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Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite International 2020 First Quarter's Results Earnings Call. Please note that this event is being recorded. I'd now like to hand over the conference to Mr. William Yue, Senior Director of Investor Relations. Thank you. Mr. Yue, please go ahead.
Thank you very much, operator. Hello, everyone. Thank you for joining the -- our First Quarter Earnings Call. Today, we have our CEO, Kyle Gendreau; and our CFO, Reza Taleghani, with us. And our CEO, Kyle Gendreau, will begin with a few opening remarks. Thank you very much.
Okay, great. Thanks, William. Thanks, everyone, for joining us, and good morning, good evening, wherever you are.
So I'm on Slide 4, William. And really wanted to give you an update. Reza will walk through some of the details, but what we're doing in the business right now is actively managing through the challenges in front of us, in front of many companies. When I think about what we're doing, first and foremost, we are paying close attention to health and safety of our employees and families and customers and our suppliers are all very important to us. And we continue to keep that in front of us. We're really actively and responsibly managing our store operations. As you know, most of our stores around the globe are temporarily closed. We're starting to see some openings around the world, including this weekend in the U.S., we'll start to open a few stores. And many of our wholesale customers are in the exact same spot where stores are closed. We're starting to see some openings. But we're following the guidance and the guidelines from the countries or in the U.S. from the states which are important as well and following that very closely. What I would say on the storefront is, we're not rushing to be the first to open. So as we see stores opening in the U.S., we're being very careful about opening, and there's no need for us to be first in a center to open. So we're watching that very closely. So we'll open in a very conservative way, as we see things move.
Our key focuses, as you can imagine, are around preserving cash and adjusting the organization from a cost perspective and a cash perspective with the pressures we're seeing. So we're very aggressively reducing our operating expenses. We'll go through much more of that in the presentation. But we're doing what you'd expect us to do, and that's -- we've had very quick actions, and we have ongoing actions to rightsize the business for what's in front of us.
We've pulled some big levers. And I think when we were together in March, we talked about some of this when we're talking about the year-end results. We very aggressively have pulled the levers that we've often talked about us having. So we've significantly reduced advertising. That will generate well over $125 million of in-year savings. We put a near freeze on CapEx. So a significant drop in CapEx. It will be largely what we spent in Q2. The rest of the year will be largely lockdown. That will generate close to $90 million versus what we had planned. And I think, we mentioned this at the year end, we won't have a distribution to shareholders. Last year's number was $125 million. So these actions alone, generate pretty close to $350 million in kind of immediate cash savings. And then we're tightly managing product purchases. One of the strengths of our business is this wonderful outsourced supply network. We produce ourselves only 10% of what we sell. So we've been able to very quickly and actively push back on our product purchases, which is helping us manage cash flow and the balance sheet quite well. We did a lot of work in the last 3 or 4 weeks. From the last time we talked to folks off of our year-end numbers, we've done a lot to shore up the balance sheet and put us into what I would label as a terrific liquidity position to navigate a prolonged crisis in front of us.
So on March 16, we extended -- amended and extended our existing facilities. We also stepped up availability under our revolver. On March 20, we drew down most of the revolver to put cash on hand $810 million. We -- in the last 2 weeks, we've negotiated and secured covenant relief with our lenders through Q3 of next year. So what I would say is through the end of next year, we've got amazing covenant relief with great support from our lenders. I was -- we're very happy with that, and our lenders were wonderfully supportive. Reza will go through the details of that a little later, but we've really built the room on the covenant side for a wonderful period of time through the end of next year. We then decided to take advantage of the markets that had opened up in front of us and took what I would label as some additional security and closed an additional Term Loan B facility for $600 million at good pricing in this market. Reza will cover that as well. And so when you add all of these actions on the balance sheet and liquidity, we're sitting today, with $1.8 billion of liquidity, comfortably in hand for us to navigate through this -- the challenges. And our view is that gives us runway all the way through much of next year. And for us, it's -- there's a lot of cushion here, but it was the right thing for us to do, and a lot of companies have done that. And I'm quite happy with what Reza and the team was able to pull together here on that side.
As I said, our supply is very important to us. We outsource a lot of our supplies. We're working very close with our suppliers. And we're watching, as they manage through the crisis as well. As we've pushed back, they've pushed back. Many of our suppliers have closed their factories temporarily, which is exactly the right things to do, and we stay close to them. And we have a wonderful supplier base, and our teams are doing a great job of staying connected there as well. And lastly, and I mentioned it because we launched it just a few weeks ago with the issuance of our ESG report, we launched Our Responsible Journey, which is our enhanced ESG program. And that report, I'm very happy with, I would highly recommend people take a look at that. And it really lays out kind of the direction we are in moving this business to be the leader in sustainability in our industry, which I and the team have high confidence in.
So I go to next page. It's clear COVID-19 is having a significant impact on our business. Our sales for Q1 were down 26%. We had guided a range of 25% to 30%, I think, at the year-end numbers, and that's where it played out. March was down 55%. And April, I'll cover shortly, was down more than that, as you'd anticipate. Most of our stores, globally, are temporarily closed. We're just starting to see some open in China a handful of weeks ago. In the U.S., we're starting to open and just in a few isolated spots in Europe, but largely, our stores are closed. And largely, as I said, our wholesale customers are closed. As you know, travel restrictions are reducing demand for our travel products. One of the strengths of our business and what we've been working on for the last 12 years that I've been involved in the business is kind of diversifying the mix of the business. So today, we're 41% nontravel and 59% travel. So we've got a nice mix of business. We're seeing both under strain, but I'm quite happy with what I see in the nontravel category. And that'll be important, as we start to step out of here, as travel maybe moves a little slower, our nontravel products will be well positioned to help us navigate, as the world starts to turn back on.
But we will see significant impacts in Q2, as I said. And what we're seeing in April, in my view, will carry into Q2. And we're seeing travel, virtually stopped in April. And my sense for most of May, it's virtually stopped. Though we see some slight movements as I see even in the news clips in the U.S., the planes that are traveling in the U.S. are quite full. And so I do think, people's desire and propensity to travel will come back as it starts to open up.
Despite quick actions, and we did take quick actions in March, I might say, starting at the end of February and into March, our EBITDA was down quite significantly in Q1, down $79 million, but still positive at $5 million. But most of the benefit of the actions we've taken really will be felt kind of Q2 forward. So that is largely without the benefit of significant actions that we're taking, including the big levers that I talked about.
