Samsonite Group Aktie

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite Group 2026 First Quarter Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Mr. Alvin Concepcion, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Welcome to the Samsonite Group First Quarter Conference Call. On the call with us today are Kyle Gendreau, Chief Executive Officer; and Tom Pizzuti, Chief Financial Officer.

Before starting today's call, we would like to remind you that any forward-looking statements made on the call involve risks and uncertainties that are subject to the company's provisions as stated in the disclaimers in the company's press release and earnings announcement and that actual results can differ materially from those described in the forward-looking statements.

I will now turn the call over to Kyle.

Okay. Thanks, everyone. Thanks for joining. And I'm on Slide 5, ready to roll. So we're excited to report net sales growth continued into Q1 despite the conflict in the Middle East. Our net sales were up 4.1% on a reported basis, up 0.4% on a constant currency basis Net sales growth across North America and Latin America improved sequentially relative to Q4. Europe remained positive, and Asia grew despite a challenging environment caused by the conflict in the Middle East.

Importantly, excluding Middle East and India, the markets that we're seeing the most effect from the conflict to date, consolidated net sales grew 5.9% on a reported basis or 1.6% on a constant currency basis year-over-year, with sequential improvement overall versus Q4. Net sales growth for Asia, excluding the Middle East and India, was up 8.4% on a reported basis and 5.1% on a constant currency basis year-over-year.

We continue to see success in our D2C and our lifestyle bags category as D2C and lifestyle bags outperformed our performance. Our strong portfolio of new and innovative products supported growth in our direct-to-consumer business, and our lifestyle bags grew as well. Lifestyle bags grew almost 4.8%, close to 5%. And our D2C overall grew 4.2%, with our own directly operated e-commerce channels growing over 11%.

Our gross margin remains strong, 59%, reflecting disciplined execution across all of our brands, channels and product categories. We're focused on elevating our iconic brands via world-class storytelling. We're increasing our marketing spend as we signaled in the past.

We spent 5.7% of marketing spend in Q1, up 40 basis points from last year as we invest in delivering sustainable growth. This supported successful new media campaigns such as Samsonite's Nexis launch, I'll cover it later in the deck; and also Tumi's Mediterranean Escape, both very successful launches in the first part of the year.

We generated very strong cash flow. We have a history of generating strong cash flow. We're up $68 million versus the prior year from a cash flow perspective in Q1. Tom will cover that in a bit more detail in his financial update.

And we're poised for improved net sales growth in 2026 overall. We believe we've managed the business well through the current conditions. And as we execute our strategic road map and strategic pillars, we expect low single-digit growth in net sales for the full year. This assumes -- importantly, this assumes potential impacts of the conflict in the Middle East and India do not materially worsen.

If we go to a look at the brands, all brands delivered positive growth adjusting for the Middle East. You can see Samsonite sequential improvement continuing Q3, Q4 and into Q1, 1.4% growth. That was supported by sequential improvements in North America, down 3.1% in Q1 versus down 6% in Q4 and positive growth in Asia and Europe and accelerating growth in Latin America, helping the Samsonite story.

Tumi continued to deliver positive growth, down a bit from what we saw in Q4, but still positive territory, up 1.1%. Asia was particularly strong, 6.2% growth. And if I adjust for Middle East and India, Asia, Tumi up 8.8%. Europe continues to grow. 5% growth in Latin America, which we've seen accelerated growth with Tumi up 14%.

We saw North America down slightly, 4.6% down largely due to the macroeconomic uncertainties impacting consumers in the U.S., particularly impacting retail traffic that we've seen across our U.S. business, coupled with a reduction, and I would say, a planned reduction in wholesale net sales to off-price retailers within the brand as well.

I'd like to, while I'm talking about Tumi, take this time to acknowledge and welcome Luciano Rodembusch, who's joined our team. I mentioned him on the last call. He's been 1 month on the job, and I am confident he will help drive global Tumi sales to its full potential as he settles in. And so welcome aboard, Luciano.

And American Tourister, adjusted for conflict, grew close to 4% sequential -- meaningful sequential improvement from what we saw in Q4. In Asia, particularly where American Tourister is a big driver, if I adjust for India or Middle East, up almost 4% for the quarter as well.

If we go to regions, I think a page [ 7 ], a similar story is what we see from a growth perspective across the board. Asia, as I said, up 5.1%. We saw meaningful growth within China and sequential improvement in China, up close to 8% in Q1 from up 3% in Q4, a strong trend carrying into Q2 for China. And Korea, another important market for us, up 8.5% versus up 5.4% for Q4.

But overall, Asia has terrific momentum. It's the one market where we're seeing the impacts largely because of the Middle East and India, where both of these are reported in our Asia. Despite -- even despite those, we're still delivering positive growth for Asia.

You can see the sequential improvement in North America, continuing to move. People are still moving and traveling in the U.S. I think they're more cautious in their spend. We feel that. The other thing I would point in our North America business is we saw a nice improvement from Q4.

But within Q1, if I exclude our wholesale e-retailers, our net sales growth was 5.3% in Q1 versus negative 1.7%. And that's largely impacted by one of our larger wholesale e-retailers changing their inventory position. And so if I adjust for just that one e-retailer or our e-retail business, our North American business trends are actually very strong, almost matching what we're seeing in other regions in the business.

Europe is steady. Europe, when I think about markets that are feeling the impact of conflict in the Middle East, we can see it. Within Europe, you can see some of the impact of consumer sentiment, but still delivering positive growth in Q1, plus 0.8%. And there's plenty of pressure there, but the consumers are still moving.

What you see in Europe is maybe inbound traffic, not as much, inbound traffic from the Middle East, inbound traffic from Asia, we've seen some falloff there, but the underlying consumers within Europe are continuing to travel.

And Latin America had a nice rebound, plus 4.5% growth in Q1 versus slightly down in Q4. Nice rebound in Mexico with business driven by larger wholesale customers that started to buy back in and a meaningful shift there and a new leader in Latin America or in Mexico is doing a great job as he starts in the business.

The next slide talks about, and I covered this on the last call. And I have a few slides to talk about what we're focused on as far as strategic pillars. These are the priorities as we think about how we push the business. Even in this environment, we continue to push the business against these pillars. They're the right things to be doing.

The first one is around amplifying and elevating the awareness of our iconic and consumer-centric brands. This is enhanced storytelling and leading in with advertising and spend to continue to drive all of our brands and particularly our 3 core brands.

Our second pillar is around being the clear winner in digital, right? I think the word be clear is important, not a leader, the leader in digital across all of the portfolios that make up digital, all the channels that make up digital. I'll cover that in a second, too. We're very focused here and driving further support of not just our digital business, but the whole multichannel effect that happens on the business.

In pillar 3, I think there's tremendous opportunities in this business in the lifestyle bag space. There's what we call white space opportunities. It's a huge market. I'll give you a view to what -- how we view the market and what our market position is and why we think we can continue to deliver. And as I just said, we are delivering here. This was close to 5% growth in the quarter, and it's continued to outpace the growth in our business as we execute against the strategy.

And the last one, and I think how I described it the last time on the call is you would expect this from us, but importantly, to continue to win with products that resonate globally. PARALUX was on the page here in the picture. We talked about that last time. I'll show you a little bit more update on PARALUX. It's a good example of when we get behind global collections on a global basis and focus, we can move the needle. And we'll give you some examples of that and what we're doing as we roll into this year.

Importantly -- I'm on Slide 9. Importantly, as we really advanced our first two growth pillars, we created a GMEO, a global marketing and e-comm office. That's off to a good start. I would say, a running start and working really well across the organization.

What is it focused on? It's around strengthening consistent global brand execution with local flexibility and driving high-impact storytelling to elevate brand awareness and perception. And as we lean into the advertising spend against this important aspect of what we're doing on the marketing side of the business, we're seeing early signs and really laying foundation for really tremendous forward growth.

We're centralizing the digital and marketing coordination to reduce duplication that will create efficiencies in the business, but it will also enable regions to respond faster and more effectively to local consumer needs against the backdrop of a well-supported global marketing and e-comm office.

And lastly, as we lean and invest, we're embedding ROI-based decision-making, performance transparency and stronger oversight to increased marketing investments deployed with greater measurable impacts, the likes of [ MMM ] tools and the tools that we use around the business to properly evaluate and lean in, in telling our story.

Mediterranean Escape on Slide 10, this is a good example of -- on the Tumi lens around how do we tell the story. This was introduced in March of this year. It introduces meaningful newness that customers can feel for brand Tumi, a color palette that's exciting. If you haven't seen it, take a look, but I'm guessing you've seen it if you're following this at all, across luggage, women's bags, non-traveler lifestyle bags, really doing amazing work.

It brings this sense of travel and joy. And this is around the storytelling, this is the lights under pillar 1. There's a product piece to this, too, which I would say is part of pillar 4, but it's around the storytelling that we're able to do in an elevated way. And I think the team has done a great job, and it continues, and it will start launching across the globe as we enter Q2.

On Page 10 (sic) [ 11 ] , this is an exciting campaign that we've just launched in North America. This is around elevating brand Samsonite in North America with new media campaigns with Olivia Culpo. And it's Chocolate Mauve, is what it's called. If you really look online, you can't miss it. And this is part of our overall campaigns within the U.S. "It's not just the bag, it's a Samsonite."

This is off to a great start. This is a colorway that we've matched across our 3 best-selling collections, Outline Pro, Elevation Plus and Better Than Basic, which is effectively lifestyle bags that tie into these collections. It launched in April, tremendous success for [ Lureal ] across all methods of distribution, and it's a fan favorite of my house, my family loves the collection, usually a good temperature of something is off to a good run. So we're very excited about that. Lynne and team, great job.

The second one is on D2C, okay? And I covered this at the start, but D2C is our fastest-growing channel. D2C directly operated DTC, up 11.3%. Our direct-to-consumer overall mix moved from 38% to 40%. Our overall D2C sales were up 4.2%; D2C e-commerce, 11.3%, but our retail increased by 1.4% on the back of 11 well-placed company-operated retail stores over the last 12 months and a slightly lower same-store sales growth, down 1.5%, but modest improvement.

We're seeing improvement as we step out of Q4 into Q1 on the comp side as well. Overall, very happy with the direction that we're going on not just our digital piece, but the overall direct-to-consumer piece of the business.

On Slide 13, when I talk about digital, and we tend to point out in the last slide we focused on our direct-to-consumer e-commerce. But when we talk about being the leader, it's around all of these platforms, being the leader on not just our own sites, but mobile platforms that allow access from the go, wholesale customers that have global reach and presence that we're deeply involved in making sure that we're -- the way we show up matches the way we show up on our own sites, and we're properly supporting them and importantly, across the globe, partnerships with leading retailers.

And the scale of our business is we touch the entire globe from this footprint. Anywhere in the world where somebody is digesting digital, we can execute relevant to each one of those markets, but with some central coordination with the GMEO that I think is going to deliver amazing work. And so the teams are very focused there with great results.

On Slide 14, significant white space opportunities in lifestyle bags. It's an industry that sitting in 2025, around $67 billion, growing at a CAGR growth that's similar to luggage, 3.5% CAGR growth. Over the next 5 years, it will be almost an $80 billion market. And we have a 3% share here. There's tremendous opportunity to move share here.

And let me tell you what we're doing on that front on the next page. We're building a really market-leading strategy. We're focused on casual and duffles, that's kind of natural for us. We're expanding into women's lifestyle bags. You can see Voyageur here in the middle.

And American Tourister and all of our brands expanding beyond travel, traditional travel bags. When you think about travel, you think about luggage, but the world and the consumers are moving. This is an [ underseater ] picture here with American Tourister. It's a huge driver in Europe, and it has reach across the globe.

And when you think about it and think about some of our most successful collections, the picture on the left is Ecodiver. That's a top 5 collection for Europe, and we continue to invest in that. Next generation of that bag is coming out in the fall. Voyageur, and you can see here the Mediterranean Escape collections in the middle. And Voyageur is a meaningful piece of business for us. You'll see a full relaunch of that as we go into next year. And as I said, Take2Cabin is what this is called for American Tourister.

We're partnering with advisers. We have deep know-how in-house, but we're bringing advisers to help us properly assess the market, assess what the opportunity is, assess what the playing field is, where is it distributed? Where is it different than what we do today? Things we've been doing, but I know we can do better. So we're really leaning with advisers to make sure that we're executing against this opportunity.

And we continue to evaluate acquisitions that will bolster our portfolio here. I think there are opportunities here. You've heard me say it on other calls. And as we lay more foundation here, I think we can continue to deliver outsized growth in this space.

If you look at Slide 16, you can see the growth. So we've gone from 36% lifestyle bags to 38%. As I covered, it's close to 5% growth across all of our brands, and we continue to be excited and push the needle here in the nontravel space or lifestyle bag space.

You'll notice we've made a shift. We -- for a long time, we called it nontravel. We've shifted the lifestyle bags because I think it's a proper representation of what we're actually going after when we reassess the opportunity in this space.

And then lastly, on the pillar is continue to win with product that has global resonance. We get scaled benefits to the brand and to the products that we sell when we get products that touch the world, touch a couple of big regions, get behind it, support it properly with advertising.

We'll lead the future in innovation and sustainability, building on our 115-year legacy. We're focused, as you know, on lighter, more flexible, durable and sustainable materials. We centralized product and marketing coordination to enable global consistency.

It was a little bit of a shift. We're really empowered decentralized organization, but we're putting our minds together to execute against this in a different way. And we're broadening the assortment in the adjacent categories, lifestyle bags. And here's just a few examples of products that fit that bill.

On Slide 18, this is Nexis. If you're in Europe, you've seen it. If you're in Asia, you're about to see it, in the U.S. as well. This is -- it's a collection that launched towards the end of Q1. It very quickly became a top seller collection in Europe. This is an amazing product, built in our facilities in Belgium and Hungary.

It's next-generation hardside, designed as the ultimate future-proof travel product. It's really an amazing product. It brings material leadership to life, showcase strength, lightness and resilience that is bold and modern narrative. I think when you see the campaign and you get in front of the product, you'll feel exactly what I'm talking about.

And just lastly, before I hand to Tom, just another collection that's been tremendously successful, we talked about at the end of last year. PARALUX has been a home run. We continue to push it. We're back in stock across the globe. We sold through this very quickly at the end of last year when we launched it.

We're launching new colors. Blue Fog is really an amazing color. The coordination of color between travel and lifestyle bags, you can really start to feel it. So that's launching. And coffee and copper, another fan favorite at the [indiscernible], launching in the fall, really an on-point color palette.

And when you get in front of this product, the pictures on the screen doesn't do it justice. It's really an exciting product with technical features and packing features and sustainability features in this collection that's made it one of my favorite products to travel with.

With that, I'll come back right after Tom for an outlook, and I'll turn it to Tom.

All right. Thank you, Kyle, and hello, everyone. We are on Slide 21, and you already heard a brief recap of this from Kyle. I'll go into it a little bit more on the Q1 results. In Q1, reported sales grew 4.1% and on a constant currency basis, grew 0.4% despite impacts from the Middle East conflict. Excluding Middle East and India, which are the most impacted regions from the conflict, constant currency sales grew 1.6% in Q1, which would have been a sequential improvement from Q4.

We saw improved sequential growth in North America and Latin America in Q1 relative to Q4, while Europe had stable growth and Asia continued to grow year-over-year despite softness in the Middle East and India, as we mentioned.

Gross margin was solid at 59%, reflecting disciplined execution across brands, channels and product categories. As we look forward, there are still some uncertainties in the cost environment due to the conflict in the Middle East, but we are well positioned to manage them.

We have a highly experienced team and deep and long-standing relationships with our suppliers and have many levers we can pull similar to how we managed tariff increases last year. This includes forward buying of inventory, reengineering products to reduce costs and focus on the margin we want to attain and evaluating pricing actions that are appropriate. We're taking actions to navigate through this well and feel confident that we will maintain our strong gross margin profile in 2026.

