouldn't necessarily call them green shoots, but they're signs of movement. China, for example, we started to see things open. They started to come back. China, for the month of April, is looking like down 75%, roughly, from a results perspective. We saw an initial turn on, and then as we're all watching the news on a regular basis today, China quickly throttled back a little bit. I think Hong Kong, for those who are in Hong Kong, I think a similar thing happened where Hong Kong started to move and then had a stutter step.
I would say, Irwin, there's a lot of inertia for things to start to open up again, right? I think May will look largely like April, is my read on May right now. We see little pockets of movement, but on a blended basis, it's not so different. I'm really thinking June will be very telling because in the U.S., for example, I think we're seeing lots of things start to move really at the end of May. I think we'll learn a lot in June as far as what that tells us. Just for scale, we're going to open 30 Tumi stores this coming weekend and in the U.S., and get a read for what that's telling us. As you can imagine, there's a lot of work to do to reopen.
The way stores and locations are reopening and the procedures you need to follow and all of that. We're opening these stores, one, to get a read. Two, Tumi sells more non-travel than travel, which is helpful. Third, it'll give us some learnings as far as what it's telling us and how you interact with the consumer and how do you interact virtually with the consumer and all these kind of things are playing in. The other piece is our e-commerce business, which is down, but it's performed better, obviously, than the rest. We've had some weird moments where some of our e-commerce businesses are actually up year-over-year. There's our Gregory brand, which is an outdoor active brand. On a blended basis, has been slightly up because consumers are buying online and they're looking to get outside.
We've seen some benefit there as a good measure of our non-travel business. Our eBags business, which we're in the midst of aggressively integrating that here into Mansfield. That's had some positive stories as well as consumer. One, we've been moving some inventory with eBags, just so we can kind of transition that business the right way. Two, we've seen consumers moving and buying in that space. I think our e-commerce focus and mix, and we've been really driving well, I think we'll be well positioned to capitalize on that. We've seen it's still down, but better than the average of everything else. I think there are some clear green shoots there, and I've been so happy and comfortable with the team that we have pushing this that I think that'll be a real positive for us as we move forward.
I think we're well played there, and we're watching that very closely. As far as inventory management, one of the benefits of our business is, as you mostly know, is we're not a heavy season business. We don't have a big spring sell-in, fall sell-in, a big buy-in, that a lot of apparel guys, I think, are struggling at the moment with. Our stuff has staying power. As we manage development and we manage inventory levels, we are pushing things. Things that we might have been launching in Q4, we've shifted those launches to Q1 or Q2. To be honest with you, it doesn't have any real impact on our business other than we have a cycle of newness that we like to work in. It's not that I've got a seasonal sell-in that I'm trying to capture.
Our ability to manage our inventory is probably going to be one of our best strengths with the structure that we have. Our inventory for April, even though April was down 8%, is largely the same number as what it was in May because we were able to shut the valve off and we're able to manage. It's not that I'm sitting with a pile of inventory that's going to miss the sell-in season. You will see us push some new development out a bit. That's a lever we can do. It helps us also adjust our cost structure the right way without it having an impact on balance sheet inventory or missing a season, which again, is a huge strength of ours.
I think the way the teams are operating and thinking on that front is really wonderful, and I think it'll really show its colors as we navigate through the year as far as how we manage inventory. Reza, I don't know if you have-
Yes. The breakdown, Irwin. For travel, it was 57.7%. Non-travel was 42.3%. Just as a comparison for last year, travel was 58.2%, non-travel was 41.8%.
You have the growth rate. I don't know if you have the growth rate in front of you, but as a mix, it's increased in that quarter, which gives you a good sense for the growth.
Yeah. Okay. Excellent. Best of luck, gentlemen. Thank you.
Yeah. Thanks, Irwin.