As I covered, we amended the credit agreement, which really was important to us to move covenants out of the way. The last call we had, we spent a lot of time talking about what the covenants look like. And again, with this terrific support from our lender group, we've been able to kind of reset a covenant path for us that just gives us the flexibility we need to navigate the business to the other side of the world moving again. And that really does carry us well into the end of next year from a covenant relief perspective. And as I said, we had $1.2 billion in cash at the end of March, and we topped that up with a $600 million Term Loan B with favorable terms and also allows us a repayment option on the other side of this. So we can repay that without significant penalties when we see the business recovering. And that gives us wonderful liquidity for what could be a prolonged pressure on our business. On Slide 6. We have taken immediate actions, and we continue to take actions. I think it's very important to realize the actions we talked about in March and the actions we're taking in April are deep and aggressive. As I talk to our teams, I tell people to be bold in decisions, and these are tough things to do. These are headcount reductions. And everything you expect the company to do, we're doing, largely because many of our team members here have experience in kind of navigating the business when it has little bumps. And this is one of the bigger bumps we face. And so we're being aggressive here, and that will continue. We have seen some business starting to return to normal, but I'll tell you as things open up, it's very slow. So even in China, where we've seen things open up, the sales levels in location we've opened are very low, and I expect them to stay low. I think, Q2 will be largely challenged. Our retail operations largely shut down with mandatory lockdowns. But our e-commerce business, generally, around the world is moving. We've had some distribution centers needed to close, but e-commerce has continued and -- under strain but performing just a bit, part of the reason why we're not down more. Our wholesale customers had some sales as we were into March. As we stepped into April, they've continued a bit. But largely, the sales that have continued were things in the flow. And our wholesale customers, as you'd expect, for the same reasons, our stores are closed, they've pushed back on ordering as well. So the relationship and the dialogue with our bigger customers stays very fluid and active for later in the year.
From a trend perspective, this virus started in January. I remember exactly where I was when I heard about it. We were together at a senior team meeting. Our January sales were down 8%. February was down 15%, largely from what we were seeing in Asia. March quickly became minus 55%, as the rest of the world got plugged into the situation. Our April sales are down 80%. And I think that gives you a sense for the impacts. We're not alone. Many companies are in the same boat. And I would anticipate our Q2 number, largely looks like that. So down 80%. May is feeling about the same. We're starting to see some openings here, as we get to the end of May. Maybe June is a tad better. But I think for purposes of thinking about the business, I think, Q2 will be down in that range. And I think it's important because we're managing the business against that backdrop. I do think Q3 and Q4 will show levels of improvement. But I think they will be still highly challenged quarters, and it will be better than Q2, but still kind of meaningfully down. And I think the reason I say that is because of how we're executing the strategy on pulling levers and adjusting the cost structure of the business. We're being bold and not pretending that there's some recovery in the back half. And I think smart companies will act that way. So we set the cost structure the right way for the business.
And as I said, we're very focused on cutting operating expenses not only to conserve cash in the short term, but really to rightsize the business for the future, which is really critical for us to get this thing set up. So that as we step into next year, we're in the right place for this business to step in. And we will step in. We will be the player in this industry and the brands in this industry that will be in that position to do that. And that is largely off the back of, and I won't cover all the numbers again, off of what we've done on the balance sheet side to give this business the time and liquidity to navigate through what's effectively the external pressures of the business. But in the background, be assured we're working full speed ahead on making sure our cost structure is in the right place for when we start to see the business meaningfully recover. Just for 7, and Reza will cover this more, just a backdrop of what Q1 looked like. So again, down 26% constant currency. You can see the sales number. Our gross margin down slightly and really has to do more with mix than anything. Our margins have kind of continued to be in the right zone. And you can see the EBITDA impact from that dip, largely off the back of the margin drop. Reza will cover more detail of the bridge for Q1 for you. And on Slide 8, you can see it really affected all regions. Obviously, Asia started earlier, a bigger impact for Q1 for Asia. Europe and U.S. largely looks the same, Europe a little bit higher on a reported basis. And Latin America was slow to kind of catch up to what was going on with the virus, but they definitely caught up by the end of the quarter, and they were down constant currency around 8%. And I'll finish here on just some positives because in the light of everything, there's a lot of really wonderful things going on in our business. And as I think, I said, on our last call, Samsonite in March celebrated its 110th anniversary and really this heritage on innovation and what makes our portfolio of brands and our business wonderful. And we also, on the back of that, have launched our sustainable -- Our Responsible Journey, which is our ESG program. And again, this is a program that I think has been well thought out, well presented in our reporting. It focuses on key quadrants of the business, really people focused, innovation focused, which is kind of built in our 110 year heritage, this thriving supply chain and how we manage that supply chain in a responsible way and carbon actions. And just on carbon actions, as we started and stepped into this, we've already reduced our carbon footprint by 6.6%. And for our owned and operated facilities, we're not so far off from being carbon neutral for the business. We significantly are expanding the use of recycled materials. And that Recyclex is one of the materials that we're using. And we've launched over the last -- quietly over the last few years 50 lines that are incorporating this. And we've diverted over 52 million bottles, as we've really just started to step into the story here on recycled materials. And if you're in my office, you would see a wonderful collection of really amazing products that starts to heavily incorporate recycled materials into what we do. And I have no doubt that we will be the most sustainable luggage company in this industry. We are very focused on it. Our teams are very energized. And as we step out of the crisis, it will be one of these wonderful stepping points that we'll have, as we start to move forward. And I'm quite excited to share that with the world as we start to step out as well.
So with that, I'll turn it to Reza, and I'll kind of jump in right at the end to give some further outlook.
And we're on Slide 11. So just to add a little bit of color to the quarter results, Kyle mentioned that sales were down, obviously, 27.7% or 26.1% on a constant currency basis. It was across the world in terms of the breakdown. And you saw the regional breakdown on an earlier slide. But just to give you a little bit of color on some of the countries that we've talked about on the last few calls, the U.S. was down a little bit shy of $68 million; China was down 28.8%; South Korea, down 22.9%; and Hong Kong, down 13.9%. The reason we highlighted those is just to give you a benefit of -- we talked about those specific markets on previous calls. So roughly around $133 million of it was in those markets, and in the rest of the world, down $84 million, which adds up to that, $217 million down. The pressures are being felt across the globe. Obviously, as Kyle said, China, at least the stores are 100% open now, which is good news, but it's very much in its infancy. So the traffic numbers are starting to grow slowly. But as we sit here right now, we don't anticipate a major recovery sitting here in Q2. It's really the back half of the year, where we're looking forward to some of that starting to reverse itself. So we're managing the business for cost right now.
In terms of gross margin, obviously, there was some gross margin pressure as well. The direct-to-consumer channels were impacted more seriously at the beginning of this. So some of the wholesale markets were still holding up, but given the fact that DTC, as we closed all of the stores, you start to see some of that gross margin decline due to that. And when you flow that through to EBITDA, obviously, we've taken very aggressive actions on costs, and we're continuing to do that, and you're going to continue to see us do that through Q2. But those have run rate benefits that you'll see in the back half of the year. So if we take out a lot of headcount and some expenses sitting here in March, you don't necessarily see the benefit of it in Q1. But as time goes on, that will flow through. And more importantly, as the business recovers in next year, those are -- we are looking forward to some permanent savings that will position us well in terms of improving the gross margin profile of this business going into the future. So this is not just about managing a crisis, but it's also about setting the foundation for having a good gross margin going into the future.
