Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the Samsonite International 2018 annual results earnings call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yue, Director of Investor Relations. Thank you. Please go ahead, sir.
Good evening, everyone. Welcome to the 2018 results earnings call for Samsonite International S.A. We are pleased tonight to have Tim Parker, Chairman, Kyle Gendreau, CEO, and Reza Taleghani, our CFO, joining us tonight for the call. I will now hand over to Mr. Parker for him to make a few opening remarks, and then we will go right into the presentation. Thank you.
Okay. Thank you very much indeed, William. I would like to welcome everybody today, and just give you a brief overview of what I think is a very strong set of results again. The highlights are really fabulous expansion with TUMI. We have made enormous progress with the American Tourister brand. We have had, I think, very robust direct consumer growth. We have started to pay considerably more attention, and to integrate environmental and social governance. That has an impact across our business. On the negative side, though, we have seen a deteriorating economic environment in the second half. Just running through these main themes. The first point I would make is the incredible success of the TUMI acquisition. To call this a textbook doesn't really do justice, I think, to what has been a truly outstanding performance, and we are very proud of what has been achieved here.
Overall growth across the group of 12%. Good showing in North America, up 4%. Rapid progress in Asia, almost 30% growth. Laying down very solid foundations in Europe. We have started direct distribution in Latin America. Very robust set of products and a lot of activity on new developments. American Tourister has had a fantastic year, buoyed, of course, by the incredibly successful campaign around Ronaldo. Growth in the U.S. of 16%, in Asia 9%, an incredible 39% in Europe, and up by over a half in Latin America. This has not just been a one-off campaign. Along with some very exciting product introductions, I think this has really established a new base for the brand, and we have great expectations of the future. Moving on to the next main theme of the results for 2018.
The company continues to make more progress in increasing the share of direct consumer business across the group. E-commerce continues to rapidly expand, up almost a third, and we've added a considerable number of stores across the world. Our retail business up 11.6%. This has been something that we have invested in all of the regions across our business. On the negative side, I think it's fair to say that we're a business that has been affected by the tariff uncertainty, and continues to be affected by that. We have seen two key markets suffering in different ways. South Korea, of course, has been in the headlines this year very much in terms of, again, the security situation. China, the impact, again, of the tariff uncertainty has begun to weigh somewhat with consumers there.
Of course, in Europe, the impact in France of the Gilets Jaunes demonstrations has had some impact as well. Most of the pressure came on in the second half, and I must say, as I look ahead to 2019, I think we could be facing one of the toughest trading environments that we have faced in a long while, until some of the key uncertainties are removed. There's also some understanding, I think, of the future path of growth in China in particular. We have highlighted, the company is starting to focus a lot more on environmental aspects of our business. We are putting in place a significant target to reduce carbon emissions. A large number of our product developments are now incorporating sustainable materials. We have one range which is made entirely of recycled plastic bottles.
This, I think, is only the start of a very important trend. In our supply chain, we are very focused on obviously making sure that our suppliers meet the very stiffest requirements in terms of the treatment of people. Indeed, our own people. This company has been a very diverse and quite decentralized business. We have concentrated quite a lot this year on making sure that a very wide-ranging business across the world does have common standards and very clear principles in relation to our own people. In essence, our business depends on brands. Our three core brands have seen very good growth this year, and I'm pleased to say that some of what you might call the subsidiary brands, which we have acquired, have also enjoyed a very strong year. In summary, we're very pleased.
Having said that, as we look ahead, we think there may be some storm clouds on the horizon. With that, I'll hand over to Kyle, our CEO. Kyle?
Good evening, good morning, everyone. I'm on page 12. I think it should be on your screen. A business overview. When we look at our sales, Tim's covered some of this, but if you look at our sales for the full year, we were up 8.4% on a constant currency basis, adding over $300 million in sales. There is a bit of a benefit from eBags, which is in there, but even if I adjust eBags, which was acquired in May of last year, we're still up 7.5% underlying constant currency growth for the year. Our gross margin expanded as we expected. We saw a 9% growth in our gross margin. From a margin rate perspective, we added 40 basis points.
Some of that coming from our TUMI business, which continues to grow at a faster pace, along with good margin management within most of our business. Our EBITDA was up 5.7%. We did see some pressure on EBITDA margin. We had been talking about EBITDA margin in the middle of the year being flat to slightly up. As we saw some slowing in our business in Q3 and Q4, the margins kind of slipped back a bit. We're at 16.2%. A lot of that is around some of the investments we're making. When we get into the regions, I'll show you where we've seen that, particularly in markets like Europe and Latin America, where we've been investing to drive growth within those businesses. Our adjusted net income was up at a faster clip at 12.2%, benefiting from reduced tax rates.
We had a slighter lower effective tax rate, and we also had $9 million of reduced interest costs year-over-year with the debt refinance we did in the first half of the year. If I go to the next slide, a sales bridge, really to give you a sense for the building blocks. I think it's important when we break this down, when you look at underlying core growth of this business, taking out the movement we've seen in the TUMI business. We saw $167 million of growth or 6%. This is coming from brands Samsonite, American Tourister, and other brands, excluding eBags and TUMI. Our TUMI business was up almost 12%, $80 million of sales added across all of our regions, as Tim just explained.
We also had four additional months of eBags, which again, was acquired in May of the previous year, which added sales on a smaller impact on a positive side from currency. When you look to the side here, you can see all of our regions are growing nicely. Asia up 7%, North America just under 3% growth, Europe at 8.4% growth, and Latin America 13%. Across regions, very strong growth. If I look at our TUMI business, as Tim covered, Asia is up 30%, Europe is up 10% in building momentum as we've laid the footprint, and our North America business was up 4%. We did some conscious decisions within North America for TUMI to stop selling to some customers that ship into the Asia market. If I adjust that up for North America, our underlying growth was up 5.6%.