Hi. Before we go on to take other calls, just want to go through a couple of questions that we're seeing here online. Number one, we have a question about our AR exposure to U.S. department stores. Neiman Marcus having filed for Chapter 11, as has JCPenney. There is a question about what is our exposure there. I don't have it broken out by specific retailer in front of me, William, just so you know. Basically what I would tell you is, in terms of the reserves that we've taken, we've already factored into anybody who we perceive is a bankruptcy risk or has filed. The numbers that I said a little bit earlier in terms of the bad debt reserve that we increased it to about 20% includes that. That also includes one retailer that filed for bankruptcy in Germany.
As it relates to the channel overall, we continue to see performance in terms of our wholesale channel, in terms of payments. I think it's important to highlight, it's not like there's a huge amount of exposure, because typically what would happen is we deliver the inventory, they pay us within a relatively short period of time. It's not like there's this massive exposure of AR to the wholesale, especially in the U.S.
These are two longstanding customers of ours, William, but they're smaller on the mix of our customer mix. I would say they're in the bottom 25% from just a sales level perspective, just from what they sell. Our exposure on these were not so significant. Our big customers, when we think about the U.S.-
Amazon
Amazons and Costcos and Walmarts. Target's a great customer. All these customers are wonderful longstanding customers. Macy's a wonderful customer. These guys are in good positions. The relationship's strong. I bumped into some of our supply team, even though our offices are closed, our design team-
Sure
They're talking about, with these customers virtually, Q3 and Q4 products. I feel very good. There will be a few smaller ones that we're watching, but as Reza said, we largely had reserved for those at the end of March. I think our bad debt reserve went from $16 million to $20, to give you a scale for how we adjusted the bad debt reserves for the quarter.
As we go into Q2, absolutely we would think that that number is going to go higher, but it's not going to be anything dramatic. We don't have a lot of customer concentration either.
Right.
If you're thinking about the wholesale channel in the U.S. especially, there's nobody that's all of a sudden like a 10% risk or anything like that. Again, to Kyle's point, the biggest ones are the Amazons of the world, et cetera, so they're better credit risks.
Okay. What else, William?
Well, some questions around guidance. Number 1, any guidance on EBITDA going into our second quarter? Number 2, do we expect any additional impairment going into the second quarter?
Impairment. Okay. It's very hard to predict EBITDA from a guidance perspective. It will be a negative EBITDA, guys. Our sales are down 80%, so it'll be negative. We're taking a massive number of actions. You should expect a negative number for sure. As far as giving specific guidance, that's not something that I would or could do at the moment because it's very fluid situation here into the start of May.
On impairments. Look, the reason for the larger kind of goodwill and trade name one is we had a very little headroom as we did our impairment testing at the end of last year. Given what happened with COVID-19, it necessitated another impairment test that we have to do. I don't anticipate anything further as it relates to trade names or goodwill. The store component, unfortunately, because of IFRS 16, we have to do that every quarter.
Yeah.
When we do it, we do take a projection that goes out. It's not simply looking at it and saying, "Oh, the stores are closed right now." You do take a long-term view on those things. It is something that we have to monitor every quarter. It's hard to judge on any given quarter what's going to happen. I will tell you that a lot of the weaker stores that normally you would take charges against are the ones that we'd probably be exiting as well.
Yeah.
As you think about our store closures, those are probably going to come off as well. I can't comment in terms of what I would anticipate that to be for Q2 or beyond, but there'll be something.
We were pretty thorough when we did this impairment work in Q1, William. I think Reza said it right. I wouldn't anticipate anything material going forward, but there could be some store noise going forward.
Yes.
Thank you very much, gentlemen.
Thank you.
Operator, other questions on the line?
Yes, William. The next question is coming from Annie with Jefferies. Annie, please go ahead.
Hey. Hi, management team. Hello, can you hear me?
Yes, we can.
Oh, okay, great. Yes. I have a question regarding, Kyle, you mentioned about the 80% decline roughly in April and May. Could you share with us how it looks like, for example, by different key markets? Which stores, to give us some idea. My second question is on the impairment. The impairment is about $732 million. You just mentioned about the impairment for Tumi is about $200 something million. What is the other breakdown by brands? I would love to get a little bit breakdown on that one. These two questions first. Sorry, also, regarding your long-term strategy. I understand that we are closing down some of the weaker performing stores. Are we going to change our strategy on doing a bit more of the direct to customer type of the higher retail mix?
