Good morning, good afternoon, and good evening, ladies and gentlemen. Welcome to the Samsonite Group 2025 Interim Results Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please note that this event is being recorded. I'd like to hand the conference over to Mr. William Yue, Vice President of Investor Relations. Thank you. Please go ahead, sir.
Thank you, operator. Thank you, everyone, for taking the time to join the call. Today, we have our CEO, Mr. Kyle Gendreau, and our CFO, Mr. Reza Taleghani, with us. Mr. Gendreau will begin with a few opening remarks. Thank you very much.
Okay. Thanks, William. Thanks, everybody, for joining. I am starting on slide five. I'm assuming that is up and running. I'm going to start with an overview of first-half performance and, importantly, the market dynamics that we're seeing. When I think about where we are today, we're significantly benefited from unprecedented revenge travel from 2022- 2023, a period where the recovery of our business significantly outpaced the market. From 2021- 2024, our reported net sales CAGR grew 6x faster than the bag and luggage industry, as we were really set up to capitalize on that return of travelers in that time period. Our recent sales trends, particularly in the back half of 2024 and first half of 2025, reflect a normalization from this record-setting 2023 result, which has caused us to trail travel and pass through the miles just a bit in the short term.
That said, our Q2 net sales generally were consistent with our outlook, down mid-single digit, while our gross profit margin and our adjusted earnings margin remained stable. In our first half net sales, importantly and notably, we're still up 24.4% compared to pre-pandemic first half 2019. We're navigating a shifting travel landscape. While travel growth has continued as consumers have still prioritized travel and experiences, we've observed a softening in travel demand during the first half of 2025 in certain key markets around the world, particularly North America, influenced by macro-economic uncertainties, shifting trade policies that have some settling as we speak today, but still kind of fluid, and importantly, a weakening consumer sentiment off the back of much of the macro-economic uncertainties and trade policies that's carried into our business.
From a channel performance perspective, our wholesale customers have adopted a more cautious purchasing approach, resulting in our wholesale channel being down 7.4% in the first half of the year. In contrast, our direct-to-consumer channels have shown greater resilience, declining only 1.6% in that same time period. It really highlights the strength of our direct connection with consumers and the resilience in consumer demand, as we can see it closer with the direct-to-consumer business. Our focus remains on profitable growth and brand positioning. We've observed in our marketplace, and you'll see it when we talk about the brands, an increased presence of low-priced unbranded competition, which is that we've consciously chosen not to compete with to protect our profitability and the brand positioning of our business, particularly American Tourister.
We believe this remains tremendous long-term opportunity for us to pull consumers from this unbranded space into branded products with brand American Tourister. We're managing that very, very cautiously in the positioning we've achieved across all of our brands in this environment. We're driving growth through DTC and category diversification. Our strategic investments in the DTC channel are paying off. Our DTC mix now is 40% of net sales, up from 38% last year. We believe this evolution enhances margin profile in our business and strengthens brand loyalty. Concurrently with that, our non-travel category showed a constant currency growth during the first half as well, which continues to represent a significant long-term growth opportunity for us in a section of the market that we're underpenetrated as a category for our business. Non-travel is up 180 basis points to 36.2% in the first half compared to the prior year.
We continue to demonstrate agility and discipline in managing our cost base. Despite adding 57 net new stores since June 2024, our combined distribution and G&A expense are up less than 1%, or approximately $5 million compared to the prior year, really speaking to the level of management we've put on the cost side of the business. This illustrates the effectiveness of our commitment to operating efficiency and prudent resource allocation. This focus has led to an improvement in our long-term margin profile, with first half 2025 adjusted EBITDA margin still remaining 400 basis points over where we were first half 2019. We have a very resilient gross margin. Our gross margin remained robust and well managed at 59.2% in the first half of 2025, while slightly down from a record 60% last year at the same time period.
This was largely due to a mix effect, with relatively lower contribution from our highest margin region in Asia, as well as the effect of certain strategic promotional initiatives to drive sales, which we've been doing to push the business, partially offset by the net sales contribution of DTC, which has a margin benefit for us. We continue to strategically invest in our business, particularly in product innovation, our DTC-present marketing initiatives, while maintaining discipline on overall cost, as we've just talked about. We continue to focus on remaining at the forefront of creating innovative and exciting products that we believe drive demand and elevate our market leadership position. We had very strong introductions of products in the first half of 2025. 19 Degree Lite is a good example for brand Tumi. We have more coming in the second half.
We'll be launching our 2025 Red Dot Design Award-winning Paralux in just a handful of weeks, which is an amazing collection of products that we'll be launching globally as we step into September. We believe these investments across all those fronts are critical and position our business for strong, sustainable long-term growth in a dynamic market environment. We continue to invest. The next slide is a slide you've seen before. I think the key takeaway from this slide is when we look at where we are, we'll talk about revenge travel in just a second and what that looked like for us against the industry. The important number is that when we look forward in this business, this business or this industry is back to consistent growth profile that we've seen in the past.