As we said earlier, all of our brands are growing. Our core brand, Samsonite, really growing nicely at 3.1%, growing in all regions. Our TUMI business up 12%, American Tourister up 16.5%, again, across all regions, as Tim explained. Other brands really driving very nice growth with some of these key initiatives around the brand Kamiliant, which is a very entry-level brand, used largely in select markets in Asia, up close to 45%. Our Speck business up close to 9%, Gregory 10%, with a big initiative in pushing in Asia and North America. Our core eBags business and the eBags brand within eBags growing very nicely as well, separate from the four additional months for eBags. As we said earlier, we have focused on pushing the female category.
When we start to look at these numbers, products geared towards female consumers up 30% across the portfolio brands, doing very well. We've had some very exciting product in the year. At the start of this year, we relaunched the Alpha 3 collection. That's off to a good start. We fueled that with a very good campaign with Zoë and Lenny Kravitz. That has been well received, and hopefully many of you have seen that in the start of this year. From the Samsonite side, we had some really terrific new products, both on the hard side. You can see here clearly some of the women's products working in and some new materials working into some of our business and carry-on bags with this SXK Expandable Spinner bag, which is made out of a material in conjunction with Kevlar, and it's doing very well.
Just an overview of TUMI on the next slide, page 16. Again, our North America business for TUMI up 4%. We saw, again, this reduction in shipments to our sales to trans-shippers. If I take that out, our North America TUMI business is up 5.6%, still running a bit ahead of where we targeted when we acquired the business. Direct-to-consumer up 8% with really strong e-commerce growth. Our retail business up 6.4% with same-store comps close to 2%. We've added seven stores in 2017, and we added nine stores in 2018 in North America. The decrease in our wholesale business is again, the reduction in these trans-sales to trans-shippers. Asia really on fire with 30% growth. I would label it as building momentum.
Direct-to-consumer up significantly, with retail up 49% with strong same-store comps close to 10%. 15 stores in 2018 and 38 stores in 2017, some of which were us taking direct control in some of the countries where it was through distributors. The wholesale business up close to 16% as well. Asia continues to do very well. Our Europe business up 10%, 20% growth in D2C, where we're starting to really lay the footprint there. E-commerce up close to 40%, retail up 18%. We've started to add stores with 12 new stores in 2018, seven in 2017, and comps of 3%. Also in Europe, wholesale business was down slightly as we're adjusting which customers we're selling to, again, to stop some of the trans-shipping that's been happening into Asia, from the Europe market.
I would say TUMI Europe is building momentum, so we're at 10%, but with a strong trend as we move into 2019. As Tim said, we've seen some slowing in the back half. On this next slide, just to give you some sense, we had a very strong Q1 of last year, 15.5%. If I take eBags out, that number's around 11% growth Q1 last year. Q2 was very strong. As we started to message in the half and really into Q3, we are seeing some headwinds in certain markets that's driving a lot of this. We saw a 5.2% growth Q3, 4.3% overall of just under 5% growth for the second half. As we lean into the start of 2019, we're seeing these same pressures.
Against a very strong Q1, I would say, our Q1 outlook is looking like it could be flat to slightly down, again, off a strong growth in Q1 last year. For the same reasons we're seeing headwinds in the back half of 2018, we're seeing them carry into 2019 to start the year. The next page gives you a sense by major markets and where we're seeing some of this. If you look at first half, North America, we're up close to 5% in the first half, 3.5% in the second half. China quickly adjusted itself. First half, we're up 11%. We're feeling very good with that. That's adjusted down to 3.2% in the second half.
Again, a lot of this is around consumer sentiment, particularly around tariffs and some decrease in B2B orders, which we've seen in that China business, particularly as the government has tightened up a monetary policy that impacts some of our B2B business in China as well. South Korea, we've had a few years now of South Korea being slower. We saw a little bit of upside in Q1. We gave a lot of that back in the second half of the year. In Chile, where we've been messaging as well, Chile continues to be under some strain, some of it around some of our business shifting to Argentina, but general sentiment in Chile within our business where we're well penetrated, we're seeing some softness in Chile in the second half of the year as well.
The reason these are important, these are big markets, both across the regions, but in an overall sense for our business. For North America, next slide, we saw an overall growth of 6.5%. If I exclude eBags, it's around 4% growth. The EBITDA margins here for North America is expanding, particularly with the help of TUMI. If we go down the page here, our wholesale business was up 1.8%. If I adjust for the trans-shippers for TUMI, we're up around 3% in our wholesale business. Direct-to-consumer up very strong in North America, 13% growth. Again, if I adjust for eBags, close to 8% growth. E-commerce growing very nicely at 26.9%. A little bit of benefit of eBags, but still 15% growth. Our retail business was up nicely as well, with 5.9% growth, close to 2% comps.
We've added a select number of stores in 2017 and 2018, 12 and 11, of which most of those are actually TUMI stores that are within the North America business. Across brands, we've seen good growth across brands. Samsonite up 2.5%, TUMI up 4%. American Tourister, as Tim said earlier, with the success of Speck's launch of many new products, up close to 16%, and growth in our other brands up 13% with Speck and again, eBags, core brand within the eBags business growing very well. Our core travel category up close to 4%, and as you'd expect and as we've been guiding our non-travel category growing faster at 10% growth. If I move to Asia, our overall for the year growth of Asia is 10.2%, led by India, Japan, Hong Kong, and China for the full year.
We saw in our wholesale business growth of 6%, we saw a 27% growth in our direct-to-consumer channel, partly impacted by the takeover of some of the TUMI distributor markets. We're running those direct. Our e-commerce business up 44%, really growing nicely across most of our markets in Asia. Our brick-and-mortar retail up 21% with a strong store comp of 6.6%. We added 54 stores in 2017, again, 30 of those coming from TUMI takeback and 12 net new stores in 2018, all performing well. Across brands, all of our brands grew Asia. We saw American Tourister up 2.1%. Some of that is a shift.
We had a shift in 2018 where in some of our business, particularly in China, we've shifted some of our B2B business to American Tourister, which helps some of that American Tourister growth, which slows a little bit of the Samsonite growth within this region. TUMI up 30%, American Tourister up 9%, again, across all of our major markets, India, China, Hong Kong, all doing very well. We saw some of our other brands up 23% with Kamiliant in that market and High Sierra in that market growing very well. Travel category up 8%, and just like other markets, our non-travel category is up close to 14%, with business growing very strong, casual and accessories all growing well. We've done a good job of improving EBITDA margin in Asia. We're up around 20 basis points, getting some benefit of the TUMI expansion, which has higher margins.
