Samsonite International S.A. (OTCPK:SMSOF) Q2 2022 Earnings Conference Call August 17, 2022 9:00 AM ET
Company Participants
William Yue – Senior Director of IR
Kyle F. Gendreau – CEO
Reza Taleghani – EVP, CFO, and Treasurer
Conference Call Participants
Dustin Wei – Morgan Stanley
Unidentified Analyst – HSBC
Yvonne Chow – NF Trinity
Anne Ling – Jefferies
Operator
Good morning, good afternoon, and good evening, ladies and gentlemen. Welcome to the Samsonite International 2022 Interim Results Conference Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yue, Director of Investor Relations. Thank you. Please go ahead, sir.
William Yue
Good morning, good afternoon, good evening, everyone for taking the time to join yet a call. Today, we have our CEO, Kyle Gendreau and our CFO, Reza Taleghani with us to present our results. And to start Mr. Gendreau, will have a few opening remarks. Thank you very much.
Kyle F. Gendreau
Great, thanks William. Thanks everyone for joining us. I would say we’re tremendously excited to be reporting here for the half. I am on Slide 4 of the deck. And our sales recovery continues to pick up momentum, we clearly saw in Q2, I’ll give you some color as we step into Q3. Our first half results were sales of one — close to 1.3 billion, an increase of 75% over last year same period, and a decrease of 20% versus 2019. So really continuing to build momentum. We’re seeing travel demand across most of the world’s particularly international travel in the last several months has picked up. I’ll walk you through a slide on that. And if I exclude China, which in Q2 had a slowdown with the lockdown restrictions that went into China, our Q2 numbers or our half numbers are down 18.4% from 2019 versus on the first half. Each quarter, we’re seeing an improving trend and each month we’re seeing an improving trend and we’re tremendously excited about what we’re seeing.
Our gross profit margin increased close to 500 basis points to 55.7% for the half versus last year at 50.8% where we were doing still some restructuring in the business. And it’s largely in line with our historic gross margin levels, which we had guided we’d be pushing. I have a slide on that as well but we’ve continued to build momentum even from Q1 into Q2, continues to be very, very strong. Our adjusted EBITDA and our adjusted EBITDA margin $196 million and 15.4%, actually ahead of the guidance we’ve set for the full year for the company. We’re quite excited about what we’re seeing. Our adjusted EBITDA improved by $213 million from last year. I mean it really underscores all of the actions we’ve taken on the business from the cost side and also the ongoing sales recovery. Whereas we signaled in the last earnings release, we continue to invest in our working capital inventory and really to get ourselves in the right position for the recovery we’re seeing. We’ve done a tremendous job, we have a few pockets that we’re still chasing, but overall our inventory position continues to catch up and be in line with supporting the sales growth. And then lastly, liquidity, we’re at $1.4 billion of liquidity. Effectively the number we’ve been able to manage, really through almost the entire pandemic, and still are in a tremendous cash balance sheet position as the business steps into the second half of the year.
I’m on Page 5, next slide, really just a moment to kind of let you know how we’re feeling about how the business is set up for this recovery. So we’re really well positioned as travel rebounds. The first chart here really shows that travel is improving but I think the other thing this first chart will show is just still plenty of recovery to go. Even at the end of June we’re still 29% down from historic passenger miles in our revenue per passenger mile. And clearly, there’s recovery playing out in the back half of the year on the travel side. I have a little more detailed slide on that later. We, as I’ve indicated on last calls, we’ve continued and continuously innovate our product. And we have a whole slew of products to really capture this demand. I have a few more pages than normal at the half to just give you some color for how well positioned we are across all of our brands with amazing products.
Our teams are really focused and we’re all back together. We’re working really diligently to deliver on this. We’ve taken early action on manufacturing and products, as I said, to really be ready to satisfy the demand which is, I think a competitive advantage of ours. And we’re really set up with this really efficient cost structure off the back of the work we’ve taken to really enable the business to boost profitability in our adjusted EBITDA margin as you’re seeing, and you’ll see even in our Q2 numbers in a second. And we’re really approaching historic levels or exceeding historic levels in many ways. So our gross margin, as I said, are really at historic levels. And when you think about all of the pressures coming at us, on the margin side to be delivering gross margin, is really a testament to the team’s amazing work. And our adjusted EBITDA margins are surpassing historic levels at this point.
On Slide 6, just to give you a sense for what we’re seeing in recovery in the time period we’re talking about, so if you looked at Q2 of 2021, the business was still down 52%. And here we are, in Q2 of this year, down 16%. Q2 had the noise of China, which had and I’ll cover the numbers for China in a second, but had a dip in recovery. If I took China out, our Q2 numbers are down just shy of 12% versus 2019. So you can really see the progression quarter by quarter as we move and month by month, if I showed you kind of and I’ll give you those in a bit July and August, this just continues to move in the right direction. Our Q2 sales growth continue, it’s down 16%. And really momentum is picking up across the world. I would say China, which adds negative momentum in Q2 is back to a better story in Q3 for sure, as we look at July and August.
As I said our gross margin improved but in Q2, our gross margin was even better 56.5% versus 54.7% in Q1 of 2022. Our adjusted EBITDA margin $122.4 million, 17.6% in the quarter, second quarter. And that’s up from $73 million in Q1 and you can really see the progression here on the margin side. And this is with advertising getting close to 5% in Q2, we’re at 4.8%. We’re starting to push forward on the advertising as well. So even with that step up, the EBITDA margin is really at historic levels. We have positive net income in Q2, $61 million. And we generated cash of $32 million in Q2, despite our ongoing efforts to replenish inventories. We’re bringing and raising inventory up and even with that we’re generating positive cash flow in the quarter. So really, as you can tell, maybe by my tone, we’re really excited about the momentum we’re seeing.
On Page 7, really two messages here. One is the comparison of first half 2022 to 2021. So you can see we went from 799 million of sales to one point — just shy of 1.3 billion of sales. And you can see tremendous EBITDA transformation from a loss of $17 million in the first half last year so 196 million. But I think equally, if not more important is when we compare to 2019, our EBITDA dollars are really approaching 2019 levels, so at $196 million versus $213 million in 2019, on sales that are almost $500 million lower. So it gives you a sense for the scale of what we’ve been able to move on the profitability side of the business. And when you look at the bottom of the page, you can see what’s happening with EBITDA margin versus 2019, up over 300 basis points on the EBITDA margin side. So again, really tremendous progress.
If you look at Page 8, this gives you a little bit of color by region, okay and just to give you the progression over that same time period. So you can see every region has moved from down 50% or 60%, maybe even 70% when we look at Europe, two numbers that are quite different when we get to Q2. So the North American business was down close to 60%, down 17% in Q2, down 12% in July, that trend continues. August looks just as good. Asia which has been a slower recovery, you can clearly see recovery here. Asia has been running down around 50% to 60%. And you can see every quarter we’re progressing. For July down 21%, okay, versus Q2 down 34%. If I take China out, which is important to do, because China is at a different inflection point, our July number trades are down 16.1%. So really tremendous progress from where we were last year. In China, which had a moment in Q2, China in Q2 was down 62%. Prior to that it had been running down around 36%. And when I get to July and I get to August, China’s back to down around 38% still with some heavy travel recovery to come. So, you can really see Asia starting to move into a different lens and I have some extra color on Asia as well by some of the countries.