As the business said, from 2024- 2029, outlook CAGR growth of 4% in global passenger travel. As you know, we correlate really well with that. We have a history of over-delivering against that industry growth. We're well positioned in an industry that's moving despite the macro-economic challenges we're seeing. Slide eight, a different slide, but a lens, something we've talked about in the past, but I think it captures a really important lens for the business. Sales trends recently have deviated from travel growth as we lapped significant outperformance. I'm going to show you that, along with consumer sentiment that's definitely softened in this environment, particularly in 2025. In the chart, the purple line is the bag and luggage industry, what we would label as the industry that we're playing in. You can see over this time period what the growth profile is. The blue line is us.
You can see how we navigated the pandemic. Importantly, when we step out of the pandemic, and this is really where revenge travel capture steps in, we significantly outperformed this industry, up 37% in 2021, up 47% in 2022, meaningful growth up 28% in 2023. If you combine the CAGR growth 2021- 2024, this is a business that had a CAGR growth of almost 23% against the bag and luggage market in that same time period that was up 4%. It speaks to our ability to bring in inventory. We were well ahead of the industry, our ability to continue to innovate and deliver really strong product. It has fueled a really good story. As we step into the end of 2024 and 2025, we start to comp this period. We are seeing and feeling that. We have on top of that a softening consumer sentiment.
I think we're navigating this well. We've significantly outperformed the industry. As we look at industry forward growth back to historic levels, I think you'll see us catch right back up to that as we come out of this short-term period that we're navigating today. On the next slide, just a bit on the numbers. Again, our first half number has definitely impacted consumer sentiment and what I just talked about as far as trends and macro-economic uncertainties that have kind of played in. Our first half sales were $1,662,000,000, a decrease of 5.2% compared to last year, which was up 2.8% last year, first half. Again, that's off of a tremendously strong first half 2023. We started last year in a very strong way. We're comping against that. Our low performance in the first half was primarily driven by wholesale customers purchasing more consciously.
As I said earlier, wholesale customers are acting carefully in the midst of the shifting tariff environment and unsure where we were landing on this. You'll see that in the wholesale numbers. I mentioned this already, but notably, our first half numbers still remain tremendously higher than pre-pandemic, up 24.4%. Our wholesale channel sales were down 7.4%. It's a handful of big customers that are buying differently right now because they manage. If you think about tariff impacting North America, this is where we're seeing it. Our DTC channel, in contrary, was only down 1.6% as a true measure of kind of what we're seeing in consumer sentiment and what we're doing to push and drive those channels within direct-to-consumer.
Gross margin very strong at 59.2%, despite the unfavorable geographic mix as well as us leaning in strategically with promotions, but still managing margin in a lane, what I would label as a lane that's kind of our natural place for gross margin. Roughly 59.2%- 59.5% is the way to think about it. We're up against a really strong record gross margin last year. I think when we talked about last year's results, we signaled that these were record numbers and maybe higher than the normal course for this business. Importantly, as many of you know and you've been following us, we significantly elevated our brands over the last three and four years. Our gross margin today sits at 320 basis points off of where it was pre-pandemic in 2019. We've had tremendous success in elevating and positioning all of our core brands.
It still carries really strongly in the gross margin despite the consumer sentiment and despite the noise on tariffs. Reza will cover what we've done for tariffs in the back section of the presentation. I said this earlier, but we're managing costs with tremendous discipline. Our distribution and G&A expense, $640 million, was up less than 1% despite adding 57 new company stores. We continue to manage this business, pushing it, driving it, but with discipline on the cost structures that we have in place and what we've been able to maintain really and achieve through the pandemic. Our first half adjusted EBITDA margin, $269 million, an EBITDA margin of 16.2%. We saw an improving trend in Q2 versus Q1. The margin is really holding up.
Just as a reflection of the transformation we've had in this business in the midst of all of the past four or five years, we're 400 basis points higher than where we were first half of 2019. All that stays really completely well intact with this enhanced margin profile for this business. I covered this, but just a little bit of detail. We continue to have great success in DTC channel. We continue to invest in enhancing our DTC present, both in brick and mortar and e-commerce, particularly in our underpenetrated Tumi brand in Asia and Europe, where we continue to push and open amazing stores. I'll cover that in a second. We believe these investments yield strong, tangible results and enhance the overall gross profit profile of the business while continuing to elevate the brand presentation to the end consumer.
DTC to mix, as I said, was 40% of our sales, up from 38% last year. I think we've signaled this in the past. There's no reason over time we don't shift closer to 50% direct-to-consumer as we move and push the business forward. We also believe that these shifts not only enhance gross margin, but again, it elevates our brand positioning and presence to the end consumer. We're seeing that across all of our channels, across all of our regions, and across all of our brands. We continue to expand non-travel opportunities. There are tremendous opportunities to grow the non-travel category for this business. Our focused efforts on non-travel continue to deliver with positive constant currency growth in the first half of 2025, despite consumer sentiment. It highlights really a significant long-term opportunity for us to grow in this underpenetrated category with amazing products.