Working our way to the adjusted net income line. Obviously, the biggest component of that decrease is the tax effects of the adjusted EBITDA decrease. So if you're looking at that $27 million, going down to negative $38.6 million or round it to $39 million, $80 million of that is just the tax-effected adjusted EBITDA decrease, and that's partially offset by some net interest expense improvement and taxes, as well, year-over-year. Moving to Page 2 -- I'm sorry, on Page 12. The net sales have decreased by 26.1% for the reasons that we've talked about. Adjusted EBITDA decreased by $79.8 million, adjusted net income by $65.8 million. We did have a restructuring expense of $6.7 million, primarily associated with severance and headcount reductions. We're going to -- you will continue to see some of that rolling into Q2 as well as we continue to adjust our cost structure. We did recognize an impairment charge of $819.7 million. I have a separate slide to go through the calculation of that. And that's, basically, comprised of $68.4 million, which is the lease right-of-use assets. Obviously, as the store performance has come down and the projection of some of the stores, we have to continue to monitor those and look at the impairment levels for those, 19.3% of PP&E related to that. And then due to basically where our market cap has been and looking at the future prospects of the business and the projections we've had to basically take an impairment charge on goodwill and trade names, that's largely a write-down of -- due to the Tumi acquisition, that was done a couple of years ago, just in terms of adjusting the values there. Again, I have a breakdown of that on a subsequent slide. Most importantly, all of this is noncash. So just be aware of that. Cash flow from operating activities was down $57 million compared to last year. Obviously, we had a very good year from a cash flow perspective, and we're hyper, hyper focused on managing cash flow and looking at how we manage net working capital during the course of this year as well.
Net working capital efficiency. This is just a report. It's largely due to the fact that if you're looking at the sales number and the decline at 20.1%, which is obviously higher than our targets, especially given where we were -- we were very proud of where we ended in December. But when sales drop like this, it has an impact on that metric.
CapEx in Q1, Kyle mentioned it, $17.9 million in Q1. This is largely being frozen for the remainder of the year. So there was some stuff that was already in-flight in Q1 that we had to basically complete. But as we think about the remainder of the year, this is -- there's a virtual freeze in terms of what we're looking at, for CapEx. There's a little bit that will still roll into Q2, but then beyond that, we're really shrinking that amount down. And so there's a $90 million reduction expected from our original plan of $129 million for this year, which Kyle alluded to earlier as well.
Our net debt position is at $1.4 billion as of March 31. This is before we did the additional $600 million raised in the Term Loan B market. And our cash position was $1.168 billion, and then we had some revolver availability. So we had about $1.2 billion of liquidity coming into -- at the end of the quarter before we did the raise of the additional term loan. So with that, we're about $1.8 billion of liquidity.
On Page 14. We got a lot of questions around covenants on the last call. So I thought, I would just spend a minute just walking everybody through it, proactively. So from a covenant perspective, we were fine at the end of the year. And sitting here right now, even though we've gotten these amendments, we still are in compliance with our covenants. So just for awareness, as we finish this quarter, we are not having a waiver or anything like that of our covenants for this quarter. We're doing it proactively from next quarter on forward. So our debt covenants, if you're looking at our pro forma total net leverage ratio, it's 2.68x, and our interest coverage is 9.24x. Again, this is what's on our compliance certificates, that's submitted to our lenders. Just to give you a sense for that, that compares to 2.63. So it's just a marginal difference compared to where we were at the end of the year. And from a cash interest perspective, we were at 8.16. The benefit of our covenants is that we can basically take add-backs, as we take aggressive restructuring actions. So I looked at it on a pro forma basis for those actions. So I just wanted to be clear that it's not like we had covenant pressure, sitting here, at the end of Q1, which is what we said at the year-end results, a couple of months ago as well, but having said that and looking at the revenue environment and given the fact that just, quite frankly, derisked the concern around this, we felt that it would behoove us to proactively go and work with our lenders to get covenant relief. And as expected, but very much appreciated, everybody was super supportive. So our entire bank group, almost every single lender, I think, it was like 98%, ended up signing up to this. And what we have now, so all of our covenants, so our -- if you're looking at our net leverage as well as our cash interest coverage, are effectively suspended. So starting with Q2, the only thing that's being measured is minimum liquidity. And I know there's 2 different minimum liquidity thresholds, and I want to be clear on this because I think there's questions around this with the Term Loan B. So as it relates to our senior secured facility, so our revolver, our Term Loan A, we're basically being measured to a minimum liquidity of $500 million, that's it.
So there is separate and distinct, a minimum liquidity that's lower than this for our Term Loan B, but it's not like you add the two. So the way to think about this is the only covenant that we have to worry about till literally -- I think, the next time we measure it is going to be November of next year. So it's basically, Q3 of 2021 is the first measurement period, and that certificate usually goes out around November 15. At that point, is the next time we would revert back to the original covenants that we have. So between now and then, which is over a year and change, 5 quarters effectively, are the only thing that we're looking at is minimum liquidity of $500 million. That's it.
At that stage, once we revert back, if we haven't repaid the Term Loan B, there is a minimum liquidity covenant in the Term Loan B, that's lower than that. So it's like $200 million, $250 million or thereabouts. So -- but our expectation, quite honestly, with the Term Loan B is, we have it as insurance. And assuming the business recovers, we have every intention of repaying it and delevering again. So that was one of the main advantages of being able to access the Term Loan B market is the prepayability of it as compared to a high yield bond. So that's an important point of note as well. So we've renegotiated a covenant relief with all of our lenders. We're focused on minimum liquidity. And the new facility that we just, basically, raised with $600 million Term Loan B, the pricing on that was LIBOR plus 450 with a 1% LIBOR floor. And it was issued at an OID of 97. So basically, what that would mean is the net proceeds that we would get are approximately, net of fees and expenses, et cetera, would be about $575 million of cash being added. And I'm sure, if there's other questions on that, we can cover it in the Q&A section, but those are the highlights, as it relates to the balance sheet.
On Page 15, we get into the details of the goodwill. So again, it's a noncash impairment charge of $732 million. The way that's broken up is, goodwill is -- we're writing down goodwill of $496 million, primarily in North America, but it's basically done by business units. It's primarily, North America and a portion of it in Asia. And then trade names are being marked down by $236 million. Again, as I mentioned, it's primarily due to the Tumi acquisition. So the largest component of that is a markdown on Tumi. It's about $207 million, if memory serves. And then in addition to that, we have impairment charges of $87.7 million that are attributable to retail locations. This is similar to what you've seen in previous quarters. So thanks to IFRS 16, we have to basically look at the projections of our entire store fleet, every quarter. And obviously, due to the impact of COVID-19, we have to look at a reasonable estimation of not only what we're looking at today, but also what the recovery would look like next year, and that's led to an impairment that would trigger that. And similarly, the trigger for the impairment that happened for the trade names on the goodwill is the same thing. So one of the largest component of it was where our market cap is right now due to COVID-19 again. And then that's the triggering event that's caused us to do this right now.