Marketing expenses as a percentage of sales were 5.7%, as you heard from Kyle, up 40 basis points from last year same quarter as we continue to invest in elevating our iconic brands to fuel future growth. G&A expenses improved as a percentage of sales, though our distribution expenses increased due in part to inflationary cost pressures. I'll provide more color on that in a minute.

Adjusted EBITDA margin was 13.1% in the first quarter, down from last year due to the higher operational expenses, as I mentioned, as we made investments to drive long-term growth.

So turning to Slide 22, I want to provide a little bit more color on our operating expenses. Overall, we are managing costs with discipline as we invest for future growth and operating leverage expansion. We remain focused on investments in marketing, digital and selective store openings. As you heard Kyle mentioned, these are all very key to securing long-term brand growth opportunities.

Our marketing expenses increased, which is consistent with our strategy to invest more in our brands to fuel future growth. G&A expenses, as mentioned, were 7.5% of net sales, down 20 basis points from the prior year, reflecting this ongoing discipline in our expense management.

Distribution expenses, on the other hand, as a percentage of net sales were 34.3%, up from 32.2% of net sales in the same time period last year. This increase was mainly due to inflation, think of wages, rents and other costs. It was also due to selected new store openings and higher outbound freight costs as e-commerce was a more significant portion of our mix, as Kyle had mentioned.

Looking forward, we are working to offset cost pressures through productivity gains and tighter control of discretionary spend. Our efforts to mitigate operational expense increases, along with our ability to benefit from our scale and likely favorable channel mix shift allows us to invest in our key growth drivers, as we mentioned.

These investments position us to improve net sales growth as we enter seasonally stronger sales period and drive improved operating leverage relative to Q1. As a result, we expect adjusted EBITDA margin levels to improve over the course of the year.

That said, Q2 will be peak marketing spend for the year ahead of the important summer travel season, which should position us well for the back half of the year and beyond. So relative to Q1, we expect a more modest sequential EBITDA margin improvement in Q2 and expect to be well positioned for significant sequential improvement in the back half of the year.

So moving to the next slide, 23, our balance sheet remains healthy with a net debt position of about $1.07 billion at the end of Q1, which is an improvement of $29 million from the end of Q4. Our total net leverage ratio was 1.79x, and we had strong liquidity of approximately $1.5 billion.

We delivered strong adjusted free cash flow, as Kyle had mentioned, of $27 million in Q1, an improvement of $68 million from the same period last year, which was mainly driven by favorable changes in net working capital.

You will recall that in Q1 of 2025, our -- we were gearing up for the tariffs and Liberation Day. And so net working capital impacts, the cash flow were a little bit less favorable then, so more favorable in Q1 of '26.

Our balance sheet is healthy, and it enables the return of cash to shareholders. A dividend of $140 million was recommended to shareholders on March 19, representing a payout ratio of approximately 48% of 2025 adjusted net income. And today, we announced a $50 million share repurchase program, allowing us to repurchase shares opportunistically based on market conditions and capital allocation priorities.

So in summary, we're happy that sales grew in a challenging macro environment. Our EBITDA margin was intentionally lower as we invested in future growth in a tough market. These investments will bear fruit in the back half of the year as we expect both sales growth and adjusted EBITDA margin to improve from the levels experienced in Q1.

Adjusted free cash flow improved significantly, and our healthy balance sheet allows us to return a sizable amount of cash to shareholders. So there's a lot to be excited about as we look towards the future, both the near term and the long term.

I'll now turn it back to Kyle for the 2026 outlook.

Okay. Thanks, Tom. Okay. Outlook. We continue to be confident in the long-term tailwinds supporting our business, including continued growth in travel demand, which we continue to see in much of the world as well as our ability to execute our strategic priorities to accelerate growth, our pillars of growth.

Further, as the industry leader, we expect to benefit significantly from renewed customer demand for luggage and travel over the next several years following a recent period of more moderated growth after the revenge travel surge 2021 to '23. We talked about this in prior earnings calls, we're seeing -- we're starting to see the benefits of that, and we can see it in the numbers today.

Looking at the nearer term, in Q1, we performed as indicated on our last earnings call. Sales came in a little bit better than what we said due to our product innovation and our efforts to elevate the portfolio of our brands, the profile of our brands.

Recall, this includes increased spending on marketing, as Tom just covered and I covered earlier, select opening of stores and investing in our business, particularly around the pillars, all of which we delivered on and as expected, impacted our adjusted EBITDA margin relative to last year.

As we look forward, we expect momentum from Q1 to continue with a constant currency net sales growth in Q2 to be approximately similar to what we're seeing in Q1. And imagine Q2 is a quarter feeling the full impact of conflict, and we think we're going to deliver the same growth profile that you saw in Q1. We're off to a good start in April.

We expect the full year numbers to be low single digit on a constant currency basis, sequential improvement, as I said earlier, to 2025. These view assume the impact of the conflict in the Middle East do not materially worsen. We haven't assumed any sort of miraculous recovery, but we have assumed it does not get worse. There could be upside if it recovers sooner.

As we indicated on our last earnings call, we expect to main a strong gross margin profile in '26 and beyond. And you've seen us deliver that in Q1, as Tom covered in his earnings. And my sense is we're in a good position to manage this really well for the rest of the year.

We're focused on investing in marketing to secure long-term brand growth opportunities across our core brands and all of our brands. We expect to spend marketing spend of approximately 6.5% this year. That will be just shy of a 1% increase versus last year. And this will peak in Q2 as we invest in ahead of the summer travel season. And that's our normal time to be leaning in. That will be about an 8% spend on marketing and advertising in Q2 as we support the summer travel season.

Relative to Q1, we expect adjusted EBITDA margin to improve over the course of years, as Tom just indicated. And as we enter seasonally stronger net sales periods, aim to improve our net sales. And as you heard from Tom in the back half of the year, we're expecting that off the actions. And the actions to mitigate costs, we feel that, that will be a benefit to us on the margin as we progress through the year.

As previously indicated, we'll continue to invest in our strategic pillars, the right thing to do, including marketing, while leveraging our scale advantages to drive sustainable growth, resulting in margin expansion in the future.

Also, as Tom just covered, we remain committed to returning cash to shareholders. $140 million dividend we put to shareholders in March, that will be paid in July, 48% payout ratio. And earlier today, we announced a $50 million share repurchase program, allowing us to repurchase shares opportunistically based on current market conditions and our capital allocation priorities.

And lastly, we're in a ready position for potential dual listing of the company's security in the United States. Our Board of Directors, myself and our management team firmly believe a dual listing will enhance shareholder value and creation over time. We continue to monitor the macroeconomic and market conditions carefully, so we get the timing right. And with the continued improvement in our business, we intend to complete this dual listing in 2026.

So with that, those are our planned comments. We're very happy to shift to questions.

Thank you, Kyle and Tom. [Operator Instructions] Operator, we can go into Q&A now.

[Operator Instructions] And our first question comes from the line of Perry Yeung from UBS.

My first question is really on the cost. So we understand opening store, we are focusing on the growth. So is it like to expect the SG&A expense to sort of accelerate just the growth rate? For this quarter, it seems that it is higher than expected. I'm not sure if you could provide some guidance for the rest of the year in terms of the SG&A expense.

So Perry, thank you for your question. This is Tom speaking. So for the rest of the year, we're looking to take out a meaningful amount of costs. This is not a restructuring, but just think of it as very disciplined cost management. So we entered the year with a budget that assumed a certain level of net sales growth.

As the impact of the conflict has muted that sales growth, as you've heard, we are reacting to it and we are clamping down on expenses. We're taking it out across all regions and corporate, and it covers every part of our expense base beneath gross margin.

I think importantly, too, just we're consciously leaning in. I think we guided at the year-end results that we'll be leaning in on advertising. So when we think about the full year, I think the biggest impact you'll see the full-year margin -- EBITDA margin last year to this year would be about a 0.8%, 0.9% increase in the advertising spend to what we had last year.

So when you play out the full year, I think that will be the biggest impact you'll see on a full year basis from an EBITDA margin perspective. And that was by design. We intentionally are leaning into advertising.

As Tom rightly says, we had good momentum going into the year, and the conflict has caused a ripple. And we're doing the right thing and just quickly assessing and being very disciplined on discretionary costs around the business, generating some meaningful opportunities on the SG&A side. And you'll see and feel that as the year progresses in the EBITDA margin.

I see. And if time allows, can I also follow up another question, which you highlight that the that is the white space opportunity? And you also mentioned that the company is evaluating acquisition. I'm not sure if you could share what types of companies or characters would you be interested in? And what kind of scale of acquisitions should we expect, if any?

I'll just give you kind of the high-level theme. There are plenty of bags that are just solely lifestyle bags. I think I've used backpack brands like Eastpak, JanSport, things that are interesting to us that would be well in our hands. We've talked about those in the past. That gives you an example of that.

But there's other businesses that have some travel product, but meaningful lifestyle bag component of what they're doing. And so those are the things that we're most interested in. I don't necessarily need another travel luggage brand, but something that's in this space in a meaningful way and has brand heat in this space. That's really important as we look.

And we've done a lot of acquisitions. I've done a lot of acquisitions in here. Something with scale, something north of $150 million, $200 million in revenue that's really strong in 1 or 2 regions that has opportunities. We have inbounds all the time. We're just evaluating the marketplace.

And as we work with advisers to really assess kind of what are the opportunities that we can really execute well, that will fit into kind of our arena. And the definite of lifestyle bags is everything but fashion handbags. That's not what we're looking at, just to give you a sense for that.

Your next question today comes from the line of Dustin Wei from Morgan Stanley.

First question regarding the U.S. market. So how would you describe the consumer demand or the competition in the U.S. market now? I think it's good to see the sequential improvement quarter-over-quarter. But really Samsonite brand and Tumi brand still kind of in the negative territory, while American Tourister grew strongly in first quarter. So how do you assess that kind of market situation?

Especially, I think the macro backdrop seems to be fine, the travel market or GDP growth kind of thing. And also, you called out this impact from the e-tailer inventory reduction. Is that kind of one-off for just the first quarter or it could impact on the second quarter as well?

And my follow-up question is regarding the GP margin. Like you sound very confident about managing about 59% GP margin. That's fantastic. But the backdrop is that the cost inflation is there. And also, I think the U.S. dollar is sort of depreciation this year, that might traditionally hit the GP margin a little bit. But the good news is that you're still confident. So could you elaborate a little more of the drivers?

Sure. Let me talk about customer demand. And the reason I call kind of taking out e-retailer is I think it gives some indication of underlying kind of demand. We do see U.S. consumers traveling. We see them spending a little bit more cautiously.

Our business and the reason you see the American Tourister swing in North America, particularly in the Samsonite American Tourister side, has a meaningful wholesale component. And these wholesale customers are buying a little bit lumpy. So you see this kind of American Tourister moment off of a low Q4 and then a big step-up in Q1. That's the lumpiness that we talk about.

When you peel into brand Samsonite and you kind of adjust out what we're seeing in [ EVTOs ], the underlying growth for Q1 looks to be closer to 5%. There's good consumer momentum. They're buying more cautiously. I would say as you move into the upper price points where Tumi is playing, we've seen significant retail traffic down. And so when we're looking at what's going on in the Tumi business, that's really around the traffic into the store footprint.

There's plenty of reasons in Q1 around weather. Let's not forget the TSA disruption in the U.S. that caused people to stutter step on travel. We've seen some improving trends, but we're still kind of feeling some of that within the U.S. business. So I think consumers are resilient, but they're cautious on their spend. And I think that continues. It continues in Q2 in North America. But it's trending positive from where we were. It's clear the consumers are moving.

And then on the -- I think on the e-retail side, that's a bit of timing as well. I can't quite predict kind of the inverse of that. But when somebody is making decisions around how they're managing inventory levels, that can cause disruptions that are timing based.

Our general sell-through at our wholesale customers generally has been good, a little softer than maybe what we started the year. I think in the midst of going into April and May, we can feel a little bit of softness in sell-through, but it's still positive. And I think that's an indicator of what you're referring to, Dustin, which is the U.S. consumer continues to be pretty resilient.

On the gross margin, gross profit side, we have a lot of confidence. Tom said it rightly, we have a long history of managing this really well. Just look at what we did last year with tariffs. We never missed a beat on gross margin, and we had tremendous tariffs on top of us. It's around the ability to manage with our suppliers. These are strong relationships. We work together.

We buy forward a lot of inventory. So we're -- in many ways, we're brought forward 6 to 9 months. In the U.S., we're almost 9 months forward. So we can manage -- we have plenty of time to manage impact. We're watching the cost of plastic, we're watching kind of things that move. If there are movements there, we'll be able to manage that.

We'll be able to co-manage that with our suppliers, if we need to shift on price. We're not there yet because we have plenty of room to decide that. And this is what we do. We have a very good record of managing margin. And I think one of the pieces that will stick out is our ability to manage that, and we saw that last year for sure, is better than our competitors. Because of our scale, we can manage through this really well. And it's all in front of us. We're managing it well today. We're already in discussions for what the back half of the year looks like, but we have plenty of time to get that right.

So I have a lot of confidence. I actually think you'll see gross margin expansion during the year. 59 is kind of the low watermark for us. And that's often that Q1 season is that. When we go into the high selling season, the margins can creep up. And that's how we feel for the year.

Your next question today comes from the line of Akshay Gupta from HSBC.

So my first question is basically on the U.S. tariffs. If you can update us on the situation on the ground as to how much visibility you have around the timing and the magnitude of recoveries? And what could be that upside?

And second one, following up on the lifestyle backpacks, if you can talk about the margin profile of this category? Is it same below or higher compared to the luggage category?

From a tariff perspective, it's fluid situations. What I'd say we started to see some stuff come in this week, small levels. We're navigating that well. There's a lot of work to do on what happens as that comes in. There's plenty of noise in the U.S. Almost every morning headline is tariffs and the end consumer and the wholesale customer and the importer of record. So there's a lot of work to do on the tariff side.

But the positive news is we started to see some of that come back in. The challenging part of that is kind of how does that navigate and what do we do. What I would say is there'll be some net upside to us, obviously. But we're not in a position to really talk about what that is yet because we're still evaluating with our, I would say, end customer or wholesale customer kind of environment.

So we're carefully navigating that, and it's early days. It's just started. It just started this week. It started yesterday and again, trickling. And it will take some time to see how this plays out.

From a lifestyle backpack and just generally lifestyle bags perspective, for the lane that we want to operate in, those gross margins look very similar to our own margins of our business. There's plenty of low-end backpack business. That's not us. We're going to be looking for the backpack business, lifestyle bag business. There's a lot to this that matches the margin profiles of our business. And that's what we'll be focused on.

And it looks -- and it's healthy. When you get out of kind of the entry-level pricing, you can -- and with our scale abilities on the sourcing side, we can really deliver things that we've kind of have looked at. We know we can shift margin profile.

Just going backwards, way backwards in time, when we acquired Tumi, we grew their gross margin by 1,000 basis points just because of our sourcing capabilities. So as we look at things, we'll have opportunities to not just look at things that are in the right price zone, but to have margin expansion that can get it in line, if not better, than some of our existing gross margins is how we think about it.

We will now take our final question for today. And our final question comes from the line of Simon Cheung from Goldman Sachs.

I just wanted to get a bit more sense about the gross margin that you highlighted earlier that you feel very comfortable at 59%. Other than, I guess, the fact that you carry on or you forward buying a lot of the raw material costs, any other initiatives that give you that sort of comfort?

The reason I'm asking is because we have been seeing quite significant increase in all the raw material costs across the board. And you, at the presentation also highlighted that the shipping charges also gone up as well. So I wanted to get a bit more details as to how you feel so comfortable about the margins. I appreciate.

Yes, we're watching this closely. These prices kind of moved up dramatically. They shifted a little. There's plenty of uncertainty is what I would say. I think there's three things to think about.