You can see it across brands and what we're doing to push the business. Our non-travel business today is now 36.2% of our sales, up almost 200 basis points to where we were last year. If I look at brands, and Reza will cover some of this in the back, how are the brands playing within this period? Brands Samsonite are basically our kind of Tumi and Samsonite brands, which are more targeted to middle and upper-income consumers, are performing better than American Tourister, as you might expect. American Tourister is really addressing a more value-conscious consumer, maybe feeling more of the impacts of consumer sentiment and uncertainty and more of a wholesale business. Our American Tourister business is down 12.7%, really driven by wholesale customers buying more cautiously in this space, those consumers being more cautious.
It's a space where we've seen tremendous influx of unbranded, really low-end product that we've consciously chosen not to follow, which is the right answer as we manage the elevation of the brand and the positioning of the business. Samsonite was down 4.7%. We saw growth in Europe. We saw growth in Latin America. We saw the pressures within North America and Asia off of consumer sentiment and the macro-economic backdrop, down 4.7%. You can see Asia down 8% and in North America down 6% with positive numbers for Europe and Latin America. Tumi performed quite well. We're not used to a negative for Tumi, but down 2.5%. We saw growth in Latin America. We saw growth in Europe. We saw some modest decline in Asia, 2.5%. We saw a decline of 4.7% in North America, really driven by reduced traffic and consumer spending a bit reduced.
I might say when I think about being in a performance luxury space, we perform better than most in this space at down 2.5%. We see improving trends for this as we go into Q3 in the back of the year as well. I think, again, brands are acting the way I would have anticipated in this environment, and we're managing well. Just one shout out for Gregory. We do not often shout out, but Gregory is a brand that we're pushing, and it's on the move. This delivered 15% growth in the first half of the year. This was really driven by really strong distribution expansion and particularly strong DTC growth in our digital channels in North America and Europe. We saw brick and mortar expansion in Asia. We opened a first retail store in China in Shanghai. I visited this store at the start of the year.
There's more to come. This store is open, tremendously successful. We've immediately had malls approaching us for more opportunities to open this business. As you know, Gregory within Asia has a bit more of a lifestyle along with its technical aspects, and it supports these stores really well. We've been innovating in the business. We've been driving new product innovations in the active lifestyle and core outdoor categories. Gear organization has been a big win. It's broadening distribution, and it's having tremendous success with the customers. If you haven't touched some of this product, I've got a garage full. It's really amazing products. We've been expanding in particularly the everyday active lifestyle outdoor consumer space with tremendous success with this brand, and we're pushing it quite well.
Lastly, I'll get into some specifics, but I think this concept of investing in profitable long-term growth and building resilience for the future is something that we're always doing. I think even in this environment where it looks like sales are down slightly, we can understand the reasons why, either from a comp perspective or consumer perspective, we're still pushing the business. We're committed to continuing to invest across the business to drive long-term net sales growth. We can continue to invest in product innovation. It's really, again, product is one of our keys. It's why we've been here for over 115 years, really developing compelling new products designed to meet consumer needs and expanding our market reach, driving sustainable revenue streams, and driving sustainability within our products. There's tremendous momentum here on the product side, and we're continuing to push that.
As we said, strategic retail expansion, disciplined opening of new stores, 50- 60 stores a year is something we can handle. It's expanding brand presence, capturing new market opportunities, and ensuring this strong footprint in retail, particularly in underpenetrated brand Tumi within Asia and Europe, gets in front of consumers. We're doing amazing work here, and that will continue. We have targeted marketing and advertising. We're capitalizing on our strength and our marketing spend to really amplify brand awareness. We see tremendous opportunities to do that, cultivate customer loyalty, but importantly, stimulate demand, particularly in these environments where we're stimulating demand. We can really lean off the strength of our marketing. We continue to do that. I think these deliberate investments underscore the confidence in our business and our commitment to drive long-term sales growth for the business. A few call-outs to some really interesting things we've done.
We opened this amazing, I'll call it, flagship store in Shanghai in one of the best locations within Shanghai. You can see the pictures of this. This store opened in July. We had a grand opening for this store a week ago. I missed getting there because of the typhoon that happened to be flowing through, but I was due to be there. Tremendously successful. We opened the store with a new China-specific celebrity for the brand Tumi, with great success. This starts off to a great start. We've opened other stores across Asia. We opened our 50th Tumi store in Europe. I'm on slide 15. 50th store in one of the most vibrant shopping streets in Cologne, one of my favorite spots within Cologne. This is a great, you can see the footprint of the store and the location of the store.
Really a testament to where we can continue to go with Tumi in Europe. Again, our 50th store on our 50th anniversary for the brand. It's quite exciting. They had a great opening here as well. We're focused on products and messaging and collaborations. We launched in June our exclusive Vexx and Samsonite collaboration, really a vibrant, colorful collection that'll be launched on a limited basis. You can't miss this when you're in an airport or moving around. It really just brings tremendous interest. The bags are fascinating. We've launched those, and we'll continue to do things like this within the brands to stimulate interest and demand. Even at brand American Tourister and Squid Game, which I'd never watched, but my kids were quite into it. This is a younger-focused collaboration.