The overall margin management in Asia has been very strong as well. In Europe, we saw a very strong year, 8.6% growth, slightly slowing down in the second half, but still really positive results. The first half of last year, I think we were up a little over 10% for the full year. We've ended up pretty close to 9%. We saw around 5% growth in our wholesale business, and we saw a 15% growth in our direct-to-consumer business, with strong retail growth and strong e-commerce growth of close to 30%. This is a market where we have been investing in brick and mortar. If we look at what we've added for stores in 2017 and 2018, 32 stores in 2017, 40 in 2018, as we really lay some footprint down in select markets in Europe from a retail expansion perspective.
In doing that, it put some pressure on the margins. As we were talking all through the year and at the end of the year, you can see our EBITDA margins for Europe at 16.9% last year, 15.2%. A lot of this is laying down the foundation for this brick and mortar expansion within Europe. Our brand Samsonite is up 3%, the TUMI business up 10% and building momentum, and we had strong growth in American Tourister as we're in the third year of American Tourister and the Ronaldo campaign, extremely successful in Europe, coupled with some very exciting new products that we've launched. Core travel business up close to 8% and our non-travel business up 10.5%. If you look at our EBITDA margins, just to recap on that, we saw EBITDA margins down around 1.7%.
This is a little bit of a decrease in gross margin as the mix of American Tourister with that rapid growth pulled the gross margins down a bit. On the non-advertising SG&A expense, we saw that increasing as we've added some retail footprint to the European markets. We're really in this investing mode in Europe to push this direct-to-consumer strategy in a more aggressive way. Similar to Latin America, we saw very good growth. We saw $18 million of sales added, 15.5%. If you look at our EBITDA margins, slightly down, but again, this is us investing in some of the retail footprint there. Our wholesale business was up 15.5%, and our direct-to-consumer business was up 15.5% as well. Retail sales up 12.7%, 29 new stores added in 2017 and 21 stores added in 2018. These are stores largely in the market of Brazil.
We're opening some stores in Mexico as well and a bit of store opening in Argentina, but largely coming from Brazil and Mexico. Our e-commerce business, which was virtually nonexistent in Latin America two years ago, is up to $2.3 million in sales for the year and really growing rapidly within this business. I expect a lot more from e-commerce in the coming years. Samsonite was up 16%. American Tourister was up 51%, and we had 2.1% growth in other brands, slower than Samsonite and American Tourister because within our Chile business, we operate with the brand Saxoline and Xtrem. As our Chile business has seen a slowdown, that causes the other brands to be down just a bit. The net sales growth for travel up 13%, and again, just like other regions, the non-travel is growing faster at 17.4%.
Go to the next slide, you can see just a snapshot of our more significant markets. If you really go across the page, you're seeing growth across most of these markets. I would point out just a few. We saw France slow down in the second half of the year with the noise we've seen in France, but still delivering some growth at 1%. You can see Chile at the end, which is effectively flat for the year off many years of very extensive growth. South Korea, I would point out there as well, which is a bit flat for the full year as we continue to see pressure there. U.S. business up 6.6% and our China business in constant currency up close to 7%.
What we would label as our emerging markets, the blend of all of our emerging markets continue to grow at a faster pace, close to 20%. Across all of these, other than Thailand, which has had a little bit of political noise, really nice growth across each of these markets with markets like Turkey, Russia, even markets like Mexico growing very nicely. Indonesia is a very exciting opportunity for us. We recently changed the leadership there, and we're seeing very good growth in that market as well. On the direct-to-consumer front, Tim covered some of this, but our direct-to-consumer business overall has increased from 33.4% of sales to 35.9%. When you look at our wholesale business, up 5%, which is very solid, but as you'd expect, our direct-to-consumer growing faster with 16.5% growth.
Within that, we've added 84 new stores in 2018 with our brick-and-mortar retail up 11.6%. We have the full year effect of 127 new stores in 2017, some of which were the TUMI takeback and some were around investment. Our overall retail comps for the year across our retail footprint was up 3.2%. We've continued to invest in advertising. We've held our advertising at a fairly consistent percent of sales of last year, 15.8%. The year before, we were 15.9%. We spent a total of $221 million in advertising. You can see the spread across regions. We've been very focused on pushing and promoting the TUMI brand as we push that across the regions and also American Tourister. You'll see us this year shift some focus into the Samsonite business.
We're about to launch a meaningful campaign for Samsonite in the next month or so, and that will be very exciting. We're looking forward to that. We're continuing to invest in TUMI while we continue to support the American Tourister business as well from an advertising perspective. You can see across all regions, we're spending a fairly consistent amount at around 5%-6% on advertising. The next slide just gives you a snapshot of some of the campaigns. You can see the Ronaldo campaign, you can see some success we're having with Gregory, the TUMI campaign, which really rolled out at the start of this year off to a great start. We were using Generation Go for Samsonite last year, but you'll start to see the next campaign for Samsonite in a much bigger way as we move into April and May.
With that, I'll turn over to Reza. I'd just say welcome to Reza. I think it's the first time Reza is presenting for us and been here for about three months, and I would say fully integrated at this moment. There you go.
Thank you very much, Kyle. With that, we are on slide 29 of the deck. We'll just recap some of the financial highlights of the year, some of them which we've discussed, and then we'll get into the balance sheet and some of the cash flow metrics as well. Overall, a record year in terms of sales at $3.8 billion, which is net sales growth of 8.4%, or 7.5% excluding eBags. Solid, as it was mentioned a little bit earlier, despite second half headwinds, we still managed to increase materially. Adjusted net income increased by $34 million or 13%, and that's once you adjust for two one-time items, which we'll bridge on a subsequent page. In 2017, obviously there was the impact of U.S. tax reform, which had a non-cash benefit of about $111 million.