Europe has been tremendous and continues to be tremendous. So you can see the progression in Europe last year at this time was still down pretty heavily 60% to 70%. But then we started to see really rapid acceleration. I remember reporting in Q1, the rapid acceleration that carried into Q2. Q2 ended up to up 10% to 2019. July is looking about the same, up around 8.3% is our latest view with momentum. So I think it can probably be a bit better than that. So a really amazing story. If you haven’t been to Europe, it’s booming and teeming with travel and tourism and people are really moving again. And then Latin America, quickly get back to his own of positive territory, really, at the end of last year. There’s some Argentine inflation numbers here but the numbers are trending about in the same zone, up around 30%. If I took the noise of Argentine inflation for that time period, Latin America is up around 15% or 16%, really an amazing story in Latin America and that trend continues. July looks exactly the same. So really, really positive momentum across all regions.
On Slide 9, I just — I thought, it’s helpful to give a little color within Asia okay. So you can see a market like Australia really rapidly improving in the last two quarters. And you can see July is at 12.8%, really improving from Q2. And they were really down last year. They were down 60% to 70%. And really, as COVID restrictions came off and the need to do testing, as you’re traveling around removed, you can see how quick the markets move. Southeast Asia, which is markets like Singapore and Thailand, in this part of the world has really opened up. And you can see how dramatically it’s improved from a year ago this time. And where we are today, which is running in positive territory. And you can see July is positive 6% to 2019.
India has been an amazing story. India has really kind of turned back on. If you remember last year in Q2, India had a real COVID crisis where they had kind of started moving again and then trenched back. But then as India reopened, you can see that their numbers are up in the 20s and really continuing strong momentum. I was in market with the India team last week, and it is teaming and the teams are really energized. And India has a terrific story, really helping cover up some of the shortfalls we’re seeing in China as China gets into a position of recovery. And then you can see markets like South Korea and I might say Japan similar, a little slower to get going but real progress from where they were down 70s to down 30s. And that’s kind of continued into July and Japan’s acting very similarly as well. And I think these will continue to move. The travel restrictions are lifted, there’s still a little bit of testing requirements, but I expect that will start to move through these markets as well.
And then Chinese here you can see the debt. China’s been a market that’s been running down around 30% to 35%. But in Q2, it clearly took a step down with the enhanced lockdowns across China, down 62%. But look how fast July recovered and August was running about the same down 38%. So — and what’s important with China is at these levels down 35% to 40% the business is making 15% to 20% EBITDA margin because we’ve adjusted the structure. And really what’s left is the sales recovery for China. So, again, we’re really excited what we’re seeing underneath the overall Asian numbers at the country level.
On Page 10, this chart we’ve been showing all along, this is kind of the full picture of the pandemic in a way. I think the key for us is to look at from January forward, January 2022 forward. And really two things that you see here one, if you remember, COVID had a little bit of a resurgence at start of the year, domestic travel was bouncing around a little bit. April bounced down largely because of China. But you can see in the last few months, domestic travel is continuing to improve. But the most important piece which is circled in green on this page, and it’s what we were signaling at the Q1 earnings release and really at the end of last year is international travel, starting to move really will move the needle for us. And you can clearly see international travel recovery every month for the last five months, I’d say six months moving in the right direction. And I think that trend will just continue for us.
And on Page 11, this gives you a sense for what we’re seeing, again, by bigger markets. So we already knew North America and Europe were progressing in a really positive way. You can see even in this time period, further progression on these markets. But what’s important for me is Asia PAC — APAC right at the end, the last April, May, June, you can really start to see things turning. It is so much easier to travel in. I’ve been in and out of Singapore probably five times in the last six, seven months. And the ability to move in and out of countries that have lifted restrictions is quite amazing. And I think that you’re seeing clearly the travel demand pickup both inbound and people traveling outside of this territory as well. And as China turns on, I think this will catch up to the rest of the world.
From the gross margin perspective, I covered this but I think importantly, you can really see one, we’re really approaching historic levels. And if you really look at my Q2 numbers we are at if not slightly exceeding historic levels on the gross margin side. This has really driven off of all the actions we’ve taken all through the pandemic but more recently around really careful promotion and discount, really working with our suppliers to manage cost structure, managing freight costs, and managing all the implications of that. And we’ve seen some benefits in freight costs in recent months, maybe June, but more into July and August. So that’ll continue to benefit here. And then pricing action to make sure we’re delivering on the margin side of our business. And so I think we’ve hit this perfectly, allows the EBITDA to flow through the business, we will have a good chart on that on the bridges in the back of the deck.
Dramatic increase from last year, as last year we were correcting the business had more reserves than last year in the first half as we were adjusting inventories. And again, back to 2019 levels is the way I would describe it. And so — and this is really with a lot of ongoing pressure, but we’re managing it really well. Inbound freight is improving. Freight to the U.S. is improving. So at the end of the year and even in Q1, we are worried about the flow of goods, that is getting tremendously better. So we’re catching up on inventory across the world. And again, we continue to work really closely with our supplier base. One of our real advantages of these relationships we have with them and we’re working together to deliver on this margin, which is terrific.
On Page 13, a few pictures of airports. Many of us on this call are probably traveling, if you are you know, this is what you’re seeing, which is tremendous demand with the airports. And despite some of the challenges of travel as the airlines catch back up, the push continues. And so some of these headlines talk about airlines bringing back — planes back and fleet, with plans of putting the A380 back. I was traveling to India last week, the British Air flight is moving. I have a picture on my phone, I was at Logan Airport in Boston, and the Cafe Plane [ph] is back at the terminal in Boston, with Cafe flights going to Hong Kong. Two months ago that wouldn’t have been there. So here we are with things moving, [indiscernible]. Again, if you’re traveling, you’re seeing it. And I think the other point and there will probably be questions at the end, but you know, we’re seeing inflation, we’re seeing worries of recession, but in my view, and what we’re seeing is it’s not really caring into travel. And even if it did a bit, I don’t think we’d see it because of the tremendous surge in recovery that’s happening. I don’t think it will, we’ll slow up what we’re seeing at the airports.
Page 14, a little bit of a different picture for everybody. But importantly, when you think about what we’re doing as a business to get this business moving, we have teams all over the world that is delivering this. These are pictures, probably from my travels in the last six months, I think or maybe even a little less than that. You can see on the top left, this is our European team together and country managers together in Europe, talking about where we are with the business. Top right is our North America team at a dinner here and everybody back together, talking about business reviews, and what we’re going to do to drive the business. Bottom left is our Latin America team, we’re sitting in Chile at a dinner and this is all the country managers for Latin America getting together. This was some six, seven, eight months ago. This was early on as things really started move. And as you can see, the Latin American numbers have been moving for the last several quarters. In the bottom right is our new Singapore, Asia headquarters and our Singapore team, and our corporate team that’s there and some of the Regional Presidents together in Singapore, really celebrating that office opening at the end of last year. I think the key is the energy levels across all these teams is tremendously high. I can’t thank them enough as I move around on what we’ve done to position the business, to deliver what you’re seeing in our numbers today.
On Page 15, we’re still very focused on our ESG goals and strategies. You should continue to hear from us in every one of our meetings and presentations on what we’re doing here. On this slide, with a little extra focus on diversity inclusion as a business, we’re very focused here, as well. We’re very committed to it and we have targets here as well. We’re engaging all of our employees as we get people back to the office, providing some flexibility, but really getting back together over the last six, seven, eight months and getting things moving again for this business. And the picture on the top right are team members that we’ve engaged to really talk to our employees around on what it means to be back to work and what it means to be part of the culture that we have here. We conducted our first ever D&I and culture survey with the business at the start of the year. Tremendous response, something like 87% participation across the company of 9000 employees, really amazing response, very overwhelmingly positive responses, action items that we take from this we’re working with focus groups within our teams to take action on some of the cultural things that we can continue to enhance.