We had really a fun, exciting product launch with both luggage and tote bags, a neck pillow that's totally fascinating. I was in market in Korea just a few weeks ago. This really shows up well and stimulates brand American Tourister. Just another message around what we can do with collaborations to bring real interest and scale to our brands. We have very strong marketing campaigns across North America, which really help brand positioning, elevating brand position. We have Payton Pritchard, which we happen to sit in Boston. He's a Boston Celtics player with tremendous success and really exciting ads. We have John Turturro, who's kind of been a star for a while, most recently in the hit series Severance, which is quite exciting and award-winning collab. We're doing some really amazing city scene advertising with John across our North America market, really well received.
In Europe, we continue with Kat Garrud, who's been a huge Samsonite fan and driver. We have a You Are the Journey campaign, which is a meld of some of our best performing luggage along with our non-travel categories. This campaign's been tremendously successful in stimulating demand interest and showcasing how non-travel and travel really work together in our brand Samsonite in a really exciting way. Last year for me, and I'll come back at the end, we're continuing to advance the consumer-facing communications on our responsible journey. As you know, we're pushing the needle on sustainability. We're doing amazing stuff. We have such confidence in where we are now. We're leaning into the messaging. We're leaning into what makes a difference in our space in a careful, subtle way across websites, within store prints, and really off of the work we do with consumers.
We believe durability, repairability, and recyclability, in that order, are what consumers really care about when they think about a sustainable product built to last. All of this messaging ties really well together on all those fronts. In all those fronts, we're winning on durability and design for repairability. We're making tremendous impacts in the marketplace and more to come. We continue to push the envelope on recycled content. This Paralux collection that will launch for Samsonite, for me, is a tremendously commercial product that touches across all of the sustainable attributes that we've been working on in our products. It's an amazing product and a testament to what we're able to do. We're telling our customers more and more about what that is as we move forward. With that, I'll go to Reza, and then I'll jump in at the end.
Thank you so much, Kyle. We are on page 22, just double-clicking on Q2 results specifically. Then we will go through some of the additional numbers. Just for reference, Q1 was down 4.5%, Q2 down 5.8%. That blends into the half down 5.2%. Q2 was in line with our expectations of down mid-single digits. Relatively stable is what we would say in terms of the performance from the different regions. Gross margin at 59%. We have a lot of discipline around gross margin and maintaining our cost structure as well. There was a decrease of about a point from last year. As Kyle mentioned, those were very, very high levels from a record perspective. The gross margin has partially been offset by increased net sales from our DTC channels. We are very focused on continuing to grow those.
We will get into that in greater detail in terms of the breakdown between e-commerce and our own stores. EBITDA margin at 16.3% compared to 19% last year. That's the flow-through that we're seeing from the lower gross margin percent. Some higher SG&A expenses as well, partially offset by lower advertising as a percentage in net sales. Overall, we delivered $71 million of adjusted net income compared to $87 million in the prior year. That's a decrease of $15 million. That's basically the flow-through that's happening, a little bit of higher depreciation, partially offset by lower net interest expense and FX losses. Getting into the regions on slide 23, constant currency, if you're looking at Q2 versus Q1, and it's on the bottom of the page, Asia was down 7.6% compared to 7%. North America down 7.3% compared to down 8% in Q1.
Europe is basically almost down a point compared to up 4.4%. There is a little bit of a slowing that we're seeing in the European market that we will cover on the next couple of slides. Latin America was flat in Q1, down 2.2% in Q2. Looking at some of the drivers specifically on page 24, just to touch on some of the trends of what we're seeing. Net sales in North America were down 7.3%. It is an improvement over Q1, where it was down 8%. What we mentioned in the last call after Q1 still stands, where there is some volatility in terms of what we're seeing in terms of the wholesale purchasing that we're seeing in the market. Tumi did have a sequential improvement. It was down 3.3% in Q2 compared to down 6.3% in Q1.
Our Samsonite brand also showed sequential improvement, down 6% in Q2 versus down 5.4% versus down 6% in Q1. This is the timing shift that we've been talking about. As you well know, Samsonite is majority wholesale in the North America market, and some of the wholesale channel is buying episodically, depending on what's happening in the quarter. Some of the sales will shift from one quarter to the next. Net sales in Asia are relatively stable. They're still down in that mid-7% number. China net sales were down 6.2% compared to down 4.8%. Net sales in India down 2.7%. It's an improving trend that we're seeing in India, especially as that goes forward into Q3 and beyond as well. Essentially flat due to the prior year with growth of 0.1%. Net sales in Europe were down about a point in Q2.
