Good morning, ladies and gentlemen. Thank you very much for coming today to Samsonite International's 2012 interim results announcement. Today, we have with us our Chairman and CEO, Mr. Tim Parker, our CFO, Mr. Kyle Gendreau, and the head of our Asia -Pacific operations, Mr. Ramesh Tainwala with us. Without further ado, Tim will start the presentation today. Thank you.
Well, thank you very much, William, and good morning and welcome to everybody. We are very pleased actually with this first half set of results. We live in fairly volatile times, I think, and this represents, I think, an excellent, excellent bit of progress on our part. Sales in the first half, up to $847 million. That's an increase of 13% or 18% in constant currency. Of course, currency has been quite a major factor in the first six months of this year. We've seen 8.5% devaluation of the euro against the dollar and 13.5% devaluation of the Indian rupee. Those are obviously two quite important currencies for us. Incredibly strong performance in North America, up 28%. In constant currency terms, Asia up 25%, which we are particularly happy with. Actually, Europe, I think, was also a very good performance, up 6%.
When you consider that around a quarter of our business is Spain and Italy, I think that represented a very, very good outcome indeed. Another source I think of upside for our business in the medium- term is the American Tourister brand, which of course is positioned below Samsonite I think has great opportunities in the middle aspiring segments of the market. Sales of that brand were up 53% in constant currency terms, so making a significant contribution to our business. Very strong cash generation in the first half as well. I think first six months of last year, we used up some cash, about $5 million. This year, we were generating $60 million. The EBITDA margin continues to move ahead, which again, I think was a very good outcome considering where the currencies have been.
Also, particularly exciting developments for us, the acquisition obviously of High Sierra and Hartmann, on which we will give you a little bit more background in a moment. Very pleased with that. Moving on to the next slide. Key measure for us, adjusted net income up 32% and our adjusted EBITDA up 16%. As a result of the cash generation and working capital management, the cash position of the company virtually doubled at the end of the first six months of this year compared to a year ago. Made our first distribution to shareholders, very pleased with that. Good start. Earnings per share up 22%. Kyle here has done an excellent job of negotiating a much larger revolving credit facility on much better terms than we had previously. The company has a strong balance sheet, is well-financed, and is very cash generative. Just moving on to the next slide.
You can see a breakdown of sales and gross margin here. Gross margin moved ahead by 11%. Slight shading of the gross margin in percentage terms. That is due in part to product mix. We had a larger proportion of American Tourister sales. Little bit of currency in there. Also, we had a very strong growth in our wholesale business relative to retail in the States, which has reshaped the business just slightly. As I mentioned before, our net sales up 18% in constant currency, which again, I think represents an excellent achievement. I mentioned EBITDA has moved ahead. The EBITDA margin up to 16.1%. Our adjusted net income, again now 10.4% of sales. Those two key measures moving in the right direction. I think a year ago, we had a situation where net income went down enormously, because of the effectively the non-recurring items.
The reported net income this time, of course, has gone in completely the other direction, up 263%, which I hope all of you will be reporting as the headline number for today. Just looking at the next slide. We just thought it would be handy to summarize the key trends. You can see for sure, growth rate is gradually slowing. This is not some kind of inexorable trend. I see it as more asymptotic, I think. We're moving towards 14 or 15 percentage points of growth. Might be a bit more, might be a bit less, depending on currency. I think the gross margin is going to stabilize at around this figure. We have found it possible to adjust for increases to our costs, because we are effectively the market leader, usually by quite a wide margin, cost pressures affect the industry as a whole.
We tend to be able to lead our competitors and they follow, when it's necessary to adjust for increases in costs. I think that is a reason why we will be able to preserve our gross margins over the medium- term. Adjusted EBITDA, as I said, gradually increasing, we expect that margin hopefully to increase further by the end of this year. And adjusted net income, similarly, moving in a positive direction. The two most important regions for us, America and Asia, both recorded very, very strong growth. America, I'll comment on in a moment, but it's primarily growth with our retail customers. If we look at Asia, I'll get Ramesh to comment, but we've had excellent progress again in the Chinese market, very strong performance in Japan.
Actually, although Europe doesn't look much to write home about in dollar terms, I think we have managed to make some progress in constant currency. Actually, in EBITDA, as I'll mention in a moment, we've managed to more or less hold our EBITDA in dollar terms, which I think is a very good result for Europe indeed. I hope you get a sense that our business is really working well in all of the key trading regions. A point that I'd like everybody to take away is that our company has, I think, very good all-round exposure to the world's key trading markets, but also the world's most important emerging markets as well. We are very well diversified geographically. We are now, I think, increasingly diversified in terms of brands, and we're also diversified in terms of product segment, which I will cover in a moment.
Ramesh, I don't know if you want to say a couple of words about Asia.
Asia, as Tim just said, has grown quite well. On a constant currency, we grew by around 25%. Samsonite grew by 12%, whereas American Tourister grew by 58%, because we have a smaller market share in the mid-market, and we have been operating American Tourister as we have spoken since our IPO days, or at least this last four years. We still continue to see a very robust growth of American Tourister across all countries, including Japan. The wholesale channel grew by around 22%, retail grew by around 16%. The casual bag segment, where we have made very good progress since last two years. As you know that we have this RED by Samsonite , which was first introduced in Korea, and now it is in Korea, Hong Kong, and China, h as grown by 86% and is now contributing in the first half around $20 million.
