Earnings Call: Q3 2016

Nov 28, 2016

Welcome to the Samsonite International Third Quarter Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Monday, 28th November, 2016. I would now like to hand the conference over to your first speaker today, William Yu, Director, Investor Relations. Please go ahead, Mr. Yu. Hello, everyone. Welcome to the earnings call for Samsonite's 2016 Q3 results. Today, we have our CEO, Ramesh Taimwala as well as our CFO, Karl Jainrou, with us to go through the presentation. At the end of the presentation, there will be a Q and A session. And without further ado, I will now pass the call to our CEO, Ramesh Tengwala, to begin the presentation. Ramesh? Thank you. Hi, everybody. Both me and Kylie are once again with you, and we are very glad to present our 3rd quarter results. As I hope all of you can see the presentation, the net sales increased by 22.8% year on year on a constant currency basis. And excluding Tumi, which we acquired in August 1, 2016, net sales increased by 7.9% on constant currency basis. This as compared to our first half results, where the sales have increased by constant currency of 4.1%. And at that point of time, we have guided a market that we feel that the second half would be more hopeful than the first half. Gross margin increased by 26.5% and the adjusted EBITDA increased by 25.2 percent. And excluding Tumi, the adjusted EBITDA margin was flat versus last year. The margin has increased from 17.3% to 17.7%, which is more on account of the Tumi numbers. But if you exclude the Tumi numbers, the numbers are more or less same as was in 2015. Adjusted net income increased by 4.1% year on year. Excluding tax affected interest expenses associated with Tumi acquisition, the adjusted net income increased by 21.8% year on year. Profit attributable to equity holders decreased by 41% year on year, excluding tax affected acquisition related costs and tax affected interest expenses associated with Tumi acquisition, the profit attributable to equity shareholders increased by 23.5% as compared to the same period in 2015. If you look at in the next slide, I'm on Page number 4, the Q3 net sales by region. So Asia, excluding Tumi, grew by on a constant currency basis by 3.7%, North America grew by 9.8%, Europe by 9.4% and Latin America by 26.2%. These numbers when you compare with the first half numbers, Asia has been more or less in line with what has happened in the first half. First half was also 3.7%, whereas we have seen a strong uptick in our North American number. The first half was 0.5% has increased to 9.8%. Europe has been more or less in line with what was in the first half as compared to 8.6% at 9.4%. Latin America where we are gaining traction because of our investment in retail as well as American tourist push strategy, which we are implementing in Latin America. The 3rd quarter results, the growth has increased 0.2% as compared to 13.6% in the first half. So overall, it has been good performance across all geographical regions. Go to the next slide. The 3rd quarter net sales by the key markets. Say the U. S. Business have seen a growth of 10%, and I'm talking most of the numbers excluding Tumi numbers. This when you compare with the first half, the U. S. Was 0.7%. So we have seen a strong growth and rebound in the 3rd quarter. China was 0.4% as compared to that. In the 3rd quarter, it has been 8.1%. Korea has been flat in the second half in the first half as well as in the third quarter. India was first half was 1.1%. As compared to that, India has done 8.1%. And likewise, you have the numbers for other markets as well. The Q3 net sales by brand, since almost all our brands have delivered strong results. Samsonite, which is our biggest brand, has grown by 7.6% on constant currency basis. This compared to the first half was 2.7%. Sumit is coming in for the first time. American Tourister, which was plus 2.3%, have de grown by 6.1%, primarily because of some pressures that we have seen in the entry price point level in few specific markets, which are India, China and Korea. In China and Korea, we have seen a decrease in our TV home shopping business. But the right way to really look at American Rooster number would be to combine it together with the Camillian number and then you will see the American Rooster is also more or less flat versus last year. High Sierra 1.1%. Tech had a spectacular 3rd quarter because of the iPhone 7 launch, has grown by 56.7%. Gregory has continued to grow well 20.4% Lippo 88%, Hartman 19% and LifeLock. Tumi performance, in August September, because these are 2 months that we have included in that, has grown by 15.6%. That's August September 2015. These are the numbers that we have got from Tumi's internal management reporting, have grown by 15.6%. And if you exclude because Tumi Japan was not consolidated with the Tumi numbers in 2015. So if you feel that number away, excluding the Tumi Japan consolidation, the growth has been 10.5% as compared to 0.8% in first half of twenty sixteen. And the EBITDA for the period August September has been 18 0.7%, which is 19.9% of the sales. The integration of the two businesses have also have been very, very satisfied. 