As I mentioned, there is travel demand in Europe continuing to show strength, but it's tapered off a little bit. What we're seeing is where the absolute travel statistics are still strong, the consumer behavior in terms of purchasing is slowing down a little bit. If you're looking at individual countries, there's certain markets we've highlighted, France and the UK specifically, where we're seeing a little bit of weakness. Net sales in Latin America down 2.2%, relatively stable. It was basically flat in Q1, and that's basically driven off of consumer sentiment, largely in Mexico and Brazil, where you have large wholesale clients that are mimicking what we're seeing in the U.S. On slide 25, Kyle touched on this, but I'll just double-click a little bit further in terms of the overall first half results. We were down 5.2% on sales.
Gross margin relatively strong still at 59.2% compared to a record number of 60.2% last year. Adjusted EBITDA 16.2% versus 18.9%. That's just the gross margin flow-through that we're seeing there, as we just talked about. There is some operating deleveraging that's happening. If you're looking at Q1 versus Q2, it's holding relatively stable and slightly improving, I would say. Overall, we delivered $123 million of adjusted net income for the half. That compares to $174 million in the prior period last year. On slide 26, just with regard to the tariffs, the good news on tariffs is that we're finally seeing some sort of clarity in terms of what's happening in the U.S. We were very pleased specifically with Thailand and Cambodia finally having negotiated trade deals. Those are the two of the larger markets that we're looking at by FOB value for us.
That we finally have clarity on. The way that we would characterize it is the tariffs are coming in on the better end of what we were anticipating. What I think is very important is if you're thinking about it from an impact on gross margin, etc., and we talked about this after the previous quarter as well, we have been very aggressively taking actions to try to mitigate the impact on gross margin in the North America market. Just by reference, North America is about a 1/3 of our business. It's not like it impacts the entirety of our business. We had definitely started to pre-buy and bring in forward-buy some of the pre-tariff increased inventory. You'll see that on the balance sheet that our inventory levels are running higher than what you would have normally expected.
That's largely driven based on what we're doing in North America to try to get ahead of it. We have implemented some price increases before August 7th, and further ones are being evaluated currently to try to mitigate some of that impact on gross margin. We've partnered with our suppliers to try to manage costs. Obviously, FX is a component of it as well in terms of we purchase in Asia, mostly in Asia, in dollar terms. As that FX benefit accrues to our suppliers, we go and try to claw some of that back. We've had some good discussions with our partners on trying to offset some of this impact. In the medium term, we re-engineer our products to make sure that we're hitting our gross margin target.
If you think about us for next year and beyond, that activity is being worked on by the product teams as well. Now that we have some clarity, we can look at shifting between these countries as well. Overall, I would say tariffs being well managed and probably better than where we were last quarter when we talked. On page 27, other financial highlights. Looking at the first half numbers, distribution and G&A expenses of $644 million, up slightly. That's despite adding 57 net new stores over the quarter. We have a slide on that just to highlight that a little bit further. We're being very disciplined on expense management. Advertising spend is just shy of $100 million, which is 5.9% as a percentage of net sales, $19 million lower than what we invested in last year.
Obviously, given the sales environment being under pressure, we want to make sure that the advertising dollars that we're deploying are being effective. Operating profit overall, $238.5 million compared to $315 million in the prior year. It's primarily due to lower gross profit offset by lower variable costs and reduction in the advertising that we just talked about. Still delivered adjusted free cash flow at $12.5 million. That's despite higher inventory purchases. I think from a networking capital perspective, we've increased that, but still delivered strong free cash flow in the period. Obviously, it's lower than what we did last year because of that inventory increase, but still in positive territory. The net debt position was just over $1.1 billion as of June 30th. That's after returning a total of $350 million to shareholders.
Obviously, we're very focused on making sure that we're doing the right thing in terms of having a balanced capital allocation strategy. Our cash balances, you'll see, were down about $146 million in the half as compared to last year, largely due to returning cash to shareholders. Our net leverage is still very, very strong in terms of 1.85 turns. It's absolutely within the targets that we set for ourselves. We feel very comfortable about that. Incredibly strong liquidity. Liquidity of about $1.4 billion gives us tremendous financial flexibility. Just to double-click a little bit in terms of the cost side, looking at the distribution and G&A expenses, and we're on slide 28. Again, this is something that we talked about last quarter as well. If you're looking at the half, we basically have distribution and G&A expenses of $643.6 million.
That's just up very slightly compared to where we were last year, $638.5 million. Again, this is after adding 57 net new stores, increasing wages. We obviously have to have some pressures on gross margin and other things, but we are continuing to deliver on the SG&A to try to maintain discipline around costs. On slide 29, Kyle mentioned it a little bit earlier, but just to re-emphasize the point, our DTC net sales were very resilient. It's the wholesale channel where we're seeing some episodic purchases, especially in North America and in Asia as well. We saw total e-commerce sales. We are now at 11.3% of our net sales are coming from our e-commerce channel as compared to 10.8% last year. Overall, DTC is approaching 40% as compared to 38.1%. We were at 39.6% to be specific. It's that wholesale channel.