There was another non-cash item in this year due to the debt refinancing of $53 million as well. Once we adjust for that, those are the net numbers that we're talking about in terms of growth. Operating cash flow for the year, $307 million as compared to $341 million, slightly lower than what we had in 2017. The largest driver of that is due to changes in working capital. Obviously we had growth in adjusted EBITDA. We also benefited from a slightly lower effective tax rate. It was about one point lower than what we had in 2017. The changes in working capital drove some of the cash flow usage, and that's something that we're focused on in terms of inventory as we look forward here.
Looking at net working capital efficiency, 13.6% as of the end of the year, we're back within the range. I would say that we're continuing to be focused on this, especially as it relates to inventory levels. We're continuing to try to push in terms of getting that further down as we look into 2019. We did complete the successful refinancing of the credit facilities last year. There was a benefit of a 50 basis point reduction in terms of rate and obviously extending the maturities as well. Our liquidity position remains very strong. We had a $9 million benefit on an annualized basis from lower interest costs as well. That benefit will continue as we look into this year as well. The net debt position as we generate free cash flow, we have been focused on de-levering.
We have brought our net debt position to $1.5 billion. We continue to focus on managing our credit accordingly, and we'll cover that as we look at the balance sheet. Overall, we're in compliance with all of our debt covenants, and with plenty of headroom, I would say, and we ended the year at 2.45 times as compared to 2.74 turns of leverage in 2017. A good year there. As we look at CapEx for 2018, it was largely in line as compared to the prior period. We ended the year at $100 million of CapEx. There was some retail expansion, as Kyle alluded to, as we increased our store count by 84 stores. There's some CapEx that's going into that, as well as some product innovations. We ended at $100 million as compared to roughly $95 million in the prior year.
The effective tax rate of 25.2%, slight improvement, largely driven by where we've been generating our income in the year. That had a benefit on cash flow, as we just discussed. Today, the board is recommending that we increase the distribution to $125 million as compared to last year's $110 million, up 13.6% in terms of returning cash to shareholders, given the fact that we've increased our net income. Going to slide 32, we thought it would be helpful just to provide a bridge because there were two non-cash items both in 2017 and 2018. As you look at the adjusted net income, obviously we have an increase of profit attributable to the equity holders by $53.3 million or 23.9%.
Just looking at the left-hand side of the page, if you look at 2017, there was $111 million due to the tax changes that happened in the U.S. There was a reduction in tax rate to 21% in the U.S. That drove a non-cash benefit of $111 million as a one-time for last year. If you work your way all the way to the right-hand side of this page, you'll see that there is a $53 million on an aggregate basis, net of tax, that'll be $39.6 million that was due to the fact that we did a refinancing as well. Again, non-cash. When you back those out, as you look at the profit that's attributable to shareholders, you're looking at an increase of $53.3 million. On this next page, we cover the balance sheet.
Again, I think the key messages here are net debt has decreased by $100 million. Our net leverage as a result has decreased to 2.45 times. Just for reference, our covenants are set at a max amount of 5.5 times, obviously plenty of headroom there. Our interest coverage is around 3 times as compared to a covenant of-- I'm sorry, 9.35 times as compared to a minimum coverage of 3 times. Again, a very big benefit has come as a result of the refinancing that's happened, and we have a large component of fixed rate debt that'll continue to give us benefits in this year as well.
Looking at working capital, we touched on this a little bit earlier, as you look at it, obviously we're focused on the inventory levels that you see in here in terms of the change that's there. Our efficiency at 13.6%, we really want to try to target around a 13% number. We're continuing to focus on getting the inventory days down further from the level that we're looking at the end of the year. That is a focus area for 2019. We did lower purchasing, especially as we went into Q4 of last year, just to manage the inventory levels down. That sell-through is happening now, and we expect that to be a focus for us in 2019. Looking at CapEx. Overall, the CapEx numbers largely in line. We're looking at $100 million as compared to $95 million.
A lot of this has been driven by remodels and investments as we're making into the direct-to-consumer component of our business. Kyle touched on Europe as one example, but overall, we have 84 stores net that have been added. We are actively managing the store levels as well. If you're looking at the overall closures that we had, if you look at across the regions, we added 150 stores, but we shut down non-performing stores of 66. The net number of that is 84. I think that's an important component as we look at headwinds of managing the individual store level as well. With that, I'll turn it back to Kyle for the outlook.
Okay. Just real quick on slide 37. When we look at overall international tourist arrivals, they were very strong in 2018 from a travel perspective, increasing 6% to $1.4 billion in international arrivals dollars, not in people, I'm sorry, in 2018. Obviously, that's ahead of overall global growth. Our strategy remains very much intact. We're very focused on deploying a multi-brand strategy to operate the price points across the spectrum, both in the travel and non-travel categories. We have had very good success and will continue to have good success on the non-travel component while still driving our core travel business very nicely. We are focused in select markets on driving our direct-to-consumer mix in the business. Across all markets, we're hyper-focused on e-commerce and ensuring we have the right people, teams, and infrastructures to drive that with very good success across regions.
In select markets, we're pushing brick-and-mortar expansion as well, as we've talked about. We'll continue to invest in advertising. You should expect we'll spend around the same percent of sales in 2019 on advertising. As I said, we'll continue to push TUMI, and we'll put a little bit more emphasis on Samsonite as we lean into 2019 from an advertising perspective. We are still very supportive of our regional structure, which has been a huge source of success. We're focused on, as Tim said earlier with ESG, making sure we're managing our teams and people and empowering them to drive the business at a very local level. We continue to invest in research and development, which is a really important part of our story. We have some very exciting new things coming as we move into 2019.
In the coming months, I think you'll see some very exciting material innovation that will start to work into our business. In addition to, as each year, we have really exciting new designs and technology working into the products that we're selling. A lot to come in 2019. We're really managing all of that into this well-diversified multi-brand, multi-category, and multi-channel business, selling both bags and luggage across the markets that we're operating in. That stays very much intact. When I look at key initiatives for 2018 or for 2019, we're very focused on expanding the TUMI business, which, as Tim started with, has been highly successful. We're expecting that to continue in a very strong way in 2019. We are monitoring sales trends and focusing on increasing our EBITDA margins. We're focusing on improving some of the smaller brands that we've acquired, like eBags.