In addition to that, we have restructuring expenses of $6.7 million. We covered that a little bit earlier. That's largely due to the severance that we're paying due to our headcount reduction.
On Page 16, Kyle has covered some of this. So there's about a $340 million of cash savings already beyond what's our fixed operating cost savings. And that's the cut in advertising that we talked about. We suspended the distribution to shareholders, $90 million cut in CapEx of software purchases. So that's already been actions. In addition to that, we have a lot of activity, really around, how do we get annualized cost savings. And so we're starting to look at headcount reductions and looking at the store fleet as well. And so as we look at that already in Q1, and again, you have to bear in mind this is basically, a month's work of -- work in Q1, with a significant amount that's happening right now in Q2 as well. But there's run rate savings about $21 million that's also been added to that due to the permanent headcount reductions that we've done there.
There's other restructuring initiatives that are in play. We've already closed 29 stores in Q1. You should expect that, that there will be a further reduction in that in the material amount in Q2 as well. And we're absolutely aggressively negotiating rents. What we're -- to the extent possible, we like the variable model. So we try to negotiate to see, if we can go to a variable rent structure if possible. In other cases, with the threat of shutting down stores, we're getting the significant reductions in rent. We really are trying to do this, not necessarily, only temporary but to try to get run rate benefits that improves -- rolls into next year as well.
So we'll leave it as we're expecting significant savings for the remainder of the year to come from all of these initiatives. And in here, we have about $16 million that have already been actioned in Q1. Again, there's definitely much more that you're going to be seeing as this rolls forward.
On Page 17, just a little bit of a bridge, taken from Q1 last year to Q1 of this year. Obviously, the biggest component of it is the gross profit decrease from lower sales. So $123 million of the decline is due to that. You have about $11.4 million of gross profit that has to do with lower margin, but the primary component was lower sale, offset by the reduction in advertising which we actioned in March. And already some of the SG&A decreases are showing benefit as well. So you have about $41 million of SG&A decrease improving our position there.
We spent a bit of time on the balance sheet already, on Page 18, but I think, the biggest components are -- we've talked about the fact that we drew down on the revolver. So -- and again, this is the balance sheet, as of the end of the quarter. So it doesn't reflect the incremental term loan that's $600 million that's come in. But I think the real point here is really around liquidity. Our net debt position stands at $1,428 million at the end of March. And there is a little bit of a carrying expense, as it relates to the incremental debt. We just felt more comfortable and felt more secure having the cash actually in our bank accounts, as opposed to revolver availability, just given the environment. So there is a little bit of negative carry that comes with that. But we feel that it's insurance that we feel comfortable carrying in the shorter term. Obviously, if the overall economic environment improves, maybe we'll revisit that. But for now, we feel pretty good about our overall liquidity position of $1.8 billion that stands as we sit here today. Working capital on Page 19. We have been very, very aggressive in terms of trying to make sure that we manage to make sure inventories don't start to balloon here. So we've worked with our suppliers. Our suppliers have been super supportive in terms of trying to maintain and hold back shipments and hold back deliveries. And we're not basically, placing a lot of orders until we start to work down our inventory levels. So we feel pretty good in terms of -- sitting here a couple of months ago, we were -- we had some questions around our supply network. The good news is the supply network is functioning, and it's available to us. It's actually the reverse, as we sit here now, where we're basically trying to say we need to be very disciplined about placing new orders. So I think, as we look over the next couple of quarters, you're going to see us only starting to basically open that spigot up, as the stores reopen and to make sure that we manage inventory levels accordingly. But obviously, if you're looking at year-over-year, which is what you see on this slide, there is a $76.8 million differential between where we sit this year versus last year as well.
I'm sure we might get some questions around bad debt. So I'll just proactively try to address that now as well. As of Q1, we basically, base to have reserves in place, and we've increased that. So we're at $20.7 million is the bad debt reserves that we have at Q1. There really hasn't been that much activity. So if you're thinking about the people that we have with our wholesale customers and the retail channel is obviously fine. But if you think about our wholesale customers, some of our largest wholesale customers are e-tailers like Amazon and others. And if you look at the U.S., it's very -- the Walmarts of the world, the Costcos of the world. And that's the case around the globe. You do have exposure to some smaller mom-and-pops, as you think about Europe and some of the other areas. But so far, actually, we've been in a pretty good position. We are looking at increasing the reserve, just expecting that some retail channels may have difficulty. But it hasn't been anything major for us. And I think you should just be aware of that, is that we've only have literally one customer in Europe. And in that case, we just took the inventory back, and it was a few hundred thousand euro of exposure. So there really hasn't been much in that department so far. Looking at Slide 20. CapEx, we believe, we've covered this. Again, this is looking at a Q1 over Q2. If there was an increase because we were basically operating the business, and the largest component of it was a bunch of R&D because we have a lot of new products introductions that we're looking at for the back half of the year. So some of that spend already happened in Q1. I think the point really here is that, as you're looking at the remainder of the year, this number is going to be significantly lower than what you saw last year. And that just shows the operational flexibility we have in terms of having an asset light model.
So with that, I'll turn it back over to Kyle.
Okay. Great. Thanks, Reza.
Okay. So we're really in Phase 2 of what we're focused on. And I thought here for outlook, I think near-term focus is probably just as relevant as kind of our normal longer-term focus and I'll give you a little about.
Initial phase was really around making sure that we followed the protocols and we kept everybody safe, across our whole family. So ourselves, our employees, customers and partners and suppliers. And it continues to be at the very top of our mind in our list, particularly, as we start to open stores in certain markets.
But we've moved into really next phase. And I would say we had moved into it at the end of Q1, and we're deeply into it now, which is really around making sure we're taking significant actions to adjust the cost structure of the business, preserve cash, as we said. And I think the right way to think about this is rightsize the business and the cost structure for the future, which I think will have some long impacts from this as we -- even as we step into next year. And we're very focused here. As we said a few times, we pulled these immediate levers, generate some immediate cash savings. But what we're really focused on today is these actions to ensure we optimize the business on a go-forward basis.
We have really significant liquidity, guys. When I sit here today, I have all the confidence that we will navigate through what the cycle will be for this, and we've got the balance sheet to do that. And what we accomplished in the last few weeks, I think, just as Reza said, laid on the right level of insurance for us, and we're very confident. We're not taking it lightly. We're being aggressive on actions, but we clearly have the balance sheet to be the player that's here and the other side of this. Many of our smaller competitors will not, but we will be, and that gives us great comfort, as we're pushing ourselves forward.
We have a recovery plan in place as far as opening stores. And I think, one of our more challenging moments will be when we start to open and traffic is down. And so I'm putting a lot of pressure on the business, to make sure that we're careful on the reopening. So that we manage our cost, the right way, and we keep everybody safe. But as it starts to open, we'll be very diligent on ensuring that we're optimizing on the savings side.
And again, I do think many small players will have nowhere to go on our space. And as you know, we operate in a very fragmented market, and I think that's important.