If you were to really dig into the wholesale numbers as well, we would say that the sales to e-tailers were 8.8% of the total pot this year compared to 7.6% last year. It's that wholesale channel where you're looking at the big box retailers where we're seeing the biggest impact. That percent is down to 51.5% as compared to 54.3%. That's really where the decline is coming if we're looking at it year over year. On slide 30, travel is what, if you're looking at it by product, the non-travel segment is performing very well. If you're looking at it overall as a percentage of our net sales first half, 63.8%, the absolute number is it's still performing in terms of, I'm sorry, I just gave you the travel number. The non-travel number is 36.2% as compared to 34.4%.
In an environment where you're seeing sales come down, it is all the travel category. That's largely due to what Kyle mentioned a little bit earlier, that we had this pull forward of demand that happened post-COVID. As we enter that replacement cycle next year, we should see that travel demand come back as well. Overall balance sheet, again, we just touched on it. Leverage in very, very good position. Liquidity of $1.4 billion and net leverage of 1.85 turns. We're very well positioned to significant benefit from long-term growth prospects. We're continuing to deleverage the balance sheet. Looking at working capital on slide 32, again, there is an uptick in terms of what we've been looking at on inventory specifically that is intentional.
Obviously, we're in a lower sales environment as well, but we did want to make sure that we had brought in ample stock, both in Q1 and Q2, kind of pre-tariff stock that should benefit us for the remainder of the year. That's what's driving it. On slide 33, just looking at CapEx, we're maintaining very discipline around CapEx. It's slightly lower than where we were last year. We're at $30.4 million for the half versus $41 million last year. CapEx is largely retail CapEx. We had $22 million of that was primarily for store remodels and relocations. We have new stores that we've been investing in as well. We continue to invest behind the business, but we want to be disciplined in terms of the capital that we're allocating out. With that, let me turn it over to Kyle, and we'll get into the outlook.
OK, thanks, Reza. While we remain confident in the long-term travel tailwinds, as I covered earlier, which looks like they're back to historic levels, the current macroeconomic environment is creating uncertainty with shifting trade policies and softer global consumer confidence, which I think is a big piece, which are impacting near-term demand. It makes it very difficult to predict the back half of the year. With that said, although we expect net sales in Q3 to benefit from expected continued growth in travel and demand, and we're comping a softer demand period in Q3 of 2024, we anticipate consumer sentiment to remain muted. That's really what we're seeing as we sit today. The clarity on tariffs can be helpful, but there remains ongoing trade policy uncertainties along with inflationary pressures, which may further impact consumer demand.
We believe there's potential for some level of sequential net sales improvement as we step into Q3. We're seeing and feeling some of that as we're sitting here today. We can see some sequential improvement versus Q2 of 2025. I might say the environment remains challenging to predict. Notwithstanding the current unsettled political and economic environment, we are confident, 100% confident in our long-term growth outlook. We believe our ongoing investments in new, exciting products, as I covered, brand elevation that we've been working on and continue to push, and importantly, channel and product category expansion, which strengthens our business and our focus on maintaining a robust margin profile. Getting the balance of long-term growth with a really solid margin profile is supported by disciplined expense management. Consumers are still prioritizing travel, which is very important. I think travel will continue at historic levels.
As you know, we have a history of being ahead of that with our core brands. We're focused on contributing to continuing to leverage our asset-light business model, investing in growth, importantly, but returning cash to shareholders. You saw what we've done in this past year and continuing to deleverage our balance sheet as we go forward. Lastly, we continue to prepare for a dual listing of the company's securities in the U.S. That remains ongoing. However, as I signaled on the last call, we're closely monitoring the current economic backdrop and market uncertainties. Our Board, our management team, myself, continue to believe a dual listing of the company's securities in the U.S. enhances value creation for our shareholders over time. I might say, and importantly, we are well positioned to proceed once trading and market conditions improve. We're in a ready position is the way I would describe it.
We're really watching the markets very carefully to get the timing of that right, is what I would say. With that, I'll turn it back to William and questions. Thanks, everybody, for listening.
Great. Thank you very much, Kyle and Reza. We can begin the Q&A session now. Just a reminder, please do not ask more than two questions. I thought that we can give the chance to other speakers for their questions. Thank you.
Thank you. As a reminder, to ask a question now, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question from the line of Kai Sheng from Guotai Haitong Securities . Please ask your question, Kai.
Hi, good evening. Thank you for taking my questions. This is Kai from Guotai Haitong . I just got two questions. First, as Kyle just mentioned, as we can still see some improvement in the third quarter in terms of the top line and also the margin, may we also have some updates in terms of the whole year guidance? My second question is, is there any specific strategy that can be shared for American Tourister as it still faces some challenges, especially with those branded competitors? Thank you.