And one of the things I’m most proud about in this business is our mantra or the Golden Rule on what we do to work together. And I think it really shows in who we are as a team. We’ve added two new female Board of Directors in the last quarter and so you would have seen an announcement on that. I think that sends signals on our commitments to diversity inclusion, but also giving us really terrific perspectives from Angela and Claire coming on to our Board. And we’re really excited to have them part of our Board. And we will continue to drive our goals both on D&I but our overall ESG goals and I think we’re making great progress there with ZCart [ph] and the team. So we’re excited there. And you’ll hear more as we continue to make progress there.
I have a few slides of photos and pictures of products because I think it matters. And, one of my opening statements was, we’re really well positioned as recovery continues to move on with products. And I think, to a competitive advantage we continue to innovate throughout the entire pandemic, on products. And so these are just a few snapshots of products just to give you a sense of where we are UPSCAPE, which is a really amazing polypropylene case with recycled lining, a lining that can be removed and washed I think is a benefit that consumers are looking for today in a very, very commercial product. UNIX was a Red Dot winner. Red Dot winner award for best design, really an amazing product offering, walking wheels and technology around suspension wheels as well and really interesting opening options within the case. So you can open from the top, you can open from the middle, really, really amazing packing flexibility just for scale.
If you look in the next slide, the ELEVATION Plus which is really launching and started out of the U.S. businesses, a full range of products offering features for any consumer. So it’s a thorough collection with again polypropylene recycled lining, but with front lid opening if you want versus flipcase opening, you know really, really features the best of zippers, the best of materials on the inside. Really dual wheel spinners, it’s really an amazing product too and we just launched this in the last quarter and doing really well in the U.S. STRYDE 111, this is a product that changes the way you think about how you pack. This product has LED lighting, for vision as you’re moving and walking with your bag. It’s got amazing organizational features on the inside. Again, recycled liners, almost everything we’re producing now has recycled liners within the case. And many of them are having recycled outer shells as well. And so, again, exciting products here.
We’re very focused on our non-travel as you’d expect, we’ve made tremendous progress across the globe on non-travel. And here’s just a few new introductions. This ONGOING bag is made from recycled nylon outer shell and Recyclex — recycled water bottle lining on the inside. You can see STACKD BIZ is made again with recycled material and this is a product that’s lining up with a product called STACKD, which we sell in Europe, it is called a few different things around the world, but a tremendously successful commercial line. And starting to be able to line up products that are built with a DNA that looks and matches these products and we’ve been doing that for a while. But this I think is a really excellent execution and doing very, very well.
We’re focused across all of our brands. So those are Samsonite, I’m giving just a few for Tumi. We’re relaunching Tegra-Lite which was one of the iconic first hard side cases, relaunching with lighter material, different openings, real technology here, that will be tremendously successful. This will be launching at the end of Q3, I think into Q4. At the start of the year, we’re talking about the Alpha Bravo relaunch, which is important because Alpha Bravo is a huge driver to the Tumi business. This has been a tremendous success with recycled content inside and outside the bag. Really amazing and continues to boom really amazing. We started to launch fragrances, I think this is the fourth fragrance for Tumi, all doing tremendously well with the licensing business within Tumi.
On Page 21, we’re leaning into advertising. As we guided, as we get to the back half of the year, recovery is continuing, we’ll lean in and we’re definitely leaning in. We started in the first half, Q1 we’re 42% — 4.2% of sales on advertising, it’s 4.8 at Q2. You should expect for us for the back half of the year, something around 6.5% advertising across the business for a full year number that’s going to be just shy of 6% on advertising. And it really is the moment to lean forward on advertising. It’s across the globe, we’re doing that, and this is just a snapshot of the types of messaging we’re talking about as people start to really move again for both pleasure and business, which we’re seeing as we step into the back half of the year as well. And PROXIS, this just gives you a good sense of a campaign within Samsonite’s PROXIS line we developed during pandemic. We launched during pandemics and we’re now starting to put real advertising dollars against PROXIS, really an amazing case, super lightweight.
Across brands, we’ve done within Tumi, we’re doing a lot in Tumi with collaborations and connections and relationships, but we’ve launched, for example, some collaborations with RAZER and STAPLE. Really to increase brand awareness with new consumers, a different audience. If you look at these products, their DNA is Tumi, but with a little bit of an edge that’s quite exciting. My favorite is STAPLE and I’m still waiting to get mine is a Ping Pong paddle holder. It’s really quite an interesting case. So a little different than the normal Tumi, but delivering a message that Tumi can span across a broader audience of consumers. And both of these have been tremendously successful.
And then lastly for me, and I’ll come back at the end, just for Tumi and I put it here because I was able to go to the red carpet for this, which was very exciting. But this was a really tremendous collaboration with Sony Pictures and the Bullet Train movie, which is launching across the globe. It’s a movie that has tremendous reach in Asia. It’s doing very well in the U.S. It’s the Number 1 movie this past week, I think, in the U.S., maybe globally, but definitely in the U.S. And you can see the importance of the case that was integrated in this movie. If you haven’t seen the movie, when you do, you realize how integrated Tumi with this aluminum case is. It’s the case everyone is after is the campaign and we’re having tremendous success here with this story and very exciting. And really speaks to the strength and the power of our business and their ability to collaborate and connect to really drive not only amazing products, but our brand messaging across the globe. So I’ll come back at the end. I’ll turn it to Reza. I talked really fast. I’ll take questions at the end. Thank you.
Reza Taleghani
Thank you, Kyle. And William, we are on Slide 26. So as Kyle noted, terrific first half results for us. Sales, $471 million better than the same period last year. That’s $1.270 billion for sales for the first half. Gross margin of 707, really that gross margin percentage, the gross margin increased by almost 500 basis points from first half of last year, largely driven by making sure that we’re very disciplined in terms of cost and lowering promotional activity and still managing the inflationary pressures that are there. And on the next slide, I will get into the difference between Q1 and Q2 because I think it is very important to see that trend line and what’s happening there. Adjusted EBITDA margin for the half at 15.4%, that’s already well ahead of what we had been guiding for that period as well as it will have a knock-on effect for the end of the year. I’m sure we’ll get into guidance a little bit later on in Q&A. Adjusted EBITDA increased by 213 million from first half of last year, resulting in that great EBITDA margin. And from a net income perspective, approaching the same amount of net income that we generated back in 2019 for the period. So we were at 83 million of net income as compared to 97 million back in 2019.
And with that, let’s flip to Slide 27. Just to give you the breakdown between Q1 and Q2, because I do think that this trend line is very important. So if you’re looking at the sales and Kyle covered this a little bit, but if you’re looking at versus 2019, the consolidated sales for Q2 came in about 24.6% lower on a constant currency basis compared to 2019. That is a good improvement compared to Q1 when we were down 31.1% on sales. The story around gross margin is something that we’re very proud of. So gross margin percentage in Q1, we were at 54.7%. Q2 came in at 56.5%. So I know some of you have questions regarding the inflationary pressures that we’re feeling. Hopefully, you can see that we’ve managed pretty well through that period and that is something that we’re continuing to be laser-focused on despite increases in cost that we have. Adjusted EBITDA margin, when we’re looking at Q1, we were at 12.8% and for Q2, we have gotten to 17.6% of adjusted EBITDA margin, a very, very solid number, and we will get through in terms of what we’re expecting for the remainder of the year. But obviously, that $122 million of adjusted EBITDA is a number that we’re very pleased with. And as you’ll see on the subsequent slides, it is very much across the board in terms of the regions performing.
