Samsonite International S.A., the world’s largest travel luggage company, published its unaudited consolidated financial results for the three month period ended 31st March, 2020.
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Mr. Kyle Gendreau, Chief Executive Officer, commented, “Historically, travel and tourism have recovered quickly from past downturns, and with people around the world placing a high value on life experiences, we are optimistic about the long-term growth 2 prospects for travel and tourism and by extension the bags and luggage industry. We are confident Samsonite will emerge from the current challenges in a strong position to capitalize on future growth opportunities, as we continue our journey to become the most sustainable lifestyle bag and travel luggage company in the world.”
Samsonite has taken a series of actions to increase its liquidity and enhance its financial flexibility. With liquidity of approximately US$1.8 billion, Samsonite is in a strong position to navigate the challenges from COVID-19.
During the first quarter of 2020, the group reduced its marketing spending by US$14.7 million, or 29.7%, compared to the same period in 2019, and is taking additional steps to reduce advertising spend for the remainder of 2020. The group’s distribution expenses decreased by US$45.3 million, or 14.9%, year-on-year for the three months ended 31st March, 2020, driven mainly by the reduction in sales.
The group took immediate actions, including headcount reductions, salary reductions and furloughs, as well as cuts on discretionary expense items, to reduce the fixed and variable cost structure of the business, resulting in a US$8.2 million, or 14.3%, decrease in the group’s general and administrative expenses year-on-year for the first quarter of 2020, with additional savings expected in the second quarter and beyond.
The group has also commenced dialogue with its landlords to seek rental relief and other concessions to reduce its direct-to-consumer (“DTC”) distribution channel fixed costs. The group spent US$17.9 million on capital expenditures during the first quarter of 2020 compared to US$15.9 million during the same period in the previous year. The group has scaled back its capital projects to meaningfully reduce capital expenditures for the remainder of 2020.
Most of the above cost-cutting actions were implemented in March 2020, and as the group continues to pursue additional initiatives to reduce operating expenses, the benefits will begin to emerge in the second quarter and going into the rest of 2020.
In the meantime, the abrupt decline in the group’s net sales had a significant impact on the group’s Adjusted EBITDA, which decreased by US$79.8 million to US$4.9 million for the three months ended 31 March, 2020, compared to US$84.6 million for the same period in 2019. The group recorded an Adjusted Net Loss of US$38.6 million for the three months ended March 31, 2020, compared to an Adjusted Net Income of US$27.3 million for the same period in the previous year.
Additionally, the group is focused on managing its working capital, particularly inventory. Early in the first quarter, the initial spread of COVID-19 in China resulted in a decrease in production capabilities in that country after the Chinese New Year. Beginning in March 2020, the Group’s owned and operated factories in Belgium, Hungary and India also temporarily closed and remain closed. With Chinese factories resuming operations and increasing their production capacity, the Group has worked closely with its suppliers to align production levels with customer demand. The Group’s inventories stood at US$591.5 million as of March 31, 2020, up by US$4.2 million compared to US$587.3 million at the end of 2019.
The group used US$57.1 million of cash in operating activities during the three months ended March 31, 2020 compared to US$27.2 million of cash generated from operating activities for the same period in the previous year.
As of March 31, 2020, the group had cash and cash equivalents of US$1,168.1 million and outstanding financial debt of US$2,596.8 million, resulting in a net debt position of US$1,428.7 million compared to US$1,305.3 million as of 31st December, 2019. The group’s pro forma net leverage ratio was 2.68:1.00 and its pro forma consolidated cash interest coverage ratio was 9.24:1.00 as of 31st March, 2020.
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Following the closing of the 2020 Incremental Term Loan B Facility on 7th May, 2020, the group has a liquidity position of approximately US$1.8 billion.