We have a very global business, both from a geographic perspective, but we've also been diversifying the business over the years, as you know. And so we've got a mix of brands that play across price points. Each of those will turn on and operate differently, and so I'm quite happy to have that diversity.
And we've got this amazing piece of business that I would label as nontravel. So if we see travel luggage, a little slower to turn on, the rest of our business is wonderfully positioned. And even in the moments that our sales are under pressure, we can see the nontravel category is playing well. And for brands like Tumi, where more than 60% of its business is nontravel, that's very powerful, and it's spread across the globe that way. So this piece of business, I think, will turn on faster. And so we're -- that'll be one of the benefits we have against the backdrop of our business.
And our teams are doing some really hard work right now, we all are, as we take cost out of the business. And when we talk about it, we're being very, very aggressive here. And one of our jobs is to ensure we stay energized and empowered to kind of navigate through this, and we will, and our teams are. I talked to our senior team on a very regular basis, and we're all very much locked arms here to do what we need to do. We're all thinking the same way. We've known each other for a long time.
And we're excited to kind of step out of this with this innovation story that I said around sustainability. And I think it'll be one of these amazing pieces of the puzzle here as we -- as the business turns back on. And we will have a wonderful platform to be stepping on, as we do that. And so our teams are focused there as well. And in the backdrop of everything that's going on, we're looking at innovation that's tied to how do we do -- add protection to our products, antibacterial, maybe antiviral protection to our products. And so our teams are doing a lot of work on that front as well. And we'll be launching stuff very quickly on the antibacterial side. There'll be consumers that are focused there. And there's some very exciting opportunities on the antiviral side that our teams have started to think about. And maybe a little bit longer tail, but it will be a piece of what you'd expect from this kind of business. From who we are in this industry as far as leading with innovation, you should expect that we'll be leaning into that quite heavily as well as our businesses turn back on. And again, we'll be the only guys in this industry that have the scale to make that happen.
So with that, William, I'll turn it off to you for questions. Thank you, everyone.
Great. Thank you very much, Kyle. Thank you very much, Reza, for the presentation. And now we will go to Q&A. So operator, can you check who's online?
[Operator Instructions]
And our first question is come from Erwan with HSBC U.S.
Three questions, if I can. A lot of consumer companies in different subsectors, whether it's cosmetics or sporting goods or others, are talking about a few green shoots in Mainland China and Korea. Now I understand April was dramatically down, and that's probably across the board, across the industry. But I'm just wondering, if you can mention what you're seeing more specifically for these 2 markets, if there are any green shoots there.
Secondly, I -- maybe I missed this, but I think you said you were down 26% in Q1. Could you give us the split between travel and nontravel, if you have it for the quarter?
And then thirdly, if we think about inventory management, as the majority of the world is shut today, when things reopen, notably in the West, how do you think about dealing with the inventories, i.e. should we assess that you'll be keeping the product longer on the shelf because part of it is carryover product? Or should you be shipping to outlets? Or should you be discounting in the existing stores? How do we get to a point where inventory to sales gets to a more comfortable level towards the end of the year or maybe early next?
Okay, great. Thanks, Erwan. I'll take 2, and
I'll let Reza -- because I think he has the numbers, the travel, nontravel split. I think for Asia green shoots, I think, as I said during the call, I think, I wouldn't necessarily call them green shoots, but they're signs of movement. And so China, for example, we started to see things open, they started to come back. But China for the month of April is looking like down 75% roughly from a results perspective. We saw an initial turn on. And then, as we're all kind of watching the news on a regular basis today, China quickly kind of throttle back a little bit. And I think Hong Kong, for those who are in Hong Kong, I think, a similar thing happened, where Hong Kong started to move and then it had a stutter step. But I would say, Erwan, there's a lot of inertia for things to start to open up, again, right? And I think, we'll -- May will look largely like April is my read on May, right now. We see little pockets of movement, but on a blended basis, it's not so different. And I'm really thinking, June will be very telling because in the U.S., for example, I think we're seeing lots of things start to move really at the end of May. And so I think, we'll learn a lot in June as far as what that tells us. Just for scale, we're going to open 30 Tumi stores, this coming weekend. And really get a read -- and in the U.S. and get a read for what that's telling us. And as you can imagine, there's a lot of work to do to reopen every -- the way stores and locations are reopening and the procedures, you need to follow and all of that. So we're opening these stores, one, to get a read; two, Tumi sells more nontravel than travel, which is helpful; and third, it'll give us some learnings as far as what it's telling us and how you interact with the consumer and how do you interact, virtually, with the consumer. And all these kind of things are playing in.
The other piece is our e-commerce business, which is down, but it's performed better obviously, than the rest. And we've had some weird moments, where some of our e-commerce businesses are actually up, year-over-year. There's our Gregory brand, which is an outdoor active brand, on a blended basis is -- has been slightly up because consumers are buying online, and they're looking to get outside. And so we've seen some benefits there, as a good measure of our nontravel business.
Our eBags business, which has been -- we're in the midst of kind of aggressively integrating that here into Mansfield, but that's had some positive stories as well as consumer. One, we've been moving some inventory with eBags just so we can kind of transition that business the right way. But two, we've seen consumers moving and buying in that space. And so I think our e-commerce focus and mix, and we've been really driving well, I think, we'll be well positioned to capitalize on that. We've seen -- it's still down, but better than kind of the average of everything else. And so I think there are some clear green shoots there.
And I've been so happy and comfortable with the team that we have pushing this, that I think that'll be a real positive for us, as we move forward, and I think we're well played there. And we're watching that very closely.
As far as inventory management, one of the benefits of our business is, as you mostly know, is we're not a heavy season business. So we don't have a big spring sell-in, fall sell-in, a big buy-in, that a lot of apparel guys, I think, are struggling at the moment with. Our stuff has staying power. And so as we manage development and we manage inventory levels, we are pushing things. So things that we might have been launching in Q4, we shifted those launches to Q1 or Q2. And to be honest with you, it doesn't have any real impact on our business other than we have a cycle of newness that we like to work in. But it's not that I've got a seasonal sell-in that I'm trying to capture.
So our ability to manage our inventory is probably going to be one of our best strengths with the structure that we have. Our inventory for April, even though April was down 8%, is largely the same number as what it was in May because we were able to shut the valve off and we're able to manage. And it's not that I'm sitting with a pile of inventory that's going to miss the sell-in season.
And so you will see us push some new development out a bit. That's a lever we can do, also adjust our cost structure the right way, without it having an impact on balance sheet, inventory or missing a season, which, again, is a huge strength of ours. So I think the way the teams are operating and thinking on that front is really wonderful. And I think it'll -- it really show its colors, as we navigate through the year as far as how we manage inventory.
And then, Reza, I think you have a...
Yes, the breakdown, Erwan. So for travel, it was 57.7%, nontravel was 42.3%. Just as a comparison for last year, travel was 58.2%, nontravel was 41.8%.
So do you have the growth rate? I don't know if you have the growth rate in front of you. But as a mix, it's increased in that quarter, which gives you a good sense for the growth.