We have increased our retail brick-and-mortar presence. We're really focused at the moment on making sure we expand the profitability associated with that expansion. As we said earlier in the year, we've slowed down the pace of openings in Europe. We'll allow some of the benefit of these stores to play out in the margin side of the business. As Reza said, we're very focused on working capital. We're at around 138 days of inventory at the end of the year. I think this business can operate in this 120-125-day range. You should see our working capital efficiency moving closer to 13%, which will clearly drive cash flow in the year. We're very focused on that across all of our regions.
We're diversifying our supplier base as we look at things like tariffs that have worked into the story. We're working to shift some supplies from China to other markets. We're having very good success there while ensuring we maintain the quality standards of our products. The teams are focused there. As Tim said, we're weaving in ESG into our business, which we've been doing for the last few years. We have done our materiality assessment. We're focused on our carbon reduction. We've taken our first footprint. When you see our ESG report come out in the middle of the year, you'll start to see some measuring on where we are and what we're excited about as far as driving improvements in that across all of our business. We're starting to think about additional acquisition opportunities.
As we've been integrating TUMI into the business for the last two years, our debt levels continuing to improve. We start to re-look and consider opportunities as we roll into the second half of this year and into 2020. With that, I will turn it back to William for questions. Thank you very much.
Operator, we will now begin the Q&A session.
Sure.
I think we have someone in the queue already. Let's proceed.
Ladies and gentlemen, we will now go for questions. If you'd like to register for a question, please press star one on your telephone. Thank you. Our first question comes from Mariana McCall with CLSA in Hong Kong. Thank you.
Hi, management. Thank you for taking my question. I actually have two questions, if I may. The first one is on, I guess, recent trading trends. If you'll comment, I guess.
Well, I'm sorry.
Recent trading trends.
I think we've covered that, but I'll go through it again. As you looked at our first half, second half, you've clearly seen some slowdown in the second half. I think we're seeing economic pressures along with some of these larger select markets that are really seeing impacts from the noise around trade tensions. We've seen our U.S. business and China business feeling some strain. As we roll into the first half of the first quarter this year, and bumping up against a very large growth quarter last year, we're seeing that the first quarter looks like it'll probably be flat to slightly down off of that large growth. Really off of the same kind of macro noises that we were seeing at the back half of the year.
As we're sitting today and we think about the full year, we still think the full year for this business is mid-single digit growth. We're obviously stepping into the year with a little bit of turbulence, which I think a lot of consumer goods companies are seeing. We're seeing some of the same turbulence.
Thanks. Just a bit of a follow-up, more on a by-brand basis. For TUMI, do we have any sort of full-year expectations? Will we be able to maintain double-digit type of growth rate for TUMI overall, globally? Thank you.
TUMI is continuing to rock. If you think about TUMI, in the markets that we're pushing, it's new territory for us in many cases. Our view for TUMI is that still maintains a very strong double-digit growth. Asia is off to a very strong start this year. In Europe, where we were laying the footprint last year, we're seeing a good start too this year. Our core North America business will operate in this mid-single digit range, and we see no real changes for that in our North America business as well. TUMI is continuing this terrific trend that we saw in 2018 as we step into 2019.
Great. Thank you.
Yep.
Thank you. Our next question comes from Chen Luo with Merrill Lynch China. Please go ahead.
Thank you, management. I've got three questions. First of all, I think there has been a lot of market focus on the
Hello? Operator, I think we lost him.
Yes, we'd like to check with the question again.
Why don't we go on to the next one, and when this fellow comes back online, we'll go back to him.
Absolutely.
That's where we are. Let's go to the next one.
Sure. The next question comes from Anne Ling with Deutsche Bank in Hong Kong.
Hi, management. Thank you very much for taking my call. I have two questions. The first one is, would you elaborate a little bit in terms of the current trading environment by markets and also by brands, in terms of where are the areas that you think that is stronger? Where are the areas that you think that is weaker? For the U.S. market in particular, how do you see the 10% tariff? There's been lots of questions about whether there will be a lift in the 10% tariff. If you're able to lift the 10% tariff, will you be able to keep the 6%-7% increase in terms of the FOB price that you did in our-
Okay. I've given you a TUMI overview for kind of the trends. The rest of the trends I might say are more geographically focused versus brand focused. We've not seen any sort of unusual movements in brands, Samsonite or American Tourister, other than the overall trends we've seen in some of these markets, which we've covered here. China, into Q1, on the back of B2B business that has come down, is definitely running softer. We will see a negative China, but if you peel into our China business as we lean into 2019, our underlying kind of core consumer business looks to be in the mid-single digits, upper single-digit growth range. B2B has clearly adjusted down, so we'll see some noise there. That's impacting overall Asia.
Korea within China has definitely continued this negative trend that we saw for the back half, with maybe even a little more noise as we lean into Q1. That's not surprising for Korea. Overall Asia is seeing something that's a bit lower than what we saw for the full year. Our North America business is being impacted quite with these tariffs, really around the bigger customers we have who are waiting to see not just the 10% tariff, which we've already pushed through, what's the overhang of this potential additional piece of tariff, which feels like it will head in the right direction but continues to leave people uncertain. That's causing customers, more as our bigger customers, to stall some of their buying behaviors.
We're seeing North America in the first quarter feeling a little bit off, but a lot of that is just customers pushing to the second half or the second quarter as they wait for the tariffs to play out. If you know our North America business is largely wholesale, 75% wholesale business with these big customers. That's causing a bit of noise as we lean into Q1 in North America. Our Europe business has seen a little bit of slowdown from where we were trending last year. Our full year was around 8%. Our second half was around 6% or 7% growth for Europe. As we lean into the start of the year, we're still in growth territory. I would say mid to lower single digits as we start to see some headwinds in markets like Germany.