Sure. As far as improving trends, we definitely see it. I think I also signaled there's tremendous uncertainty, and it's hard to predict. In general terms, the back half should sequentially be better than the first half. I'm not specifically giving Q4 guidance because it's a bit further out for me to do that. I think collectively, we'll see sequential improvement in the back half of the year versus the first half of the year, and a lot of that's off of a comp that's easier. I do think as tariffs start to settle down, we'll be watching for consumer sentiment to settle down as well, and that's harder to predict. I think that's really where us, like lots of companies, are wondering where that sits. I think inflationary pressures, you know, we had an inflation number this past week in the U.S.
that was maybe a little better than anticipated. My personal lens is I don't think we fully have felt the impacts of inflation off of tariffs, and I think there's more to come on that. We'll be watching consumer sentiment. All in all, I think we've got an easier comp, and I think it should be an improving trend for us in the back half. I'm not going to be so specific for the full year because there's enough uncertainty. As far as AT strategy, we're being very disciplined. In certain markets like India, we're leaning in. If you know, in India, we also have a sub-brand called Chameleon, and it's the only market that we use this. We're pushing that in a market where we've seen tremendous low-end pricing competition, and we're allowing India to lean in a bit, but with discipline.
I might argue we're managing American Tourister with discipline, but it's a brand that we're pushing hard to draw consumers up, and I think that's the way to think about American Tourister. You saw in Asia, and Asia is the biggest market. We have collaborations like with Squid Game. It's a brand we're pushing. We're navigating. I think there's more opportunities there across the globe to draw consumers into the space, and that's the way we're thinking about it. We're promoting. We're discounting, but in a level that I think is appropriate and not allowing the brand to lose its footing in the right way. I think that's the right medium and long-term strategy. I think you'll see that improvement happen as wholesale customers settle down, because again, American Tourister is largely a wholesale-based business. As wholesale customers settle down, I think that'll drive some improvement.
If consumer sentiment at that lower end or that entry-level consumer, value-conscious consumer settles out, I think that brand will do well. At the same time, we're pushing the business very strategically in certain markets to move the needle.
OK, great. Thank you, Kyle.
Thanks.
Thank you. We will now take our next question from the line of Dustin Wei from Morgan Stanley. Please ask your question, Dustin.
Thanks for taking my question. First question related to tariffs. Glad to see that some of the price increases got pulled off. Wondering if you can share some of the details, like the level of the way you take the price and the timing. Should we sort of assume that the tariff impact on sort of gross margin third quarter will be neutralized? One thing related to the tariff is the inventory management. Looking at your balance sheet, the inventory indeed increased a little bit. Is that a good thing in terms of that? Is kind of the pre-order inventory kind of before the tariff so that can make your U.S. market sort of have more pre-tariff inventory to sell to the customer? Or should we sort of worry about the current sales trend is below the budget? Kind of impact on your free cash flow.
That's something related to tariff. The second question is related to Asia. China sales in the second quarter are down about 6%. India is down a little bit only. It implies that the Asia market, excluding China, excluding India, is actually down a little more than the group average. Could you, I know the Asia market is quite fragmented, but could you provide a little more update on what happened in other markets and are we seeing potential improvement in the second half? Thank you.
Dustin, why don't I kick it off in terms of the tariff question? In terms of the inventory, the answer to the overall arching question on tariffs that you asked is from a gross margin standpoint, we're trying to neutralize it. I think the combination of all of the different actions, and it's not just price increases. We're not publicly saying what the numbers of the price increases were or anything like that. You have to think about it as a combination of price increases, negotiating with the suppliers, bringing forward the inventory. The combination of all of those three will neutralize the impact. If you're looking at it medium term, it is really important to highlight the fact that we engineer product to hit certain price points. That's one of the core competencies we have.
If you're looking at next year and beyond, we have enough time to be able to make sure that we're managing for those channels to be able to hit those price points. I would tell you for the North America business, expect that we should be able to neutralize the impact of tariffs overall. From a free cash flow perspective, yes, we did increase the inventory in the first half of the year. We'll start selling through some of that inventory, bringing the working capital down to historical levels for North America specifically. Yes, there'll be some free cash flow. It's not going to be huge numbers that you're looking at. Just think of it as that working capital release that'll happen as we get back to a normal working capital efficiency standpoint. I will also just add on tariffs, keep in mind that it's a third of our business.
It's not like it's impacting everything overall. That's the other thing to always have in mind as we talk about it. Do you want to cover Asia?
Yeah, I'll cover Asia. I think importantly on tariffs, this is where our scale advantages kick in, our ability to manage our long relationship with suppliers, ability to manage relationships with our customers, because a lot of this is around even wholesale customers as we navigate that. We're actively engaged because 60% of our business in North America, maybe even a little more, is wholesale. Those are very active, fluid kind of discussions with partners that we've been partners with for a long time to getting that right. Scale matters here, and we've managed that well. I think our gross margin will remain very stable. If anything, as Asia starts to move, and we're seeing Asia start to move differently, that'll have some upside benefits on margin as we maybe get into a more normalized period of growth for the business across regions. We're in a very good place.