Travel category also continued to increase by around 28%. The business category has only grown by 1%. Definitely, we expect a bigger growth and improved growth in second half. The growth has been partly moderated primarily because of our inability to source enough new leather collection that we were launching in China. The market response is far greater than our ability to source the right product at the right quality levels. We are getting that corrected, and I think in second half you will see the business category also showing improved growth. The adjusted EBITDA margin seems to have slightly moderated from 18.2% to 17.7%. That's primarily because of the currency effect in India. The Indian currency, as Tim said, have depreciated rapidly by around 25%, we have been able to correct the prices, and we will see this improvement coming in in second half.
China, going to the next slide. We have continued to see very strong growth. In the first half, we have grown the net sale by around 35% or 30% on constant currency basis. Driven primarily by our ability to continue to expand the POS, and also our ability to grow in Tier 3 and Tier 4 cities. As you see, the number of point of sale that we have increased in Tier 3 and Tier 4 is by 24%, but we can still continue to grow even in Tier 1 and Tier 2 cities, where we have added 16% and 15% additional point of sales. I believe over the next couple of quarters, we will be able to see bigger growth coming from Tier 3 and Tier 4 cities, where there is more economic activities happening, and the consumer is getting more and more ready to buy international brands.
Good. Thank you. Moving on to North America. I think we've been agreeably surprised by just how well our American business has performed i n the first half. This, in part, is due to increased listings that we obtained last year. Some key target retail customers we've been successful with, Best Buy and Target. Extra distribution in Walmart. Very good business with Macy's and Kohl's. That has contributed to this fantastic 28% growth in America, which of course, for the most part, is gain in market share because I think, although we don't have absolutely reliable statistics, the American market's probably up by only 6% or 7%. Very good outturn. Samsonite and American Tourister contributing to this. Done well in the travel category, and obviously making some progress now with the non-core categories. As you can see, a business with tightly controlled overheads, managed margins.
The leverage impact of sales has been to lift the adjusted EBITDA by 44.4%. Excellent, excellent result. In Europe, as I was saying, although the dollar headline numbers perhaps don't look too impressive, for me, this was an excellent result in a much tougher environment, both from a macroeconomic perspective and a currency perspective. It's easy to forget that there are countries in Europe, at least our Europe segment, which are actually doing okay. The German business, which is by far and away the biggest market in Europe, was up 17%, and Russia was up 34%. I believe that our Russian business over the next five years will become the second biggest business that we have, and eventually, perhaps the biggest. This is a market of 120-o dd million consumers.
Rapid increase in wealth and disposable income, and excellent brand awareness of Samsonite. There are other markets which we class as Europe with growth opportunities as well. I'd single out Turkey there. If we adjust for currency, sales up 6%, and we managed to hold the EBITDA more or less in dollar terms. Very satisfactory. Again, the Latin American result may not from a headline perspective look an enormous achievement. It's fair to point out there are three or four key markets in this continent. The Mexican business, which is easily our most important, was up 18%. The Chilean business actually would've been up quite strongly, but we had a shift in back-to-school business into December, which took some of the sales that we normally get in January into the prior year. That will obviously adjust out in the future, but that did sort of cool down the Chile progress.
We made, I think, an excellent improvement in Brazil, up 35%. We intend to do a lot more than that. The only market which is difficult for us actually in Latin America is Argentina, where the government has slightly odd economic policy of import controls and generally sort of, I don't know, trying to turn it into a second Venezuela or whatever. We're finding it quite tough to keep our business going there, and we're just gradually bringing down our cost structure in line. Argentina is a tricky market, but all of the other key markets in Latin America are actually performing fine. If we go on to the next slide, it's just quite interesting to see what kind of growth the company has achieved in its key markets. I can say, I think that's a very impressive outcome.
In constant currency terms, you'll see many markets there achieving growth of over 30%. The only business which has gone backwards really of any size is Italy. Most of the other key markets are excellent, I think robust progress, which we hope to continue over the next six months. Moving on to the emerging markets, you can see again, the company has excellent exposure to a range of very exciting markets, all represented by growth of most cases 20% or 30%. I mentioned Russia, important territory for us. Indonesia beginning to move up the league table, I think there'll be more to talk about on Indonesia over the next couple of years. Turkey, significant. Brazil should be a hell of a lot bigger and will be. The Philippines even, not huge at the moment, but I think is an interesting market in the future.
I said that we had achieved excellent growth across both our brands. I think Samsonite is still continuing to make progress as the world's, I think, genuine, the best, most durable, the most wide-ranging, and generally, the highest recognition brand in luggage by a very, very wide margin indeed. But American Tourister now starting to achieve, I think, a bigger share of our business. That, for the most part, is driven by Asia, it's this brand which I think is at price points which opens for Samsonite a very large, growing, new affluent consumer market. I have great hopes now that this brand not only establishing itself in Asia, but is also growing strongly in North America. I can even report a significant growth in the business in Asia. We are beginning to build a second brand, I think, with some credibility there. If we move on to the next slide.
Well, very pleased with the result in travel. I must confess, we would have liked to have done a lot better with our business lines. I think in part, as with all of these things, the devil is in the detail, it's down to product ranges not being quite right, some of the people not being quite right. Usual story you get. I think we understand what some of our issues are, I still feel this represents an enormous growth opportunity for us in the second half and next year. The Samsonite brand works as a business category. It's just taking us a little time to work out how to execute it effectively. Casual, I was very happy with, I think I've said our policy was to take back licenses, especially in the accessories category.