Before we go on to take other calls, I just want to go through a couple of questions that we're seeing here online.
Number one, we have a question about our AR exposure to U.S. departmental stores. Neiman Marcus having filed for Chapter 11, as is jcpenney. So there is a question about what is our exposure there.
I don't have it broken up by specific retailers in front of me, William, just so you know. But basically, what I would tell you is, in terms of the reserves that we've taken, we've already factored into anybody that we perceive as a bankruptcy risk or has filed. So the numbers that I said are a little bit earlier in terms of the bad debt reserves, that we increased it to about $20 million, includes that. So that also includes 1 retailer that filed for bankruptcy in Germany. But as it relates to the channel overall, we've continued to see performance in terms of our wholesale channel in terms of payments, in terms of -- and I think it's important to highlight, it's not like there's a huge amount of exposure because, typically, what would happen is, we deliver the inventory, they pay us, within a relatively short period of time. So it's not like there's this massive, massive exposure of AR to the wholesale especially in the U.S.
And these are 2 long-standing customers of ours, William, but they're smaller on the mix of our customer mix. So I would say they're in the bottom kind of 25% from just a sales level perspective, just from what they sell. So our exposure on these were not so significant. Our big customers when we think about the U.S., Amazons and Costcos and Walmarts, Target is a great customer, all these customers are wonderful, longstanding customers. Macy's is a wonderful customer. These guys are in good positions. The relationship is stronger. We're -- I bumped into some of our supply team. Even their offices are closed. Our design team, and they're talking about -- with these customers, virtually, Q3 and Q4 products, and so I feel very good. And there will be a few smaller ones that we're watching. But as Reza said, we largely had reserve for those at the end of March. I think our bad debt reserve went from $16 million to $20 million to give you a scale for kind of how we adjusted the bad debt reserves for the quarter.
We don't -- as we go into Q2, absolutely, we would think that, that number is going to go higher, but it's not going to be anything dramatic because we don't have a lot of customer concentration either. So if you're thinking about the wholesale channel in the U.S. especially, it's -- there's nobody that's all of a sudden like a 10% risk or anything like that. So -- and again, to Kyle's point, the biggest ones are the Amazons of the world, et cetera. So they are at better credit risk.
Okay. What else, William?
Well, then some questions around guidance. Number one, any guidance on EBITDA margin -- EBITDA going into second quarter?
Number two, do we expect any additional impairment going into the second quarter?
Okay. It's very hard to predict EBITDA from a guidance perspective. It will be a negative EBITDA guide. Our sales are down 80%. So it will be negative. We're taking a massive number of actions. And so you should expect a negative number for sure. As far as giving specific guidance, that's not something that I would or could do at the moment because we're -- it's very fluid situation here into the start of May.
So -- and then on...
On impairments, look, the reason for the larger kind of goodwill and trade name, one is, we had a very little headroom, as we did our impairment testing at the end of last year. And given what's happened with COVID-19, like it's necessitated another impairment test that we have to do. So I don't anticipate anything further, as it relates to trade names or goodwill. The store component, unfortunately, because of IFRS 16, we have to do that every quarter. When we do it, we do take a projection that goes out. It's not simply looking at it and saying, oh, the stores are closed right now. So you do take a long-term view on those things. But it is something that we have to monitor every quarter. So it's hard to judge on any given quarter what's going to happen. I will tell you that a lot of the weaker stores that normally you would take charges again are the ones that we'd probably be exiting as well. So as you think about our store closure, those are probably going to come off as well. So -- but I can't comment in terms of what I would anticipate that to be for Q2 or beyond, but there will be something.
Yes. We were pretty thorough when we did this impairment work in Q1, William. So I think, Reza said it right. I think we're -- I wouldn't anticipate anything material going forward, but there could be some store noise going forward.
Thank you very much, gentlemen.
Thank you.
Yes, William. And the next question is coming from Anne with Jefferies.
Management team, can you hear me?
Yes.
Yes, we can.
Okay, great. Great. Yes. I have a question regarding -- Kyle, you mentioned about the 80% decline roughly in May -- in April and May. Could you share with us how it looks like, for example, like by different like key markets in such stores -- give us some idea. And then my second question is on the impairment. The impairment is about, like, $732 million. You just mentioned about the impairment for Tumi is about 200-something million. What is the other breakdown by brand?
So I would like to get a little bit breakdown on that one. And then -- yes, so these 2 questions. And sorry, also regarding your long-term strategy. I understand that we are closing down some of the weaker performing stores. Are we going to change our strategy on letting -- doing a bit more of the direct-to-customer type of -- like higher retail mix. And also in terms of outsourcing, we talk about like shifting a little bit of the sourcing from China to upside to like Southeast Asia and all the other area. How are we going from on that front?
Okay, great. So the 80% decline, in simple terms, it looks almost consistent around the globe. There are a little pockets that are slightly better than others. But when I look at kind of what we're seeing for April and what we're seeing into May, it's fairly consistent. So China was slightly better than 80%, if we went to a specific market. There are some markets like Taiwan, which is small in our mix, but that's actually probably, when I look at the country portfolio we have, that's probably managed COVID the best. But on a blended basis, region by region, we are largely down 80%. And when I look at the data, it's almost consistently across regions. So plus or minus a few points. So...
So across the region, it's more or less similar?
Very similar. And it might turn on differently, as we move on. So as we see -- and this will be one of the strengths. I think, Asia has the potential to be moving a little faster, and there'll be -- there's plenty of travel, within Asia. So I think, Asia could move faster. And we're watching kind of the world. But on balance right now, everybody is in a similar place. And we'll be watching together, as we see it turn on.
As far as D2C and mix, I don't think it changes strategy in and of itself. I think you might find on the other side of this that our retail mix, as a percent of our sales, will come down because we're going to be aggressive here. But it doesn't mean that we're abandoning that because I think in the right locations and for the right brands, that makes sense. As you know, Tumi's retail mix is an important piece of their puzzle. But what it does speak to is, and it's not a new thing. So it's not really change in strategy, it is how important e-commerce is. And we're not alone in saying that. But again, I'm very happy with what we're doing as a team and how we integrate e-commerce with our brick-and-mortar stores and how do we make that all work, which we've been very focused on with omni-channel and kind of all the pickup in store, order online, really kind of amazing pieces of work that we've been doing over the last few years, I think, will play nicely in. But I think on the other side of this, you'll see our brick-and-mortar retail mix probably come down a little bit. But it doesn't mean we're abandoning the strategy. We're just maybe rightsizing, is the right way to use.