Also in terms of outsourcing, we talk about shifting a little bit of the sourcing from China to outside to Southeast Asia and all the other area. How are we going along that front? Thank you.
Okay, great. The 80% decline, in simple terms, it looks almost consistent around the globe. There is little pockets that are slightly better than others, but when I look at what we are seeing for April and what we are seeing into May, it is fairly consistent. China was slightly better than 80% if we went to a specific market. There are some markets like Taiwan, which is small in our mix, but that is actually probably when I look at the country portfolio we have, that is probably managed COVID the best. On a blended basis, region by region, we are largely down 80%, and when I look at the data, it is almost consistently across regions, so plus or minus a few points.
Across regions, it's more or less similar?
Very similar.
Okay.
It might turn on differently as we move on. As we see, and this will be one of the strengths, I think Asia has the potential to be moving a little faster, and there's plenty of travel within Asia, so I think Asia could move faster. We're watching the world, but on balance right now, everybody's in a similar place, and we'll be watching together as we see it turn on. As far as D2C and mix, I don't think it changes strategy in and of itself. I think you might find on the other side of this that our retail mix as a percent of our sales will come down because we're going to be aggressive here. It doesn't mean that we're abandoning that because I think in the right locations and for the right brands, that makes sense.
As you know, Tumi's retail mix is an important piece of their puzzle. What it does speak to is, and it's not a new thing, so it's not really a change in strategy, is how important e-commerce is. We're not alone in saying that. Again, I'm very happy with what we're doing as a team and how we integrate e-commerce with our brick-and-mortar stores and how do we make that all work, which we've been very focused on with omni-channel and kind of all the pickup in store, order online, really kind of amazing pieces of work that we've been doing over the last few years, I think will play nicely in. I think on the other side is you'll see our brick-and-mortar retail mix probably come down a little bit, but it doesn't mean we're abandoning the strategy.
We're just maybe right-sizing is the right way to use. As far as our out-of-China strategy, very much intact. The teams have done amazing work, I think on the last call, on calls that I was having, we're doing the financing. It's too bad that it's clouded with kind of COVID-19 because you're going to see this amazing piece of work by our U.S. team and the sourcing team as far as shifting. We would clearly, I think we will still be, the numbers will be a little bit cloudy because of the sales decline, be well below 50% sourced for the U.S. business from China. Doesn't mean that China is not important. China is a hugely important piece of our sourcing, other regions are using.
This U.S. business was doing an amazing job, and you would have seen it in our gross margin this year that we were going to catch up to the challenges that were added by tariffs with the wonderful work that team's done. It's very much on track, and it's very real. What we are seeing is we saw a few customers where because as I said before, when we're outsourcing or we're moving from China, it's often the same factory owner or supplier that's opening capacity. We've seen a few of these guys just move to more aggressively just close the China facility and really just focus on the out-of-China facility. You'll see a little bit of that will actually just accelerate the shift in that strategy for us. I think all that's very good.
As far as impairment by brand, Reza mentioned Tumi. The reason Tumi sticks out is because it's kind of the largest deal we've done, and so when you're doing impairment. Our impairment charges largely just cover kind of this group of intangibles. It's less brand specific in many ways. It's tied more to the entity as an impairment because of the impact of COVID-19, and you'll end up with impairment charges that kind of carry across brands, but it's not that they're so brand specific, if you know what I mean. It really has to do with the overall impact of the business. You just look at the deals we've done, and you can get a sense for where it is. That's why Tumi sticks out as having kind of a bigger impairment, but it's just because that's where the assets are from a deal perspective.
Okay, got it. Thank you.
Yep.
Thank you.
Yeah. Thank you. William, any others?
We have Morgan Stanley online.
Yes. The question is come from Dustin with Morgan Stanley. Dustin, please go ahead.
Thank you, management. For the gross margin in the first quarter, that's down 185 basis points, could you provide a breakdown between the impact from the U.S. tariff and the channel mix shift?