I think that's generally the sentiment across Europe is seeing some headwinds, and that's carried into our business, but we're still producing positive growth across our brands. Obviously TUMI's building some momentum, that's helping our Europe business as well. We're seeing more pressure than what we saw as we were in 2018 within Europe. Latin America's had a noisy start, but as we lean into March, a better March than what we saw in January and February. Latin America's not escaped some of the headwinds that we've seen. We'll see how the full year plays out for Latin America. That's a market that tends to be a little bit more volatile in monthly increments versus for the full year. I still think there's a growth story for Latin America. Hopefully that gives you a little bit of color by market.
From a tariff perspective, we've passed the price increase along. We covered that in our Q3 results announcement. That has been received by the market, but as I said, the bigger driver in our North America business is how our wholesale customers are managing the timing of their purchases as they wait to see the tariff piece play out. The other thing that's happening in North America, and it was happening at the back half of last year, is inbound tourists, particularly Chinese tourists into North America. As we look at our gateway cities, it continues to be strained. I think partly tied to the pressures around these trade tensions. We've seen that impact arrivals into the North America business in our gateway cities.
Thank you. We have a question from Mr. Chen with Merrill Lynch.
Thank you. Gus, three questions. First of all, what's our guidance for the adjusted EBITDA margin for 2019? Secondly, actually this year we are going to see the introduction of the IFRS 16, the new lease accounting standard. What's the impact on?
Do you have another one, or is that it, two questions or three?
Two.
Okay. Well, you know we don't give forward guidance on EBITDA from a margin perspective. What we have been guiding is that we think we can expand the margins within the business. As we see a bit more turbulent times, we're managing that closely. One of our clear initiatives is on making sure we can manage the margin side of the business. I'm still a believer that we'll deliver some leverage in the business as we've slowed down the expansion of our brick and mortar in particularly Europe. I think we can see 30 basis points or so of margin expansion. I would caution that with turbulence, that will be a bit of managing that we need to do. For sure we should be flat on margin, but I'm still hopeful that we can push for expansion.
We'll have a better view on that as we get into second quarter and the half. As far as IFRS 16, I'll maybe hand that over to Reza for that.
With regards to IFRS 16. We have approximately in U.S. dollars, $780 million of operating lease commitments. As many of you know, that basically comes on balance sheet. In our case, the vast majority of them come on balance sheet. If you're looking at a range of between about $645 million-$715 million, that would be recognized as right-of-use assets and lease liability. The net effect of that, just so you know from a reporting standpoint, just to make sure that we're transparent with everybody, we will break out the different components of it as we go into the first quarter so you can try and do the comparisons operationally to what we did last year as well as far as the adjustments are concerned. Obviously, it's a non-IFRS standard that we're showing, but we'll disclose that to you.
Just in terms of rough numbers, the net effect of that would be about around $30 million-$33 million of capitalized lease interest expense if you were looking in 2018. Then you have about $194 million-$195 million of amortization. If you were to have had IFRS in place last year, that would be ballpark what you would be looking at. Obviously as we go through each quarter, now that the standard's in place, we'll be disclosing that.
Okay, thank you.
Operator.
Can we see if there are any more questions from via from the callers?
Yes, we do have another question.
Okay, put that caller through, please. Thank you.
The question comes from Mr. Amandeep Singh with Ambit Capital. Please go ahead. Thank you.
Yeah, thank you for the opportunity, sir. I have three questions regarding Indian market. Sir, in Indian market, which is the fastest-growing market for you, firstly, can you help us understand how sustainable do you think these growth rates are since 23% constant currency growth rate in 2018 on a relatively higher base seems fairly high to be able to sustain for next three to five years? Additionally, can you please provide breakup for volume and value growth for India business?
Okay. We had a very strong India for 2018, a lot of that is around initiatives, around product, really team focus. If I took a three-year view and talked to the team, they're very positive on the ability to continue to grow our India business in very strong double-digit territory. I might say 15%-20% is a good target for these guys. It's really around initiatives around products. We've had very successful backpack run that continues. We're operating more of the market with the brand Kamiliant and American Tourister continues to do very well. We actually believe there's some opportunities within the upper end of Samsonite, so the teams are focused there as well. The sheer driver of growth in this market is coming from these entry-level brands and very successful, what I label backpack and casual duffle bag business within the marketplace.
I think we feel pretty confident we can maintain this strong growth. We've seen a little bit of a slow start, like we've seen in other markets in Q1. I was just with meeting with the India team over the last two days in Hong Kong here, the team still feels very motivated on delivering this kind of high levels of growth. I think there's a lot to go at in India. It's a market that the market itself is growing strong. We've got a terrific team and network of people across that market that I think we can deliver very good growth. I don't have the exact numbers on value and volume, but when you look at where we're driving growth in India, it's really at this entry-level price point.
It's not that we've been moving pricing in India, it's really around a volume-driven gain coupled with a mix of products. When you think about growing backpack and casual bag business, it typically is at a lower AUR than maybe a core travel product. From a pure kind of numbers perspective, I'm sure we're growing volume at a faster mark than value within that market based on what we're pushing into the market.
Thank you, sir. Thanks. Sir, we understand a large portion of growth was led by growth in entry-level brand Kamiliant, as you said right now also, which was up 44% this year. However, when we speak to a few of our channel partners in India, we understand that growth in Kamiliant is in part adversely impacting growth for your American Tourister brand. Is our understanding correct? If you could give us the brand-wise growth for India, American Tourister, Samsonite, and Kamiliant in the luggage category.
I don't have those right in front of me, so we can get back to you with William on that. What we're really doing with Kamiliant is largely, and it's not that different than what we did with American Tourister when we started seven, eight years back in Asia. Kamiliant is allowing us to protect the American Tourister brand, which has really established itself very nicely across the globe and particularly in Asia. As that positioning of American Tourister has moved up, what we're doing with Kamiliant is actually protecting it from having to stretch down into real entry-level pricing. The strategy with our brand Kamiliant, is we can play in a more aggressive way from a price perspective. Much of that market is operating now below where American Tourister has positioned itself.