2016 results highlight year to date September. On a constant currency basis, the year to date September sales grew by 10.6%, excluding Tumi, the sales have grown on a constant currency basis by 5.4%. Excluding Tumi, the gross margin have improved by 40 basis points to 52.8%, so more on account of channel mix and a slightly higher proportion of direct to consumer sales. EBITDA excluding Tumi have margin is down by 10 basis points due to higher expenses from new stores, partially offset by higher gross margin and lower advertising as a percentage of net sales. Adjusted net income as a percentage of net sales was down by 60 basis points due to largely $10,100,000 of tax affected interest expenses related to debt financing of Tumi acquisition. Excluding the tax affected impact of financing the Tumi acquisition, adjusted net income was up by 6 point 7%. Year to date September net sales by region, Asia grew by 3.7% excluding Tumi by 7%. North America have grown by 3.6% excluding Tumi Europe by 8.9% and Latin America by 17.2%. In the next slide, you have year to date number of some of our key markets. U. S. 3.8 percent China 2.6 percent South Korea has been more or less flat versus the previous year India by 3.2 percent Japan 13.4% Germany 11.7% and Hong Kong has still continued to de grow by minus 14 point 2%. Hong Kong and France are 2 markets, which year to date September also have shown a degrowth of 14.2% and 8.3% respectively. I'll now request my friend Kyle to take you through the rest of the slide, including balance sheet, working capital and the 2 main debt. Okay, everyone. Good morning or good evening. If we go to the next slide, balance sheet, the summary balance sheet for the month ended September. I think we all know that the debt's in the book. Our net debt position is a little under $1,700,000 Our cash position is very strong at $313,000,000 Big chunk of that is the Tumi cash that came on board as we acquired the business. And you can see our outflows for CapEx are in line with expectations and we also had a dividend in July that most of you should be aware of. So from a cash debt net debt position, we're in a very good place, probably slightly ahead of expectations. The working capital is slightly higher than what our target of 14% is. That was expected. So we're running at 14.3%. I'll show you on the next slide, largely due to the initial impact of Tumi. And as we quickly get Tumi onto our platform for payables and just the way we manage working capital, I expect us to be very close to or below target by the end of the year. Total borrowings, as we know, is $1,925,000,000 and that includes Term Loan A, Term Loan B, and I'll cover where we are with that on the last slide. Let's go into the working capital slide. Let me change the slide. Can see in a few of our buckets were slightly higher. So inventory days have gone from 112 to 126. That's largely the impact to Tumi. Our cable blades are down slightly again impact from Tumi. If I guess Tumi, our networking capital Samsonite is running 13.8% for the period ended September. So still below our targets. And we will, as I said, we will quickly fix the payable days with Tumi. We've already started vendors. We're expecting that inventory will take us a few more probably in a quarter or so to get that in line, but we will be managing that as well. So you should expect us to be below our targets by the end of the year, if not Q1 of 2017. And then moving to the next slide. Sorry, my webcast is moving faster than I am. And then just an overview of the acquisition facility. Again, I think most of you know this, but just as a recap, I thought it was a good time to talk about what we've done since we've closed. So we have a term loan pay of 1,250,000,000 dollars LIBOR, dollars 275,000,000 and the first step down on that is at 3.0x, which I think we're going to get to very quickly. Our term loan B, 6.75 and interest rate LIBOR are 3.25. We are coming off our softball in February, we'll be looking Pardon the interruption. This is the operator speaking. Just to let you know that the quality of your line has deteriorated. I think Kyle's line was slightly bad. But if there's something specific which is coming up, we can cover up in the question and answer session on the debt, yes. I'm sure Kyle will come back. Kyle, your line is still not clear. But William, are you there? Yes. Yes. I think we should continue and get into the question and answer and then Kyle will reconnect. Yes. Why don't we go to Q and A. Operator, can you open the line to questions? Certainly. We will now begin the question We will now take our first question from Marina Ku from CLSA. Please go ahead. Hi, management. Good morning and I guess good evening. Thank you for the presentation and congratulations on a very strong set of results. I think my question is more on a few markets. I think during the presentation just now, you mentioned that U. S, China and India got a pretty good rebound even excluding Tumi. I think U. S. On the results announcement you mentioned, expect got some new products that got pushed in Q3. So how should we think about more on the kind of sustainable growth rate for those 3 markets, U. S, China and India? Thank you. Okay. Hello? Yes. Okay. Thank you, Pat. U. S, the growth has been 9.8%, which is a strong rebound. We definitely believe that the quarter four numbers also would be in high single digit. We continue to see attracting up now numbers. If you look at our like for like growth numbers, for Q1 we were minus 7.6, Q2 was minus 3, Q3 has come in at plus 1.7. So we must also factor in that we are anniversarying a weaker second half, which is also to some extent helping North America number. And I believe that Q4 also would be