So on Page 28, I’m just going to go through some financial highlights quickly, and then we’ll get into greater detail on some of these numbers. So again, Q2 sales down by 16.1%, reflecting improvement from Q1 of 2022, which was down 25.2% compared to 2019. And again, there is a story in terms of excluding China, and because of the lockdown situation that they have there, net sales were only down 11.6% compared to 2019. There is — and this is also with the fact that we do have some foreign currency translation that’s impacting our overall sales number. So we’re basically managing through that as well and still delivering very solid numbers on the sales front despite that translation effect that’s there. So first half 2022 sales would have been $65 million higher than if we were on a constant currency basis compared to 2021, just to give you the impact of that line item. So adjusted EBITDA increasing by 213 million. That’s going from negative $17 million in this period last year to $196 million in targeted territory for this year and the margin we’ve talked about.
Moving on to Slide 29. The gross margin increasing almost 500 basis points compared to the first half of last year. And this is despite the fact that GSP has not been renewed. So this would have been even better had GSP been renewed, it’s something that we had expected to happen already this year, but there doesn’t seem to be much movement by the U.S. government to try to get that rectified. The gross impact of that, just to give you a flavor for that, it’s almost $20 million of impact. So that would have improved our gross margin even further if we were able to basically get that renewal. And we do hope that, that does get renewed at some stage later this year.
Fixed SG&A expenses, as we have repeatedly said over the last year and half, we are laser-focused on maintaining our cost structure from a fixed SG&A perspective, and we were $162 million lower just on the half compared to the first half of 2019 in that regard. Obviously, we had a comprehensive cost reduction program, and we’re making sure that we don’t let the cost slip in. Advertising spend increased by 29 million to 4.5% of net sales compared to 2021 when we were about 3.6%. So we are investing in advertising and each subsequent quarter, we expect that to increase further as we will discuss shortly.
On Page 30, the balance sheet remains a very strong position. So the net debt position, 1478 million as of June 30th, with well over almost $1.1 billion of cash and cash equivalents and that compares to a net debt position of $1.8 billion as of June 30, 2021. So continuing to delever and to improve our position. Net debt is only up about $173 million from pre-pandemic levels. So if you think about everything that we’ve gone through over the course of the last year and half, I think that’s a remarkable result in terms of maintaining our discipline in terms of liquidity. Significant liquidity of $1.4 billion and we’re going to continue to be focused on maintaining those liquidity levels. First half cash burn of negative $27 million, this is better than we had guided.
We initially — we have consistently said that over Q1, Q2 and even Q3 we’re going to be investing in inventory levels. And we had expected that the Q2 number would have actually come in negative because of the inventories that we’re investing in. Even though we increased inventory levels, we still managed to generate cash in Q2 of $32 million. So again, another number that we’re very proud of as well. And net working capital increased by $106 million even though we still generated $32 million of cash after doing that. We’re starting to lean in a little bit on CAPEX. It’s really going to store remodeling and very, very selective store openings, but it’s largely trying to make sure that we maintain the look and feel of our fleet as well as some of our warehouse capacity, trying to make sure that we’re positioned for the cycle. So there’s been a little bit of CAPEX spend in the quarter as well.
On Page 31, as we’re looking at it by region, the first half number is constant currency growth for North America. You’re looking at 66.2% year-over-year and again, you do have the breakdowns by the quarters as well. And if you’re looking at constant currency versus 2019, that translates to just down 19% for the half. And you do see the steady progression quarter after quarter. So in North America, we were down 21.6% in Q1 and Q2 just down 17%, and that trend is continuing to improve. In Asia, which has been the one laggard and largely driven by the fact that China has still been locked down due to COVID, still an improving trend. So Q1 was down 38.6%, Q2 down 34.5%, and all of the other Asia countries are offsetting some of that China lock down negative drag that we have. So the first half was down 36.4% for Asia. Europe, massive improvement. So Q1 was down 21.5%, Q2 up almost 10%. So for the first half, we are down just 5.7% compared to 2019, which is also a 180% improvement year-over-year for Europe. And Latin America, another region that’s just knocking it out of the park, Q1 was up 28.7% compared to 2019, Q2 up 34.6% compared to 2019, blending to 31.3% overall — for the half for Latin America.
On Slide 32, this is just highlighting the fact that if you’re looking at every single region, so the first half numbers, if you’re looking at the North America bar chart there, the first half numbers show North America at 90.9 million of adjusted EBITDA as compared to 75.9 million of adjusted EBITDA for the same period in 2019. So clearly, with an 18.5% margin for North America. I’m going to come to Asia last but if you flip over Europe, same — similar sort of performance, delivering 53 million of adjusted EBITDA compared to 34.3 million in the same period in 2019, 17.6% margin. Latin America, 13 million of adjusted EBITDA in the first half of this year compared to basically flat to zero in the first half of 2019 with 15.3% EBITDA margin. So what this is basically highlighting is that, literally, the only laggard is really Asia and its really China. And Asia, which is typically our highest-margin market has yet to rebound. So as you can tell, we’re very optimistic about the future as well because when Asia does come back, which it inevitably will, similar to the other regions and it’s literally, it’s not even the whole of Asia, it really is a China story, we do expect that the margin profile of this business will continue to improve going into next year.
Looking at Page 33, we’ll just quickly go through the net sales bridge. Really, the message here is there is some FX impact. We haven’t spent a lot of time on this, but it’s important to note that we are facing some currency headwinds to the tune of about $65 million largely due to translation effect in Europe. So obviously, the biggest exposure to the currency here. We had about $22 million of exposure to the Euro, about 10 million of exposure to Turkish Lira, and then other currencies that you’ll see underneath. But basically, so that’s one negative. We’ve obviously backed out Speck and the impact of the suspending the operations in Russia that have now been sold. And then we wanted to isolate just to highlight the fact of what the impact of the China lockdown is as well. So you see about $29 million of impact in the first half just on the impact of the China lockdown. And then the story of everything else in the business over delivering. And so you’re seeing 66% improvement in North America, 71% improvement in Asia ex China, 180% improvement in Europe, 151% improvement in Latin America, more than offsetting those to kind of lead us from that 800 million first half 2021 number to well over — almost approaching 1.3 billion in the first half of this year.
On Page 34, you can see that the mix remains relatively steady in terms of the sales by channel. We are seeing a shift now that the stores have opened so if we’re looking at last year versus this year, within that DTC category, you are starting to see more of the stores contributing as opposed to e-commerce as a percentage. But basically, all of the channels are performing. The wholesale channel continues to perform very strongly for us. And we expect that given the fact that the sell-through is very high that, that will continue. So this sort of mix can be expected to continue over the course of the year. I would say in terms of travel versus non-travel sales, travel has been a very, very strong performer for us. You can see that 104.5% number in terms of the constant currency growth year-over-year just based on the industry dynamics that Kyle said in terms of travelers going out as COVID restrictions have lifted.
On Page 35, just a very quick adjusted EBITDA bridge. Obviously, if you’re looking at 2019 and coming all the way to 2020, the biggest negative contributor is the gross profit decrease due to the lower sales. That’s 231 million. There was some FX impact that we talked about, that would be about 17.5 million compared to 2019. And the story here is really what we have done as a management team in terms of being very disciplined around decreasing our fixed cost structure of 147 million there. And then obviously, there’s a variable component of 42 million as well. So this SG&A story, just for the half year component, 190.5 million of benefit that comes from that SG&A benefit that comes due to actions that we had taken.
Page 36 is a slide that we’ve shared in the past. Again, the same story around fixed SG&A expenses, 162 million lower than 2019. That’s just for the half. And we have consistently said that we have a target of trying to maintain 200 million for this year of fixed SG&A benefit. You can see that we’re trending well ahead of that as well and we expect this to continue. Advertising expense was $29 million higher than prior year. So these numbers are even though we have continued to invest in advertising and to increase our investment in advertising, we anticipate doing that even further in the back half of the year.