I would say mostly mix channel mix shift. We had mix effect, but when I think about that shift, I would say the majority of that is around kind of this rapid retail mix shift. Our wholesale customers had carried on a little bit in March, whereas retail quickly started to shut down. Mostly mix. I don't have the exact mix in front of us. We can get back to you with that, but you'll see that it's largely mix driven.
I think the U.S. tariff piece started to sort of impact on your gross margin in second quarter and third quarter last year. I would think for the first quarter this year, you would still avoid that because you just mentioned that most of the sourcing have been moved out of China such that already-
Yeah, it was still carrying because what you have to remember, Dustin, is the timing of the tariff impact.
We had to wait.
There was a big tariff step up that happened in, if I'm remembering the numbers, no, it was like the mid-year one, the extra 15%. Oh, no, that's April. In Q1, you have a year-over-year still impact to that. If I were guessing, it's 70% related to mix and 30% continued impact of tariffs. The other thing we're doing on the product side for the U.S. was re-engineering product. By the time we stepped into this year, we were getting some of the benefits of that.
That's actually the biggest point, Dustin. If you think about it, you have the two tranches of tariffs. You have the one that was at the end of 2018, and then you have one that hit us in Q2. We also had about, I can't remember the exact, let's call it like 89% sourcing in China at the beginning of Q1 last year versus now we're like 50%. Between that shift and the re-engineering, which you don't necessarily see in there, the margin actually in the U.S. was going to be a really good story.
It's not until you get to kind of Q2 forward that you get the year-over-year kind of comparative impact, if you know what I mean.
Yeah. Sort of looking forward with the sort of market being reopened, if you look to third quarter and the fourth quarter, how should we think about the gross margin profile? Are you going to do some of extra discounts to drive the traffic or provide extra rebates, or you will try to be disciplined on the gross margin line? Any color?
I think there'll be a little bit of pressure on margin because I think the marketplace will be a little bit mucky, to use a good technical term. We won't be, as we said earlier, our ability to manage inventory is wonderful, but I think you'll see a little bit more kind of choppy competitive marketplace as people scramble. I think we could see some gross margin noise in the back half of the year, but I don't think it's more than 100. I have no idea, to be honest with you, because we're wondering and navigating, but I would guess kind of 100 to 200 basis points of gross margin pressure just because it's a little bit noisier out there as people try to figure out how they stay alive.
We'll be managing that really just to make sure our competitive position, but you won't see us rushing to liquidate and liquidate in channels that we wouldn't normally liquidate. That's not a position that we think we'll need to be in. The competitive landscape will cause a little bit of pressure on the margin in the back half is our best read at the moment.
Thank you. That's clear. In terms of the distribution and the G&A cost in the first quarter, would you be able to sort of break out the cost that's being saved because of your active efforts, and how many cost being saved because those are the costs related to the revenue? They are revenue-based costs.
Yeah
those costs drop. That we can model through for the absolute $ for the OpEx for the rest of this year.
Yeah. Let me give you the Q versus Q breakdown, Dustin, because the first thing that I'll say is a lot of the fixed cost reductions that we're doing actually would've been on the back half of the Q, so you wouldn't necessarily see the benefit in the quarter. Some of that'll flow through as we roll forward to Q2 and Q3. Just to give you the breakdown for modeling purposes. If you see a total SG&A number, so Q1 last year, total SG&A was about $407, and then Q1 this year, SG&A is about $344. A reduction, total SG&A was down about $63 million, kind of year-over-year for the quarter. The first component to back out of that is advertising. Advertising Q1 last year was about $49.5. Advertising this year, $34.7.
Just going forward, just so you don't miss this, we really grabbed the advertising throttle by the middle of March, maybe second week of March. You didn't really see it. On a go-forward basis, I've told you what we're going to save annualized in advertising. If you look at, we spent $40 million in Q1, and I'm saving $125 million, we're going to have very, very little advertising spend going forward for the rest of this year.