number would be more or less in line with what you have seen in Q3, where we can say high single digit kind of a number. Coming to China, which also has seen a strong rebound that Q3 is 8.1% as compared to 0.4%. Quite honestly, the explanation is almost similar to what I gave in U. S. Our outlook for Q4 for China also is that it should be able to deliver high single digit more like 8% to 10% kind of a growth number in Q4. And our current visibility into the number gives us that kind of a confidence, which is also getting benefited because the second half was weaker in 2015. Coming to India, which is the 3rd market which you raised, Q3 had seen a strong rebound of 8.1%. Unfortunately, because of the current demonetization, which kind of a little bit affected the retail sales because of the disruption in the cash flow of many of our retail customers, which will have some impact. So I think the outlook for India would change for Q4, which has nothing to do with whether the general trend was any different. It is more on account of what has really happened in last week or so since the announcement by the government here to be monetized high denomination currency. But I believe that when you get into the next the first half of next year, we should be able to see high single digit kind of a growth number in India continuing. Thank you. I'm back, Ramesh. Sorry, everyone. Yes. Thank you. We will now take our next question from Richard Cooper from CLSA. Please go ahead. Yes. Hello. Thanks very much the presentation as always. I just wondered if you could comment briefly on any highlights from the brand development other than Tumi? I'm thinking in particular of Brandtai, High Sierra, Gregory, Speck, I'd be interested in hearing about and Hartman. And secondly, you mentioned earlier in the call that there'd be a shift towards direct consumer. And I was wondering if you could just give us a bit more focus on that. Yes. Okay. Among the new brands, as we have spoken during our first half result announcement also, we do see traction as we are able to get additional distribution in place. But quite honestly, the growth, I would say, because the numbers are small, it looks to be nice numbers, the plus 38%, plus 20 percent and things like that. But I would say that we are nowhere near where the potential of any of these brands. One of the reasons where we have been handicapped in last couple of quarters has been our inability to put enough marketing resource to push this brand out in new markets where the brand awareness or the brand equity of many of these brands are still very, very limiting. So as we start to now prepare our business plan for 2017, we are we are estimating or we are really budgeting an additional resource to be committed behind this brand. I would believe that the next year if something doesn't really go wrong, we should be able to see continual growth with most of these new brands. SPEC is particularly getting benefited because of the iPhone 7 launch. That is why you see a strong number coming from specs. But I must admit that most of these brands which you see are still largely limited to the home market or in addition to the home market, 1 more market. The spec numbers are still most of it is North American business. Hystera is still largely an American and Australian business, though it is very much our intention to really push this brand out in new market, but when you want to really push out the brand into new market, you'll need to put a disproportionate amount of advertising or the marketing resource behind them. And that has been a little bit of a challenge. We have not been able to do it for last couple of quarters, and I'm hopeful that 2017, we should be able to give a little bit more push to these brands in other markets. So the numbers which you're seeing here are primarily because we are getting better and better in terms of the product strategy, but not much has been achieved in terms of distribution expansion, which we would like to achieve hopefully in 2017 and here thereafter. This is my what was the second question? I just forgot. You mentioned a favorable mix in the shift towards direct to consumer. I was just wondering if you could give us a little bit more color on that, anything specific? Yes. So on direct to consumer, we do see a very, very strong growth coming from practically all markets from the e commerce. So direct to consumer, we have 2 proportion, which can say brick and mortar part of the business and e commerce. So the e commerce has seen very, very strong double digit growth numbers from every single market that we are operating in. Whereas the brick and mortar also is seeing, let us say, an improvement, I would put it like that. As I said, in North America, like for like is now in Q3. We are at plus 1.7%. And when we started the beginning of the year, quarter 1, it was minus 7.6%. Europe was always in the positive territory. Latin America was plus 7.1%. In Q3, it is plus 13.2%. The only market where we haven't seen, let us say, a major, let's say, improvement in like for like direct to consumer, let's say, like for like brick and mortar sales is South Korea, which is still somewhat challenged, and Hong Kong where we have seen that the negative numbers are lower negative numbers, but they are still negative. So I think other than Korea and in Hong Kong where we haven't seen much improvement, but all other markets, even brick and mortar channels have seen brick and