Slide 37, positive Q2 cash generation. So you’re going to see that on net working capital, we’ve continued to build net working capital, yet we’re still delivering positive free cash flow in the quarter. So over the course of the last year, we were very proud of how much cash we were able to generate as the sales started to rebound and you’re starting to see that that’s continuing over this quarter as well.
Moving quickly through the balance sheet. Now we are off — I’m sure there’s questions around the balance sheet and covenants and things like that. We are now through the amendment period. So now we’re reporting cleanly to our lenders just as we used to. And obviously, leverage is starting to come down as we continue to generate cash. And the net debt numbers we talked about, so total net debt, but we are basically at the same number. It’s almost identical to the same number that we have at the end of the year. So 1,477.9 million versus 1477.2 million, which is an improvement. So we’re better than Q1 by about $47 million. So we did increase our position over the quarter.
On Page 39, working capital, really, this inventory base, this is something that we are actively trying to manage. We’re trying to make sure that we have ample stock on hand. If we’re going through the different regions, really we feel better about our positioning in the North America overall, specifically with North America Samsonite. Tumi, we are continuing to try to get to the inventory levels that we’d like to do. There’s some work still to be done. Quite honestly, as we have ordered ample stock it’s a high-class problem to have. It’s just that as soon as the stock comes in, it goes straight out of the warehouse as well. So we’re not necessarily missing a lot of sales. It’s much more that we’re not able to get our stock levels in our warehouse to the levels that we want. And so we’re going to continue to invest in inventory as we go forward.
And you can really see that on Slide 40. So we have been able to build, if you’re looking at Q1 versus Q2 versus Q4 of last year, we’ve gone from 348 million to 406 million to 468 million in terms of the inventory balances. So it is getting better. And I would also say the quality of the inventory is continuing to improve as well. And again, this is still while we’re generating free cash flow.
On Page 41, CAPEX, we have started to invest a little bit more. As you can see, in retail specifically, we’re doing a little bit more in terms of making sure that we’re improving the store footprint. There haven’t been that many stores. If anything, actually, our net store number has come down because those renewals come up. We’re being very disciplined about which stores we close and which ones we invest in. However, in terms of going into new litigations [ph], we’re trying to make sure that we can continue to improve the fittings and some of them and we’re going to continue to invest there. There’s also been some additional investment in R&D. There’s a lot of product innovation that we’re doing so we’re continuing to make sure that we invest in material science and other areas as we have our ESG journey as well. And then a little bit of CAPEX on software. So with that, let me turn it to Kyle to discuss about the outlook and then we’ll open it up for Q&A.
Kyle F. Gendreau
Okay. Thanks, Reza. So as I said at the start, as travel continues to rebound, I think we are really well positioned to capitalize on the growth, really operating at a much higher operating margin. So I think when you see the progression from Q1 to Q2, as we step into the back half of the year, we’ll be stepping up advertising but against a margin profile that’s tremendously stronger each quarter. We’re really positioned to deliver on the back half of the year. And we’re seeing, as I said earlier, July improving, August improving. The numbers are really quite something as we move forward month to month. We maintain — we’re really focused on maintaining gross margin, as you heard from myself and Reza. And really, despite all of the headwinds, we’ve taken all of the actions to make sure that we’re delivering on the margin. Our teams are laser-focused on it. And I would say exceeding my own expectations on what we’re able to achieve on the gross margin side.
Just a quick note on Russia, we did suspend our Russia business, as you know in March, and we exited that business at the end of June and closed on that July 1st. So when you’re looking at our numbers and we’re talking about growth profiles, we’re often kind of making some adjustments for Russia. Russia as a business overall was around a $50 million, $60 million business with kind of $15 million of EBITDA. So it’s not a big change to our overall projection. But I think it’s important to know that we done — we fully exited that business at this point.
China continues to be a challenge with COVID and zero COVID policy. But what I would say for China is we definitely saw a blip in Q2. But on balance, China is running down around 35% to 40%. Before Q2 was as we step into July and August, it looks the same. And at those levels, Frank and the team have done an amazing job of delivering profit profiles that aren’t that different than what China’s historic EBITDA margins are, it’s just the sheer dollars. And so as China really starts to move again it will be a meaningful impact to, I think, Q4. And as we get into next year, I think China will fuel a big piece of our story. Just for scale, China is about a $300 million business for us that on year-to-date is running down around 50%. So imagine as that catches up and gets back into the mix, along with the profit profile that Frank and the team have been able to create, it will really be incremental to not only our sales growth, but our profitability as that continues to recover.
We intend to increase our spend on advertising. So we’ve said that. We were cautious clearly last year. We started to lean into markets this year as certain markets were moving. So North America, Europe, for sure. We’ve accelerated some things into Q2 as we felt things were moving, and we could start. For sure, you’ll see a step up advertising in the back half somewhere around 6% to 6.5% is what you’ll see, which gets us back even not back, but maybe slightly ahead of what our historic levels are. And with the margin profile, EBITDA margin profile we’re delivering there will still be an incremental story on the EBITDA margin side.
On the last page, the expense side Reza covered it. We are really executing on our SG&A in a tremendous way, little bit ahead of our own expectation and guidance. I think that will continue. We’re running really, really strongly. The $200 million of fixed cost savings that we talked about last year, I have clear visibility that, that will continue into the back half of this year. And I think into 2023 as well, which will continue to fuel our profit profile improvement, and we’re making very disciplined decisions and investments on where we add resources and what we do. And we are adding resources because there are spots in our business that need resources added again as we really start to move again. And we’re working closely with our teams across the globe to do that in a very strategic way.
As we said on working capital, we are investing. You’ll see every quarter for the next two quarters, probably three quarters our inventory dollar is growing, but the sales are growing at a similar quip. So our working capital profile will continue to improve. But at the moment, we’re pushing to get it into the right spot, and we’re having very good success. Supply chain is moving. There were issues with shipping and logistics, all of that is getting a bit better. It’s not perfect yet, but it’s better and we’re getting the benefits of that. If anything, we’re having issues in markets like Europe, but just unloading containers fast enough because the teams have been well forward on getting ourselves in the right position on the inventory side. We are focused on our teams, we continue to foster an in-person workplace and people are largely back to work. We’ve added a little bit of flexibility, like many have done across the globe. But the reality is our teams are very focused, very engaged. I can’t be happier with what we’re achieving. We’re laser focused on our sustainability and ESG journeys with our teams and really all of our team effort, along with our focus on sustainability and innovation, really position our business to continue to gain market share and be well positioned in the market and really drive and lead the market.
And then lastly, we have a significant amount of liquidity. One of the real strengths of navigating through the last few years of pandemic is the fact that we had our balance sheet well in hand, and we’re now sitting on the other side really stepping, I would say, out of recovery mode, clearly with liquidity that puts us in a wonderful position to continue to delever the business and actually drive the business so that we’re now driving and moving the business forward as we see real recovery moving into growth within the industry from historic levels, which is very exciting. So that’s our update. We’re very happy to take questions. So I might turn it back to you, William, and we’ll take a few questions.
Question-and-Answer Session
A – William Yue
Thank you very much, Kyle and Reza for your comments, and we now open the floor to Q&A. Starting with Dustin Wei from Morgan Stanley. Thank you.
Operator
Thank you. First question comes from Dustin. Please go ahead.
Dustin Wei
Thanks a lot for taking my questions. The first question is regarding the margin outlook for the second half. The second quarter EBITDA margin was really strong, but how should we think about — Kyle mentioned 6.5% A&P ratio possibly for the second half, but it seems like not a lot of increase versus the number in the first half, to suggest — is that the case that the GP margin can largely maintain and the operating leverage continue to kick in because sales is better than the first half. So kind of look at the sort of similar level of EBITDA margin in the second half versus the second quarter, is that the way we should think about? And then along that margin line, could you give us an update on the price negotiation with the suppliers and with your key customers regarding the pricing for the year 2023?