One, the raw material component of our products, if I think about plastics is 20% to 25% of our business. So kind of we -- and that's really where we've seen the most meaningful shifts. Again, we have time to monitor that, we have time to react to that. But that percentage of kind of the overall product cost for us, we can manage well.

We have a lot of aluminum in our product. We've watched aluminum make some strange changes, and we're watching that. That will be an impact to us. That's a smaller percentage. Our ability to kind of look at that, make reactions on how we're producing product, as we use more sustainable products, for example, we haven't seen those costs ripple through the sustainable product materials.

If you remember, almost 40% of what I sell, maybe a bit more than that today, use recycled materials. Those aren't having as much of an impact. Not saying that it doesn't catch up and there's some challenges there maybe next year and the year after, but there's a benefit there. Our ability to work with our suppliers to manage that cost. And so a lot of suppliers probably dial into this call. We were in this together. So we manage that really well.

And if we have to, we'll move on price in a careful way. We're conscious about it. We'll do everything we can to mitigate the impacts, and then we'll manage price to get to margin in a careful way. And you saw that in the pandemic -- not in the pandemic, but in tariffs last year, really well managed, carefully managed. And because of our scale, we also can reengineer product to get back to price points that deliver on the value that you'd expect from our brands.

And so we can use all the kits in our toolkit, all the levers that we have to be able to navigate this. And our teams are laser-focused on it. I've been so impressed with our sourcing teams particularly our U.S. sourcing teams, but this will have impacts across the globe on how we mitigate against what we see from margin pressure.

And actually, with commission, I think you'll see it creep up. Mix matters for our business. As Asia is moving at a faster clip, that can pull margin up. As Tumi gets back on a more normal course in North America, that brings gross margin up. As we elevate our positioning, as we elevate the storytelling of our products, of our brands; that has benefit.

And importantly, and this is what you really felt coming out of pandemic, the level of promotion and discount has dramatically transformed in this business, and we remain disciplined on that because often, you can lose margin that you're kind of leaning in and you get more promotional and leaning into discount more than you should. And we reset that in the organization. We have tremendous discipline in managing that as well.

So I think the combination of all of that is why we feel confident. And we're seeing good results. I can feel it even as we're into Q2 as we stepped into Q2. We're doing everything that I'd expect us to be doing. We've been watching freight cost inbound freight containers.

That's -- we've seen some [ duration ] there, but it's in line with what we budgeted. We're actually right in line with what we'd expect because we're conscious about that because freight is a big piece of our story. So we're watching freight carefully as well. But because we contract a lot of that out and we can manage that well, we'll manage that impact as well if that increases over time.

Okay. Was there a second question? Or was that just that? Yes. Good. Thank you very much. Thanks, everyone, for dialing in. Appreciate the questions, and I appreciate your support.

Yes. Well, that concludes our call today. Thank you very much for joining.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to Samsonite Group 2025 Annual Results Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Alvin Concepcion, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Welcome to the Samsonite Group Fourth Quarter Conference Call. On the call with us today are Kyle Gendreau, Chief Executive Officer; and Tom Pizzuti, Chief Financial Officer.

Before starting today's call, we would like to remind you that any forward-looking statements made on the call involve risks and uncertainties that are subject for the company's provisions as stated in disclaimers in the company's press release and earnings announcement and that actual results can differ materially from those described in the forward-looking statements.

With that, I'll now turn the call over to Kyle.

Okay. Thanks, Alvin. Thanks, everyone, for joining us. We're sitting here in New York in our TUMI offices, and we're happy to talk about Q4. I'm on Page 5 of the deck. In Q4, we returned to positive net sales growth for our business. Our net sales increase on a reported basis, 2.2% and approximately 1% on a constant currency basis.

The chart to the right of the page, you can see the sequential improvement that we were talking about as we exited Q2 into Q3 and then meaningfully accelerating to positive growth in Q4. That was driven by many things, but importantly, innovative products. We had some terrific products that launched at the back half of Q3 and Q4 and strong execution across our teams across the globe.

In particular, we had a strong portfolio of new products, as I said, and we had very strong growth in our DTC business and our non-travel business despite headwinds were the key drivers for improving -- were key drivers for improving to positive net sales growth in Q4.

Additionally, we saw sequential improvements in our travel category, driven by continued strength in global travel and again, global operating execution. Despite tariffs, our gross margins expanded for the quarter. Q4 gross margin, 6.3%, a 10 basis point improvement over last year due to regional mix, brand strength and really strong mitigations of the tariffs that we saw in the United States.

We continue to be focused on our key strategic growth pillars. We will continue to execute the pillars and the road map to leverage our scale advantages and product innovation, increased marketing spend and enhance consumer engagement to drive our net sales in 2026.

On Page 6, another lens of what we're talking about. We talked about the net sales growth and sequential improvement really from exiting Q2, strong improvements in Q3 and again, back to positive growth on a constant currency basis for Q4. You can see the gross margin improvement, not just from last year, but from Q3 to Q4, very strong. That has to do a bit with mix and channel mix as our D2C business accelerated and also our higher brands delivered a meaningful improvement.

You can see on the EBITDA side, our EBITDA in dollars was flat to last year Q4 and as a margin percentage in the 20s, 20.3% for the quarter. If I go by brand on the next page, you can see all brands delivering performance. Meaningful improvement, I said, strong sequential improvement in our Samsonite business that was driven across Asia, North America and Europe and meaningful improvements from Q3 to Q4, just about positive for the quarter.

TUMI, held strong. We had a very strong Q3 and a very strong holiday season, and it's another quarter where all 3 of our major regions were positive in Q4 for brand TUMI. We saw some improvement in American Tourister. So I'd say a sequential improvement in Q3, Q4. But importantly, our -- I mean, our Asia business was back to positive growth. Asia is a big driver for American Tourister. And we saw 2.3% growth in Q4 versus minus 3.6% in Q3, so meaningful improvement in American Tourister.

And on Page 8, if we look at regions, you'll see this steady movement in Asia. Asia meaningfully improved. This was a region that started to show meaningful improvement in Q3 and reached 5.1% growth on a constant currency basis in Q4. We saw meaningful improvements in China, Korea and strong performance in India and Japan, and these are big markets that really move the needle for Asia. And as they started to move back to strong growth positions, we had a great result for Asia.

You saw a tremendous shift in North America, it's still negative, facing tough prior year comparisons, but meaningful improvements in both U.S. and Canada in both our direct-to-consumer and our wholesale businesses. And then I would label Europe as steady, 1% growth both quarters. We saw a very strong DTC performance, particularly in Q4 in Europe. Overall, 5.6% growth, D2C retail up 4.4% and our e-com was up over 9%. So strong and steady improvement performance in Europe.

And then Latin America looks like it took a dip in Q4. If I exclude Mexico, Mexico, for much of this past year, we were talking about the wholesale customers being impacted with trade imbalances, particularly with the U.S. If I exclude Mexico for Q4 plus 8.2%. And encouragingly, as we get into the first quarter of 2026, we're seeing Mexico back to strong growth as these consumers, these wholesale customers are buying. So Mexico is -- Latin America is in a good place for us, particularly as we step into Q1.

On Page 9, you've seen this slide before, I think the important pieces here is our net sales growth has historically tracked well with travel. As you remember, in the -- coming out of pandemic, we had surged in gross to 2021 to '24, we grew 6x the industry. We see the travel continuing to grow as we step into '24 and '25 and importantly, as we get to Q4 return to growth and really, I expect this business to continue to correlate to travel really well. But a bit of the dip that we saw at the start of this year was really off the back of really strong, strong performance coming out of COVID -- the few years coming out of COVID.

And you can see our performance versus travel on the left of the page, global passenger miles up 109% or 9% to the 2019 levels, and our business is up 24% to 2019 levels. We saw tremendous progress in our DTC e-commerce business. It's our fastest-growing channel, leading to significant increases in our D2C mix, so if you look at Q4 of last year to this year, our D2C is now 45.1% from 43.1% last year. D2C e-commerce overall was up 12%, and our D2C blended was up 5.2%.

We saw a slight increase in our retail business, 2% growth, with a comp that was slightly negative, but we've had store openings as well that is feeding a good direct-to-consumer combined business. Wholesale is still a decline, down 2.3%, but we saw a sequential improvement from the prior quarter, which was down 4.5%. We still have customers within the U.S. channel buying in a lumpy way. And that's part of the pieces that we've been seeing all throughout 2025, I mean, that carried a bit into Q4 as well.

But overall, I'm moving in a good direction, both wholesale and for sure retail. We've talked a lot about the opportunities in nontravel. We've been steadily growing here. In Q4, we saw a non-travel category grew 6.7% versus the prior year. And you can see as a percent of sales, this continues to move for us, 37.6% of sales versus 35.5% last year.

So continuing to move in a direction that we'd expect. There's a slight decrease in travel, 2.2% versus the prior year, but sequentially improved from the negative 5.3%. So as we continue to see travel growth, and we start to get past the inflection point of revenge travel, and we see consumers leaning in and buying on the travel side as well.

Page 12, just in one page, clearly spells out the strategic priorities that we're focused on as a company across the entire company to drive accelerated growth. We really characterize these in 4 buckets: Amplify and elevate the awareness of our iconic consumer-centric brands. I'll cover each of these in just a bit on the pages to follow. Be the clear winner in digital to further support our multichannel growth. And when I talk about digital, it's our own D2C e-com, wholesale, e-retailers and across the network that help feed the entire channel growth for the business. Seize the white space opportunities in lifestyle bags and accessories, what I just talked about.

We continue to grow there, and I think there's tremendous opportunities to grow more than when we look at the market share in that channel compared to our luggage channel, we see meaningful opportunities to evaluate and grow further, which we've been doing consistently for many years. I think we can do more and then continue to win with products that resonate globally. And I'll show you a few examples of that as I go through the deck. And this is a meaningful effort on our part to be more coordinated in our product development and to have big winners across the globe on the luggage side.

Elevating -- I'm on Page 13, elevating our iconic brands via world-class storytelling. We're very focused on elevating the level of storytelling. We've been doing this for a while, but we've added a new global function, global marketing and e-com office, led by our new VP Marketing and E-com to coordinate enhanced global brand building and digital efforts across the globe. We're very focused on amplifying our iconic consumer-centric brand strengthening global brand consistency while ensuring regional flexibility for local relevance, which we've been doing for a long time, but harnessing the power of the global organization.

Drive higher impact storytelling across channels to elevate awareness and brand perception. And importantly, related to this, drive marketing efficiency and impact. We expect to increase our marketing spend. I think I talked about this on the last call, you should expect me to step this up. We're planning and targeting 6.5% of net sales in 2026 to be deployed with greater consistency and impact across all of our brands.

We're leveraging scale and experience to become the clear winner in digital. And what do I mean by that? This is really focusing on digital executed strategy, drive engagement, conversion and customer lifetime value. We're investing in a more unified digital experience with personalized user journeys across both D2C and e-retailer channels.

We're promoting e-commerce excellence through the newly created GMEO resources, and we're leveraging data-driven capabilities to align digital marketing strategies across channels and brands. Everything with an enhanced focus as we move to be a leader, the clear leader in digital.

As I said, there's tremendous opportunity in what we label the white space of nontravel within our business. We have exciting new products that we've launched in this cycle, TUMI Alpha, Alpha 4 is a top collection. I'll cover it in another page. We launched this in January 26 with very good reception, and this backpack is a driver for the TUMI business and is really well received and off to a great start.

We've talked about Samsonite PARALUX in our last calls. This is an award-winning design, 2 in 1 backpack. This continues to perform. In Samsonite Ecodiver, you can see the bag on to the right, that's a top collection, within the top 5 of our Europe overall collections continuing to grow, and we're expanding the offering. And I think importantly, a space, we plan to take a deeper dive into defining the opportunities within this lifestyle bag space with resources dedicated to exploring the full potential.

On the product side and products that have global resonance, I have a few examples in the pages here. This is Nexis. launched in Q1 in Europe. It will launch in Q2 across the rest of the world, and it's off to an amazing start exceeding our expectations. This is a product that's evolving lightweight with Samsonite materials. It's really one of the next global collections. It looks and feels like Samsonite, it's crafted using our Roxkin technology, one of our most advanced shell materials, manufactured in our European facilities, and it really combines exceptional strength with ultra-lightweight performance. And you'll start to see this across the globe as we step into Q2. And again, it's off to a tremendous start.

And then last year, we talked about PARALUX. And PARALUX has been a really amazing global launch. We launched this in Q3 of last year. It was so successful in certain styles. We ended up out of stock by the time we stepped into the start of'26. We're in the midst of replenishing right now, and I expect this to really capture pent-up demand and be a big driver of our sales for the year. It's generated $18 million of sales in a very short order in 2025.

And this is a collection that demonstrates success in combining award-winning innovation, designed with all of our designers across the globe with high impact cohesive media campaigns, and we brought both of those together and it speaks to what we're capable of doing when we get products that have global recognition. We're adding new colors here, and we're adding new collections on the non-travel piece for this as well. I expect this to be a big driver for us in 2026.

And then we're messaging with younger consumers. This was an exciting -- I don't know if you're a Stranger Things fan, but I'm a Stranger Things fan, and in Asia, we launched expanding your stranger side, a collaboration with the Stranger Things, both pieces really interesting. My son is traveling with the blue one there and get comments all the time. And it really drives and captures the imagination of a younger consumer with brand American Tourister. And this was really well received, well placed within Asia. And talks about the capabilities across all of our brands to really message to the consumers we're looking for.

And then lastly, on the product, we introduced the next-generation Alpha 4 collection. This is a meaningful collection top collection within our TUMI's portfolio. And it really speaks to our ability to launch these collections. It's a more streamlined product, streamlined pocketing, silent magnetic closures, intuitive access points and really engineered and I might even say, engineered with a lighter construction, it's really noticeably different, both on the travel pieces and the backpack.

And it's off to a good start, particularly in the backpack side, well, well received across the globe. And you can see campaigns -- 2 campaigns. We have our global ambassador, Lando Norris on the left. And Asia-Pacific brand ambassador, Wei Daxun that we've added and both have been well received as we launched this product. You couldn't have missed it in Q1 of this year.

And just lastly on sustainability, there's 2 things. One, we're being recognized, okay? And I won't go through all of what we've accomplished. Our ESG report will come out next month. And I always tell people read the ESG report, you get a lens into our business. And what we're capable of doing from an innovation perspective and from a sustainability perspective. And we're recognized, I think, importantly, we're recognize in TIME as World's Best Companies in Sustainable Growth '25 and '26, we were #74 out of 500 and #6 in retail, wholesale and consumer goods. That is a meaningful recognition of what we're doing.

In PARALUX, which I covered earlier was a winner of 2 Red Dot awards, one on sustainability design and one an overall design, speaks to what we're doing in this space. And then from a ratings perspective, my view is right where we want to be, from an MSCI rating at AA, that's a step-up and CDP, we continue to be a Climate Score B, which is exactly where we want to be.

We're being recognized. We're getting special mentions across many industries or many lenses on what we're doing on the sustainability side. And again, last pie before I hand off to our new CFO, Tom Pizzuti, definitely take a look at the report, it will be out in April.

So I'll hand it off to you, Tom, and I'll come back for some outlooks at the end.

Thank you, Kyle. While it's only been 7 weeks since I joined the company, I've served as an adviser for the past several years. Over those years, I became impressed by the strength and resilience of the company with a team that has stepped up no matter how challenging the environment. I'm thrilled and grateful to be in a position to help the company enter into its next exciting phase of growth.

I'm sure someone will ask about my initial observations and what my priorities are. So I'll go ahead and address those now before reviewing the financial results. It's clear to me that this is a very well-run organization with a large runway for continuing its profitable growth track record. The company is in a good position to capitalize on the strong consumer demand for travel with our iconic and innovative brands, as Kyle mentioned, as well as continuing to grow in the underpenetrated nontravel category with stylish and functional lifestyle bags and accessories.

