Samsonite International S.A. Announces Results for the Three Months Ended March 31, 2019

The Tumi brand continued to do well despite the challenging environment, with net sales growing by 8.5%¹ to US$177.8 million for the three months ended March 31, 2019, driven by strong growth in Asia (+17.0%¹) and Europe (+22.5%¹). Net sales of the Tumi brand in North America increased by 0.2%¹ as lower tourist arrivals impacted retail net sales in U.S. gateway markets. Additionally, the Group's decision to identify and stop sales to trans-shippers who were selling Tumi products to unauthorized distributors in Asia continued to impact wholesale net sales in the U.S. Excluding this impact, Tumi brand net sales in North America increased by 2.5%¹ year-on-year in the first quarter of 2019. 

Net sales of the Samsonite brand were down by 4.2%¹ year-on-year to US$373.0 million during the first quarter of 2019, primarily due to economic headwinds in the U.S., China and South Korea. Excluding these three markets, Samsonite's net sales were down marginally by 0.6%¹ year-on-year. The American Tourister brand recorded net sales of US$141.3 million in the first quarter of 2019, a decrease of 5.2%¹ year-on-year, partly attributable to the strong performance of the brand in the first quarter of 2018, when it recorded robust constant currency net sales growth of 22.3%, driven by the launch of a major global marketing campaign in the first quarter of 2018.

The Group's gross profit margin increased by 14 basis points to 56.6% for the first quarter of 2019 compared to 56.5% for the same period in the previous year largely due to strong net sales growth of the Tumi brand and a higher proportion of net sales coming from the DTC channel, partially offset by higher promotional activity in certain markets. Gross profit decreased by US$30.6 million, or 6.1%, to US$471.0 million in line with the decline in net sales.

Mr. Gendreau remarked, "We began imposing greater discipline on controlling distribution expenses in the second half of 2018, in part by slowing the pace of new store openings. In 2017, the Group added 127 net new company-operated retail stores, including 30 Tumi retail stores that were acquired in conjunction with the distributor buybacks in Asia. In 2018, the Group added 84 net new company-operated retail stores, with 46 stores added during the second quarter of 2018 and 32 stores added during the second half of 2018. We continued this effort in the first quarter of 2019, adding only nine net new company-operated retail stores during the period. As a result, distribution expenses increased by 2.8% in the first quarter of 2019 compared to the same period in 2018. This increase, along with the year-on-year decrease in net sales, resulted in distribution expenses, as a percentage of the Group's net sales, rising to 36.7% for the first quarter of 2019 from 33.4% during the same period in 2018."

Mr. Gendreau continued, "We continue to be strongly committed to investing in marketing to support sales growth worldwide, and our ongoing investment reflects that commitment. Marketing expenses represented 5.9% of net sales for the first quarter of 2019, compared to 6.0% for the same period in 2018. General and administrative expenses decreased to 6.9% of net sales in the first quarter of 2019 from 7.2% for the same period in 2018 as we maintained tight control of such costs. As a result of the decrease in gross profit and the increase in distribution expenses, partially offset by the decreases in marketing and general and administrative expenses, the Group's Adjusted EBITDA[4] decreased by US$32.3 million, or 27.6%, to US$84.6 million for the three months ended March 31, 2019 from US$116.9 million for the same period in 2018 (as recast to adjust for IFRS 16[5] impacts). Adjusted EBITDA margin[6] (on the same basis) decreased by three percentage points to 10.2% from 13.2% due largely to the impact from the investments in the DTC distribution channel, particularly in connection with bricks-and-mortar retail stores that were opened in 2017 and 2018."

The Group's profit attributable to the equity holders decreased by US$21.2 million, or 48.2% to US$22.8 million for the three months ended March 31, 2019, with the decline mainly attributable to the decline in gross profit, partially offset by a savings of US$3.1 million on interest expense[7] on borrowings and an US$11.2 million reduction in income tax expense. The Group's Adjusted Net Income[8] decreased by US$18.4 million, or 40.3%, to US$27.3 million for the three months ended March 31, 2019 from US$45.7 million for the three months ended March 31, 2018 (as recast to adjust for IFRS 16⁵ impacts) due to the factors discussed above.