Kyle F. Gendreau
Sure. So EBITDA margin clearly was strong in Q2 with advertising starting to work back, but it’s a full 1.5 points of advertising, maybe a bit more that you’ll see us put in the back half. I think we were guiding, Dustin, really at the start of the year that the full year would be around 15%. We’re clearly overachieving that in Q2 as the business recovery continued, and we’re hitting on the margin side. So for the back half, you should assume we’ll maintain gross margins at the levels that they’re at. It kind of answers the pricing question, which will be back half and carrying into next year. With the work with our suppliers, we’re in a really good position, working with them on maintaining margin. We’re using price, obviously, as everybody has to manage margin. We’re very careful on promotion and discount and really positioning and in many cases, elevating our brand positioning during pandemic which will continue to feed on the gross margin side.
The reality is, as China starts to recover, which has a slightly higher margin than, let’s say, in India that’s been covering for on the sales side, the Asia gross margin probably has some upside. And so blended together, we’re feeling very good at our ability to maintain the margins at historic levels. And even in the discussions on pricing, we’ve got a lot of things in our favor here to be able to deliver on the gross margin. Well, that will carry through, and I think we guided full year 15%. My personal view now is even with the step-up in advertising, this business is probably 15.5% to 16% EBITDA margin for the full year. And so you can kind of take that and understand what that means for the back half. And I’m feeling pretty confident there. As you know, we tend to guide conservatively. So I would say, on the upper end of that range is what I’d expect for the full year, which is historic levels for this business just gets back to really historic levels.
With an improving trend and with revenue recovery still to come, so I think we’re sitting really in a wonderful spot where I think you — as you’re modeling, you should assume that the benefits will continue to come in and allow us to advertise, allow us to make some strategic decisions in the business. We talk about SG&A savings, with China lockdowns in the first half that was benefiting SG&A, which was covering. As China gets moving again some of that will work back in. So SG&A won’t be a perfect line. There’ll be some investment in SG&A, which will carry in as well. But still, as revenue recovers, SG&A as a percentage of sales will continue to improve but be dramatically better than where it was in 2019. So all of that has me feeling pretty confident. I guess, a year ago, I would have said 15%. I think what you heard me say is North of 15.5% is clearly in our sights for the full year, probably on the higher end of the range I’ve given you.
Dustin Wei
In terms of the price negotiations for next year, should we sort of…
Kyle F. Gendreau
It’s ongoing. So what I’m guiding you is we’ll maintain gross margin. Price negotiations are going fine. There’s a lot of ups and downs. Currency with the dollar so strong we buy in dollars is actually helping margin on the other side of the equation as well. So markets like Europe, which are buying in dollars we do some hedging there, but it’s still an advantage. So you have currency that’s a benefit for us at the moment. We have so many levers, it’s not just a pricing discussion with our suppliers. It’s all of the levers working together that allow us to get some real confidence in our ability to deliver on gross margin. If you really look at Q2, the margins maybe even a little higher than what I would have anticipated. And again, when you’re doing your modeling, Dustin, understand that Asia is operating at a little lower than historic levels because China still has to get back into the gain fully, which will have some upward pressure on the gross margin in a positive way on gross margin.
Reza Taleghani
And Dustin, there are a lot of puts and takes because I know you’re looking at it as everyone is faced with inflation, is the product cost going to go up or FOB is going to go up simplistically, right? But what’s actually happening is at the same time, Kyle covered the biggest component of it is because we buy in dollars, that automatically helps us. The next one that you have to think about is freight costs are actually starting to come down. That is a huge component of the cost structure that we have. And then we’ve obviously taken pricing action as well. And again, these are really, really long-standing relationships of ours. So it’s not like all of a sudden, it’s linear. Oil prices went up, therefore, it costs more, you have input costs that go up. That’s not how it works at all. And you’ve heard us say through the years, we also value engineer. And so we have so many different tools in our toolkit to be able to maintain that. So we have a high degree of confidence in terms of gross margin profile and maintaining that going forward next year.
Kyle F. Gendreau
I would say just from a relationship perspective, our relationship to our suppliers is as good as ever Dustin too. This was relationships, many 20 to 25 year relationships. So you tend to work together when you’re driving at this so that our margin profile is in the right place and theirs is in the right place. And I would say our sourcing teams, I probably said it every call, just amazing piece of work on the downswing, the upswing, imagine the work to get things in here so that we’re not missing sales and all of the work that goes into that with horrible issues with logistics that are getting much better now. Freight costs are coming down but underneath all of that are these really tremendous relationships that our sourcing teams keep with our suppliers, which really help those discussions and helps us deliver on this. So I don’t underestimate that, which is one of our real advantages in this marketplace with these really long-standing relationships.
Dustin Wei
Yes, thanks a lot for that. And the rest of my question is regarding the inventory management. I think in the U.S. market, especially in the first half, in some other consumer categories, we heard from some retailers calling out there too much inventory, a little bit double booking when there was a supply chain issue in Asia last year. And now this year, they are facing excessive inventory. So now they need to do extra markdown. So in our business, in Samsonite business, how would you sort of avoid that situation for your wholesale customers who are seeing very strong sell-through and how do you sort of look ahead and to avoid the overstocking their inventory? And same thing for your own PDC channel? And also, what’s the sentiment — yes, go ahead.
Kyle F. Gendreau
I would tell you, in our category, it’s not an issue because it’s selling through as fast as they can get it. So we did see a few customers stutter-stepped on replenishment in the U.S. This is really a U.S. story. And so they might have paused for a month or less, and then they’re back to ordering because our category they can’t keep on the shelf. And so we’re clearly seeing people looking to manage cash flows. They see inflationary pressures, maybe some inventory issues. But on our side, we’ve been continuing through ways to catch up. And so I think whatever stutter step we saw from that, we saw actually in the Q2 numbers, which you probably can’t even notice when we show you those numbers. And the reality is most of our customers are leaning forward. They’re not over-inventoried in our products. They might be in other categories within their floors, which is causing them to manage their overall kind of cash flow and inventory position, but they are clearly ordering in on ours because ours is moving through and we’re in a well really good position with them. In many cases, they’re taking the goods direct from port and they’re even chasing inventory because the shipping isn’t perfect yet. So there are moments where we might miss a sale in a month and it moves to the next month because of the timing of when the things are getting on to a ship within the port. But we’re not — I’m not so worried about it. We’re clearly watching it. But in our category and with our customers on balance, it just continues to be very strong. And so it’s not been an issue for us.
Dustin Wei
So would you say that your key customer, the wholesale customers are still — have very good sentiment about the travel category despite the fact that media continue to talk about the recession end of this year or 2023?
Kyle F. Gendreau
Yes, for sure. Because if you really look at it under the media, you’re not seeing really any stories on travel slowdown. We’re watching it, obviously. The whole world will watch, but the reality is the inverse is happening, you’re starting to see travel costs actually come down a little bit as they get their fleet moving and they’re driving traffic. And I think even if there are some impacts because of the pace of recovery we’re seeing unless we weren’t trying to fish that out for you, you won’t even see it because I think our recovery on the travel side will continue. We’re not seeing any slowdown month-to-month. We’re not seeing — if anything we’re seeing accelerate in July, we’re seeing accelerate in August. I think, September will be the same. My view is business travel has been recovering, but it’s still not fully recovered. My sense is in Q4 and as we get into next year, you’ll see much more business travel start to work its way in. I think you’re going to have the really strong holiday travel season. If you remember last year, COVID had resurfaced in December and January, with — I think it was a delta variant at the time, okay. And so I think you’ll have enhanced holiday travel this year as well. I think you’ll have enhanced holiday travel for pleasure, not only visiting families, but pleasure travel. And so I think on balance, even with some of the inflationary pressures that we’re talking about, travel should be well protected. That’s my view. And again, our numbers are not showing it slowing down at all in the recovery pace.