The empowered local teams across the globe do a great job leveraging our advantages in product innovation, market leadership, platform and scale. And these teams are nimble and decisive, which is a big reason why financial performance has been so resilient regardless of the macro environment.

The organization is brimming with highly talented and motivated employees around the world and is hyper focused on successfully executing on the strategic growth pillars that Kyle described earlier. I've been impressed by the quality, dedication and professionalism of the global finance team and the company's commitment to maintaining a strong control environment and robust corporate governance.

This is empowered by our local teams in coordination with global leadership and oversight. All these reasons are why I'm highly confident that we'll be able to create significant shareholder value over many years to come. And with the potential dual listing in the U.S., we're excited about the prospect of more investors being able to join us on this journey.

As for my priorities, I'd like to ensure that we take a balanced approach towards driving sustainable sales with a robust margin profile; two, leverage our asset-light business model to invest in growth, return cash to shareholders and further deleverage what is already a very healthy balance sheet; three, continue to evaluate strategic acquisition opportunities that align with our long-term value creation goals. And lastly, to underpin all of this promote continued discipline of the global finance function, a strong control environment and good corporate governance while ensuring continued investment in best-in-class systems for our finance colleagues across the world.

So with that, I'll now go into the financial review. Starting on Slide 23. This will be just a brief recap, as Kyle has already covered a lot of this in his review. So constant currency growth in Q4 improved sequentially from Q3 to nearly 1% growth despite a sequentially tougher prior year comparison. Overall, we saw broad-based improvement across our regions and brands in the second half of the year compared to the first half of the year as the market returns to a more normal growth pattern.

Gross margin was 60.3%, up 10 basis points despite comparing to a strong Q4 margin last year. We're proud of the discipline that we've had on promotional activities to drive net sales and benefited from favorable geographic brand and channel sales mix, as you heard from Kyle earlier.

We also effectively mitigated U.S. tariff impacts, thanks to the teams across the globe who managed things so well all year long. And as the U.S. tariff landscape continues to evolve, I'm confident we will continue to manage it well with our highly experienced teams in deep and long-standing relationships with suppliers.

Distribution expenses as a percentage of sales were 30.3% in the fourth quarter, up from 29.1% last year. The increase was primarily due to the addition of 31 net new company-operated retail stores added in 2025 as well as increased salaries and employee benefits.

Marketing expenses as a percentage of sales were 5.7%, in line with the prior year. G&A expenses as a percentage of sales were 5.7%, down 30 basis points from the prior year. As a result, adjusted EBITDA margin was 20.3% in the fourth quarter of 2025. Q4, as you know, is typically a strong EBITDA quarter for us, and we clearly delivered on that, while still investing in opportunistic new store openings to help us elevate our brand presence and drive long-term sales growth.

Adjusted net income was $106 million compared to $116 million in the prior year. Overall, we're happy that we were able to maintain an efficient cost structure while finding smart opportunities to invest in our long-term growth in an environment where many consumer businesses were pulling back. So with a return to sales growth combined with a robust margin profile, I think these were good results for the quarter.

Moving to Slide 24, we present our full year 2025 results. The first half was challenging as you heard earlier with Kyle, as we faced weakening consumer sentiment due to significant macroeconomic and geopolitical uncertainty, we remain focused, however, on launching new and innovative products with impactful marketing campaigns. We improved our sales mix towards higher-margin regions in the direct-to-consumer channel.

We successfully mitigated tariff cost pressures and we invested in our business for long-term growth. As a result, in the second half of the year, constant currency net sales growth improved sequentially and gross margins expanded year-over-year. Adjusted EBITDA margin was solid at 17.3%, which is normalizing from 2 higher-margin years in 2023 and 2024, reflecting the normalization of the adjusted EBITDA margin adjusted net income was $293 million, down from $370 million in the prior year.

Moving to Slide 25. We provide a few other highlights that showcase our ability to navigate a challenging demand environment and invest in our long-term growth while also generating solid free cash flow and strengthening our balance sheet. We generated operating profit of $528 million in 2025 compared to $629 million in 2024, as we strategically invested in 67 and 31 net new company-operated retail stores in 2024 and 2025, respectively, which increased distribution and G&A expenses by 2.8% to $1.3 billion.

This increase was partially offset by a reduction in advertising spend from 6.3% of sales in 2024, to 5.9% of sales in 2025 as we flexed our spending in light of lower net sales on a reported basis while still ensuring adequate marketing investment to drive future sales.

With this financial performance, we delivered strong adjusted free cash flow of $246 million for the year. And in Q4, it was $170 million, which is an improvement of $35 million from the same period in the prior year.

The balance sheet remained healthy with a net debt position of approximately $1.1 billion at the end of the year, which is a leverage ratio of 1.8x EBITDA -- adjusted EBITDA. And that's after returning $193 million to shareholders via a dividend of $150 million and $43 million of share repurchases during the year.

As we detailed in our last earnings call, we successfully executed a comprehensive refinancing of our senior notes and senior credit facilities. We significantly extended debt maturities across all tranches, increased available liquidity and significantly reduced near-term refinancing risk.

Speaking of investments, turning to Slide 26. We continue to invest in new stores, as you heard, remodels as well as in our strategic initiatives. Full year 2025 capital expenditures were $93.8 million, down from $111.5 million in the previous year as we were more selective on strategic store openings and remodels.

We plan to increase capital expenditures to a range of $135 million to $140 million next year as we invest in a multiyear project to enhance our European distribution center, make ERP and e-commerce software additions and add 30 to 40 net new company-operated retail stores.

That said, we will be nimble and flexible in our spend and spend appropriately based on the changing market conditions. So in summary, we returned to sales growth in Q4, effectively navigated uncertain trade policies and delivered solid margin performance.

We also continued to generate significant cash flow, we derisked and strengthened our balance sheet, and we continue to invest in the business while returning a sizable amount to shareholders.

So with that, I'll turn it back to Kyle for the 2026 outlook.

Okay. Thanks, Tom. I'm on Page 28. We continue -- we are confident in the long-term tailwinds supporting our business, including continued growth in travel as well as our ability to execute our strategic priorities and accelerate growth. Further, as the industry leader, we expect to benefit significantly from renewed consumer demand in luggage and travel bags over the next several years, following the more recent period of moderated growth off the back of revenge travel that we saw in 2021 to 2023.

Nearer term, we expected a continuation of our net sales growth momentum during Q1 of '26, prior to the onset of the conflict in the Middle East. But as the conflict continues, we now expect Q1 to be approximately flat on a constant currency basis compared to Q1 of '25. We saw a strong momentum as we started the quarter, and we saw our impact as we get to the middle of March.

We believe we have an opportunity to achieve sequential constant currency net sales growth as '26 progresses. However, inherent uncertainties around the duration and potential impact of the conflict makes it impractical for us to provide a specific outlook for the full year. We do believe our scale advantages, our supplier relationships and our ability to effectively navigate through uncertain geopolitical and macro environment conditions will continue to enable us to maintain strong gross margin profile in '26 and beyond despite the uncertain conditions in the market.

FY '26, our marketing spend as a percentage of sales is expected to increase, as we lean in our strategic priorities, I plan to bring that up to 6.5% to make investments to elevate awareness of our iconic brands and to drive long-term growth.

With that said, we continue to maintain flexibility and can adjust that, if needed, but I have a high intention to continue to push the business in the back half of the year. We're focused on continuing to leverage our asset-light model, as Tom just went through. With an investment in growth, returning cash to shareholders and further deleveraging our balance sheet as we go forward, while continuing to evaluate strategic acquisition opportunities that align with our long-term value creation goals.

Our preparation for a dual listing in the United States continues. Our Board of Directors and management firmly believe that dual listing will enhance shareholder value creation over time, and we'll continue to improve in our -- with the continued improvement in our business, we intend to complete our dual listing in 2026, while being conscious of the current market conditions around us.

So with that, I'll turn it back over to you, Alvin, and we'll take some questions. And thanks, everybody.

Thank you, Kyle and Tom. Operator, we can go into Q&A now.

[Operator Instructions]. First question comes from Anne Ling from Jefferies.

And I have 2 questions here. First, Kyle, thank you very much for sharing the year-to-date performance and also the first quarter update. And if you could share a bit more in terms of performance by market, how we are seeing the trend by different markets, whether there's any other market that is more resilient? So that's my first question.

Secondly is on the cost side. Given the current conflicts in the Middle East, oil price increase. If you could share with us like the cost -- some of this in the raw material price. Is there any risk that the margin might be under pressure because of this short-term product -- raw material volatility? And how are you able to mitigate that? So that would be my second question.

Yes. No, 2 good questions. I would say we're seeing sequential improvement across all of our business as we were going into Q1. And where we saw some immediate impacts in our business was largely in the Middle East. Middle East is around 1.8% of our sales, so a pretty small piece, but we saw a meaningful decline as we stepped into March, as you'd expect.

We saw a bit of a halo of that in India. So we saw our India business impacted a bit more than other parts of the region. But we saw a strong growth, and we talked about it in Q4. We saw continued strong growth in the markets of Japan, Korea and -- Japan and China, I mean, did I say China? Japan, China, Korea were very strong. And Southeast Asia continued to be strong. So we saw some resilience in Q1 across those impacted by what we saw and as you'd expect, the immediate impacts of that.

Our Europe business is generally steady in Q1, and our North America business was, I would say, sequential improvement is what we're seeing as we went through the quarter. So it's a bit early to tell, right? I think as we step out of Q1 and in Q2, that's really where the uncertainty comes. But there are real pockets of resilience. But I don't think we've really -- and the consumers have really felt or reacted to the ultimate impact.

And as I said, the duration of the conflict and resolution, it's hard to predict today what that looks like.

From the cost side, we saw some early indications, as you'd imagine, anything tied with fuel. So we've seen some short-term kind of impacts on shipping costs pretty quickly. They're in kind of a range that won't really affect us. They're in ranges that we typically anticipate. And as you know, on shipping, we enter into forward arrangements and agreements on that. And so I think we're in a very good place there as of now.

I do think there'll be some impacts on things like plastic costs. We saw some meaningful increases in India fairly quickly. But the reality is that takes just a bit of time to pass through. And as we faced this in past crisis, we'll be working with our suppliers.

We're working with our sourcing teams on that relationship. We typically have 5 to 6 months of inventory to manage. So we have plenty of time to navigate that. And our intentions would be to navigate that and do the best we can to maintain margins. And that's what we're focused on. But again, it's early to tell the impacts. And so we've seen some of the early indicators on the areas that you'd anticipate. And we'll react to that as we manage the business with the suppliers along with the positioning of our products.

Next, we have Akshay Gupta from HSBC.

I have 2. The first one, you mentioned about Q1 sales expected to be around flat in constant effects. Maybe can you share some color on the margin expectations for the quarter? And second is on the store expansion plan. So you mentioned about adding 30 to 40 stores this year. If you can talk about which markets will be the key focus for the year?

Sure. Our gross margins are generally holding strong. If not for conflict, I would tell you that our margin profile for the full year would continue in the ranges that we've got. And as we were looking at the quarter, it looks like it was holding there. I'd expect not a meaningful impact in Q1 on margin profile. Mix will have some piece to do with that, but I think it will be in a consistent lane to what you saw for 2025. For the back half of the year, it's hard to predict on that front.

But as I just got done saying, we would be looking to mitigate impacts that we might see. And again, we have a strong history of managing that. As far as store expansion plans, they're kind of in line with what we've been talking about. We have opportunities within Asia and Europe.

We have opportunities within TUMI. We've been actively looking at TUMI locations and expanding on the TUMI side. And I would weight that within Asia and next Europe, and there'll be a handful of stores in the U.S.

[Operator Instructions], Next, we have Perry Yeung from UBS.

Congratulations, Tom, for the new role. We look forward to hearing the insights in the coming quarters. And I just have 2 questions. So one is related to the revenue trend. So I hear Kyle has mentioned that we've seen a broad-based growth momentum coming through in Q1, but there's been some disruptions coming through due to the Middle East conflicts.

But more specifically, I'm not sure if you can provide some color in terms of the trend in North America. Obviously, we know one of the biggest threat last year is really the wholesale channel. Do we see the appetite or the sentiment has changed across our wholesale customers in North America? That's my first question.

And my second question is related to shareholder return. And I guess, during the call, we made a lot of emphasizes on the shareholder return and also the strong free cash flow generation. After the shareholder listing, what sort of expectations we have, especially given that it might be more tax efficient for the share buyback. What sort of size or scale or the ballpark that we should expect in terms of the future shareholder return?

Okay. Revenue trend for North America. I think wholesale customers are still buying a little bit lumpy. What we can see in North America is sell-through is strong, but particularly off the back of kind of the recent tensions, I think wholesale customers are buying in a careful way. So like what we were experiencing last year, it's a bit lumpy and that continues.

Our North America business, excluding TUMI, looks like it's trending to be an improving trend. What we saw in North America in Q1 is our TUMI business was a little bit softer. And we saw our other luxury players, particularly as we get into February and March, and there's a little bit of weather. We're a bigger retail presence, that has some impact. But a softer trend for TUMI North America and our TUMI Samsonite business, an improving trend, though lumpy. So blended, it looks to be in a consistent level to what we saw in Q4 for North America is what I would say.

As far as shareholder returns, we'll have a dividend program that kind of lines up with what we've historically done. We have a typical payout ratio of around 45% of adjusted net income. That will be the case as we step into this year. And we're still evaluating shareholder buyback. I think in the midst of working on our dual listing, we're not actively in that market. But once we get to the other side of that listing we'll come back and evaluate the blend of shareholder buyback or share buyback versus dividend.

I think we'll have a foundation of a dividend policy. We've had a long history of dividend since we've listed the company. and you should expect that to continue and then we'll be added on share buyback once we get to the other side of the listening is how I'm thinking about it. We have plenty of cash flow capacity to do both.

Thank you. At this time, we will conclude our Q&A session.

Okay. Alvin, anything to add?

That's it. Thank you, everyone for taking the call.

Good. Thanks, everybody. Appreciate it. Have a great morning, afternoon, evening. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite Group 2025 Third Quarter Results Conference Call. [Operator Instructions]. Please note that this event is being recorded.

I would now like to turn the conference over to Mr. William Yue, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you very much, operator, and thank you very much, everyone, for joining the call. We have the pleasure today of our CEO, Kyle Gendreau; and our CFO, Reza Taleghani with us, and our CEO, Kyle Gendreau, will start off with a few remarks. Thank you very much.

Okay. Thanks, William. Thanks, everybody, for joining from Hong Kong. I realize we have a time change. So sorry, this is at 10:00 New York Time, if I'm getting the times right. But thanks for being with us.

So I'm on Page 5. And I think the way I would start with title sums up really well, strong momentum in the business supported by innovative products, which you'd expect from us. But importantly, all regions in our core brands -- actually, all of our brands are delivering sequential improvement in Q3 versus Q2. We've seen clear sales momentum in Q3, our net sales decline for the quarter. Constant currency is 1.3%, coming off of the Q2 that was down 5.8%. Encouragingly, net sales growth was positive in the month of August, September and October in all regions and brands, as I said, are seeing sequential improvement in constant currency growth Q3 versus Q2.

If I take one lens, the one market that's continuing to have some challenges on the wholesale side with wholesale buy-in, consumer sentiment and lower inbound tourism in North America. We'll cover North America in a little bit of detail as we're going through. Our net sales would have increased in the quarter by 0.3%, just adjusting for North America.

Our Q3 benefited from growth in our overall direct-to-consumer business and both our -- and also our non-travel sales had positive growth -- noticeable positive growth. Clearly, sequential improvement on those, and we continue to see sequential improvement on our travel net sales. Our direct-to-consumer sales consolidated up 3.5% period-over-period. Our DTC e-commerce was up a little over 10% -- our owned company stores were up 1.1% off the back of store openings and building momentum.