We've taken back licenses that we previously had put out, we're now beginning to see some very good growth in accessories. For the most part, very happy with that. You can see on the next slide that the points of sale are consistently expanding. As I mentioned, we got very important new distribution with Best Buy and Target. That's lifted the American number considerably. We continue to grow our points of sale in Asia and India and China. In Europe, we added some points of sale, principally in Scandinavia. We also took over a retail chain owned by our joint venture partner for nothing, and gained about 10 new important stores around Moscow, which has improved our penetration of the Russian market. Plenty of new points of sale across Latin America, I think principally in sports distribution.
We are making steady progress in terms of distribution, and I think we can say that we are genuinely one of the most ubiquitous brands that you will find in any category anywhere in the world. Moving on to the next slide. We have increased our investments in marketing, not by quite as much as our sales went up, so percentage-wise, down slightly, but still 7.5 percentage points of sales. I think in part this is because we've had a much higher growth in America. America, we tend to spend less on advertising, and that's brought the composite number down slightly. As we have indicated, we will continue to invest at broadly this level in the future, and it obviously works for us. The next few slides, I just thought I would give you a few examples. Here's some stuff that we do in Asia.
Have we got a video, William?
Yes.
Is it the next slide or?
Yes.
Next one. Okay, good. Well, we'll just play one, just give you an idea of one of the campaigns that we did in Asia. Just moving through the slides, you can see that you have got Samsonite and American Tourister promoted right across the region, all sorts of locations. We think that travel advertising is best done in airports, stations, places where people travel. That's where we have the most impact. I think too, you'll find that if you see a Samsonite store, it looks good. We've got a very clear and consistent brand image. William, will you play us?
Yes.
The guy's ready to turn things into motion pictures.
Listen to that inner voice. Follow your heart. Embrace every possibility. Step out with Samsonite.
I hope you can see from that this is not an ad that you would play in Europe, obviously. What we try to do is to have a brand image which is consistent, but we execute it in a manner which I think has got relevance to each individual consumer market. If we just press on, we've got a few other examples of the work that we do with American Tourister. You can see it's a very colorful range, American Tourister. There's a lot more vividness in the products, which I think we use to very good advantage. If we move on to North America, again, we tend to focus on airports, stations. We had a very successful casual program where we effectively take an obstacle course around American campuses, and this kind of generates a huge amount of interest.
It's been so successful, we've actually bought a second truck to take around American universities. It's quite a good example of where we got innovative and realized if you want to sell a casual product to young people, you've got to go to the people and not necessarily expect them to come to you. The next slide, again, gives you a very good picture of how we use the color of American Tourister to really liven it up. I wouldn't say color is cheap exactly, but color is fun. Color is giving us, I think, a very kind of accessible feel to what we do. In Europe, we do a variety of different things. Quite a lot more of our focus now is on lifestyle as opposed to purely product. We're trying to communicate to our customers just how innovative our products are.
What you tend to get at these presentations is obviously a lot of results and numbers. What is harder to convey to you is that the company isn't just going out and selling stuff and getting market share. What we're interested in doing is creating more innovative products, which will win us the allegiance of our customers and increase our market share over time. Are we ready for a second ad slot?
Sometimes we choose travel. Sometimes travel chooses us. We conquer the world side by side, living fast and traveling light. Who wants to be late for the most important meeting of all? CUBELITE by Samsonite.
Again, we're trying to turn ourselves into the friendly luggage company as well as the innovative luggage company. It is the goal, I think of everyone who's in the product business to ensure that the brand actually has emotional appeal. This campaign, I think, has done a lot for us. If we turn to Latin America, you can see we have a slightly different brand, which we use in Chile, the Xtrem brand. That's a totally different kind of campaign, which is aimed at schoolgirls between 13 and 18. It's very much social media. We do a lot of stuff which is targeted at a much younger market, and it works extremely well. We had a very successful program in Chile, and we've since launched this in Mexico, with great success, and intend to look at one or two other markets as well.
The business is doing different things for different customers in different markets. We'll now move on to discuss some elements of the finances, and I'll turn over to my colleague here, who knows far more about that than I do.
From fun advertising to the balance sheet. Balance sheet, as Tim said earlier, is tremendously strong. We saw cash almost double from a year ago. In the first half, operating cash generation, $77 million. We're very happy with the cash generation of the business, in line with our expectations. If you look at the working capital metrics, and I have a slide the next page, but working capital is actually running a bit better than what we target for ourselves. We targeted around a 14%-15% working capital efficiency. We're running at 12.5%. Our inventory days, as I'll show you in a second, have come in strong. Receivables right where we want them, and same for payables. From a working capital perspective, we're very happy. Then, as Tim said, on the borrowing side, we expand our revolving credit facility from $100 million to $300 million. It's really two reasons why we did that.
One, we're able to get much better terms, in resetting our revolving credit facility. In that expansion from $100 million to $300 million, we're spending half what we were spending on a commitment fee, or on an undrawn fee. We've gone from $1 million a year in undrawn fee to something around $500,000, with a facility that's 3x the size. Gives us tremendous flexibility from a leverage perspective on the balance sheet. Then secondly, it gives us some very good capacity from an acquisition perspective. We dipped into this when we did the High Sierra and Hartmann deals by about $80 million. By the end of the year, we'll have almost all of that repaid. It really gives us tremendous flexibility with this facility. We were quite happy with where we ended up on that.
The rest of the balance sheet is very stable, from what you've seen at the end of late last year. Just quickly, next page on working capital. The metrics to best look at are the turn days. If you look at my inventory days, it went from 150 days at the middle of last year to 117 days today. That's right in line with what we anticipated doing, actually slightly better than what we anticipated doing. Receivables at 47 days, 44 days last year, right in line. Our wholesale mix is up a little bit bigger than retail mix at the end of June of this year, that's why that average days are up. We're very happy where that is. Payables for us run around 110-120 days, and we're right in the right spot with payables.