Dustin Wei
Great, that’s very helpful. Thank you so much.
William Yue
Great. Before we move on to other callers we have a couple of questions from Macquarie, from Linda Huang. The first one, leading off from your comments about strong — continued strong recovery in travel. She wanted to see if we are going to adjust the guide in our full year top line guidance, given the strong performance that we have seen so far this year and going into the third quarter?
Kyle F. Gendreau
Yes. Well, I think I’ve indicated July and I think in our deck, you can see the July numbers, which have been improving. August has improved as well. Surprising August numbers, I would say is the way I describe it. I don’t want to publish them because we haven’t finalized August, but our view to August is really continued momentum across all of our business, if you take China out, really kind of dramatic continued increases into August. I think that will carry into September. You get into what does Q4 look like and our view is these trends continue I think Q4 will be very strong. Again, almost to Dustin’s questions, our customers and our wholesale customers are still buying. Our trends are very strong. Our sell-in of product is very strong. The sell-through is faster than we can sell in, in some cases. So it continues to be very strong.
I think my sense for the full year, and again, conservatively, William, is we’re probably down somewhere between 10% to 13% for the full year, which would mean the back half is dramatically better than the first half. I would say, in the kind of mid-single digits, where I think when we started the year, we were saying the back half was probably down in the 10% to 15% range, it’s clearly going to be better than that based on the trends we’re seeing. The wildcard is next year, and I’m not ready to give guidance for next year because we’re really watching, and there’s a lot of work for a lot of companies to think about what is the trend for next year. What’s clear to me is Asia will continue to recover and next year will be very strong. And I actually think U.S., Europe and Latin America will continue to grow.
And from a unit perspective, there’s a lot more growth to go. Obviously, there’s some inflation in our sales number but from a unit perspective and just airlines adding fleets and routes and continuing to move, if you look at the headlines, it’s around continuing to build out the travel channels that aren’t fully back yet. And so is that rest of travel recovery, which I said like June is still technically down 29%, 30%, including the international travel. If that continues, that’s going to fuel, I think, a good story for next year, but I’m not ready to kind of give my view there, other than I think we’ll be in a good growth story.
And as a business, we’re so well positioned, William, that I really think we’ve done everything the right way so that we’re not going to miss on anything. We’ll be advertising, we’ll have the product, we’ll be pushing the business. The teams are all in the right mindset. So I think you should expect that the trend to continue. But for the back half, I think because of Asia’s ongoing recovery, I think down in the mid-single digits for the back half of the year, which is clearly an improving trend to where we are and probably a bit improved from the guidance we’ve had in the past.
William Yue
Thank you very much, Kyle. And next online, we have on Erwan from HSBC. Thank you.
Kyle F. Gendreau
Hey Erwan.
Unidentified Analyst
Picking up on that comments, if you’re down mid-single digits in H2, conceptually, you could be down high single digit in Q3 and close to flattish or even maybe a tad above 2019 levels in Q4, is that a possibility?
Kyle F. Gendreau
Yeah, the way we’re playing it out probably conservatively, Erwan, is for both periods down kind of mid-single digits because Asia has still got a story to play out. China is moving a bit faster in Q4. I think that’s exactly right and I have some hopes that it does. But the reality is really without that that’s the trend. I think Q3 and Q4 — Q4 really could be a bit better than Q3, but Q3 is looking really terrific. And so I think you could draw the line, we’re being a little more conservative than being kind of consistent waiting for the last bits of Asia to really start to move. But you’re probably not far off from that. And then for the full year, you’re down in this kind of 10% to 13% range full year.
Unidentified Analyst
Yes. Okay. So I had two unrelated questions. One on any comments on the market, i.e., how much market share do you think you’re taking and what is the competitive landscape looking like? And related to that, any potential for consolidation, maybe not now, but maybe in 6 to 12 months? And the second question, again, unrelated — there is another company, a global company listed in Hong Kong Prada [ph], making comments about potentially having a dual listing. I know it’s something you’ve looked at in the past. I’m just wondering if you can comment on whether it would make more sense now than a few years ago or still probably not just to get a sense?
Kyle F. Gendreau
Yes. Competitively, we’re still in a competitive market. But I would tell you my — from where I sit, I think we’re well positioned. If you listen to my comments on inventory and our continuous focus on innovation and kind of our team energy and our distribution network, which is tremendous. So we’re touching kind of all channels. And as e-com is kind of continuing to grow, but maybe cooling a little in the mix because our direct-to-consumer retail and our wholesale customers are booming. We’re capturing on every cylinder that’s moving here and against a lot of competitors that are narrow in where their channels are. And so I think we’re well positioned, but we’re not in a competitive market. Many of the brands that were pre-pandemic are kind of still here, but I would say probably we’re one or two steps ahead. So being in an inventory position allows you to gain market share. The real trick for our business will be maintaining all of that, okay. And so we’ve been — we’ve moved on price to manage margin, maybe smaller competitors will drag their feet for a month or two or a quarter, but they can’t do it forever. And so there’s that little scrum in the middle that might happen, but we’re not really worried about it. And we’re not seeing ourselves losing any ground at all.
So I think we’re feeling pretty good with a lot of reasons to be feeling good. It really is amazing product, people advertising. So as you’re really now lean in and we’ll be able to put the full bore of our advertising back to work with really amazing stories to tell, we should be able to out voice the market as well on that front. So we’re really very excited about where we are. It’s hard to give you kind of numbers and percentages, but from a sense of where the market is, I think we’re in as good a position as we’ve ever been is the way we would describe it. Your second question was what?
Reza Taleghani
Dual listing.
Kyle F. Gendreau
Dual listing. We’re always kind of monitoring markets. We have no intention to run now. I think Prada’s — I’m kind of watching them. I think they’ve been probably thinking about this for a long time. It’s in our radar. We’ll also be looking at our debt structure in the next couple of years. We have maturities coming up. And so all of that coupled together we will always be evaluating markets, but there’s nothing kind of pressing or burning right now. We’ve been so laser-focused on getting the business back in the right position that as we step into the back half of the year into next year, Reza and I will have a better think about that. But we won’t surprise you with anything for the rest of this year.
Unidentified Analyst
Okay, alright. Well, best of luck. Thank you. Thank you so much.
Kyle F. Gendreau
Yeah, thank you.
William Yue
Thank you. And we have just got a couple of final questions from Yvonne Chow of NF Trinity. So Yvonne, please?
Yvonne Chow
Hello, can you hear me.
Kyle F. Gendreau
Hi there.
Yvonne Chow
Hi, congratulations on a wonderful result. I just have a follow-up question on the gross margin, which is very, very good. And I remember at the annual results, you talked about ordering like about 9 to 12 months ahead. So I’m wondering whether that very good margin, 56.5%. How much of that is because of the advance ordering, so I’m thinking of the things where if inflation doesn’t come down for another six to nine months then should we — could that get into the gross margin a little bit or whatever you mentioned before with those is going to sustain the margin at 56%, which is — high?