Our DTC mix today is -- in Q3 is 42% versus 38.9% last year. We'll cover that in a little more detail later, but we continue to move in that direction, similar to what we saw in Q2. Our overall wholesale channel net sales declined 4.5% period-over-period, with sales for our traditional, I call it, brick-and-mortar wholesales down around 7% due to more cautious purchasing by a few of our key wholesale customers, particularly in the U.S. that are driving a lot of this.

But this was partially offset by meaningful growth in our e-retailer sales, up 12.3% in the quarter. And then lastly, I talked about non-travel. I've got a slide in my deck, and Reza, I think, has one in his as well, but our non-travel sales were up almost 7% in the quarter as we continue to focus on this opportunity, which is white space opportunity for us, becoming a more meaningful percentage of our overall business, as you know, but really a very strong trend there.

I think one of the real highlights of the numbers as well beyond improving sales trend is the gross margin story. Our gross margins expanded in the quarter with impacts from tariffs really well managed. Our Q3 gross margin was 59.6%. That's up 30 basis points to last year. And importantly, up 60 basis points to the prior quarter. And when you think about the full effect of tariffs going in at the beginning of Q3, it speaks to kind of our tremendous ability to navigate and mitigate tariffs.

Our U.S. business is around 1/3 of our business, but well managed. You can see it in the overall gross margin of the business. I can't thank our sourcing teams enough. What they've done to navigate is tremendous. What our teams on the front end have done and the relationships and the partnership we have with our suppliers really speaks to our scale advantage and the ability to manage the gross margin of this business well. And it trends into Q4 looking just as strong. We do expect sequential improvement in our sales in Q4 relative to Q3.

We believe we're capitalizing on the growth in travel, which continues. We have really amazing products. We'll talk about a few that we've launched in the midst of the quarter, like Paralux that you can see to the right of this page. And we have a positive sales trend leading into Q4. Last 3 months have been strong. The first month of Q4 is a positive growth story. And there's good momentum leading into holiday.

A lot of Q4, as you know, depends on holiday. But I would say the early reads from -- across our markets are feeling good on the holiday story. But a lot happens in the next 4 or 5 weeks, but we're well positioned on that front. And as you know, we're really very positioned really well for profitable long-term growth.

I'll cover it in my outlook as well, but the medium and long-term growth prospects for our business and our competitive advantage on product innovation, real strength on advertising and really being able to capitalize on the underlying growth in travel that continues and seizing the white space on the non-travel opportunities, which we've shown over the last couple of quarters and for sure in this quarter, really underpins kind of the strength and our ability to continue to deliver medium- and long-term growth for the business.

Next slide, from a brand perspective, you can see each -- every one of our brands delivering improvement over last quarter. Importantly, Samsonite improved from roughly down 5% to down 4% in Q3. But when you peel into that, Europe is positive 1.3%; Latin America, positive 8%. Tremendous performance shift in Asia with building momentum in the quarter, down 4% versus down 9% in Q3. And our North America business, again, largely driven by wholesale customers and some of the buying behaviors and cautionary approach was down 10%, just a bit better than what it was in the previous quarter.

A real tremendous shift to TUMI's trajectory. We were performing down 2% to 3% for the first half of the year. Q3 shifted to positive 5%. Importantly, it came from across all of our regions, particularly in Asia, which was up 7.1% and Europe, up 6.3% off the back of initiatives pushing the business, new store openings and a consumer group in this higher income class that has shown more resilience in Q3 than the rest of our consumers. And North America, importantly, was up 3.3% in the quarter.

And if I call out China specifically, where we have a laser focus within our Europe business, that was up 10% in Q3 for the TUMI business. So really solid performance, good trends as we move into the back half of the year. And American Tourister had a really quite dramatic shift. That was at the start of the year, and we talked about this in the last two earnings calls, a consumer group that's under strain more than others, particularly in the U.S. market, but around the globe, that consumer was moving more cautiously.

We saw a really meaningful shift in improvement, largely off of what we've done to shift the product offering within the brand, particularly in Asia, particularly in India, which shifted to positive 3% growth for American Tourister. And as you know, that's our biggest market for American Tourister in the globe and really sequential improvement, noticeable improvement from where we were in the first half of the year. And I think we're set up well as we finish the year and go into the start of next year.

Page 7 is a slide we've looked at before. And I just want to drive the point. And for me, this company is hitting an inflection point that we've been talking about coming. As we exit Q3 and step into Q4, you can clearly see the shift. But importantly, if I go back to this revenge travel period '21 to '23, where our business was up 23% against an industry that was up 3.8%, tremendous growth. We were 6x growth in industry off the surge of travel that came back.

Global air traffic is still projected to grow. This business correlates really well with air travel. I have a slide that you've seen before a little later in the deck. 4% growth in global air traffic really underpins the resilient of consumer spending on travel. Maybe they're not spending the same way. I think that's had some impact on our business, but the sheer travel numbers continue to grow and the outlook continues to be very positive.

We've continued to invest in this business on product innovation, new product innovation, capitalizing on the white space within non-travel and pushing the advertising and elevating the advertising stories of the business. So we're continuing to invest in marketing spend, changing the lens on the way we spend these dollars to really go after not just existing customers from a loyalty perspective, but to deepen our relationships and broaden our relationships with new customers.

And we're seeing clear traction on that front and investing there. I believe we're about to get the benefit of replacement cycle in this industry for the same reason that revenge travel slowed down at the end of '24 in the first few quarters of 2025. I'm certain that we're going to see the inverse of that as consumers continue to travel at a very good pace. As you know, and I presented this, I think, in the past, over 52% of travelers replace their luggage every 2 years.

Non-traveler bags, 73% of travelers replace that every 2 years. And so we're now at a moment in the cycle where we're 3 to 5 years past that surge in travel. And I think we're starting to see the benefit of that in our numbers as well, which I was anticipating. We also believe consumers in this environment in many markets around have shifted towards value and have shifted to e-com. We can clearly see it in our own e-com numbers, both our direct-to-consumer e-com and wholesale.

And I think importantly, because of our scale advantage, we're well positioned to capitalize on that. Our brands can hit price points -- competitive price points across all of our markets across particularly Samsonite and American Tourister, and we've been doing that. That's fueling some of our story. And we -- and as you know, we're investing in this in a strong digital platform, both digitally and importantly, on the wholesale side as well. And it's delivering. And you can see it in our numbers in Q3. And I think we're really set up for medium-term growth on both of these avenues as we move forward.

We're focused on profitable long-term growth. When you think about what I'm focused on as a leader, it's really around getting this business back to its normal growth profile. We have a long history of delivering outsized growth against industry, and I think we're heading there. And importantly, we've continued to strategically invest in our business. Even as we face headwinds, we're pushing the business to really strengthen our competitive advantage in the marketplace from a leadership platform capabilities and scale advantages to continue to move us forward.

We're continuing to win through product innovation. We've got some really exciting stuff that we've launched across all brands, a lot in the pipeline as we move into the start of next year. We're really laser-focused on amplifying and elevating brand awareness. As you know, we're leaders, our three core brands are leaders in the market in their own rights individually. But collectively, we're looking to amplify and really push more efficient, more effective marketing and have a vision to increasing this as we move forward.

And we're really set up to do that to, again, cultivate customer loyalty, but importantly, continue to attract new customers to our business. And so you should be seeing and feeling that in our marketing messages today and as we move forward. We will capitalize on the growth in travel. The forward view for global travel continues to be strong and as a leader with really the most trusted brands in the space, we will capitalize on that growth. I say it again, this white space around non-travel, there's tremendous opportunity.

I've got a slide that talks about market size and what our shares are. We have tremendous opportunity to grow the non-travel business, of which we've been doing consistently for a long period of time. I think we can accelerate what we're doing here on the non-travel side, and you'll hear and see some of that in the numbers that we're showing today.

And we're strategically growing DTC really through enhanced e-commerce platforms across the globe and across land -- brand and really disciplined store openings and expanding our retail footprint in the markets that it makes us -- sense for us to do. It provides this really unique competitive advantage to us that we're executing wholesale, but we're executing perfectly digitally and pushing ourselves on the digital side. And we have a foundation of retail stores, almost 1,300 stores globally that consumers can interact with us.

And these are direct owned stores that we can have this deep relationship with our consumers. And we'll continue to do that. And I think over time, our DTC mix continues to slow but steadily increase in the business at the right pace. And we remained strictly disciplined on overall cost structure. You can see that in our overall numbers. Obviously, gross margin is an art and a scale that we have, and we manage gross margin for a long time really well. But how we manage the rest of our cost structure, Reza will talk through that as well.

Even as we face some headwinds over the earlier quarters of this year, -- the cost structure has been really well managed, and it's well entrenched in who we are as a business. I think this is a new slide. It's a slide that we use internally quite a bit, but we operate in a really highly attractive fragmented global bags and luggage business.

I'm on Slide 9. If you look to the right, global luggage. This is what you typically think of us as when you think about us today. It's roughly 64% of our business is travel luggage. We have a 19% share in what in '24 was a $22 billion business that grew at a CAGR growth of 2010 to '24 by 3%. And that's with the COVID years. The reality is take the COVID years out, it looks more like what the forward indicators are for this industry, 2024 to 2029, 6% CAGR.

And as you know, we have the ability to outpace this growth. And that's the way to think about this space. So we have a growing industry. We have meaningful scale and we have the ability to continue to grow and attract consumers into that -- into our family of customers. To the right of the page is bags, global bags. This is excluding luggage and excluding handbags, which is not us, right? This is the rest of the bag business, what people are carrying around and moving backpacks, duffles, crossbodies, things that we see every consumer in the world traveling with.

That has very similar underlying growth dynamics. You can see the 10% to 24% impacted a bit by the COVID years and the forward indicator is not so different than luggage, 5% growth. And importantly, our market share here is 3%. We've been growing high single, low double-digit growth for a period of time in this space, and we have clear ability to continue to expand with collections that we've launched and been launching.

I think my next page I will show you a few of those that shows that we have tremendous ability to grow share in this bucket. And it's a larger bucket with plenty of opportunity for both ongoing growth and just gaining share. And just as a reminder, in this 2010 to '24 period, if you blend the two, we -- our CAGR growth in that time period was 8.2%. That's including COVID years. That is almost 3x the industry growth that we saw in that same time period.

So it speaks to kind of our ability to leverage our scale to move across these two big categories of the market we operate in. Our growth, we've covered this before, has historically been really strongly correlated to travel. And the outlook for travel remains tremendously strong. If you take a 5-year forward view, travel growth expected to be around 4%. If you shorten that up a little, I think it will actually be a little more.

If you look to the left of the page here from where we are to 2019 levels, call this pre-COVID, we're up 22% in sales against the global passenger growth in that time period, including COVID, that's up 8%. So you can see this tremendous outpace that we have in growing against an industry that continues to grow. The chart on the right, we've shown before, okay? The red line is travel industry. You can see the impacts of COVID. But the real impacts are really where we are now, which is this revenge travel that I covered that we really overperform.

And the forward indicators. The most important page here is the forward indicators for global passenger travel, 4% growth. And we're importantly at this inflection point that we're getting back on course. The history clearly shows we outperformed this industry, and we're pivoting into positive growth again is the way I would describe it in -- at the end of Q3, in Q4 and for sure, in the years to come. And we should do better than what the industry underlying growth is like we have for the last decade.

On Page 11, non-travel category, 14% CAGR for us, 2020 to '25, right? So I just showed you a number where the industry growth was something like 2%, and we had 14% growth here. We've gone from $480 million to $912 million. We've talked about this for several years. There's real opportunity to continue to grow in this space. We delivered close to 7% growth in Q3. And we're focused, and it's across all of our brands, brands like Gregory that are largely non-travel, High Sierra which has a meaningful piece of travel.

But TUMI, Samsonite and American Tourister are all delivering meaningful growth in this space and plenty of opportunity to gain share and continue to grow. As a team, we're laser-focused on really further penetrating what I would label is a big business of us, a $1.4 billion to $5 billion business, but under-penetrated from a category perspective, that I know we can do more. And in this Q3 period, we're up 270 basis points as a percentage of our sales, approaching 36% of our sales non-travel. I think when I started a long time ago, it was something like 12% of our business, right?

So this is really meaningfully moving. And again, in a huge market that's got tons of potential for us. On Page 12, what does it look like? I think you know this. A good example of Samsonite Better Than Basic designed and developed in our U.S. team performing really well. This has a whole collection of backpacks, duffles, cross bodies that is performing tremendously. It's what you see consumers moving with today.

Ecodiver in the middle of the page. This has been a home run, started in Europe. It's a home run all across the globe. The whole collection of duffles, backpacks, more unstructured travel goods that consumers are traveling with today. It's a top three collection in Europe overall, and it's penetrating the rest of the world over the last couple of years in a meaningful way. American Tourister take the cab and underseater.

There's this huge wave of underseater bags within Europe as discount airlines put pressure. This underseater category, we're hitting with all of our brands, and there's so much more to go. And this American Tourister bag has been a tremendous success. And when you think about American Tourist, you think about bright colorful luggage, but this non-travel capacity we have in backpacks and duffles is tremendous, and the teams around the world are doing great stuff. Gregory, you get it. This is Gregory, which is super technical mountain bags.

As we come off the mountain and we really penetrate into everyday bags, that make you feel like you're on the mountain, but you're in an urban setting and more lifestyle approach products with Gregory. Gregory is delivering significant double-digit growth this year for us, and it's got tremendous room to grow. Samsonite Paralux, this is a collection that we launched. I have a slide on it. This is the backpack component of this.

This has been a huge success. This is a 2-in-1 backpack, where you can separate that backpack and you have a bag that you can take with you for the day and the travel component of that backpack that you can use is effectively your underseater has been a huge success, a Red Dot award-winning collection.

And then TUMI's, Celina part of the-- TUMI Voyageur collection, really an amazing bag, big part of TUMI's journey and so much more to go on TUMI from a collection perspective. Think about owning totes and business bags and what TUMI is known for, there's real opportunities to drive further that space, particularly in the women's category. Just a little call out. We were -- and we've been here before, this is -- Business Travelers Award, where Samsonite was rated #1; TUMI was #3 on the list. No surprise, Samsonite is #1.

This is a survey with 95,000 global travelers voting in a panel of 20 experts. And importantly, when you think about scale and the ability for us to innovate and bring products to be recognized as #1 business traveler luggage is meaningful. And you'd expect that from us. And I'm just sharing that this is with [Technical Difficulty] push in the business to really demonstrate this amazing product development, this focus on functionality, focus on sustainability and creating inspiring bags that people want to travel, and this award speaks to that.

On Page 14, we've had a very successful, I would say, ahead of our expectations launch of Paralux Collection. I think I indicated we're working on this. This launched in September of 2024. It's a collection that really brings the best of our innovation from a sustainability perspective, the bag is largely sustainable. Almost every inch of this product incorporates sustainable materials. It's built for self-repairability, another real sustainable attribute. This is a bag that you can replace the wheels at home.

We can help you do that very easy. And it's built to last, and it's built with superior design functionality. It's become one of my favorite bags to travel with from a carry-on perspective. It's got front access, a mid- access. It's really designed perfectly for the way consumers think about traveling and ease of travel when you're moving through airports and in hotels, what the bags deliver is tremendous. And it was recognized. We won two Red Dot awards for this, both on sustainability design and overall design. And again, it's exceeding our expectation.

And I would argue it's just getting going. I think it's been a really successful collection. And it speaks to the power of a globally launched product with cohesive high-impact media campaigns across all of the regions of the world. This talks about scale advantage when we put ourselves together to deliver on a really amazing product. You should expect more of that from us as we move forward. And TUMI is really on the run. You can see the shift in performance as we stepped into Q3.