I think really well managed. I think when you're looking at Q1, Q2, all really well managed. I think Q3 will be something similar. As far as Asia goes, I think I'll hit China and Korea and India because those are important. Our China consumer is definitely under some pressure. We continue to see that. Our view on the back half is China will be a bit better than what we saw in the first half. We can kind of feel and see some of that as well. There's plenty of uncertainty in China. We've just had another 90-day pause on China tariffs. There's all this kind of noise within China. We're really well positioned. We're pushing the needle in China with brand Tumi. We're pushing the needle with American Tourister, which I think has been underpenetrated. We've talked about that over the last year.
I think we're starting to see some good traction there. We're doing a lot with product in China to really make sure that we're positioned right, both in non-travel and travel. I think China, we're pushing the needles that I think we'll start to see some of the benefits against the backdrop of uncertainty of what the consumer sentiment is, which I don't think is getting any worse. I think it's just in a zone right now. As far as India goes, I think we're going to see an improving back half for India, which is kind of flat for the first half of the year. That's significantly better than last year. We start to comp a more dramatic India from the second half of 2024, where we saw really unusual pricing action from low-end competitors. We're really in a good position in India.
I think the team's pushing really well, and I think we'll see some of the benefits of that as we go into the back half of the year. For the rest of Asia, I think it's been a little bit of up and down. We're seeing some growth in Indonesia. Japan, which may be settled out a little bit, still has growth opportunities. Japan was a real runner and winner in 2024 and the end of 2023. I think that will continue. Korea continues to be a bit choppy, to be honest with you. Korea, which is a big market for us, as we're waiting for the political instability to settle out and consumer sentiment and confidence come off of that, we're being a little more cautious in our views on Korea. I think there's some opportunities. I was in Korea a couple of weeks ago.
I think we have the ability to push that business. The team's leaning in. I think it can get better, but it's probably the one market when we think about first half and what you're seeing that continues to be under some strain. The rest of the market's a bit of ups and downs, but overall, they're all operating in a certain direction. I do think the travel numbers in Asia are actually pretty good. They tailed off a little bit in June, but year to date, June, they're decent numbers. It's really that consumer spending, you know, this kind of the save mentality, cautious on spending against the travel number that still remains quite good. Even in China, in international travel, these are numbers that are up year over year. I think as the consumer settles down, I think we'll get the benefits of that in Asia.
I'm a bit dodgy on what the back half of the year is because we're watching with uncertainty, but I would tell you we should see an improving trend is what we're feeling as we're sitting today on a blended Asia.
Great. Thanks, Kyle and Reza. Best of luck. Thank you.
Thank you.
Thanks, Dustin.
Thank you. Our next question comes from Akshay Gupta from HSBC . Please go ahead, Akshay.
Hi, Kyle and Reza. Thanks for taking my question. You mentioned about opening 50, 60 stores annually. Can I ask which brands and markets are key priority over the next one year? Secondly, a follow-up on inventory. Can I ask how many months of pre-tariff inventory you have available in the U.S.? When does the incremental tariffs start to hit the P&L in the second half of this year? Thank you.
There is obviously a focus on Tumi overall. If you're looking at the store counts that we have had for the first half of this year so far, as you know, it's 57 stores. We've opened 22 net Tumi stores. This is kind of year- over- year or half- over- half, last first half of last year versus half of this year, and 35 Samsonite stores. If you're looking at it as a percentage off of the base, it's a larger number for Tumi. With Tumi specifically, it's not always about just opening up net new stores and adding a location. One of the big focuses we have is increasing the square footage. What we will often do, and many of you are in Hong Kong, for instance, so I'm thinking of specific places as an example that you'll know.
That store, if you go and visit it, that store has now doubled the size. It still looks like, oh, we've kept it net neutral, but we took the store next door and basically expanded the footprint to double the size of it. That's a trend that we're doing globally because for Tumi specifically, we have smaller square footage stores, and we're not able to fully display all of the product offering. Beyond just adding net new stores and net new locations, we're also trying to make sure that we expand the square footage. That's absolutely true in Asia specifically as well. As we think about it going forward, we do have a focus on Tumi. If you look at absolute numbers, we're still obviously investing behind Samsonite as well. Actually, remind me what your second question was. Sorry. Oh, pre-bought inventory. OK.
Yeah.
Yeah. We're running high both in terms of Samsonite and Tumi in terms of the weeks of inventory that we have on hand. It's more on the Tumi side than on the Samsonite side, frankly, because it's, and again, I'm not going to give you the exact numbers of it, but just directionally, just so you know. Obviously, for Tumi, it's direct- to- consumer, so we control it versus it's majority wholesale as you think about what we do in terms of the U.S. market for Samsonite especially. Because of that, we're buying inventory according to what our wholesale customers want. We have some additional stock to the extent that we think they're running short. We don't disclose exactly the breakdown of this is how much we have by brand.
Thank you. That's helpful.
Thank you.
OK. William?
Yes. Thank you very much, Kyle and Reza. Thank you very much, everyone, today for joining the conference call. With that, we wish everyone a good rest of the day.
Thanks, everyone.
Thanks, everybody.
Thanks, William.
Bye-bye.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect your lines.