A good outturn on working capital, and we think we can maintain that right at the end of the year. From a CapEx perspective, just to remind, we run a very asset-light model here. Our total budget for the year is around $40 million in CapEx. Mid-year, we spent $11 million. Last year, we had spent $15 million. The difference last year to this year is we were building the production facility in Hungary for our Curv plant. We had a little bit heavier spend at the beginning of last year. If you look at the breakdown of our CapEx, it's primarily retail expansion, led by Asia first, a bit in Europe.
In product development, R&D, and supplies, one thing we did in the first half of this year is we bought a piece of land near our Belgian facility, and we're going to build a warehouse there, and move ourselves out of some external warehouses, and leverage the facility right near our plant. That's in line with our CapEx spend, so it's within what we had budgeted for the year. Everything else is effectively maintenance CapEx. We're very happy on the CapEx side. Just a little recap. You probably know this better than I do because you probably look at it more than I do. The shares outstanding and share positions, we have 1.4 billion shares. We paid our $30 million dividend at the beginning of July this year. As all of you are aware, we've talked about the EPS numbers.
This dividend yield is something, again, that we said we'd be looking to build over time, and I think that's what you'll see from us next year. CVC and RBS ownership around 35%, 36% ownership still. You can see the mix at the bottom of the page there. Last slide, really just looking at performance. I'm sure everybody's looked at this fairly closely. My general takeaway is we've trended very close to the Hang Seng. Since we've listed, I would say for 2012, generally, we're running a bit ahead of the curve here. It's a function of what's going on in the marketplace. I think we're a good value for money stock actually, because I think we're not getting the credit for what the performance is that we're turning out.
Not just good, e xcellent.
Yeah.
Excellent value stock. Yeah.
That's that. Recent acquisitions. You want to?
Yeah. We're very excited by these two acquisitions. I'll say Kyle has done, I think, did a great job in negotiating what I feel were two very good economics-driven transactions. High Sierra, we bought for $110 million. This business has $64 million of sales at the moment. But is growing strongly, and is in a very interesting segment for us. If we can just turn to the next slide. What they do is really backpacks and what you might call adventure-type luggage. Just moving on to the next slide, William. It's aimed at a younger market. It's got, I think, something quite different as a DNA from Samsonite I think we can really do something with this brand. It's not going to happen instantly across the world. There's a lot that we can learn. They've got a very good team of people.
I think the business can move even further in the States, they've got some very interesting relationships, including the U.S. Winter Olympics team. I think this can only be a successful add-on for the company. We heard about it, we got in there, and we got, I think, a very, very good deal. The second acquisition we made is Hartmann. This, again, I think will be a very important addition to our stable of brands. Hartmann was founded in 1877, and they make a very distinctive product, which I'll show you on a slide in a moment. They were actually at one point bigger than TUMI in the American market. Unfortunately, I think they were owned by a very large conglomerate. Didn't quite get the focus that the brand deserved, and gradually lost ground throughout the 1990s and noughties. Used by a succession of U.S. presidents.
You can see it's got a very distinctive leather and khaki and tweed, and very nice locks. It's got a super DNA. At one point, I think this brand was doing not so long ago, about $50 million in Japan. Japan's a very good quality indicator. If a product is right and it's a luxury product, Japan is in many ways for me the arbiter of whether it has got some real strength. We think we've got a brand which has got huge potential for a very, very low price indeed. We'll be absorbing this company into Samsonite in rapid order. The products need some tailoring. They need some improvement. We know what to do there. The sourcing can be improved. Everything about this brand can be massively improved, and very excited.
I think again, thanks to the team in the States led by Kyle, we got in there, we negotiated with the seller, and I think we've got a huge brand at a very advantageous price indeed. If we just move on to the next slide. It's not just suitcases, it's business products as well. That leather attaché case was once quite a common sight on Wall Street and can, and I think should be again. The first half, excellent results. Two, I think, very smart acquisitions. As we look to the future, our strategy will remain consistent. If there's one thing about strategy I like, it's to be as consistent as possible, and we've said that we will continue to outspend our competition, in advertising, but especially in R&D. I think innovation is critical in our market, and we are putting more and more resources into that area.
We've got now some good complementary brands. Of course, Samsonite is still 75% of our business, but there are new avenues to develop and explore. There are other companies out there that I think can benefit from our global distribution platform, and we will look at them and are looking at them. As I mentioned earlier, whatever the movements in currencies, we feel that our market position allows us to modify pricing in line with costs, and so maintain our gross margins. I feel that economics can continue to operate in the future. We haven't, as yet, achieved all that I would want to achieve with our non-core categories. I think we can do a lot more with business, as I mentioned, and casual. This company is highly cash generative and will continue to be in the future.
We expect the cash pile to build up on our balance sheet, and we will find good uses for that cash. Looking ahead to the remainder of this year, I think we feel broadly confident about meeting the sorts of consensus estimates that are out there in the market. There is a lot of volatility globally, stemming from obviously the Eurozone, but also moving expectations around the Chinese economy. It is the products of those two factors which I think will probably determine where we end up next year. If I look to the near term, given that we're almost at the end of August with four trading months to go, we do feel pretty confident about this year. As we get closer to next year, we'll have a better picture, I think, about what the outturn will be there.
We're fundamentally a wholesale business, so we don't have enormous amount of visibility. In summary, I think a very, very good first half. We feel good about the second half, and the company in position terms, very strong. We'll see where the world economy goes next year. Thank you very much.