mortar direct to consumer also have seen, let's say, business moving into positive territory impacting all of the markets. Do you see Hong Kong starting to bottom out now or prospective in 2017? A number of other retailers have reported have said that they sense that it's not getting better, but it is bottoming out. I wouldn't say it's bottoming out, but I would say that the bottom is visible. So if you start to really look at the numbers now in Q3, we are at minus 11.5%, whereas when in the first half it's a -15.6 percent. And the numbers that we are getting into quarter 4, we can say it will be more like minus 7%, 8%. So it hasn't really bottomed out, but one can say that when we really started the year or the second half of last year, it almost looked like the bottom fell out. It was minus 20, minus 30 kind of a number. So from minus 20, 30, you're going to bring into minus 5, it looks like that the bottom is visible. Thank you. So Hangul Kumble State is a very small piece of our business. It does have an impact on our business that's largely a retail business. So even it's a very small part of our overall business, but it sometimes has a material impact on the profitability because at one point of time, it was our most profitable part of our business. And because it's largely retail and the cost structure of retail being fairly fixed. So the profitability, which used to be in 30s kind of a number, I'm talking about operating margin as now more like in mid teens kind of a margin as now more like in mid teens kind of a number. So that has a material impact on the profitability. Okay. Thank you. We will now take our next question from Ewan Ramsberg from HSBC. Please go ahead. Hi, Darren. Congratulations for the quarter. Three quick questions, please. I understand your indications on what Q4 is going to be doing in terms of the U. S. And China. With the exception of India probably being affected by the demonetization, is it fair to assume that Q4 could be roughly in line with Q3? And then I had a question one question for Ramesh and one question for Kyle. For Ramesh, looking at Tumi, as you've taken back the business, how do you think about the possibility of taking back countries that were dealt with by partners previously? And given that you have a lot of countries you could take back in Asia and in Europe notably, How does that make you think about 2017 for the brand? And maybe for Kyle, just looking at the P and L and the fact that you have many acquisition related costs in Q3, how do we need to think about those potential one offs for Q4 and next year? Thank you. Okay. The quick answer to the first two questions. The Q4, you're absolutely right. The outlook Q4 is similar to Q3 with the exception of India. All of the market seems to be in similar territory as was Q3. Coming to Tumi distribution take back, we are making very good progress. And I'm hopeful that quite a few of the major markets, we should be able to start operating them directly early 2017. It could be as early as quarter 1 as well. I'll leave the third question to Kyle, yes. Kyle? Okay. And yes, so for Q for 1 offs, as we think about 1 offs, the majority of them have happened in Q3, obviously, tied to the deal. What you'll see for 1 offs in Q4 and a bit in Q1, maybe a tailwind to Q2 is just the last parts of our synergy plan. So there'll be some severance that you'll see in Q4. And as we get into Q1, Q2, we'll be switching over their SAP system onto our platform and the leasing cost there. Much smaller, obviously, than what you saw in Q3. I would say in the kind of $5,000,000 to $6,000,000 range in both Q1 and into the 1st part of next year as well. So in line with our plans. I think that was were those your only questions, yes? Yes. Thank you very much. Thank you. We will now take our next question from Raymond Ching from Credit Suisse. Please go ahead. Hi, thank you. Management, this is Raymond from Credit Suisse. First of all, congratulations on the very strong Q3. I have two quick questions. Number 1 is, I'm not sure if you can comment on your back Friday sales in the U. S. I'm not sure if you'll get any data as how is it doing right now? And my second question is also related to U. S. Because previously in the first half of this year and second half last year, our gateway to key sales was impacted by the high U. S. Currency rate. But recently, we're also seeing that after Trump being elected, the U. S. Currency also strengthened. So based on the very recent sales trend at the Gateway CTO in the U. S, do you see any impact from higher U. S. Currency rate again? Yes, two questions. Thank you. Yes. Black Friday, the sales numbers both from our own retail as well as our few of the wholesalers where we have the visibility. And I'm talking about our core brand, Samsonite as well as Tumi have been very, very strong. So the numbers look very strong both for Tumi as well as Samsonite, which gives us confidence for me to say Q4 numbers would be similar to Q3 numbers. As far as the effect of the currency is concerned, I think that the real impact of the stronger currency keeping the tourists away was seen more particularly in the second half of last year. The currency is still remaining strong, but I think the tourist starts to get settled to the new rates. Like the people find that it's fine and then I want to go for holiday to U. S. So I'm fine to go there. So that effect of the strong dollar of the tourists is not really material