Again, I'm working my way up for you just to be able to get the breakdown for you so you can model it. The total SG&A excluding advertising, Q1 of this year, $309 million. Q1 of last year was $357 million. $48 million reduction in non-advertising SG&A. There's a component, the variable component of that went from about, what we consider variable that flows naturally as a reduction in sales, things like freight, commissions, things like that. That was a reduction of about $36 million quarter-over-quarter. It would've been about $91.5 million last quarter and $55.7 million this quarter. The remainder of that is the fixed component of it, is the way that I would think about it. The fixed includes like fixed selling and admin as well.
If we look at the dollar terms in terms of saving for the rest of this year, could it be there's a $47 million saving on the non-ad SG&A and could we sort of assume more than that number for each quarter in the following year?
It should be more than that, Dustin. Dustin, if you think about it, the advertising, as Kyle just said, you only got basically one month or maybe a month and a half of benefit of that, and that's going to be significantly lower. The other component of it, even the cost that we've already taken out, haven't flown through in the quarter. Just if we did nothing else, you're going to see a bigger reduction on that over time. It should increase with that. Again, we're taking even more actions in Q2, when we do our Q2 release, you'll see even more cost reduction.
Got you. Thank you. Let's assume if the total SG&A this year could be, I don't know, maybe $1.2 billion, $1.3 billion in total. How should we think about the cash burn for the second quarter and the third quarter? Should we think about like for the second quarter, the gross margin will be pretty low? Should we sort of expect maybe like $300 million kind of cash burn and third quarter depends on the recovery of the sales? Could it be sort of ballpark number and should we assuming you can achieve the working capital neutral, meaning you control your inventory level will not increase, so most of the cash burn will do the normal SG&A?
That's what we're going to attempt to do, Dustin. I think we have pretty good handle on these levers right now. There will be a cash burn in Q2, no doubt. What's going to benefit some of that is the actions we're taking, and they're aggressively going into play. It'll be negative in Q2. It's probably a shade less than what you indicated is my sense. We're grabbing levers very quickly, and it'll improve every quarter from there. Our view is both on actions and the business starting to move and our ability to manage working capital against the backdrop of meaningful kind of sales decline, and then starting to build again. I think we'll be able to manage it quite well, but Q2 is going to be the hot spot.
I think that kind of estimate, maybe a shade lower than that is how I'm looking at it for Q2, getting better as every month moves on.
Just to add to that, because we said it at the last call, and I think it bears repeating like We feel really good about our liquidity position as it relates to that.
Right.
As we think about our cash burn levels and even the $600 million that we ended up raising really is insurance. Coming out of it just a few months ago, we said we felt pretty good about where our liquidity was. I think even that number was probably head cushion.
Yeah.
Head cushion to it. We just felt, given the market was open, there's no such thing as too much liquidity. There's a little bit of a negative drag, but it's insurance. As you think about the cash burn question, it shouldn't be one that gives any cause around solvency or anything like that. We feel pretty good about where we are.
Yeah. No, that's just from total model perspective. I think that's very good to kind of start recording.
Yeah.
Okay. That's the only reason I'm asking.
There was a question on the last call that was related to, could we do a rights issue or something like that? It's like the furthest thing from my life. There is absolutely no need for anything like that.
Yeah. That's very good to know. Thank you so much, Reza.
Yeah.
Thank you, Tom.
Thanks, Dustin.
Great. Thank you. One last question from Invesco.
Yes. Then the question is come from Ian Hagerberg from Invesco. Ian, please go ahead.
Thanks very much. Hi, guys.
Hey there.
I just wanted to follow up on the, I suppose similar to the line of questioning to Dustin. In terms of working capital management, we saw working capital actually decline in absolute terms and obviously up as a percentage of sales. Should we be anticipating more release of working cash flow from working capital in Q2, or is that too optimistic? I'm just sort of struggling to understand how working capital is going to behave.
Yeah. What you're going to see in Q2 is we've shut the valve off from an inventory perspective as best we can. I think our inventories are going to stay kind of in the zone. What we will have is payments on the payable side against what we had brought in in Q1. I think you'll see working capital kind of draw down. Now you'll have receivables that we're collecting, and we're not really building receivables. On balance, I think you'll see us the working capital ticking up because we're losing the payables. You know what I'm saying? We'll be paying for what we've brought in in Q1.