Thank you, Tim. Now we open the floor to questions. Erwan Rambourg from HSBC.
Thanks a lot. You just mentioned only four months to go, the visibility on the year is pretty clear. I think July and August are pretty big months for you.
I was just wondering if you could tell us what you've seen in the different regions, if there are any inflections there. Secondly, you're saying you want to stabilize gross margin. Does it mean that you're looking to have H2 in line with H1, i.e. at slightly lower than 54%? Or when you say stabilize, is it H2 over H2 last year? Thirdly, just a question on American Tourister. If you look at Europe being a bit tough, maybe a few consumers being cash-strapped there, can you boost actually the role of American Tourister for Europe? Thank you.
I'll take the first question, and I'll get Kyle to talk about margins, and I'll cover off the American Tourister bit. July and August are our two biggest months. I can say that they were pretty much in line with our budget and expectations. America continues to do well. We had a good outturn in Asia, and actually quite relieved to get almost a record month in Europe, too. Pretty good July, and actually August is shaping up fine. When I talk about the second half of the year, it's with the knowledge that I think the last two months have been okay for the company in terms of its sales pattern. American Tourister, we can do more with in Europe, but it's still very small. What excites me is that the three years I've been around American Tourister, we haven't made a lot of progress with in Europe.
Now, I think we are beginning to find some interest and support with our traditional dealer trade. I think it's partly consumers wanting more value for money products. To be honest, I think the real driver is that we've just got better American Tourister products. In part, I have my colleague on the left to thank for that because we had a very strong range in Asia. Some of the models we've moved to Europe. I might say in passing that that's the way the company functions in a sense, is that we've got an internal market for products. If a product is available in one market and it's doing well, then we can transfer it to another market, and that's what we tend to do. I think there is potential definitely for American Tourister in Europe. Margins, Kyle?
Gross margin. What we had said last year, maintaining margins in the 54%, 55% range. When I look at margins for the back half of the year, I think we'll be in that range. The pieces that impacted us this year, one was the Indian rupee. Particularly in Asia, you'll see the gross margin has some strain in the first half. We've been able to correct on pricing, some sourcing. We've actually started to hedge that currency now, so that we have a little bit of a runway to adjust. This was a currency that historically we hadn't hedged. We've done all the right steps there, so we'll see the margins in Asia creep up a bit. Europe is a different story. Europe, we had been hedging all along, and that hedge actually was very effective for us in the first half of the year.
As we move into the back half of the year, those hedges start to phase out. We've layered in new hedges, but obviously at a lower currency rate. You'll see us actually make some price adjustment in Europe as we move into the back half of the year to maintain margin. Really, Europe's actually done a very good job of maintaining margins very close to where they've historically run. We'll be making some corrections to adjust that. I would say in this kind of 54%, 55% range is where we'll be. In the first half, we're probably a little bit lower than where I wanted to be, largely because of the currency pressure we saw in Asia. That came in fairly quick in India. Okay.
Okay. Joseph [Ngai]?
Hi. I have two questions. Number one question is a long-term question. How big do you think your business can be in three to five years time and the return on capital that you may be able to achieve? Second question is, I understand, TUMI has done very well, stock price-wise. I wanted you to hopefully compare and contrast yourself with TUMI. What it looks like now and the future path?
Talk about the TUMI thing first. TUMI is a slightly different business to us. It's a sort of luggage brand with kind of luxury aspirations, with principally sales in America. Around 70% of their business is still in the States. I think the company is valued largely on what is perceived to be a very substantial distribution opportunity outside of America. Unlike us, where we're already there, we already have the market share, we already have the recognition and distribution. The value of TUMI, I think, is very much based on hope for the future, and we hope, of course, that they'll do jolly well. It is a much, much smaller business, I think around $400 million or something like that. A very fine company, very thinly traded. As we look to the future, I think that this is a company which has the potential.
It's easy to see how big the business, I think, could possibly get without necessarily tying us down to a sort of timescale. We're sitting here today with a business that most people are expecting to hit around $2 billion of sales next year. I would be disappointed if we can't double that number over time. We will seek to do that through a range of organic growth, and through acquisition as well. The return on capital, I think, continues to be very strong in our business. I think in percentage terms, we can probably maintain or improve it. We tend to get very good economics out of growth in our business, a very capital- light model that we have. As the company increases in size, the return on capital tends to increase as well. The only caveat is that acquisitions are opportunistic.
You can't predict when an interesting brand will come along, and my interest is in building the long-term value of our company. I think that's very much around increasing our stable of brands, which we can then promote across the world, given that we are already with this very strong distribution platform. I think the answer to your question is we can be a lot bigger. If you look at the tourism market globally, in volume terms, I think it's expected to grow by 3% or 4% a year, which means in value terms, it will advance by 6 or 7 percentage points a year. I think our business can continue to increase its market share. Also very optimistic about the prospects for business travel as well. If you look at the way business is organized today, people are less sort of all situated in one HQ.
The model these days is to put people out into whatever marketplace there is and then bring them together periodically for meetings. Everybody has their little weekend case, and I don't know of anybody, even at a fairly junior management level these days, who isn't doing some kind of traveling. I think the secular trends underlying our business are very strong. We've got a lot to play with, in fact.
Okay. We'll take another question from the floor and then see if there's any questions online. Erica, here in front. No?
Thank you. You mentioned some price corrections in some of the markets to counter the currency effect. Can you just tell us whether you have experienced or do you expect to experience any volume impact, especially in markets like India, where you've got pretty tough local competition? That's the first question. Second question is whether Kyle can just tell us the trends for the standalone gross margins for the key markets.