We're really kind of ring-fencing or protecting Samsonite with Kamiliant in a way that American Tourister can be well-positioned and continue to grow while we address more of this kind of very fragmented, what I would say is extremely entry-level pricing. Kamiliant pricing is typically in a range of, let's say, $65-$90. American Tourister has positioned itself very nicely in the market at, let's call it, $100 plus across Asia, and some markets reaching close to $250. This brand American Tourister over the years is well-established. Kamiliant's helping us protect that and still address that really extreme entry-level market.
Thank you, sir. That was helpful. Sir, my last question: Can we get some sense on how is the competitive intensity panning out in Indian market with both the market leader and also the third player are becoming very aggressive over the last few years?
I think we've always had that in India, right? It's the one market where we have a big number 2 player. Just like I explained with this Kamiliant strategy, we're deploying and using the portfolio of brands we have to compete nicely in that market. The advantage we have is kind of the global benefit of product design and development. When we think about what we bring to market as far as new products, new materials, bringing this global expertise we have now been developing in this non-travel category of bags and duffels allow us to compete very nicely there. As you'd expect with a number 2 competitor, they're fighting right along with us.
I do think we have the ability to outspend them from a product design development and also from a marketing perspective, where we're deploying, as you've seen last year, particularly with American Tourister, very nice campaigns that are driving consumers to our business. Not only did we use Ronaldo, but we used-- I'm going to forget his name, the cricket player-
Virat Kohli
in India.
Virat Kohli.
Yeah. We've been very successful with our business, and so we shouldn't underplay the importance of advertising in a market that we're driving sales growth like we did in 2019.
Okay, sir. That's from my side. Thank you very much.
You're welcome.
Operator, I think we are coming close to the end of the hour, so we'll take maybe another set of questions, and we'll wrap up the call.
20 seconds.
Who do we have next on line?
Our next question is from Dustin Wei with Morgan Stanley in Hong Kong. Thank you.
Thanks. Hi, management. My first question is related to the guidance. Kyle mentioned a mid-single digit constant currency sales growth for 2019. Just wonder a little bit more on the key assumptions here. What kind of the confidence that you have, especially for the second half of this year, presumably, your first half of the sales growth could be pretty flattish. Is that based on your assumption for the new products that Samsonite is going to launch or continued strength in TUMI or some of the pickup in U.S.? Just want to know a little bit, like your confidence for the second half of 2019.
I think Tim said it nicely, and I've said it. It's probably the most turbulent market we've seen in a while as we lean into 2019. I would say with confidence on initiatives that we're pushing, that we're pretty excited about what we have to play out in 2019. We do have a lot of new product initiatives. We have some great campaigns that we're going to be launching. We shouldn't shy away from the fact that we've seen a turbulent start in Q1, which kind of weighs out. I do think our second half will be stronger than the first half, obviously, just when you look at what first half last year to this year was, that's just a natural play. The teams are confident in the strategies that we're pushing. As I said, for TUMI, we're highly confident TUMI's going to continue its trend.
I think if the tariff and trade tensions can sort out and the world gets a little more relaxed on that front, I think that'll be very helpful for us. I'm quite hopeful, like many people, that that will get sorted in the coming months. Again, the rhetoric feels like it's heading in the right way, but it's a bit hard to call here. I'm feeling like it probably ends up in the right place, and I think things will settle down. With that said, guidance is as much a piece of what the macro is going to do to us for the year. I think all of our strategies are right. We'll see how the macro plays out, and we'll be managing the business accordingly as we navigate the turbulence we're seeing at the start of the year.
Thanks. Follow up on the tariff side, that you sort of mentioned that your wholesale customer in the U.S. kind of waiting for something. My understanding is that if they are trying to avoid another 15% raise in tariff, they should sort of buy now to stock up, or you think they are kind of waiting for the current 10% tariff to be removed, so they want to buy at a cheaper price. Could you elaborate the dynamics there?
I think it's neither, to be honest with you. I think, one, these customers don't buy forward. Even when we were dealing with the price increase at the end of last year, these guys manage their inventories quite tightly, and they don't play in. I think what they're watching for is if this tariff ended up going in and the market became highly disrupted with the tariffs, they want to just make sure they're not caught up in the fray with a bunch of inventory in the markets not performing. They're, I think, just being more cautious in when they step in versus trying to beat the game if the percentage goes in, if you know what I mean. I think people start to feel like it's not going to play out.
You will see a better Q2 than Q1 in the U.S. because of the way these consumers are buying. I think it's more around just being cautious of the uncertainties versus them feeling like they need to game the system and buy ahead, which these customers don't do. I don't think there's any magic other than all of the kind of overall uncertainty with tariffs that's causing some of this.
You start with the uncertainty with the general macro demand.
I think that's exactly right. Just what consumers are going to do. These guys are just managing very tightly. It's not just us, it's in everything they're buying, until they know where kind of ultimate consumer sentiment settles out.
Thanks. What if the tariff got removed, luckily, into April, because of the trade talk? Are you going to reserve those price hike, or are you going to reinvest it into the marketing?
I'm not sure I have exactly the answer. You should know that our customers are very aware of that, right? They're sourcing themselves with tariff impact. My sense is there'll be some level of negotiations that happen with our customers on the other side of that. Because it's fairly transparent with these guys, right? Often, many of these customers are sourcing their own brands as well. I don't have an answer on that, but I think it'll get negotiated like you'd expect if it unwinds itself.
Thank you. Just lastly, on the margin side. On the GP margin, could you talk about your TUMI GP margin for 2018 and your expectation for 2019?
Our overall margins, really when I look at the margins, we've been pushing the U.S. margin to get close to 70%, which is the biggest piece of the TUMI business at this point. We, at the end of Q4, ended up at that level, my sense is margin expansion for TUMI has played out. When we look at where we're exiting 2018, we've delivered on the overall gross margin for our TUMI business. You shouldn't see any further expansion because I think we've done a very rapid job. If you remember, even at the half of this past year, we were talking around an 8 or 900 basis points improvement in margin with TUMI. That's really kind of settled in nicely, you should assume that for 2019, we're effectively maintaining the margin levels for TUMI.