Commenting on the outlook, Mr. Gendreau said, "Consumer demand remains healthy in North America and China, and we remain confident in the fundamentals of the business as indicated by the strong growth in both North American DTC e-commerce sales excluding eBags, and China excluding business-to-business sales. Our core brands Samsonite, Tumi and American Tourister continue to lead in their respective price points. Renewed uncertainty about the outcome of trade negotiations between the U.S. and China makes it challenging for us to forecast our top-line performance for the balance of 2019. If a favorable agreement is reached in the coming weeks, we believe we should see an improvement in the second half of 2019."

Mr. Gendreau concluded, "We continue to invest in our brands for future growth and are excited by the strong pipeline of innovative new products and marketing campaigns that we plan to roll out in 2019. We remain focused on improving the Group's profitability by driving sales growth in existing bricks-and-mortar retail stores and in DTC e-commerce, reducing the number of new store openings to control distribution expenses and more closely managing working capital." 

Table 1: Key Financial Highlights

Note: When comparing the actual "as reported" results for Adjusted Net Income and Adjusted EBITDA for the three months ended March 31, 2019 against the "as adjusted for IFRS 16" results for the three months ended March 31, 2018, the year-on-year changes were:

• Adjusted Net Income decreased by 40.3% (-39.7% constant currency); and
• Adjusted EBITDA decreased by 27.6% (-24.4% constant currency).

The Group's performance for the three months ended March 31, 2019 is discussed in greater detail below.

Net Sales
Economic headwinds have continued to impact a number of the Group's key markets during the first quarter of 2019, particularly the U.S., South Korea, Chile and the business-to-business market segment in China. Excluding these four markets, the Group's net sales grew by a healthy 3.4%¹, driven by a 4.4%¹ increase in Asia (excluding business-to-business net sales in China and net sales in South Korea) and a 2.3%¹ growth in Europe. Overall, the Group's net sales decreased by 2.4%¹ for the three months ended March 31, 2019. Unfavorable foreign currency conversion had a negative translation impact of approximately US$35.2 million, resulting in a 6.3% decrease in the Group's US Dollar reported net sales to US$832.0 million during the first quarter of 2019.

Net Sales Performance by Region
North America
During the first quarter of 2019, net sales in North America decreased by 6.2%¹ year-on-year to US$301.8 million. This reduction was mainly attributable to a 7.7%¹ decrease in North American wholesale net sales as questions about the timing and outcome of U.S.-China trade negotiations, in particular uncertainty about the effects on consumer demand and sentiment from potential additional tariffs, resulted in greater caution among U.S. retailers, leading them to more closely manage inventory levels. A shift in the timing of certain wholesale orders also contributed to this decrease. The Group's North American DTC net sales and DTC e-commerce net sales were down 4.2%¹ and 5.1%¹, respectively, mainly as a result of the decision to phase out lower margin third party brands on the Group's eBags e-commerce website to drive profitability. Excluding eBags, DTC net sales in North America were flat¹ year-on-year, with strong growth in DTC e-commerce (+17.2%¹ excluding eBags) offsetting headwinds in bricks-and-mortar retail stores due to lower tourist arrivals in U.S. gateway markets.

Net sales of the Tumi brand in North America increased by 0.2%¹ as lower tourist arrivals impacted retail net sales in U.S. gateway markets. Additionally, the Group's decision to identify and stop sales to trans-shippers who were selling Tumi products to unauthorized distributors in Asia continued to impact wholesale net sales in the U.S. Excluding this impact, Tumi brand net sales in North America increased by 2.5%¹ year-on-year in the first quarter of 2019. Net sales of the Samsonite brand in North America decreased by 8.4%¹ year-on-year due to the timing of wholesale order flows and retailers more closely managing inventory levels, as well as lower retail sales in gateway markets in the U.S. generally driven by tourism. Net sales of the American Tourister brand during the first quarter of 2019 decreased by 1.1%¹ compared to the same period in 2018, which was a strong quarter for the brand with constant currency net sales growth of 12.6% year-on-year.