Also for Asia, the EBITDA margin has a bit of a slip. Other than the gross margin just shaving off some points, what are the other movements there for Asia EBITDA margin?
Yeah.
Thank you.
I'll get Kyle. Why don't you deal with both those points, and Ramesh will talk about the Asia question.
Yes. Why don't you maybe do Asia first, and then I will.
Yeah.
I can dig out the margins. I have the margins, I just can't remember.
Coming to the India volume growth. If you look at the number of units in the first half, India has grown close to around 35% in terms of volume. In terms of value of business in the local currency, has grown also in the region of around 30%. We can still see that there is growth, which is there in the market. Of course, when you translate them into U.S. dollar, it looks to be far more moderated because of the currency effect. Coming back on the margins in some of the Asian countries, I would say that other than India, our margin has been more or less in line with what we were expecting to do it, and in line with more or less what we did in second half of last year. India definitely did suffer on account of margin because of mainly the currency effect.
As Kyle said before, we did not have the policy of hedging Indian rupee in the past, which we have now put some kind of a hedge in place, which will probably help us. Beyond that, since we have also corrected our prices in the market, it always has a lag. You would see that the margins in India would come in better. It's already better now than it was in the beginning of this year. We will get to the levels where we want to be in quarter four of this year. In terms of the EBITDA margins of Asia, more particularly, Kyle can touch upon that. You see that there is a small slip on that, on the margin. Mainly it's again coming from India on account of the currency effect.
Because India did have this huge drop in the margins very, very rapidly because of the currency effect. That also is getting corrected. You will see in the second half, in reality, not really the gross margin, but the EBITDA margin would be higher than the first half for Asia in this year.
Then trends by region, just to go across the regions quickly. North America is down about 100 basis points, so 42.6% to 41.6%. A large part of that North America is the mix of wholesale business. We had a very rapid growth in our wholesale business as we added doors at Target, expanded lines at Walmart and Best Buy. If you look at the EBITDA margin for the North America business, actually is up almost 200 basis points, even though gross margin is down slightly. That's really just a mix of wholesale to retail. Europe was a market that I was very pleased with when you consider the pressures on the currency we had there. Our margins last year were 53.2%, and they were 52.5% for the first half this year. A slight deterioration. Really the hedging process working very, very well in Europe.
Latin America, a slight dip, 58.2% to 56.9%. In Asia is where we saw the bigger impact, as Ramesh said. We went from just under 64% to 62.4%. India drove most of that in the marketplace. We expect that to be a bit better in the back half. Again, there's no wholesale fall- off here. I think margin's been well managed. It's one of our strengths, actually, as we talked about this business last year, is our ability to manage margin. In the light of a fairly large currency move in the first half of this year that a lot of companies face, I think we did quite well actually, and well-positioned for the next half and next year.
It's worth pointing out that in Europe, where obviously we have the euro exposure, about 40% of our sales are Curv products and polypropylene products, which are actually manufactured in Europe. We have that as a kind of natural protection against the depreciation of the euro. Of course, not all countries in Europe are euro denominated. We do have markets which are not completely reliant upon that currency. Sterling is one example. Russia is another example. Turkey is another example. We see we have a question from the call-in. We'll take that first and then we'll go back to the floor.
Yes. We have a question from [Dan Chang of MSD Capital]. Why haven't you historically hedged the rupee, and what challenges do you face in hedging this currency?
We historically haven't hedged the currency because it was fairly stable, actually. As we look at currencies, we tend to hedge currencies that have the risk of movement, and also marketplaces that are easier to hedge. The Indian rupee historically hasn't been hedged by a lot of companies. That has obviously changed in the last six months. Initially, we were watching to see what other companies are doing, and we've started to hedge. The real issue around hedging the Indian rupee is the cost of the hedge and the spread because the currency volatility's been dramatic, and I think there's a good deal of uncertainty about what the currency's going to do. I would say we've entered it, but entered it with small steps to make sure we understand how the market's going to play out.
I think that's all the questions we have from online. Now going on to Aaron Fischer.
Thanks. Just a few quick questions. First of all, can you give us some color on the difference in gross margin and EBITDA margin for American Tourister versus Samsonite? That's the first one. Second one, the performance in the U.S. was very good. Can you sort of give us a bit more color on how you've been able to grow the points of sale in the U.S., particularly for Samsonite, that brand? Because I understand for American Tourister. Thirdly, can you also provide some reasons why you saw a reduction in the inventory days, and whether that's sustainable?
As far as margins go for Samsonite versus American Tourister, so what historically the position is American Tourister runs around 10% less on a gross margin perspective. On an EBITDA margin or operating profit margin, American Tourister is very, very similar to Samsonite because the distribution costs are less. If a Samsonite margin is in the 60% range, say, on average, American Tourister is around 50% gross margin. Part of that margin deterioration you see in this period is that heavy growth in American Tourister in the first half of the year. On a contribution basis, that's why our EBITDA margins have improved. That EBITDA margin is very consistent. In some markets, it's actually even stronger than Samsonite because your distribution costs are less. As far as the North America question, is that around American Tourister as well, or just in general?
Are you talking [inaudible] American Tourister and Samsonite sales as well?
Yeah. Well, a lot of the point of sale expansion that we saw in the U.S. is around American Tourister actually because Target was a big piece of the door add, which is picking up the American Tourister brand. We continue to add retail stores in the U.S., so we add selective outlet stores. We started to do some testing on some kiosk stores for some of our casual bags in the U.S. I think that'll do very well. The U.S., again, is a fairly mature market for us, right? We're actually pretty pleased with the number of doors we're adding here. I wouldn't say there are vast numbers of doors that were not represented with Samsonite today.