anymore. Not that the currencies have moved in the different direction. It's just that people get settled with that. And also I must admit that we also remerchandise our stores. So for example, in Florida, we know a lot of Brazilians come in. So the way they look at the pricing now is very different than they were looking at in the past. So we also repopulate our store with price points which are slightly lower than the price point we think we're probably populating before, let's say, before the depreciation of the Latin American currencies. Okay. And who knows what's going to happen with the currency with Trump, right? It's been a roller coaster. So it's hard to call what Q1 and Q2 will look like. I'd like to just go back to the previous question, Ramesh, for one second. We talked about one off charges. The other thing that people should be aware is we're in the midst of pushing the asset out to Europe and Asia entities. So as we the Tumi asset. And so there will be, and most likely in Q1, a tax charge associated with booking these assets out of the U. S. We're still evaluating exactly what we want to do there. So I just think people should be aware that you might see a one off tax impact as we push that out and we're evaluating if there's going to be a tax impact or just a tax charge or the tax deferred. So, I wanted to just lay that out there for folks so that they're aware of that. I think it's anywhere from kind of $180,000,000 to $40,000,000 of one off tax charges we push the asset. What that will do is allow us to achieve a lower going forward effective tax rate on the combined entity. So and that looks very optimistic for us. But I think it will be a little bit better than what we originally planned. Okay. Thank you. So more to come on that. We will now take our next question from Mariana Koo from CLSA. Please go ahead. Hi, thank you, management. I just have a follow-up question. On the advertising budget, could you actually comment, because I noticed that on Q3, you mentioned that you actually cut advertising slightly. Could you actually give us some color on what you're expecting to do in Q4 and maybe going to next year in terms of marketing expense? Thank you. Yes. So the marketing expense for the as will be more like around 5% of the sales. As we are now looking at it in 2017, then hopefully we should be able to ramp it up to around 6%. The money which we have not been able to really put behind is the new brands. There's enough and more money been put on to the core brands, but we couldn't find a resource for the new brands. We are also putting more additional A and P spend on Tumi. That's why you see that Tumi is starting to deliver some strong traction already in Q3 and going forward in Q4 and next year. So overall, A and P spend from this year would be more like 5% of our sales. And if everything is worth I mean, right now, we are budgeting to move that up to around 6% next year. Thanks. And also a small question just to follow-up on, I think on the material cost. Could you actually remind us how you actually managed raw material cost in terms of what we've seen in the commodity market lately in the volatility? Just wanted to get a bit of better color in terms of that part of your business. Yes. So there is like the module cost has more or less remained in the same zone as it was in the past. Few commodities have moved up, few commodities have moved down. There is also a very significant depreciation of Chinese currency. You guys know better than me about that. We are starting to renegotiate with many of our vendors to find some of the savings there. But what I would like to guide and we've been consistently maintaining that, that if you look at our gross margin by the IMV in the similar zone as it is now. The small improvement that you find is more because different brands or different channel mix of the brand mix when it changes, you'll find that our gross margin moving up by 40 basis points, 50 basis points up or down. We generally tend to not change the price value equation. For example, if there is a full Chinese currency depreciating, if we find some savings coming out of that, part of that helps us to navigate the currency pressure. And part of it also get passed on to the consumer, because we must keep in mind that we have the currency, let's say, commodity price advantage. It is not only accruing to us, it's accruing to everybody else in the marketplace. We would not like to materially alter the price value equation of our brands. So it doesn't really affect our margins either way. Thank you. That's very helpful. We will now take our next question from Xin Li from JPMorgan. Please go ahead. Hi all. I just have three questions. Firstly, would you be able to just break give us more color around the Tumi acceleration in sales growth in the Q3? Did it come from direct to consumer or indirect to consumer or a mixture of both? Maybe I'll start with that first. I'll follow-up. Yes. To me, if you look at the growth, if you see 15.6%, part of it is because we are now consolidating the Tumi Japan numbers. So if you exclude that, then it becomes 10.5%. I think you can largely give there are 3 large reasons we can look at it. One is definitely Tumi is also the second half of Tumi last year was a weaker second half. So they're also getting the benefit of investing a weaker second half, which is also partly helping their numbers. The first half was only 0.8%, excluding to Japan and the