As far as our out of China strategy, very much intact. And the teams have done amazing work. I think on the last call, but on calls that I was having, we're doing the financing. It's too bad that it's clouded with kind of COVID-19 because you're going to see this amazing piece of work by our U.S. team and the sourcing team as far as shifting. We would clearly -- and I think we will still be, but the numbers will be a little bit cloudy because of the sales decline being well below 50% sourced for the U.S. business from China. It doesn't mean that China is not important. China is a hugely important piece of our sourcing and other regions are using. But this U.S. business was doing an amazing job. And you would have seen it in our gross margin this year, that we were going to catch up to the challenges that were added by tariffs with the wonderful work that, that team has done. And so -- and it's very much on track, and it's very real. What you -- what we are seeing is, we saw our few customers where they've -- because -- as I said before, when we're outsourcing or removing from China, it's often the same factory owner or a supplier that's opening capacity. We've seen a few of these guys just move to more aggressively just close the China facility and really just focus on the out-of-China facility. And so you'll see a little bit of that. We'll actually just accelerate the shift in that strategy for us. So I think all of that's very good.
As far as impairment by brands, Reza mentioned Tumi. The reason Tumi sticks out is because it's kind of the largest deal we've done. And so when you're doing impairments. But our impairment charges largely just cover kind of this group of intangibles. So it's less brand-specific in many ways. It's tied more to the entity has an impairment because of the impact of COVID-19, and you'll end up with impairment charges that kind of carry across brand, but it's not that they're so brand specific, if you know what I mean. It really has to do with the overall impact of the business. And then you just look at the deals we've done and you can get a sense for where it is. That's why Tumi sticks out as having kind of a bigger impairment, but it's just because that's where the assets are from a deal perspective. William, any others?
We have Morgan Stanley online.
Yes. And the next question is coming from Dustin with Morgan Stanley.
So for the shipping margin in the first quarter, that's down 185 basis points? And could you provide a breakdown between the impact on the U.S. tariff and the channel mix shift?
I would say most of that's channel mix shift. We were -- we had mix effect, but it has -- when I think about that shift, I would say the majority of that is around kind of this rapid retail mix shifts. Our wholesale customers had carried on a little bit in March, whereas retail quickly started to shut down. So mostly mix. I don't have the exact mix in front of us, we can get back to you with that, but it's -- you'll see that it's largely mix driven.
I think the U.S. tariff piece started -- should impact on your GP margin in like second quarter and third quarter last year. So I would think for the first quarter this year, you will still avoid that because you just mentioned that, most of the sourcing have been moved out of China, such that already...
Yes. But it's still carrying because remember -- what you have to remember, Dustin, is the timing of the tariff impact. So we -- there was a big tariff step-up that happened in -- I'm remembering the numbers, it was like the mid-year one, the extra 15%. No, no, that's April.
And so in Q1, you don't have -- you have a year-over-year still impact to that. So if I were guessing, it's 70% related to mix and 30% continued impact to tariffs. Because the other thing we're doing on the product side for the U.S. was reengineering product. And so by the time we stepped into this year, we were getting some of the benefits of that.
That's actually the biggest point, Dustin. So if you think about it, you had the 2 tranches of tariffs: you have the one that was at the end of '18; and then you had one that was -- that hit us in Q2. But we also had about -- I can't remember the exact, like -- call it like 89% sourcing in China at the beginning of Q1 last year, versus now we're like 50. So between that ship and the reengineering, we don't necessarily see in there, the margin actually in the U.S. was going to be a really good story.
By the time fee gets to kind of Q2 forward that you get the year-over-year kind of comparative impact, if you know what I mean.
Yes. Yes. And so sort of looking forward with the sort of market being reopened, if you look to your like third quarter and the fourth quarter, how should we think about the gross margin profile? Are you going to do some of extra discount to drive the traffic or provide extra rebates? Or will you try to be disciplined on the gross margin line? Any color...
I think, there will be a little bit of pressure on margin because I think the marketplace will be a little mucky, to be -- to use a good technical term. So we're -- we won't be -- as we said earlier, our ability to manage inventory is wonderful. But I think, you'll see a little bit more kind of choppy, competitive marketplace as people scramble. And so...
I think we could see some gross margin noise in the back half of the year, but I don't think it's more than 100...
I have no idea, to be honest with you, because we're wondering and navigating. But I would guess, kind of 100 to 200 basis points of gross margin pressure just because it's a little bit noisier out there, as people try to figure out how they stay alive. And we'll be managing that really just to make sure our competitive position. But we're not going to be -- you won't see us rushing to kind of liquidate and kind of liquidate in channels that we wouldn't normally liquidate. That's not a position that we think we'll need to be in. But the competitive landscape will cause a little bit of pressure on the margin in the back half is our best read at the moment.
That's clear. And in terms of the distribution and the G&A costs in the first quarter, would you be able to sort of break out the cost that is being safe because of your active efforts? And how many further costs being saved because those are the costs related to the revenue? They are revenue-based costs. So when the revenues drop down, then those cost drop. So that we can model through for the absolute dollars on OpEx for the rest of this year.
Yes. Let me give you the Q versus Q breakdown as I think of it. So the first thing that I'll say is a lot of the fixed cost reductions that we're doing, actually would have been on the back half of the Q. So you wouldn't necessarily see the benefit in the quarter. So some of that will flow through as we roll forward to Q2 and Q3. But just to give you the breakdown for modeling purposes. So look, if you see a total SG&A number. So Q1 last year, total SG&A was about $407 million. And then Q1 this year, SG&A is about $344 million. So that's -- so a reduction -- total SG&A was down about $63 million kind of year-over-year for the quarter. The first component to back out of that is advertising. So advertising, Q1 last year was about $49.5 million. Advertising this year, $34.7 million.
And just going forward, just you don't miss this, we really grabbed the advertising throttle by the middle of March, maybe second week in March. So you didn't really see it. When you -- on a go-forward basis, I've told you what we're going to save annualized in advertising. And what -- if you look at it, we spent $40 million in Q1, and I'm saving $125 million, we're going have very, very little advertising spend going forward for the rest of this year.
So to that...
And again, I'm working my way up for you just to be able to get the breakdown for you. So you can model it. So the total SG&A, excluding advertising, Q1 of this year, $309 million, Q1 of last year was $357 million. So $48 million reduction in non-advertising SG&A.
Now there's a component. The variable component of that went from about -- which naturally -- what we consider variable that flows naturally from -- as a reduction in sales, things like freight, commissions, things like that. That went -- that was a reduction of about $36 million, quarter-over-quarter. So it would have been about $91.5 million, last quarter, and $55.7 million this quarter. So then the remainder of that is a fixed component of it is the way that I would think about it. And the fixed includes like fixed selling and admin as well.
So if we look at the dollar term in terms of the savings for the rest of this year, could it be in this $47 million savings on the non-assets G&A? And could we sort of assume like more than that number, each quarter and the following...
It should be more than that, Dustin, because, Dustin, if you think about it, that -- the advertising, as Kyle just said, you only got basically 1 month or maybe 1.5 months of benefit of that, and that's going to be significantly lower. And then the other component of it, even the cost that we've already taken out haven't flown through in the quarter. So just -- if we did nothing else, you're going to see a bigger reduction on that over time. So it should increase with that. And again, we're taking even more actions in Q2. So when we do our Q2 release, you'll see even more cost reduction.