Where we do see door opportunities in the U.S. with brands like High Sierra being added, brands like Hartmann being added, tapping into other channels that we're not quite in yet, so some of the higher-end department stores where we have Samsonite. In some doors, Hartmann will allow us to cover more of those doors. We think there are some opportunities for High Sierra stores. Today, there are no High Sierra stores. As we think about that brand integrating into North America, you'll see more doors open for that as well because we think that's a very good opportunity for that brand, particularly as we build out the product portfolio there. There's plenty of door opportunity there. I don't think you see these 600, 700 doors, a half numbers on a regular basis for the U.S., right? We're already at 24,000 doors in the U.S., so well dispersed.
What was your last question?
The inventory days.
The inventory days. We've targeted this business around 120 days. Really, we're just getting to the targets that we're at. When you look at where we were last year when we did the IPO, we were a little heavy on inventory days. We've really just been executing against our strategy. I would say we're not going to lower those days anymore. We're going to run right in this 120-day range. We're just a little bit better than that at the end of June. As a feel from the regions, that feels like the right level. Everybody's able to take advantage of sales opportunities. We're not pinching people down with inventory days, and we've got the right inventory in hands. Again, our products are very stable products with longer lives, so it's not a big risk for us to have 120 days of inventory.
Okay. Any more questions from the audience? Okay. Oh, no.
Right in the back.
Okay. Robbie first.
Hi, it's Robbie from Morgan Stanley. I just have one question. For the Asian market, the Samsonite brand grew 12% in the first half. Going forward, how do we think about the growth rates in that market?
Ramesh.
Yeah. Samsonite operates in a price segment, where we enjoy in Asia, in most of the markets, very high market share. Almost close to the way we estimated it means our share in the department store channels, which are the primary channel. We enjoy anything between 50% going up to 60% market share in those segments. As a result, you do tend to grow that segment, Samsonite brand sale, in line with the way the market is growing. The market in China, India, which are the two bigger markets, is expected to grow in the region around 10%-15%. I believe that is the kind of the growth which we will be able to maintain it on Samsonite over next few quarters. As for the American Tourister is concerned, today you see a very rapid growth because we do operate in the price segments with American Tourister, where we have a smaller market share.
Also different countries are at different stage of evolution for the brand American Tourister. Like India is more matured with American Tourister. Korea is getting there, China is following. Different markets are at different levels. I would believe that definitely would see a growth faster than the Samsonite growth, but definitely it will be difficult to continue to maintain this 55% growth, which we see right now with American Tourister. Over a period of time, you would see it coming down.
Hi, I'm Anuj Sehgal from Manas Capital. In most markets, you've grown faster than the broader market, therefore, you've been gaining share. Can you talk about who you have been gaining share in your key markets, and how that trend is sort of panning out? My second question is, given the slow environment, how sustainable is the continuing market share gain?
I think the answer is that we tend to take share from a whole mixture of different brands in different markets. I wouldn't say there's any single brand out there that's losing on account of Samsonite, although there are brands that I think are doing less well than they were. I think what we have indicated is that we hope to sustain growth rates in our business of somewhere between 10% and 15%, and that depends on a range of different factors. The reason we expect to sustain that kind of growth rate is partly the underlying growth of the travel market, which I discussed. It's partly the anticipated continuing increase in market share of travel products, but also on these non-core categories, we've still got a lot of potential market share to gain relative to travel. The model of sales growth, I think is a sustainable one for our business.
It will be helped and hindered occasionally by lots of factors, currency, macroeconomic ones. I think structurally, we're in a good place to continue to take share off the rest of the market. An important point to bear in mind about the travel market is that around 70% of the market is still unbranded. We're not just competing against other brands, we're also beginning to get a bigger share of the market as people start to buy less commoditized products, especially in Asia. I feel although we have a bigger share than anybody else of the travel market, it's still under 10%, so we still have a lot of room to increase.
Congrats, you had some good set of numbers. [Tanuj] from Nomura. Just a couple of questions. One on the overall global price increases or price corrections, like what's the trend? If you can break up within the regions just to get a sense on what is the volume contribution. Secondly, is more on Hartmann and High Sierra, more on the strategy perspective. You do expect to filter them through your global distribution chain outside U.S. over a period of time.
For the next year and a half, for the next two years, do we still expect the current businesses to grow in the current shape? Or when would the incremental Samsonite effect start to trickle in in these businesses? Then a subset of this question in terms of acquisitions, do we expect to see more and more acquisitions? I know it's more opportunistic, but in the same price brackets or sales brackets, or I'm not sure if any bigger brands are there.
Yeah.
It would be more bigger brands than smaller brands.
Kyle, do you want to talk about pricing? That was the first question.
Yeah. This is pricing, what we're looking at for the back half of the year. I think it ranges. I think in a market like the U.S., you won't see much price movement. Tom's been able to manage that business. Without that, we're always introducing new lines, those go in at price points that achieve certain margins in the U.S. as well. I think in Europe, we'll see some price correction as we go into probably September, October timeframe. You might be a little closer, but something in the 5%-7% range would be my take on where we're going to be, but I think it's still being looked at. In Asia, again, there's not wholesale price corrections. In India, we've made some adjustments. What ranges are those, Ramesh?
Yeah. I would say that we've made some changes already in the second quarter. Unless until we see some major changes happening, I don't anticipate further price corrections needed in the second half. Probably the prices would more or less remain stable going forward in the second half.