Kyle F. Gendreau
Yes. We’re always looking forward on margins, right. So as we’re buying forward, we’re very conscious of the margins that each one of our lines are looking to achieve. So even as we move forward, we’re managing. I might use the freight example for you. We’ve moved margins with freight levels, freight costs that have increased at levels that nobody would have even believed if you wrote them down on a piece of paper. And yet we moved our gross margin back into the profile. And so even with any sort of inflationary pressures that we’re seeing and working with our suppliers, we’re able to kind of look forward and manage to the margin. So one of our long-standing strengths in this business, and I’ve been here 15 years, is the ability of our teams to manage to a margin. The right product as we’re buying forward and Reza said it and we’re thinking about what we’re bringing in, were engineering products to hit margins as well. So not only is there a price discussion with inflation, but we can also be managing what’s the landing point from a price perspective and from a — and it’s often easier to do with new products coming in as well as you’re buying forward. So, I have a real sense of confidence in our ability to deliver margin. And I whispered it, but don’t underestimate the mix effects as Asia really starts to get back to historic levels, the benefit of that has to our overall consolidated gross margin as well. So it’s not that it’s an everyday task for us. But I think if you look at what we’ve delivered, I would tell you, even in my own expectations, we’re over-delivering because the teams are that good at it.
Reza Taleghani
And just to double click on the last comment Kyle made, so if you think about Asia, historically, the highest margin countries in Asia are China, Japan, Korea. Those are the ones yet to really deliver. And so just that in and of itself would help the overall gross margin profile of the business going forward.
Yvonne Chow
Understand. Thanks.
Kyle F. Gendreau
Thank you. Anything else William. William?
William Yue
If you’re okay, maybe just one last question from Jefferies, Anne Ling and then we can finish.
Kyle F. Gendreau
Yeah, sure.
Anne Ling
Hey, hi hello. So Kyle, you just mentioned about the guidance of like 15% to 16% adjusted EBITDA margin for this year, right. So — but isn’t it a bit even for second half, isn’t it a bit too conservative, even at a high — even at the 16%, if I take a look at last year, it was like 16.3% for the second half and 4Q, which is normally your highest with your sales assumptions that move up, you should have a higher operating leverage as well, so shouldn’t it be like that 15% is like still way too low?
Kyle F. Gendreau
It can be. We can overachieve on that for sure. I think if you compare to last year, our fixed — our temporary cost benefits were playing into the numbers last year in the second half. The second half numbers were very strong last year, but we had advertising very constrained, and we had temporary benefits on the cost side in the end of the year last year number. So I think our Q4 number last year was very, very strong, but we’re at really low advertising and temporary benefits for stores that were still not open or us not bringing people back in. We had people on salary reductions still last year. This is some of that plays in. But you are right, we’re being conservative, but I think it’s the right thing to be conservative so that we’re able to continue to push the business as it’s really recovering. I think there are scenarios where it can be a bit better than that. I did guide at the higher end of that range is where I think we’ll be.
Reza Taleghani
I think it really is within our control to a certain degree. I mean, I think the point that Kyle has raised, just to give you Q3 last year, Q3 last year, advertising was 3.9%. So it is a lever that we completely have both directions. We’re saying we know that we’re going to be performing, but we want to invest in the brand. And so we’re taking a conscious decision to take that 3.9% for the quarter to 6%, 6.5%, somewhere in that range. And so that easily, if we decided to keep it back would have flown through and basically delivered a higher EBITDA margin, but we’re saying, let’s invest in the brands, that will drive sales. It’s the right thing to do and to go from there.
Kyle F. Gendreau
But you’re exactly right on just kind of the push you’re giving us. And the reality is, I’ve said it in my opening statements, we’ve changed the margin profile of this business, okay. And so you’re really starting to get the taste of it right now. And for the back half, you’ll see more of it. And as we get into next year, you’ll clearly see it. It’s something that we had guided. I was guiding it actually as I stepped into the CEO role four years ago. But we’re clearly getting to the point that you can start to see that we’re going to move it there. And so we will continue to move in the direction and we tend to be a bit conservative guy. I think that’s helpful. And so if we’re running ahead of expectations, I think some of that will carry through, obviously, to EBITDA dollars and to margins. Because as we bring in these incremental dollars against the structure we’ve set up, they clearly are incremental on the EBITDA margin side as well. So it feels — it’s a good place to be. And I think we’ll be achieving on the higher end of that range is the way I would describe it with our ability to invest back in the business.
Anne Ling
Got it. Okay
Kyle F. Gendreau
I am glad you got your answer. No, I’m just trying just who we are as far as conservative, but we’re feeling very good at where we’re sitting right now is the way I would describe it.
Anne Ling
My final question is that on your store network or for your retail business, I understand that you’re not keen at this stage to expand your network. But let’s say, in a business like such a online, let’s say, each year, a normalized growth of like low teens, which is the industry growth, do you think that for the next like two to three years, are you comfortable with that — your existing network that will be able to support your essential growth or at some point, you need to reinvest into your retail network by expanding the number of stores?
Kyle F. Gendreau
Well, we are — I think Reza was trying to give you a net number because we’re still stores that were on the margin that are expiring, we’re adjusting. But we added stores. I don’t know the exact number.
Reza Taleghani
So what’s — so we add — so what is skewing the numbers is the fact that we closed Russia. So be aware of that. So there are 37 stores in Russia, 35 of which were Samsonite, two of Tumi that are closed. We added five on top of it. So basically 37 plus 5 is 42 total net of new shores. Well, it’s closed. So 37 that are closed for Russia. So there are definitely stores that are being added. What’s also happening is you have one — I mean, excluding Russia, you definitely have ones that are coming up for renewal. If they’re not in the right location, we are not renewing them. That does not mean that we’re not going to basically find another location, we’re not going to add it. We just opened up another store in Paris for Tumi. We have another one in London that’s opening up. There are definitely Samsonite stores in China. Even in this market, we are approving and opening up new stores for Samsonite in China, even though they’re not open yet. So absolutely, definitely we’re investing in the store fleet. It’s just we’re being selective and disciplined about it.
Kyle F. Gendreau
So you’ll see a retail fleet, but in a very — as Reza said, in a very disciplined way. But we will continue to expand because there are opportunities across the globe. And some models, we’ve moved from our own retail to franchise stores. And so in India, we’re opening tons of points of sales that are in a variable model basis. And we’re doing the same thing in markets like Brazil. And so we’re still I would say, laying footprint, but in the best kind of cost structure way that we can. But you’ll see our store fleet grow. We’ll add stores next year. I don’t have the numbers yet, but I wouldn’t be surprised if we add 30 or 40 stores next year across the globe, maybe even a bit more. But these are right strategic decisions across markets that we have an opportunity to penetrate.
As a percent of sales, it won’t move the needle tremendously because it will be in line, if not maybe slightly ahead of our store growth. We didn’t talk a lot about e-com growth in this presentation, but our e-com business is booming. The growth rates are just incredible across the globe. And that will continue to fuel kind of a story. The industry growth, I think, will be a different story next year, I think it will be higher than that. But we still — I still have conviction that this business is mid to upper single-digit sustainable growth story with the mix of everything that we do. And our — one of our real strengths is we sell at every channel the consumer wants to buy. So any one of those channels are moving, we’ll be there moving with the channels as well and probably leading the pace in that move. So I think don’t read that we’re not going to continue to drive and expand the business. That’s really the exciting part of next year and the year after is getting back to that.
Anne Ling
Okay, got it. Thank you.
Kyle F. Gendreau
Great, thank you William. And thanks everybody for joining us. Any last comments, William.
William Yue
Nope, I think that’s a pretty good call. And thank you for your comments, and thank you, everyone, for joining.
Kyle F. Gendreau
Perfect.
Reza Taleghani
Thank you, everybody. Bye-bye.
Operator
Thank you. Thank you for your participation. This concludes the conference.
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