third quarter, 7.5%. The second reason is we are starting to find some traction because to me the heart failure collection, the new heart failure collection has just been launched in the market called 19 Degrees, which has found encouraging response in quite a few markets, more particularly in Asia, but also in North American market, which is also starting to help get additional traction with Jimmy in these markets. And the third is, as I've put before, we are also starting to put additional A and P on Tumi. We have started above the line advertising for Tumi in North America, in U. S. And in Japan, 2 markets. And I must remind that Tumi generally never has been doing any of the line advertising in the past. So I think that must also be helping to get some additional traction, which is delivering this Q3 numbers. In terms of the channel, I think both in Japan as well as in North America, large part of the business is still direct to consumer. So we do see a strong like for like growth coming in Q3 in to me in North America as well as in Japan, and very strong growth coming from e commerce. So in channel wise, and practically, it is not a channel specific thing which we are seeing, which is delivering a good growth on to me. I must say that we internally from a management point of view, we are extremely happy the way the integration of 2 businesses or 2 brands, which seemingly seem to be, let's say, kind of 2 different companies with probably 2 different cultures, but it has all gone about wonderful results. We are extremely satisfied. Of course, the credit goes to both Tumi's team, which has continued with us. They've done a good job. And also some of the cinemasement that we have moved from Samsungite into Tumi. So the whole structure starts to work very well. And I'm personally extremely hopeful that we should be able to see some strong traction getting into 2017. As everyone asked in the beginning of our question and answer session that we are also making very good progress in getting back the distributors, the market back from the distributors to go more direct, which also should help us not only in our ability to put push the brand more in those markets because ultimately our distributors' vision for a brand is more short term, whereas the brand owner can look at a business from a more long term perspective. So all these things should help to see better numbers coming out of Tumi in next couple of years. Okay, great. Thank you. And then the same store sales growth acceleration in the Q3 for North America has gone to 1.7% growth. Is that coming from better growth out of the gateway cities? Or is that just across the board? It's more or less across the board, but you can see that it cannot be pointed out to one particular market. Because I think the second half of twenty fifteen, the gateway numbers were much, much lower. So everybody is anniversarying those lower numbers. So you find that probably the growth is coming in. And now we have some visibility into the beginning of the Q4, and we do see that the trend continues. Okay. Okay, great. And then sorry, finally, just to clarify, Kyle, you mentioned the one off costs. If I could correctly, is that are you saying $5,000,000 to $6,000,000 per for the next 3 quarters? No, no, no. For Q4 and then in the first half, I'm just wasn't sure if it's going to be all in Q1 or Q2. Okay. And that's exclusive of the potential one off tax charge of $20,000,000 to $40,000,000 Yes. Okay, great. Thank you. We will now take our next question from Peter Tang from Mizuho. Please go ahead. Hi, management. Thanks for taking my question and congratulations on the results. I just had a follow-up question on Tumi, whether you can comment at all on how the margins did in 3Q year on year? That's my first question. And the second question is on tax rate. It looks like in 3Q, I was just wondering if there are any kind of one offs within the tax rate that seems to be a little bit elevated during this period. Thanks. Yes. I'll answer the first one and Kyle will answer you, the text part. So we look at the gross margin of Tumi is in the Q3 is more or less similar to what has been in the past. I mean this whole supply chain optimization, the role that we start to play or our supply team now start to manage to meet supply. And the result of that, you will see more in the second half of twenty seventeen, partly because there are already orders in pipeline, the inventories are already they work with much higher level of inventories. And also their order pipeline is much longer than what some sort of used to doing it. There may not be material change in the gross margin, but definitely when you really start looking at the second half of twenty seventeen, maybe Q2 of 2017, some of it may start to flow in and you will start to see gross margin improvement. We do believe that Tumi does offer a very significant upside in the gross margin improvement, but it will take us, let's say, second half of twenty seventeen and into first half of twenty eighteen, where I would say that I would then start making the same statement as I made for Samsungite Corporate Brands, all of our brands that look at our margin to be more or less flat versus we don't try to navigate our margins move up or down. It will be more or less in line with the cost structure. But we are not there as yet to make that statement for Tumi if we go up to first half of twenty eighteen, where I would say the margins are where