We continue to focus on elevating this brand on all fronts. It's a very product-centric and communication strategy-focused business, okay? This is around delivering performance luxury products and then really meaningfully elevating the messaging to consumers on what we offer here and what this means. We had a 50-year anniversary for TUMI. Even that surprised me, I hadn't fully appreciated TUMI was 50 years in the making. It's hard to find brands in our space that are 50 years -- and it was driven. It was well presented the signature TUMI Red that you can see on the left, incorporated in some of the product materials as we are launching our 50-year messaging to consumers. We launched 19-degree light as part of this 50-year, really a testament to the innovation that continues to be deep in the brand TUMI, both on travel bags and non-travel bags, very successful line.

Clear focus on lightweight that TUMI has been needing and waiting for it, very well received by consumers and more to come, is what I would say as we go into next year. And then just lastly, TUMI's Icons Tested” campaign as we talked about the icon of TUMI and what it means to travel with the TUMI that fits the true definition of performance and luxury, how it comes together.

This we launched in September. We've already had 56 million impressions off of a campaign that I think has been well received, both focused on men's, non-travel, women's non-travel and talks about the true DNA of what TUMI is all about when you think about performance luxury. So we're quite excited and more to come on the TUMI's journey as well. We've opened some amazing stores for TUMI around the world.

I just wanted to give you a few of these. South Coast Plaza in California, just a tremendous store. I think we talked about the TUMI store in Shanghai, this flagship location in the bottom left. That's been a tremendous success, really distinctive TUMI. When you get into that store, you feel the brand in a meaningful way. Chengdu, China. So when you see China moving and the types of stores that we're opening within this region, really amazing in Beijing, China as well.

This speaks about the power of this direct-to-consumer model and the strength of the brand as we show up not just -- on digitally, not just with amazing product, but on a footprint that consumers really embrace kind of what the brand is all about. So with that, I will hand over to Reza and I'll come back with outlook right at the end.

Thank you very much, Kyle. We're on Slide 18, just looking at the overall results, and some of this Kyle has covered, but just to go through it. Overall, Q3, we're reporting sales that are down 1.3%, a meaningful improvement from the first half. The first half, as you'll recall, was down 5.2%. So we are seeing that sequential improvement that we had indicated on our last call. Very importantly, this gross margin improvement, not only are we maintaining gross margins despite the tariff headwinds, but we're actually 30 basis points better year-over-year.

And as you'll recall, gross margin last year was running at record levels for most of the year. So we're very, very pleased with what we've been able to do on the gross margin front. Adjusted EBITDA, obviously, the sales have been down, and therefore, that's working its way into the adjusted EBITDA numbers. So we're reporting $143 million of adjusted EBITDA in the quarter. If you're looking at the margin levels, we have had 43 net new stores that have come in year-over-year.

So that obviously has a cost implication that works its way into that margin. So the margin has been impacted between the sales being lower. We have some incremental stores that have some SG&A associated with it. And so we're looking at 16.3% from an adjusted EBITDA margin for the quarter. And adjusted net income at $64 million as well, just looking at the total flow-through of that. Again, I think the important point on the sales is the last 3 months have been positive, and we're feeling pretty good about where the business stands right now.

On Slide 19, just to give you a sense in terms of how everything is performing by region. Net sales did improve sequentially in every region since the last quarter. So as we mentioned, we had a North America business that has been under strain, but even that is looking better quarter-over-quarter. Just to go through the numbers. Asia has had a meaningful improvement, so roughly flat in Q3. And as you can see, the first half of the year, Q1 Asia was down 7%, Q2 was down 7.6%, and we're looking at about 30 basis points down for Q3.

So a meaningful improvement, largely on the back of TUMI as well, although all brands are performing. North America down 4.5%. Obviously, as Kyle mentioned, the wholesale customers from the Samsonite brand impacting that number and that consumer sentiment point that we have been talking about earlier in the year continuing a little bit. Europe returning to positive. We're feeling pretty good about the Europe business, although the travel statistics and the inbound tourists are a little bit lower than what we've expected in the past few years.

Reporting Europe up about 1% in Q3 and Latin America up 1.2% in the quarter. Largely, if we didn't have -- you'll see it on a subsequent slide, if Mexico weren't caught up in some of these tariff issues and some consumer confidence and wholesale buying issues in Mexico, that would have been the normal double-digit growth that you would expect from Latin America in the quarter as well. On the next slide, we can get into it a little bit at a country level just to give you a sense in terms of the individual drivers. If I'm looking at net sales in North America, you should be aware that TUMI really had a good improvement quarter after quarter.

So TUMI was positive 3.3% in Q3 in North America as compared to down 3.3% in Q2. So that's a meaningful shift that we saw quarter after quarter. The Samsonite brand still under pressure in North America, but it is getting a little bit better, and it's largely drawn off of the cautious buying that we're seeing from our wholesale customers. Net sales in Asia, roughly flat, and we're seeing sequential improvement in net sales of TUMI. TUMI was up 7.1% in Q3 versus up 5.2% -- versus a 5.2% decrease in Q2. So very meaningful shift in terms of what we're seeing in the TUMI business in Asia off the back of the initiatives that Kyle outlined.

Strong growth of the brand in China, 10% growth in China in Q3 alone. So we feel very good about TUMI globally. Sequential improvement in net sales of Samsonite brand in Asia. So if you're looking at it quarter after quarter, Q2 Samsonite brand was down about 9%, Q3 down 4.3%. So getting a little bit better as we get enter the back half of the year. And then meaningfully, you saw the shift that we saw in American Tourister overall. That was -- a lot of it was due to Asia, but specifically India.

And so if you're looking at Q3, India improved 8.5% growth in Q3 from down 2.7% in Q2. So really meaningful improvement in terms of the sequential improvement that we saw in that market as well. Going on to the next slide, we can touch on Europe a little bit. Europe sales up about 1% in Q3 as compared to down about 1% in the previous quarter. Both Samsonite and TUMI are delivering positive net sales growth in that region. The specific markets where we've seen improvement, we've seen France and the U.K. help drive a lot of that sequential improvement.

But overall, most of the countries in Europe are performing relatively well. I would tell you that Germany has started to come back a little bit as well, but we were pleased, especially with these two specific markets in Europe. The net sales growth in Latin America improved 1.2% in the quarter. Again, I think this Mexico point is very important as you look at Latin America, excluding Mexico, it would have been up 13.2% in the quarter as compared to Q3 of 2024.

So Mexico is under pressure as we look at that Latin America market overall. On Slide 22, gross margin stability is really a key. It has been all year, but I think we're very proud of where we ended the quarter as well. So Q3 gross margin, 59.6%, 30 basis points higher than the 2024 number of 59.3%. Some of that is driven by mix effects. As we have said over the course of the year, the teams have been very disciplined in terms of maintaining the promotional activity and the cadence. Obviously, we're still trying to make sure that we don't miss on sales and pursuing that, but we have been very disciplined in terms of what we're looking at on the promotional side.

And really, the actions taken to mitigate tariffs have been tremendous. We've talked about this the last -- since the April tariffs on the last couple of calls, we've been talking about this, but you can actually see that with tariffs in full effect right now, if anything, we've actually improved our gross margin. So the mitigation efforts have been very successful. Those included partnering with our suppliers to manage the cost, reengineering product in the medium term to make sure that we hit those price points while making sure that we hit the business specific gross margin targets that we have for all the brands.

And we do anticipate being able to continue that going forward as well. On the next slide, just some of the other financial highlights that bear mentioning coming out of the quarter. We're on Slide 23. Overall, Q3 distribution and G&A expenses were $339 million. That's up 5.1% compared to last year. But bear in mind that we do have 43 net new company-owned stores over the past 12 months. So that's working way into the cost structure. Advertising spend, 6.1% of net sales in the quarter. So that was $53 million in total.

That's about $3 million lower than what we had last year. It's roughly about the same number. We do anticipate increasing advertising as we enter really next year, but you may see a little bit of an increase going into Q4 as well. We want to make sure that we're investing behind the brand, especially now that we have all of these really great product introductions coming in. We want to make sure that the marketing is supporting that as well. Operating profit of $139 million in the quarter, that compared to $133 million in the previous period in 2024.

Strong adjusted free cash flow, $64.7 million. So continuing to generate free cash flow. This business has always had a great track record of doing that. And then a net debt position of $1.2 billion. When we get to the balance sheet, I'll touch on the fact that we had this refinancing that we just announced last week as well, so we can get through that a little bit in terms of extending all of the maturities. That net debt position is after returning almost $300 million of capital to our shareholders as well, so $279 million in aggregate between our share buyback program last year as well as the dividend.

Our net leverage ratio was right around two turns, which is our long-term target for the company. And then liquidity at the end of the period, we were at $1.3 billion of liquidity. Post the refinancing that we did, that did improve a little bit as well. On Slide 24, the DTC sales mix, Kyle touched on this a little bit. Overall, if you're looking at it year-over-year, the wholesale is down about 2% as we increased our DTC mix.

So our DTC mix is now 42% in aggregate. If you're looking at it in terms of the component parts of it, our own e-commerce channels have grown to 11.8% of the total number of sales that compared to 10.5% last year. Our retail, our own store fleet is delivering -- is now about 30% of the mix of that as compared to 29.3%. I know we oftentimes get the question as to what is our store strategy. But what we usually say is that we're trying to keep that portion of the pie that comes from the retail fleet the same.

So it should be around 30% going forward. And most of the DTC growth going forward should come from e-commerce. The other point that I'll just raise is if you're looking at the breakdown of that wholesale pie, wholesale includes e-tailers for us. So it includes Amazon as well as Mercado Libre and the other etailers that you see around the globe. The portion of that 58% that comes from the e-tailers is now 9.2%, that's a full point better than where we were last year as well. So even that wholesale portion, you're seeing us push the e-commerce channels as well.

On Slide 25, looking at travel versus non-travel, Kyle just showed you where the huge opportunity is in terms of trying to expand our presence and stretching our brands into non-travel. Non-travel growth, if you're looking at it sequentially from last year versus this year, non-travel growth up 6.7%. So we have a meaningful investment in this category. So now non-travel represents 35.6% of our total sales. Just compared to last year, we were just shy of 33%. So that 6.7% growth is meaningful and an area that we're going to continue to invest in.

So just looking at it on a year-to-date basis on Slide 26. Obviously, as I mentioned, the first half was down 5.2%. Q1 was down 1.3%. That blends to we are just around down 3.9% year-to-date. Obviously, going to the back half of the year I am going into Q4, we're hoping that, that continues to improve as we get to the back end. Kyle will touch on that in his outlook.

Gross margin year-to-date remains very strong. Again, 59.3% year-to-date. And we do expect as Asia starts to grow back to its normal clip and TUMI, which is performing, that will also further help the gross margin story for us. Adjusted EBITDA is down $77 million year-over-year. That's largely due to the fact that the sales are obviously lower. And there's a little bit of gross margin that's declined year-to-date between last year versus this year.

And that's partially offset by a little bit of lower advertising as well. And year-to-date net income, $187 million as well. Looking at the balance sheet. Again, we have a very strong balance sheet. We feel very good about where we stand. Again, I have a specific slide dedicated to the refinancing, which is on the next one. But just on this slide, we are very well positioned to capitalize on long-term growth prospects.

We have significantly delevered coming out of COVID, but we have a lot of financial discipline, and we expect that deleveraging story to continue. Ample liquidity at $1.3 billion and net leverage stands just right around two turns of net leverage.

On Slide 28, I want to just spend a minute in terms of talking about this refinancing that we did. Basically, we refinanced all of the corporate debt that we had on the balance sheet at Samsonite. This is important because it was massively oversubscribed, showing the strength of our balance sheet overall and the interest in Samsonite. The importance is all of the debt maturities have now been extended. So our core pro rata facilities, our Term Loan A and revolving credit facility now have a maturity of 2030.

The Term Loan B has been set to a maturity of 2032, so going out 7 years. And our senior notes, the Eurobonds that we had talked on the last few calls that were coming due beginning of next year have now refinanced to 2033 as well. If you look at the component parts, we were able to actually reduce pricing on the pro rata facilities, the Term Loan A, the revolving credit facility by removing the CSA that was there.

So that's a 10 basis point improvement in pricing there. The Term Loan B, we were able to also reduce the margin on that by 25 basis points as well. So we're now at SOFR plus 175 basis points. Obviously, the bond markets are very different than where they were when Kyle initially executed the Eurobonds, but we still were very pleased with the outcome of 4.38% on that piece of debt as well. And you should be aware that we're also entering a number of swap transactions that should also help us in the near term in terms of managing the overall financing.

The net-net of all this is basically we've extended the maturities and the interest expense is about the same with where it was previously. And we did improve liquidity by another $40 million as well as a result of this. On Slide 29, just looking at CapEx. Again, I mentioned that we had 43 net new stores year-over-year. Again, we're very disciplined on how much CapEx we spent. Year-to-date, we're at $54 million of CapEx, which is a slight improvement over where we were last year.

Most of the CapEx goes into the retail fleet, as you can see, so $33.8 million of that is going into the stores. The breakdown of that is about $17 million is going into remodels, about $3 million into fixtures. And then new stores is about $13 million of CapEx. Again, very disciplined about how we're choosing to spend the additional CapEx that we have, but we are investing in stores because we believe in the opportunity there as well. I went through that very quickly to leave time for questions, but let me turn it over to Kyle for outlook, and then we'll open it up for questions.

Okay. Thanks, Reza. So -- and importantly, and I think you can sense it from my tone and what we've been delivering, we remain really confident on the long-term tailwinds that support our business. Although the current macroeconomic environment still is uncertain and there's plenty of inflationary pressures around the world that could weigh on consumer demand, particularly in the U.S., as you've heard from us, we expect to drive medium- and long-term sales growth really against very strong product launches, strong and elevating advertising campaigns, capitalizing growth in consumer demand for travel.

It continues. Travel is one of the areas that consumers continue to prioritize and seize again on the opportunities around non-travel underpenetrated geographies, and channels across our business. All of these things we're very focused on and continuing to invest behind.

With positive constant currency sales growth in the recent months, we expect some level of improvement in our constant currency net sales growth in Q4 relative to Q3. Q4 is expected to continue to benefit from global travel demand, strong product launches like Paralux, which really launched at the end of Q3 that's carrying into Q4 and this elevated advertising campaigns that you're seeing and feeling from us, not just on a product like Paralux but across our business.

I think that said, consumer demand remains challenging to predict. I think that hasn't really changed tremendously. And it's -- and we have a sequentially tougher period to comp in Q4 off a stronger demand that we felt at the end of last year. But early reads into Q4, particularly with a positive start with a strong October and strong momentum into holidays make me feel convinced you'll see sequential improvement in the quarter for us and as a business.

You can feel it in the messaging, the tone and just the recent trends that we've seen. We believe our scale advantages, supplier relationships, tariff mitigation efforts will continue to enable us to maintain a strong gross margin profile like we just delivered in Q3. And if you listen to how we talk about kind of the shifts of mix effect as we grow TUMI at a faster pace, as Asia gets back to delivering in normal course of growth that Asia is capable of delivering, this margin has strength behind it.

We've managed through the bumps of tariffs perfectly, and there's opportunities for this to continue to expand in the medium and long term from a mix perspective. We continue to leverage this asset-light business model, as Reza just talked about when we look at the balance sheet and our ability to return cash to shareholders, deleverage our balance sheet on a go-forward basis.

And as Reza just went through, and we successfully just reset and optimized our corporate debt structure, something that was significantly oversubscribed when we went to market, which delivered a great result that provides kind of stable balance sheet and stable liquidity for this business as we look forward to the next 5 years.

And lastly, we continue to prep -- I would say, we're well prepared for dual listing in the U.S. We've been closely monitoring global economic backdrop and our own trading conditions, and we are encouraged with recent results, improvements in our trends in our own business. The Board and I firmly believe and the management team believe that dual listings in the right -- is the right thing for this company and to enhance shareholder value over time.