Yeah.
The rest of it we'll be able to manage quite well, and then there'll be a moment where that'll level off. Then where it gets a little murkier is when we start to turn on and just managing the turn on and lining that up with the sales turning on and just getting that flow right. As you know, when you're bringing in, we have this wonderful payable terms of 120 days, so it won't be immediate. By then, the business is probably moving a bit better, where we start to make payments on those payables, which is really probably Q3 and Q4. I think what you'll see is for Q2 and maybe a tail into Q3, that's just kind of paying off what we had brought in, but really well able to manage the inventory level.
Okay.
Just for factories, just so you get a sense. We produce in Hungary, Belgium, and India. We have those plants closed. Have people on furlough as best as we can. My view is we'll keep those plants closed for May, June, and maybe even a tail into July, so that it's really around kind of managing. We have the flexibility, the ability to do that. In many of the markets where these plants are, the furlough opportunities are very strong, so very helpful. These are plants we've run for a long time. We know how to grab those levers. Many of our suppliers have done the exact same thing, which is really important. They're managing as we are, which is shut those plants down and get the benefit of furlough and just be ready to turn them on.
That helps us kind of shut that valve off in a meaningful way. Our supply team has done a really amazing job of kind of staying very close to our third-party suppliers. I know most of them personally. We tend to meet with them every year, and they're as much as part of our family as a supplier. We're managing that very closely with them. That's working well. We can shut that valve off quite efficiently. By the time we get to kind of June, July, we'll start to turn it on, and I think that'll be where we have to really pay attention to what we're doing as far as the flow in, so we can manage the cash flow the right way as well.
Okay. It's a related question, just in Q1, you saw an increase in debt quarter-over-quarter of about $120 million or maybe slightly more than that. Working capital declined. I just wonder whether you could sort of fill in the gaps of the missing pieces in the cash flow there.
The biggest piece is the EBITDA declined by $80 million. From a cash flow perspective, when I look at the quarter, it was around kind of the inflow of EBITDA for the quarter is probably the biggest piece. There was no other kind of wild movements from a cash perspective in Q1.
Okay. Just a third one from me. Given the various facilities that have been drawn down, can you just give some guide on what the net interest cost will be once you take account of the new Term B facility?
Yeah. Just to give a breakdown of it.
On a quarterly basis.
Yeah. The good thing is actually absolute interest rates have come down because of everything that's happening. There is a benefit of just the floating rate debt is now cheaper. If you look at our interest expense this quarter, it was actually better. Let me just give you the component parts in case you want to model it, or others on the phone want to do it. The $600 million Term Loan B we just did is LIBOR plus 450 with a LIBOR floor of a point. That's 5.5% is the effective yield on that. That's the most expensive piece we have.
The remainder of it, when we did the refinancing a couple of months ago of the Term Loan A and the RC, as a result of the amendment we just did, so during the period that the covenants have reset, that's going to be now priced at L plus 200 with a 75 basis point LIBOR floor. I don't expect LIBOR to be really moving much, so just call that 2.75 as an interest rate on that. That would apply against $800 million of Term Loan A and $810 million, which is what's drawn under the RC. About $1.6 billion of that is at that price point.
The old Term Loan B that's still in place, that's at LIBOR plus 175. There's about $553 million of term loans of that, of Term Loan B 1, is the way that we refer to it. The senior notes, we have €350 million that's at 3.5%.
Okay. Thank you.
I think the number's $20 million or sub $20 million in total by quarter. Not so material.
Okay. Thanks very much, guys.
Yeah, thank you.
Great. Yeah. Thank you very much, Kyle and Reza.
Thank you, everyone. Really appreciate the questions. Thank you.
Yeah, thank you. We are way over time now, so we’ll have to call it for the night. Thank you very much, everyone. As always, any questions, please feel free to reach out to me. Thanks.
Thank you.
Thank you.
Thank you. The conference call has been concluded. Thank you for your participation.