the margin should be. But in 3Q year on year, the EBITDA margins were Tumi, were they pretty much steady? Yes, pretty much steady, yes. Okay. Thanks. Yes. Some of that was, we started to see some of the synergy benefits and particularly on the C suite, and we pushed some of that back into advertising in Q3 as well. So you have an up and a down kind of getting us to neutral. Okay. Okay. Yes. And then finally, just on the tax. Yes. So Q3 does look a little unusual. So our effective tax rate for Q3 was, call it, roughly 33%. The biggest reason for that is some of these one off costs that aren't deductible from a tax perspective. Our view for the full year is we're going to run around 29% or so. And as we look to next year, which is really be a truly blended Tumi and Samsonite, including us pushing some of the entities out to Asia and Europe. We think our blended rate is going to be somewhere between 29% 30%, which is what we originally thought. I have a feeling that we'll probably be on the lower side of that range, which is a terrific outcome. But in Q3, you just have a little bit of noise around the transaction cost and accounting, but some are not deductible. Okay, understood. Many thanks. Thanks. There are no further questions from the telephone. Okay. There is one question from online from Maxim Asset Management. Looking to find out more about how online sales are doing and what percentage are we now selling directly to consumer either through online or through our own stores? And whether there are any targets on gross margins moving forward? Yes. As I said before, the online e commerce is today the fastest growing channel for us in every single market that we are operating in. The e commerce contribution is now more like 8% to 9% of our total revenue, which is continuously increasing. So if we look at last year, it was more like 6%, 6.5%, which is moving up to around 8%, 8.5%, maybe really towards 9% in quarter four numbers. As far as direct to consumer, which includes the brick and mortar as well as e commerce, number is more or less similar to the contribution percentage have remained more or less similar to what has been a lot of service is more like around mid-20s kind of a number that hasn't materially changed. Oral lumber has remained more or less in the similar zone. And on the gross margin, as I spoke before, our gross margin has remained more or less flat versus the year before that. But you see a small improvement in the quarter three numbers, 53.2% to 54.9%, which is more on account of Tumi because Tumi is largely the proportion of their direct to consumer sales is likely higher because of that you see a small uptick. But if exclude that, then there has been a small improvement of 50 basis points, which again is because of a slightly higher proportion of effective consumer channel, particularly e commerce. E commerce, definitely, we operate at slightly higher gross margin That is pushing that number up by about 40 basis points, 50 basis points. The other thing we've seen on the gross margin side is Latin America dramatically improving from last year to this year as we continue to position ourselves in markets like Brazil. So you see an improvement there. So it's smaller in the overall mix, but that's creeped our margin up just a bit. And I think there's a bit more to go for Latin America. So that's looking very positive. And just like what you saw for the first half, our European gross margins improved slightly as American Tourister has matured. And I think you'll see a slight benefit from that as we move forward as well as that continues to play out. Thank you, Ramesh and Kyle. One more question from Kuplent Cardiff Asset Management. Could you comment on competitive intensity different markets? And are you gaining market share in any markets? Yes. We do see competitive activities. I mean, I would say that competition is becoming far more desperate in Europe. We see competition getting desperate in Latin America. We have also seen some very desperate action in China, India, Korea. But other than North America, where the competition has been more or less same as we haven't seen anything much change there, but many other markets we have seen and the impact of that, we do see that on American dystomod, particularly, because we don't see so much of, let us say, impact on our Samsonite sales. But many of the companies have been desperate, so they have been running bigger promotions, losing willing to operate at lower gross margins. And we took the conscious call that we will not follow the competition by way of more aggressive price promotion because we were already working on launch of another brand called Kamiliant to engage the competition at that, let's say, more aggressive price point. Kamiliant is starting to find traction now in more in Asian markets like India, China, Korea, and now we have recently also launched in Japan. I think other than that kind of a desperate action by the competition, which has somewhat affected our sales of American Zoister, we haven't seen anything more material than that. Thank you, Ramesh. Operator, are there any more questions? There are no further questions from the telephone. Okay. Given that there's no more questions, we'll now close this earnings call. Thank you, everyone, for attending. Thank you, Kyle and Ramesh for the presentation. Thanks, everyone. Thank you. Thank you, everybody. Bye bye. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now