And we're sitting in a ready position to do that. And we intend to complete this dual listing in 2026, considering the constructive environment that we're seeing. So with that, William, we'll open up to questions.

Thank you, Kyle. Thank you, Reza. Operator, we can go into Q&A now. Thank you very much.

[Operator Instructions]. We are now going to proceed with our first question. And the questions come from the line of Erwan Rambourg from HSBC.

I wanted to thank Reza. I don't know if I will speak to you again, I mean, hopefully, in the future, but just wanted to say thanks for everything and best of luck.

Three questions, if I can. I think you make a good case in terms of correlation between travel trends and sales having broken down post COVID and more recently, with a bit of a digesting period. When do you think you can reconnect to growth that would be similar or maybe even slightly above the growth of travel? Is that as early as next year, you think? So that's the first question.

The second question is around, I think Reza mentioned the ad spend ratio should maybe pick up a bit in Q4 and into '26 to support the comeback of the business. Where do you see that ad spend ratio more sustainably?

And then last question. I think, Kyle, you said that you were confident that Q4 could show sequential improvement despite the world not being that easy. Where do you see that improvement coming from, whether it's region or brand sequentially?

Okay. Thanks, Erwan, and thanks for the call out on Reza. I might just make a statement because others might have a thought on Reza as well. Reza and I have been together for 7 years doing some amazing stuff with this company, so I can't thank Reza enough as well. We're in a good position as a business. We've transformed a lot, particularly through COVID and positioned it well.

But we're well placed on the finance side. Reza has got an amazing team around him. That we won't miss a beat. We'll obviously start a search on that, and we'll be thoughtful, just like I was thoughtful when I brought Reza into the fold with me 7 years ago. But we're well placed. The team's well trenched the finance team super solid.

As you can tell, I'm laser-focused on delivering growth in the business and driving strategy and nothing changes in that arena. This business is well rooted with deep teams around us, but I agree and thanking Reza. I haven't quite congratulated him on that because I'm slightly annoyed with him -- I'm just ready. But that's -- but that's normal, but we've done some great stuff together -- we spent a lot of time together. So thank you.

On the returning to travel trends, I think we're -- as I said, I feel like we're in this inflection point right now off of the back of what we've seen from kind of surge in travel and the dip that we felt off the back of that and consumer sentiment. But we're seeing some good trends right now as we're looking at the months fall. I think we're not too levels that are normal for us. But I have an indication and inkling that next year will look more normalized for us from a growth perspective, and I think start to really show that correlation.

If you go back 15 years and see how perfectly correlated we are and our ability to actually outgrow the industry. And I think we start to trend into that as we get into next year, particularly as we get into Q2 as we're comping kind of a different period. And momentum feels good as we're going into holiday.

I think the Q4 kind of trend that you asked as your third question, I think we generally see it kind of across the mix. The only market that I would say, continues to be challenged and largely because -- it's a meaningful wholesale business in North America, where we see very good sell-through. We're looking at sell-throughs of our October numbers of our month of October and month to date September sell-throughs that are quite high, quite surprising, actually. It speaks to consumers moving consumers moving ahead of holiday. We can see that in our November, Decembers.

So I think you'll see sequential improvement across all of our business, just like you saw in Q3, you'll continue to see that across each of our brands. I expect Samsonite maybe to improve at a faster clip. That was kind of at a different point in Q3 than maybe what you saw in TUMI and American Tourister, but I expect that to kind of catch up. And we're seeing generally growth across all of our regions and some consistent improving trend way, which speaks to me, and it helps support kind of my comment on the front.

We're really at this inflection point where everything is kind of reshifting and correlating back to the trends that we typically see in our industry. From an ad spend perspective, I just want to make sure we interpret right. I think we're -- we've been leaning into advertising. But Q4 from a percentage basis, will probably look like what we've been doing roughly year-to-date, maybe even as a percentage, just a bit lower.

But overall, we're in and pushing. And so for the full year, we'll probably be just shy of 6%. I think the natural place for this business, and we've talked about this before, is somewhere around 6.5%. And I think as we really continue to build momentum, don't put it past us to push it forward. But if you're thinking next year, I think we bring it up to kind of what the normal trends are for us that I think is the right levels if we're really driving new consumers to the business.

And excitement to the business, really effective efficient spend, but probably in that mid-6% range is the natural place to be.

We are now going to proceed with our next question. And our next question comes from the line of Chris Gao from CLSA.

So I have three questions. So firstly, is regarding the China trend. So we have been seeing very exciting sequential recovery of TUMI brand Samsonite brand, which is also similar with some of the luxury brand data points that have been reflecting a recovery in China. So the first question is how do you see the sustainability of China's -- China markets recovery in the next few quarters? And also for the TUMI brands recovering, which reached 10% in the third quarter, how much is coming from retail space expansion and how much is coming from the same-store sales.

And also -- the second question is also related with China, it is about the latest update. So how do you see the Double 11 trends in China right now? And also regarding recent China recoveries consumer profile, do you see the recovery is more boosted by the existing customers coming back? Or it is mainly coming from your new customers' recruitment? So this is the second question.

And the third question is regarding the cash deployment. Since we have been seeing Samsonite adding on liquidity after the refinancing of senior notes and credit facilities, and recall that last year, Samsonite has launched a tranche of buyback. Is this something that we'll continue to consider going forward? And also dividend side have been continuously improving the dividend payment in the past 2 years. So do you also consider any dividend payout ratio increase? So these are the three of my questions.

Why don't I start with the China stuff and then Kyle, -- China -- you can take it from there.

Yes.

So overall, as you can tell, we definitely are seeing a shift in China. Again, this year, China compared to last year, we felt pretty good about it, but the first half of the year was a little bit slow. So when you were looking at China, so Q2, China was down about 6%. And China now, we're still a little bit down, but we're approaching flat in Q2 or it's down about 2% right now. But we are anticipating Q4 and we can already see the early reads of it. Obviously, we've seen a little bit of Double 11 already.

We've already seen October as well. We're firmly in positive territory right now with China. It is all brands, but I will be honest, TUMI has really outperformed. So you saw the 10% number that we just shared. To answer your question about where it's coming from, actually, you'll be surprised -- maybe you'll be surprised to hear this. If you're looking at TUMI overall, the total number of net new stores year-to-date in all of Asia is actually 0.

So all of it is -- now there are obviously certain locations where you exit and you add another one, and we're getting -- we're trying to get some larger square footage stores in the region. But this is really just -- so it's not through additional store expansion. It's actually coming from the existing store footprint as well as those new locations really delivering. In terms of who the customers are, it's a mix. So we do -- especially for brand TUMI, we do have some greater data in terms of being able to get some loyalty information from those customers.

So you are seeing existing customers come back, but we are also seeing new customers being introduced to the brand as well, especially in China, making some really meaningful investments in advertising and brand behind some local influencers has helped us in that regard. Obviously, the new product introductions have been great. You've been with us for a while, so you'll recall that last year, we were talking about one of the initiatives we had was around 19-degree light. So trying to make sure that we have a lightweight product that really resonates with that international consumer.

Those are the kinds of things that we've been doing to make sure that we can address the product needs, but also investing behind it with real brand advertising as well. So overall, again, I think we feel very good about our China business at a macro level across all the brands, but TUMI has been disproportionately doing well, as well.

Early reads on Double 11, we don't have the final numbers in yet, early reads have been very positive. We've been pleasantly surprised in certain cases, candidly, in terms of how well it's gone. So I think that should work its way into the Q4 numbers as well.

Let me see what the other question you had -- the new customer -- cash distribution. So what we've said is the dividend policy, we generally look at about a 40% payout ratio, you should expect us to do that. That's about $150 million in terms of cash use. So expect that going forward.

Nothing has changed in terms of our approach with share repurchase. We're opportunistic around it. As you migrate to a U.S. listing, we are mindful that we have certain shareholders where from a tax perspective, it's much more efficient to return capital to them via share repurchase as opposed to dividends. So we will revisit that with the Board. But actively right now, we've completed the $200 million that we were out to do that we're holding those shares in treasury.

We'll decide what to do with that at the time of the listing. And then going into next year, we'll decide whether we will look at that opportunistically as well. It will probably end up being some sort of mix between the dividend and share repurchase, but that hasn't been determined yet for next year.

Cash flow for the business remains tremendously strong. This kind of asset-light model that we talked about continues to deliver and to our ability to have some share buyback opportunistically pay dividend and continue to deleverage the balance sheet is something that we're very capable of doing. Even in a year where we're maybe trending down low single digit for the full year.

The business generates a tremendous amount of cash flow. So all of that will stay in place.

Okay. Can I follow up with one question. That is about the pricing. So the background of tourists -- can we ask about the magnitude of price increase in U.S. for the third quarter and also help it to trend in the next few quarters? And also, if there could be any price increase in other regions, could you please also update us as well?

Yes. We haven't disclosed the level of price increases in the U.S. market. What we've said is it's been a combination between price increases, working with our suppliers. The other thing you should bear in mind as it relates to tariffs, a large portion of the landed cost of the product in the U.S. is freight, which has actually been working in our favor. So through a combination of those three, actually, it's more than that, but largely those we've mitigated it.

The other point that I'll just raise is usually buy luggage every probably 3 years or so, it's not a regular good that you're regularly seeing what the price is. So the end consumer -- the actual price increases are really going to have a negligible impact. So it's not going to be like there's a sticker shock that my $200 carry on all of a sudden is $500.

And we're constantly redesigning product and reengineering products. So it becomes kind of a neutral story when you think about a period of 2 or 3 years because we're able to reengineer a lot of what we've been doing and a lot of what you've seen in markets like Asia and China where the consumer is doing a little bit of trade down, but within brand, we're able to reposition products to hit price points that deliver margin. And that's really what drives our business.

So this is a business that you just kind of tack on price increase and off you go. This is around reengineering constantly to hit the right margins, to hit the value that consumers are looking for in the products. And there are no pending pricing. Most of everything we did on tariffs was done as we exited Q2 because we had full visibility to it. So there's nothing from a price increase perspective kind of baked in our business for Q4. And next year will be just a function of normal course if there are some on a normal course basis.

We are now going to proceed with our next question. And the questions come from the line of Anne Ling from Jefferies.

Just a couple of questions. First, regarding the margin, like I understand that in terms of having a stronger growth from TUMI, which is the higher-margin business and also more retail. So we have a pretty good GP margin. But I think we also have some store expense. So therefore, like our -- we have some pressure in terms of our OpEx on top of like -- top line growth was slightly negative.

So my question will be like moving forward, when will we start to see like same-store sales growth start to have positive operating leverage. Maybe you can share with us some guidance in terms of like what we should be looking at in terms of the adjusted EBITDA margin. When will we be going back to the high teens level that you think that you previously mentioned. That's my first question.

And my second question is on year 2026. Any like initial feel about like -- should we be going back to the mid-single-digit top line growth trajectory from that on?

Why don't I start with the margin point. If you look at it on a percentage level, if you're just looking at our cost structure and always -- keep in mind, every time we talk about EBITDA margins, we should always look at advertising and then the rest of the cost structure as well because advertising is a lever that we move up and down, and we just finished saying that as you're entering next year, you should expect us to be increasing the advertising point as well.

So if there's an increase that's coming as a result of sales rebounding, we will reinvest some of that behind advertising in the brand. But generally speaking, if you're looking at the -- so we had about a little over 40 stores, so 43 net new stores on an LTM basis that are adding a little bit to the cost structure. During that period of time, revenues have been down. So naturally, there's a deleveraging that's happening. You have some increased costs from new stores coming in. There's also just the normal wage increases, rent inflation and things like that, that you're looking at.

If you're looking at it just in terms of the percentage increase, even including those stores, you're up about 4% or 5%. I think it's like 4.8%, if I remember correctly or thereabouts year-over-year. So it's not like something that's really out of whack. Usually, what happens is as soon as you return to sales growth and even just a couple of points of sales growth, you start to see the operating leverage come back.

But again, you have to look at that in terms of at what point do we start to reinvest in advertising and increase that by whether it's 0.5% or thereabouts. So we haven't given guidance next year as yet for -- in terms of where we're going to be on sales or margins. We typically do that off of the year-end numbers in our normal course. So you should expect from March. What I will say is just the general trends, that Kyle said in his remarks, the trends are very favorable going into next year. We do feel good about two really big things.

There's the overall macro level points in terms of what you expect travel to do, and Erwan asked the same question as well. And we're seeing that we are -- now that we've come out of that revenge travel kind of pull forward of demand that, that correlation is coming back again. So you have just the normal trends of the industry that are happening.

But don't underestimate the fact that we are entering into a replacement cycle for next year as well. So you're coming up on that 3-year, 4-year period that where a lot of bag replacement happened post-COVID, and it's that natural replacement cycle should benefit us as well. So I think the combination of those two make us feel pretty good about going into 2026. But I think you should just expect formal guidance when we finish out the year.

And I think for '25 our Q4, you guys know our Q4 is often our strongest EBITDA margin quarter for us, and that still looks the same for us as well. So if you look at our year-to-date EBITDA margin, that will step up for the full year off the back of what typically very good EBITDA margin in Q4 that we can see will be delivering.

So it gives you a good sense for it. And I think just to close the loop by, as we talk about advertising, I think Erwan asked the question. we are planning on leaning in to push advertising, which will do the same as driving sales.

It will really allow kind of a lot of our brand and growth strategies to really accelerate for us. But that comes with kind of the short-term meaning on the overall margin as we lead into advertising. And so we should expect that a bit from us as well. But I think it's exactly the right thing to do as the business starts to move.

And as I think I said during Erwan's question we start to get into some normal correlation to travel for next year is how we're feeling, but as we look with a slightly easier comp, which will also help next year as well.

Thanks, everybody. We really appreciate the call. Any questions, you know how to get a hold of William and Alvin. And we'll be out and about meeting people as well over the next few weeks.

Great. Thank you very much, Kyle. Thank you very much, Reza. Thank you very much, everyone, for joining the call.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite Group 2025 Interim Results Conference Call. [Operator Instructions] Please note that this event is being recorded.

I'd now 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. And Mr. Gendreau will begin with a few opening remarks. Thank you very much.

Okay. Thanks, William. Thanks, everybody, for joining. I'm starting on Slide 5. I'm assuming that is up and running. And 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 2021 to 2023, a period where the recovery of our business significantly outpaced the market. From 2021 to '24, our reported net sales CAGR grew 6x faster than the bag and luggage industry as we are really set up to capitalize on that return of travelers in that time period.

On our recent sales trends, particularly in the back half of '24 and first half '25 reflect a normalization from this record-setting '23 result, which has caused us to trail travel and pass-through to 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 EBITDA margin remained stable and our first half net sales importantly and notably, we were 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 '25 in certain key markets around the world, particularly North America, influenced by macroeconomic uncertainties, shifting trade policies that has some settling as we speak today, but still kind of fluid. And importantly, a weakening consumer sentiment off the back of much of the macroeconomic 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 has showed greater resilience, declining only 1.6% in that same time period. And 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. And we believe this remains tremendous long-term opportunity for us to pull consumers from this unbranded space into branded products with brand American Tourister. So we're managing that very, very cautiously and the positioning we've achieved across all of our brands in this environment.

We're driving growth through DTC and category diversification. Our strategy -- 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 strengthen brand loyalty. Concurrently with that, our non-travel category showed 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 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 '25 adjusted EBIT 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 '25, while slightly down from a record 60% last year at the same time period. And 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 presence, marketing initiatives while maintaining discipline on overall cost, as we 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 '25. 19 Degree Lite is a good example for brand TUMI.

And 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. And we believe these investments across all those fronts are critical in positioning our business for strong, sustainable long-term growth in a dynamic market environment, and we continue to invest.

The next slide is a slide you've seen before. And 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. But 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. This is a business that from '24 to '29 outlook CAGR growth of 4% in global passenger travel. And as you know, we correlate really well with that, and we have a history of overdelivering against that industry growth. So we're well positioned in an industry that's moving despite the macroeconomic challenges we're seeing.