Now, as Asia grows at a faster clip, that has a slightly higher gross margin, I think as you'd expect in that business. You maybe get a little bit of weighting impact, but it's not going to dramatically move the overall margin profile for TUMI, the gross margin profile for TUMI. I still think there's some EBITDA margin opportunities. We're not reporting that for TUMI because it's well integrated into our business now. When we just study TUMI, a lot of this infrastructure we're laying is starting to play out. As you have retail expansion in these developing markets, as these things rapidly ramp, you'll start to see the benefits there. On the U.S. business side, we've been maintaining the EBITDA margins at a very nice level for all of 2018. You should expect the same for 2019.
Sounds like for the GP margin level, the 2019 expansion won't be as big as 2018. Is that fair?
Yes. That is exactly fair. Yep.
Okay. Thank you. On the OpEx side, if you are going to see some of the operating leverage, should we expect the efficiency improvement on the distribution cost side or on the admin cost side?
For 2019?
We're very focused on what I would label the non-advertising SG&A, I'm hopeful that we'll see some leverage there. Again, turbulence causes that to take a little longer. Within the business, we're focused on that and focused aggressively on looking at all of our costs in the business as we were guiding last year with a kind of expanded emphasis there. I'm hopeful that we can move the needle there. If we're in more turbulent times, it takes a little bit longer to achieve that. I do think that if managed well, we should see a bit of leverage. I caution that as I cautioned earlier, let's see how trading plays out Q1, Q2, and then we'll have a better sense for it.
Okay. Thank you very much.
Operator, just want to check if there's anyone else online.
We do have a final question.
Okay. We'll take this one final question, we'll finish up.
Sure. The question comes.
Who is this from?
The question comes from Anne Ling with Deutsche Bank in Hong Kong. Thank you.
Hi, management team. Sorry, some follow-up question from me. Regarding, I think like how earlier mentioned that the company will revisit the acquisition opportunity from second half 2019. My question is, what is the rationale behind revisiting acquisition again? Given the fact that we still haven't paid down our debt at this stage yet, right? Although the interest expense is being refinanced and a lot lower. Would you share with us what is the rationale? What are the brands or channels that you think will fit into the portfolio? What type of brands are you thinking about? The second one is more on the finance side. Regarding the effective tax rate, what sort of effective tax rate that you're guiding for year 2019? Thank you.
Okay. From an acquisition perspective, really what I'm guiding is as we integrated TUMI, we were very clear that we'd be very focused on integrating this brand for the first few years. We've stayed very focused on that. We've been bringing the leverage levels down in the business. We're at a little under two and a half times. I think by the end of the year, we get close to two times lever. Really what I'm guiding is in the second half, we're going to start to stir up the engine a little bit to see what's out there. As we've guided in the past, I think there's some very interesting non-travel opportunities in the marketplace as we think about things like casual bags, backpacks, and such. I do think that there's some opportunities that can start to play out in the back half of the year.
There aren't really other luggage brands that we're actively thinking about. I would say, if we start thinking in the second half of the year, it probably means that we're thinking about something for 2020, which again, this business has capacity to take these things in. We've got the history of bringing acquisitions in to expand the business. Now that TUMI is well settled and integrated into the business, what I'm really messaging is we're going to start to re-look at opportunities and as they unfold, be ready to take them on. We're very focused on the deleverage. We've guided. I think we're going to get to the target levels as we step into 2020 of getting to two times lever. I think it's the right time to look at acquisition opportunities as business. This business has the scale to do that.
We've got the infrastructure to do that. With the learnings, particularly the learnings off of TUMI, which has been highly successful, we feel confident we can bring in some of these other categories that allow us to continue to expand this non-travel segment of the business meaningfully. I won't necessarily comment on brands on this call, but you can assess the marketplace and have some sense for what we might be considering. We made a little bit of noise on handbags in the last few years. I'm not so focused there, but it doesn't mean we won't be evaluating some of that as we go up.
I think the bigger opportunities for us are non-travel that kind of fit the DNA of who we are, which is really around a lot of these kind of casual and everyday bags, which are growing at a faster clip in this segment than many of the other categories. We're seeing good success with the brands we have in hand, and I think we could add some more to expand that.
Okay.
Effective tax rate, I think it'll be about the same as last year. The effective tax rate was very good this year, roughly 25% and change. I think we've always guided effective tax rates around 25%-26%. I would, with conservatism, if you're doing some modeling, I would put in 26% effective tax rate for the year.
It's a function of the mix of where the profits are being generated.
Yeah. It can move, but there's no changes. We are starting to evaluate our tax structure. We have a Luxembourg tax structure that has some time period to it, really kind of leaning into 2021. We need to do some adjusting. We're starting to do some work on that. We think even with that, evaluating how we manage our tax structure, we still can probably stay in the same range that we're in today, 25%-26%. We'll be doing a little bit more work really as we lean into 2020 and 2021 to make sure that we can continue to deliver this effective tax rate in this range, which I think we can.
Okay. Sorry, one final question is on the financing side. Would there be any chance that you will bring down your debt level by the end of year 2019? Are you paying down some of the debt?
Yeah. We'll generate good cash flows. We're focused on working capital. We'll generate extra cash flow there. In the debt refinance, we pushed out this mandatory cash payment on debt that'll kick in at the end of 2019. You'll see us continue to bring down the leverage in the business as we generate cash. It's just part of the cycle for this.
To your point, if you're looking at 2018, obviously when we're looking at it from a net debt position, it's an increase in cash that's happening as opposed to the paying down the debt. Please do bear in mind, if you're looking at where we are in terms of our overall cost of debt, it's incredibly low. There is this debate as if you're in a rising interest rate environment, do you necessarily want to prepay that as opposed to using that more efficiently as well in terms of the returns that you can generate on that? That's the balance that we're looking at.
Okay, got it.
Obviously, as we've been doing the net leverage, we'll continue to get the covenants or the levels down.
Okay. Thank you.
Great. Thank you very much, everyone, for dialing in tonight. With that, we will end the call tonight. Thanks, everyone, and thank you, Tim, Kyle, and Reza. Good night.
Thank you.
Thank you.
Thank you for participation. This concludes the conference.