I think our expectation with Hartmann and High Sierra is that most of the growth for the next couple of years is going to be U.S.-based. It will take time for us to understand exactly where to position the brands and what to do with them in other markets. I think we're al ready, w e've got a fairly clear idea about what we want to do, but I don't think in terms of contribution and sales, we're going to see very much for a couple of years. I think that on the other question of acquisitions, there are still quite a few interesting brands out there which have good local exposure, good products, but actually haven't really been built globally very successfully. I would expect the company to continue to look for these opportunities. We have, I think, a very strong balance sheet, plenty of cash from our own resources.
In general terms, we can take existing brands, get quite a lot of synergies out by dint of centralizing the HQ costs, taking out warehousing costs, and then using the distribution relationships we have to further extend distribution. It can be a two-way street because we, as a business, can get different things from new brands as well. I can't comment on quantity, and I can't really comment on timing. I would be very disappointed if the company wasn't able to push outwards and acquire some more brands at good economics to increase shareholder value.
Okay, thanks.
Okay, we have a couple of questions calling in from the callers.
Yes. There's a question from Barbara Miller of the Federated Kaufmann Fund. What are the critical steps you believe necessary to build the business product market?
That's quite an interesting question. I think it's a raft of different things. First of all, we have to think that this particular market has different distribution channels in Europe and America, especially. We have to be able to tackle effectively, the multiple electronic computer retail organizations. We have to be good at B2B. That's quite an important part of the business category. I think we're pretty good on the traditional luggage trade. The key challenge for us is to create products which is suitably priced, product which is not luggage derived, but is actually completely focused on particular segment that we're addressing. We need, as a business, to be quicker and smarter at following trends in electronic products. One of the fastest-growing areas of this market is mobile computing, whether it's laptops or tablets or iPhones. They all need covers. They all need things to carry them around in.
We do this at the moment, but we could be a hell of a lot better. The way that we're tackling this, I think, is to bring some new designers into the company who've got experience of business products. We're tackling it by focusing a lot more on mobile computing. I think we're also looking at the leather segment, which again, works very well. It's very appropriate to the Samsonite brand. We've got a lot more resource in Asia to deal with that now, and we expect to reap the benefits of the investments that we've made in China and Japan and Korea. We also have a very good team of people in Italy now who are building out the product range in briefcases and leather products. I feel that the company is getting to the point where it will have a good stable of products for next year.
The challenge for us is to make sure that we've got something for every channel of distribution. My sense is that we understand what the key issues are. We now just need to execute effectively, as I explained earlier.
Okay. One final question from the floor.
Good morning, management. Congratulations on the strong results. I have three questions here. Number one, just wonder, apart from the gross margin improvement and the business category that you think you can further improve in the future, whether there are other areas that management think that you can do better in the second half and beyond, could you share with us? That's the number one question. Number two, management just mentioned that the acquisition strategy in the future will be focused on building a long-term sustainable brand for the company. I just wonder whether there are also some financial parameters that management will consider when looking at the deals. Last but not least, I just would also like to know in terms of the retail channel expansion, especially in China, how many new stores does management target, say, per annum in the next three years? Thank you.
The first question was what, about where, I wasn't quite clear what you were looking for there.
I think you mentioned that in terms of gross margin and the business segment, you can definitely improve in the second half. I'm wondering whether there are other areas that you think you can do even better in the second half and beyond compared to this first half.
Even better?
Yeah.
Huh. We can always do better. I think I will be very pleased to sustain our business at current rates. I think I've explained that our model is pretty much to hold our fixed costs steady. We're not taking on hardly any people in our business, apart from in research and development. People fundamentally drive our fixed costs. We are seeking to improve efficiencies in logistics. As we mentioned, we're building a warehouse in Belgium, which will save us considerably, actually, in terms of our storage costs. We're aiming to be more efficient, and that's a comment I would say applies to our worldwide business. Acquisitions help to drive efficiencies as well, because all of the products that we are getting into the business from High Sierra and Hartmann will be driven through our warehouse in Jacksonville.
As a distribution network, we are becoming and will become, I think, more efficient. I think there are other economies of scale. I think we're beginning to and expect to get some benefits in sourcing from acquisitions because they put us into factories that previously we weren't in, with specializations that we didn't have previously. I think we are beginning to get some good efficiencies in terms of our marketing spend as well, as we increase our commitments in those areas. I don't really expect, to be honest, enormous shifts in our gross margins. I think the model for our business is pretty much fixed. Fixed costs, stable gross margins, and improving EBITDA margins essentially coming from increased sales. We expect to continue to achieve that. The second question on acquisitions.
Well, it's our goal to make sure that all of our acquisitions are obviously accretive to earnings per share as a minimum requirement. If not instantaneously, then certainly within the first year. We wouldn't look at anything that did less than that. On China, Ramesh?
Approximately, we aim to add about 50 retail doors in China, both as directly operated stores as well as franchise stores. I think more or less that's the kind of number which we will add up in this year. I'm talking about only retail. I'm not including shop-in-shops and other wholesale doors. I feel that we would more or less keep that same kind of a pace, and this is what we have been doing over the last one or two years. I'm always faced with the question, say, that why not do more? You can open more doors. It's just that we want to do it in a sustainable manner. Also training that many people and starting up those many stores.
I feel that that policy of ours of maintaining steady growth in terms of distribution expansion also has worked well for us, and there's no reason for us to change from the current strategy that we have in place for China.
Okay, great. Thank you very much, everyone. I'm sorry, but we have already run well over time. Thanks for coming in, and thank you again.
Thank you.
Thanks guys.