So let's assume, if the total SG&A, this year could be, I don't know, maybe $1.2 billion, $1.3 billion in total, and how should we think about the cash burn for the second quarter and the third quarter? Should we think about -- like for the second quarter, the GP will be pretty low? And so should we sort of expect maybe like $300 million kind of cash burn, and third quarter depends on the recovery of the sales? Could it be sort of ballpark number? And should we assuming, you can achieve the working capital neutral, meaning you control your inventory, inventory level will not increase. So most of the cash burn was through the -- on the normal SG&A.
That's what we're going to attempt to do, Dustin. And I think we are -- we have a pretty good handle on these levers right now. There will be a cash burn in Q2, no doubt. But what's going to benefit some of that is the actions we're taking, and they're aggressively going into play. It will be negative in Q2. It's probably a shade less than what you indicated is my sense. We're grabbing levers very quickly. And so -- and it will improve every quarter from there. And our view is, both on actions and the business starting to move and our ability to manage working capital against the backdrop of meaningful kind of sales decline and then starting to build again, I think, we'll be able to manage it quite well. But Q2 is going to be the hotspot. And I think that kind of estimate, maybe a shade lower than that is how I'm looking at it for Q2. And then getting better, as every month moves on.
And just to add to that, because we said this at the last call, and I think it bears repeating, we feel really good about our liquidity position, as it relates to that. So as we think about our cash burn levels and even the $600 million that we ended up raising really as insurance, coming out of it just a few months ago, we said we felt pretty good about where our liquidity was. I think we -- even that number was probably [indiscernible] to it. So -- but we just felt, given the market was open, there's no such thing as too much liquidity. There's a little bit of a negative drag, but it's insurance. But as you think about the cash burn question, it shouldn't be one that gives us any cause around solvency or anything like that. I mean, like we feel pretty good about where we are.
Yes. No, no, no. And that's just from a total model perspective. I think that's very good color.
Okay. That was [indiscernible] there was a question on the last call, it was related to, like, okay, could we do a rights issue or something like that. It's like the furthest things from our model, right? There is absolutely no need for anything like that.
Yes. And the next question is coming from Ian Hargreaves from INVESCO.
I just wanted to follow up on the, I suppose, similar sort of question -- line of questioning to Dustin. In terms of working capital management, we saw working capital actually declined in absolute terms and then obviously, up in, as a percentage of sales. So should we -- I mean should we be anticipating more release of working -- cash flow from working capital in Q2? Or is that too optimistic? I'm just sort of struggling to understand how Q2 are going to behave.
Yes. Yes. So what you're going to see in Q2 is we've shut the valve off from an inventory perspective as best we can. So I think our inventories are going to stay kind of in the zone. But what we will have is payments on the payable side against what we had brought in, in Q1. So I think you'll see that working capital kind of draw down in -- now you'll have receivables that we're collecting, and we're not really building receivables. But on balance, I think you'll see us -- net working capital picking up because we're losing the payables. And you know what I'm saying, we'll be paying for what we've brought in Q1. But the rest of it we'll be able to manage quite well. And then there'll be a moment where that will level off. And then where it gets a little murkier is when we start to turn on and just managing the turn on and lining that up with the sales turning on and just getting that flow right. And as you know, when you buy -- when you're bringing in, you get -- we have this wonderful payable terms of 120 days. So it won't be immediate. And by the end, the business is probably moving a bit better, where we start to make payments on those payables, which was really probably Q3 and Q4. But I think what you'll see is for Q2 and maybe a tail into Q3 after just kind of paying off what we had brought in, but really well able to manage in the inventory level.
Okay. And really of our own factories, just for -- just so you get a sense, we produce in Hungary, Belgium and India. We have those plants closed, have people on furlough as best as we can and, we're -- my view is we'll keep those plants closed for May, June and maybe even a tail into July. So that we're -- it's really around kind of managing. And we have the flexibly -- the ability to do that in many of the markets, where these plants are -- the furlough opportunities are very strong. So very helpful. And these are plants, we've run for a long time. We know how to grab those levers.
Many of our suppliers are -- have done the exact same thing, which is really important. They're managing as we are, which is shut those plants down and get the benefit of furlough and just be ready to turn them on. And so that helps us kind of shut that valve off in a meaningful way. And our supply team has done a really amazing job of kind of staying very close to our third-party suppliers. I know most of them personally. We tend to meet with them every year. And they're as much as part of our family, as a supplier. And so we're managing that very closely with them, and that's working well. So we can shut that valve off, quite efficiently.
By the time we get to kind of June, July, we'll start to turn it on. And I think that'll be, where we have to really pay attention to what we're doing as far as the flow-in. So we can manage the cash flow the right way as well.
And it's a related question. Just in Q1, you saw an increase in debt Q-over-Q of about $120 million or maybe slightly more than that. Working capital declined. I just wonder whether you could sort of fill in the gaps of the missing pieces in the cash flow there.
Well, the biggest piece is the EBITDA declined by $80 million, right? So from a cash flow perspective, when I look at the quarter, it was around kind of the inflow of EBITDA for the quarter is probably the biggest piece. There's no other kind of wild movements on the -- from a cash perspective in Q1.
Okay. And just the third one from me is, given the various facilities that have been drawn down, can you just give us some guide on what the net interest cost will be once you take account of the new Term B facility?
Yes. So just to give you the...
On the quarterly basis?
Yes. So the good thing is actually absolute interest rates have come down because of everything that's happening. So there is a benefit of just the falling rate that is now cheaper. So if you look at our interest expense this quarter, it was actually better. But the -- yes, let me just give you the component parts in case you want to model it or others on the phone want to do it.
So the $600 million Term Loan B we just did is LIBOR plus 450 with a LIBOR floor of a point. So that's 5.5%, is the effective yield on that. That's the most expensive piece we have. The remainder of it, the -- when we did the refinancing a couple of months ago, the Term Loan A and the RC, as a result of the amendment we just did. So during the period that the covenants have reset, that's going to be now priced at L plus 200 with a 75 basis point LIBOR floor. So I don't expect LIBOR to be really moving much. So just call that 2.75%, as an interest rate on that. And that would apply against $800 million of Term Loan A and $810 million, which is what's drawn under the RC. So it's about $1 billion, $610 million of that is at that price point. And then the old Term Loan B, that's still in place, that's at LIBOR plus 175. And that -- there's about $553 million of term loans, as that Term Loan B1, it's because the way that we refer to it. And then the senior notes, we have EUR 350 million, that's at 3.5%.
Okay. I think the number is $20 million or sub $20 million in total or by quarter, not so material.
Great. Yes. Thank you very much, Kyle and Reza.
Really appreciate the questions. Thank you.
Yes, thank you. And we are way overtime now. So we'll have to -- we will have to call -- the call it for the night. Thank you very much, everyone. And as always, any questions, please feel free to reach out to me. Thanks.
Thank you.
Thank you.
Thank you. The conference call has been concluded. Thank you for your participation.