Asia
In Asia, the Group continued to achieve healthy net sales gains in both Japan (+4.1%¹) and Hong Kong³ (+5.5%¹) during the first quarter of 2019, which were offset by net sales declines in South Korea and in business-to-business sales in China. In China, a sharp decline in business-to-business orders caused net sales to decrease by 8.3%¹ during the first quarter of 2019 compared to the same period in the previous year. Excluding business-to-business orders for both periods, net sales in China increased by 5.9%¹ year-on-year, driven by a 15.1%¹ increase in DTC sales, despite weak consumer sentiment amid concerns about trade relations with the U.S. The Group continued to experience challenging market conditions in South Korea, which saw net sales decrease by 7.6%¹. Excluding net sales in South Korea and business-to-business sales in China, Asia recorded a net sales increase of 4.4%¹ during the first quarter of 2019. Overall, Asia recorded a first quarter 2019 net sales decrease of 1.2%¹ to US$307.5 million for the three months ended March 31, 2019.

For the three months ended March 31, 2019, net sales of the Tumi brand increased by 17.0%¹ year-on-year due to the continued successful penetration of the brand throughout key markets in Asia. Net sales of the Samsonite brand decreased by 3.7%¹ year-on-year primarily due to challenging trading conditions in China and South Korea. Net sales of the American Tourister brand decreased by 6.8%¹ during the three months ended March 31, 2019 compared to the three months ended March 31, 2018, which was a strong quarter for the brand with constant currency net sales increasing by 14.1% year-on-year.

Europe
The Group recorded net sales growth of 2.3%¹ in Europe during the first quarter of 2019. Solid net sales gains in Germany (+11.9%¹) and Spain (+4.6%¹) were partially offset by declines in Italy (-1.9%¹), France (-3.9%¹) and Russia (-6.9%¹), where increased economic and political uncertainty led to sales declines. The Group's US Dollar reported net sales for the region recorded a 6.1% decrease for the first quarter of 2019 to US$174.9 million due to unfavorable foreign currency translation effects as a result of the strengthening of the US Dollar against local currencies compared to the same period in the previous year.

The constant currency net sales increase in Europe during the first quarter of 2019 was driven by growth in the DTC retail and DTC e-commerce channels, which saw net sales increasing by 8.2%¹ and 24.5%¹ year-on-year, respectively, partially offset by a 2.4%¹ decrease in wholesale net sales. During the first quarter of 2019, net sales of the Tumi brand in Europe increased by 22.5%¹ compared to the same period in the previous year. Net sales of the Samsonite brand in Europe decreased by 1.1%¹ during the first quarter of 2019 compared to the same period in 2018. Net sales of the American Tourister brand during the three months ended March 31, 2019 decreased by 2.0%¹ compared to the three months ended March 31, 2018, which was a strong quarter for the brand with constant currency net sales increasing by 58.2% year-on-year.

Latin America
The Group's net sales in Latin America decreased by 2.8%¹ for the three months ended March 31, 2019 compared to the same period in the prior year primarily due to decreases in Chile and Mexico. Net sales in Chile declined by 12.6%¹ due to a continued decrease in consumer traffic, partially caused by Argentinian tourists purchasing more within their home country as the Argentinian government eased restrictions on imports, along with weak domestic consumer sentiment. Net sales in Mexico decreased by 6.6%¹ primarily attributable to decreases in net sales of the American Tourister and Samsonite brands, partially offset by an increase in net sales of the Tumi brand resulting from the Group moving from a distribution model to direct distribution of the brand. Net sales in Brazil grew by 3.9%¹ driven by continued retail expansion, while net sales in Argentina increased by 147.1%¹ as consumers bought more products at home. The Group's US Dollar reported net sales for Latin America recorded a 12.9% decrease to US$46.9 million due to unfavorable foreign currency translation effects as a result of the strengthening of the US Dollar against local currencies compared to the same period in the previous year.

Table 2: Net Sales by Region

Region10

Three months ended March 31, 2019 US$ millions

Three months ended March 31, 2018 US$ millions

Percentage increase (decrease) 2019 vs. 2018

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