Slide 8, 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 lap significant outperformance, and 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. And you can see over this time period, what the growth profile is. The blue line is us, okay? And you can see how we navigated pandemic. But importantly, when we step out of pandemic, and this is really where revenge travel capture -- steps in, we significantly outperformed this industry, up 37% in '21, up 47% in '22, meaningful growth of 28% in '23. If you combine the CAGR growth '21 to '24, this is a business had a CAGR growth of almost 23% against the bag and luggage market in that same time period that was up 4%. And 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 and it has fueled a really good story.

As we step into the end of '24 and '25, we start to comp this period, okay? And so we're seeing and feeling that. And we have on top of that a softening consumer sentiment. So I think we're navigating this well. We've significantly outperformed the industry. And 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. And again, our first half numbers definitely impacted consumer sentiment and what I just talked about as far as trends and macroeconomic uncertainties that have kind of played in. Our first half sales were $1.662 billion, a decrease of 5.2% compared to last year, which was up 2.8% last year first half. And again, that's off of a tremendously strong first half '23. So 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 cautiously, 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. And you'll see that in the wholesale numbers.

And again, I mentioned this already, but noticeably, our first half numbers still remain tremendously higher than pre-pandemic, up 24.4%. Our wholesale channel sales were down 7.4%. There's a handful of big customers that are buying differently right now as they manage. And again, if you think about tariffs 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 that -- 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 the lane, what I would label as a lane that's kind of our natural place for gross margin, roughly 59%, 59.5% is the way to think about it. We're up against a really strong record gross margin last year. And 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.

And importantly, we -- and as many of you know and you've been following us, we significantly elevated our brands over the last 3 and 4 years. And our gross margin today sits 320 basis points off of where it was pre-pandemic in 2019. And we've had tremendous success in elevating the position all of our core brands, and 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. So the margin is really holding up. And just as a reflection of the transformation we've had in this business in the midst of all of the past 4 or 5 years is we're 400 basis points higher than where we were first half of 2019. And all that stays really completely well intact with this enhanced margin profile for this business.

I covered this, but just a little bit detail. We're having -- we continue to have great success in DTC channel. We continue to invest in enhancing our DTC presence, 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. And I think we've signaled 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.

And we continue to expand non-travel opportunity. 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 and highlighting -- 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. And again, 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, but how are the brands playing within this period? Brand Samsonite are basically -- our kind of 2 main Samsonite brands, which are more targeted middle, 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. So our American Tourister business down 12.7%, really driven by wholesale customers buying more cautiously in the space, those consumers being more cautious. And 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 macroeconomic backdrop, down 4.7%. But you can see Asia down 8% and then North America down 6% with positive numbers for Europe and Latin America. TUMI, 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%, and we saw a decline of 4.7% in North America, really driven by reduced traffic, consumer spending a bit reduced. And I might say, when I think about being in a performance luxury space, we performed better than most in this space at down 2.5%, and we see improving trends for this as we go into Q3 and the back of the year as well. So I think, again, brands are acting the way I would have anticipated in this environment, and we're managing well.

Just one chat out for Gregory. We don't often chat out, but Gregory is a brand that we're pushing and it's on the mood. 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. And we saw brick-and-mortar expansion in Asia. We opened our first retail store in China in Shanghai. I visited this store at the start of the year. There's more to come. This store has opened 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. And 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 product. And 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.

And then lastly, and 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. And 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. And we're committed to continuing to invest across the business to drive long-term net sales growth. We continue to invest in product innovation. It's really, again, product is one of our keys. That'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, we're continuing to push that.

As we said, strategic retail expansion, disciplined opening of new stores, 50 to 60 stores a year is something we can handle. And it's expanding brand presence. It's capturing new market opportunities and ensuring the strong footprint in retail, particularly in underbranded -- underpenetrated brand TUMI within Asia and Europe gets in front of consumers, and 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, and we can really lean off the strength of our marketing, and we continue to do that. And 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 of 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 store opened in July. We had a grand opening for the 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, but tremendously successful. We opened the store with a new China-specific celebrity for the brand TUMI with great success, and this start is off to a great start.

We've opened other stores across Asia. We opened our 50th TUMI store in Europe on page -- I'm on Slide 15. 50th store in one of the most vibrant shopping streets in Cologne, one of my favorite spots within Cologne. And this is a great, you can see the footprint of the store and the location of the store and really a testament to where we can continue to go with TUMI in Europe. And again, our 50th store on our 50th anniversary for the brand. It's quite exciting, and they had a great opening here as well.

We're focused on products and messaging and collaborations. We launched in June our more exclusive Vexx and Samsonite collaboration, really a vibrant colorful collection that will be launched on a limited basis, but you can't miss this when you're in an airport and moving around, and it really just brings tremendous interest. The bags are fascinating, and 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 Games, which I'd never watched, my kids were quite into it. This is a younger focused collaboration. We have really a fun, exciting product launch with both luggage and tote bags, a neck pillow that's totally fascinating. And I was in market in Korea just a few weeks ago. This really shows up well and stimulates brand American Tourister. And 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 have really helped brand positioning, elevating brand position. We have Payton Pritchard, which we happen to sit in Boston, so he's 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 series severance, which is quite exciting and award-winning collab. And we're doing some really amazing city scene advertising with John across our North American market, really well received. In Europe, we continue with Casper Ruud, who's been a huge Samsonite fan and driver, and 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. And this campaign has 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.

And then lastly for me, and I'll come back at the end. We're continuing to advance the consumer-facing communications on Our Responsible Journey. So 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, okay? We're leaning into what makes a difference in our space in a careful set of way across websites within store print and really off of the work we do with consumers, we believe durability, repairability and recyclability in that order, what consumers really care about when they think about a sustainable product built to last.

And all this messaging ties really well together on all those fronts. And in all those fronts, we're winning on durability, design for repairability, we're making tremendous impacts in the marketplace and more to come. And 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. And 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, and then we will go through some of the additional numbers. Just for reference, Q1 was down 4.5%, Q2 down 5.8%. So 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%. Again, we have a lot of discipline around gross margin and maintaining our cost structure as well. So there was a decrease of about 1 point from last year. But as Kyle mentioned, those were very, very high levels from a record perspective. So the gross margin has partially been offset by increased net sales from our DTC channels. So we're very focused on continuing to grow those, and we'll 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 of 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. And 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, North America was down 7.6% compared to 7% -- I'm sorry, Asia was down 7.6% compared to 7%. North America down 7.3% compared to down 8% in Q1. Europe is basically almost down 1 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 get and touch on some of the trends and 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, so down 6% in Q2 versus -- down 5.4% versus down 6% in Q1. This is the timing shift that we've been talking about. So 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 and some of the sales will shift from one quarter to the next.

Net sales in Asia, relatively stable, so they're still down in that mid-7% number. Net 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 1 point in Q2. As I mentioned, there is -- travel demand in Europe is continuing to show strength, but it's tapered off a little bit. And what we're seeing is whereas 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 are certain markets, we've highlighted France and the U.K. 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. And there is some operating deleveraging that's happening. But 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 regards to 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 2 of the larger markets that we're looking at it by FOB value for us. So 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. But what's I think very important is if you're thinking about it from an impact on gross margin, et cetera, 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 1/3 of our business, so it's not like it impacts the entirety of our business. But we had definitely started to prebuy and bring in forward buy some of the pre-tariff increased inventory. So 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 7 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. And so as that FX benefit accrues to our suppliers, we go and try to claw some of that back. And we've had some good discussions with our partners on trying to offset some of this impact. And in the medium term, we reengineer our products to make sure that we're hitting our gross margin target. So that's -- if you think about us for next year and beyond, that activity is being worked on by the product teams as well. And now that we have some clarity, we can look at shifting between the countries as well. So 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, and 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. So we're being very disciplined on expense management. Advertising spend of 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 the advertising dollars that we're deploying are being effective.

Operating profit overall, $238 million in the half compared to $315 million in the prior year, 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 of $12 million in the half. That's despite higher inventory purchases. So I think from a net working 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 the positive territory.

The net debt position was just over $1.1 billion as of June 30. That's after returning a total of $350 million to shareholders. So obviously, we're very focused on making sure that we're doing the right thing in terms of having a balanced capital allocation strategy. So our cash balance, as you'll see, was 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. So we feel very comfortable about that. And incredibly strong liquidity. So 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. So if you're looking at the half, we basically had 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. And again, this is after adding $57 million -- 57 net new stores, increasing wages. We obviously 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 this a little bit earlier, but just to reemphasize 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. So 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. And it's that wholesale channel. And if you were to really dig into the wholesale numbers as well, we would say that not -- the sales to e-tailers were 8.8% of the total 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. So that percent is down to 51.5% as compared to 54.3%. So that's really where the decline is coming if you're looking at it year-over-year.

On Slide 30, travel is -- if you're looking at it by product, the non-travel segment is performing very well. So if you're looking at it overall as a percentage of our net sales first half, 63.8%. The absolute number is 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, and that's largely due to what Kyle mentioned a little bit earlier that we had this pull forward of demand that happened post-COVID. And 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 a very, very good position, liquidity of $1.4 billion, net leverage of 1.85 turns. We're very well positioned to significantly benefit from long-term growth prospects, and 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. So that's what's driving it.

And then on Slide 33, just looking at CapEx, we're maintaining discipline around CapEx. It's slightly lower than where we were last year. So we're at 30.4% (sic) [ $30.4 million ] for the half versus $41 million last year. The CapEx is largely retail CapEx. So we had $22 million of that was primarily for store remodels and relocations. And then we have new stores that we've been investing in as well. So we continue to invest behind the business, but we want to be disciplined in terms of the capital that we're allocating out.

So with that, let me turn it over to Kyle, and we'll get into the outlook.

Okay. 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, softer global consumer confidence, which I think is a big piece, which are impacting near-term demand, 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 '24, 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. So we can see some sequential improvement versus Q2 of '25. And I might say, but the environment remains challenging to predict. Notwithstanding the current unsettled political 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. So getting the balance of long-term growth with a really solid margin profile supported by disciplined expense management.

Consumers are still prioritizing travel, which is very important. And I think travel will continue at historic levels. And 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, and you saw what we've done in this past year and continuing to deleverage our balance sheet as we go forward.

And then lastly, we continue to prepare for a dual listing of the company's securities in the United States. That remains ongoing. However, we -- as I signaled on the last call, we're closely monitoring the current economic backdrop, market uncertainties. Our Board, our management team, myself continue to believe a dual listing of the company's securities in the United States to enhance value creation for our shareholders over time. And 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 market very carefully to get the timing of that right is what I would say.

And with that, I'll turn it back to William and questions. And thanks, everybody, for listening.

Great. Thank you very much, Kyle and Reza, and we can begin the Q&A session now. [Operator Instructions] Thank you.

[Operator Instructions] We will now take our first question from the line of Kai Sheng from Guotai Haitong Securities.

This is Kai Sheng from Guotai Haitong. I just got 2 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. So may we also have some updates in terms of the whole year guidance? And my second question is, is there any specific strategy could be shared for American Tourister as it still faces some challenges, especially with those branded competitors?

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. But in general terms, the back half should sequentially be better than the first half. So I'm not specifically giving Q4 guidance because it's a bit further out for me to do that. But 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, 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. So we'll be watching consumer sentiment. But 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. But 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. And if you know, in India, we also have a sub-brand called Kamiliant, and it's the only market that we use this. And 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. And 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 Games. 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. And 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 will drive some improvement. And as consumer sentiment at that lower end or that entry-level consumer, value-conscious consumer settles out, I think that brand will do well. But at the same time, we're pushing the business very strategically in certain markets to move the needle.

We will now take our next question from the line of Dustin Wei from Morgan Stanley.

First question related to tariffs. So 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? And should we sort of assume that the tariff impact on sort of GP margin in third quarter will be like neutralized? And one thing related to the tariff is the inventory management. So 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 preorder 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, where we should sort of worried about the current sales trend is below the budget, so kind of impact on your free cash flow? So that's something related to tariff.

And the second question is related to Asia. China sales in the second quarter down about 6%, India down a little bit only. So it implies that Asia market, excluding China, excluding India, actually down a little more than the group average. So could you -- I know Asia market is quite fragmented, but could you like provide a little more update what happened in other markets? And are we seeing potential improvement in second half?

Dustin, why don't I kick it off in terms of the tariff question and then Asia, Kyle will take that, and we can chime in. So in terms of the inventory -- so the answer to the overall arching question on tariffs that you asked is from a GP 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, and we're not publicly saying what the numbers of the price increases were or anything like that. But 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 3 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. And so 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. So 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 on the first half of the year. And so we'll start selling through that, some of that inventory, bringing the working capital down to historical levels for North America specifically. So yes, there'll be some free cash flow, but it's not going to be huge numbers that you're looking at. Just think of it as that working capital release that will happen as we get back to a normal net working capital efficiency standpoint.

And again, I will also just add on tariffs. Keep in mind that it's 1/3 of our business. So it's not like it's impacting everything overall. So that's the other thing to always have in mind as we talk about it. Do you want to cover Asia and I can...

Yes, I'll cover Asia. But 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 65% of our business in North America, maybe a little more is wholesale. So those are very active, fluid kind of discussions with partners that we've been partners with for a long time to getting that right. And scale matters here, and we've managed that well. I think our gross margin will remain very stable. And if anything, as Asia starts to move and we're seeing Asia start to move differently, that will have some upside benefits on margin as we maybe get into a more normalized period of growth for the business across regions.

So 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. And 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 -- the 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. But there's plenty of uncertainty in China. And we've just had another 90-day pause on China tariffs. There's all this kind of noise within China, but 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. And so 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.

And 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, and we start to comp more dramatic India from the second half of '24, where we saw really unusual pricing action from low-end competitors. We're really in a good position in India. I think the team is 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, and Japan was a real runner and winner in '24 and the end of '23, and I think that will continue. Korea continues to be a bit choppy, to be honest with you. So 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. So the team is leaning in. So 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 continue to be under some strain.

The rest of the market is a bit of ups and downs, but overall, they're all operating in a certain direction. And 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. And it's really that consumer spending, this kind of the save mentality, cautious on spending against the travel number, that still remains quite good. Even in China and international travel, these are numbers that are up year-over-year. And 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.

Our next question comes from Akshay Gupta from HSBC.

So you mentioned about opening 50, 60 stores annually. Can I ask which brands and markets are key priority over the next 1 year? And secondly, a follow-up on inventory. Can I ask how many months of pre-tariff inventory you have available in the U.S.? And when does the incremental tariffs start to hit the P&L in the second half of this year?

So there's obviously a focus on TUMI overall. So if you're looking at the store counts that we have had for first half of this year so far, as you know, it's 57 stores. We've opened 22 net TUMI stores, and 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. But obviously, if you're looking at 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. So what we will often do and many of you are in Hong Kong, for instance, I'm thinking of Pacific Place as an example that you'll know. So that store, if you go and visit it, that store is now double the size. So 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 offerings. So beyond just adding net new stores and net new locations, we're also trying to make sure that we expand the square footage, and that's absolutely true in Asia specifically as well. So as we think about it going forward, we do have a focus on TUMI. But if you look at absolute numbers, we're still obviously investing behind Samsonite as well.

The -- actually, remind me what your second question was? Sorry. Pre-bought inventory? Okay.

Yes.

Yes. So we are 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, because obviously, for TUMI, it's direct-to-consumer, so we control it versus its majority wholesale as you think about what we do in terms of the U.S. market for Samsonite especially. And so because of that, those are -- we're buying inventory according to what our wholesale customers want, and we have some additional stock to the extent that we think they're running short. But we don't disclose exactly the breakdown of this is how much we have by brand.

Okay, William?

Yes. Thank you very much, Kyle and Reza. And thank you very much, everyone, today for joining the conference call. And 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 does conclude the program. You may now disconnect your lines.