Samsonite International SA

HKEX:1910

Earnings Call Transcript

[Operator]

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to the Samsonite International 2020 Third Quarter Results Earnings Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yue, Senior Director of Investor Relations. Thank you. Please go ahead, sir.

[William Yue, executive]

Thank you, operator. Thank you, everyone. Good morning, good evening, good afternoon. Today, we have our CEO, Kyle Gendreau; and CFO, Reza Taleghani with us to prepare and to present our third quarter results. And without further ado, we'll have our CEO, make a few opening statements. Thank you.

[Kyle Gendreau, executive]

Great. Thanks, William. Thanks, everyone, for joining us. We're happy to present our Q3 numbers. So I am on Page 4, William, and we'll start in. So we are successfully managing this business through the pandemic. We are very actively managing, as I think you felt off of our midyear results, and that's continued. We've taken aggressive action on cost. As you'll see in our presentation, we've dramatically adjusted the cash burn of the business. You'll see a big change from Q2. And we've got this business positioned for a successful navigation and step out from the pandemic.

From a fixed cost perspective, fixed SG&A. In the quarter, we reduced by approximately 40%, over $100 million in Q3 compared to Q3 of last year. Over $600 million of in-year cash savings, up from where we presented last and we continue to make some strides. That number is higher today than $600 million. The cash burn in Q3, as I said, improved by about $100 million. In Q2, our cash burn was $167 million. In Q3, our cash burn is around $68 million, almost at the same levels as what it was in Q3 of last year, despite sales being down still in the 60% range.

We have significant liquidity, as we said. We all know, we took early and clear action at the end of Q1 and Q2 to ensure that we have the balance sheet needed to navigate this thing. And then we've managed this business well and continue to have ample liquidity to navigate through the challenges in front of us.

We're focused. And really, when we start to get to a point where we can see recovery as we look forward to next year, we've continued to be focused on innovation. I'll show you a few products. As you would expect, we've continued to focus on that. And we really are set up for some wonderful product launches in 2021 and 2022 as we see the business turning on. And some of these we've launched within this year, and I'll share some of that a little bit later.

And all of our actions, we're starting to see the benefits. And so we'll show you kind of the EBITDA progress. But EBITDA in our largest region, Asia, is already positive for Q3, despite sales in Q3 still being down a little over 63%. And that's continuing strongly into Q4. And I'll also show you some China numbers, which has moved positive, probably ahead of all of our businesses from a country perspective.

Moving to Page 5. Really want to show you the trends, okay? So we've seen a sequential improvement month-to-month in our business from the 4 in April down around 80% year-over-year. You can see that, that's continued to trend positive every single month. As we step into October, we're down 58%. And you can see, when you really look at July through October, how dramatic that increase has been down, call it, 70% July, down 58% for October. As I sit today, November is looking and feeling like it will be a similar number to October. And that's with markets like Europe and the U.S. having a bit of a second surge with COVID-19. We still see this trend holding on.

And so moving to the next page, William. The mix of our business has been helpful. And so this page just captures these are year-to-date numbers, the mix and how it's playing out. So as maybe you would expect, our e-com businesses has performed better. Our e-comm business was down around 41% compared to the overall business down closer to 60%. Our retail business was down 63% year-over-year, and that's largely due to the impacts of closures. Mandated closures across the globe has had a bigger impact on our retail business. And our wholesale business year-to-date down around 57%, which had the same mix of store closures, but also there's -- within our wholesale numbers, there are e-retailers, likes of Amazon to the world that have continued to be strong players and are having similar results to our e-com business on our own direct sites.

Our travel and nontravel is performing slightly different. So our nontravel is down around 48% versus our travel, as you'd expect, down a bit more at roughly 63%. And you can see the mix of our travel and nontravel, getting a little closer to half and half as the business is gyrating. And it's always been one of these strengths and one of the strategies we've had for the last several years as far as moving the nontravel component of our business up, and that's proven to be very helpful as we navigate.

And if I move to Page 7, and I think the slides might be turning a little slow, so I'll just make sure I get the pace right. On Page 7, I'm really pointing out what I would say are our core travel brands. And as we all know, in our core travel brands, there's a mix of both travel and nontravel. And you can see in Q2, our core travel brands were down 80%, and we've been seeing continuous progress month-to-month. Q3 was down 67%, month of September down 61%. So really making progress on the travel side. But you can see for sure in our nontravel brands.

And I've got here, Gregory spec in eBags. And the reason we include eBags here is there's a good portion of nontravel bags within the eBags family of products that we're selling. And you can see there, it was down in Q2 just shy of 50%. And in Q3, down 26%. So that mix has been very helpful for this business. But for me, that's important, but the other big takeaway is our travel categories, our travel brands continue to make progress from the lows we saw at the end of April to where we are in September, continuing to prove -- improve into the month of October.

The next couple of slides just talk about what we're seeing for travel. And I'm sure many of you are looking at this on your own as well. But I've got two data points. One, this is our U.S. airport check-in. These are TSA check-in numbers. And we've seen the average here for the U.S. business or the U.S. market is around 2.5 million travelers in a day. We're seeing it below, in April, it was around 90,000. That was pretty low. And we -- and it's worked its way back to -- I think it was just this past week that we saw travel members up to 1 million passengers a day. So you can really see the progression here. And -- but still quite off, right? This is kind of matching what we're seeing in our own business when we think about the overall trend in the business. But what I would -- impact of kind of recent surges in COVID, I do expect that overall, this trend could continue.

And then the next page really looks at -- and we're using RPK as again a good measure of kind of travel here. And really, red line is -- and I'll make sure the page is flipped. I'm on Page 9 here. The red line is domestic travel. And domestic travel really has been what's bolstering the recoveries that we've been seeing. So that steady improvement that we've seen in our own business is really driven by domestic travel, which floored out at down 86% in April, down around 43% in September, and every months getting better.

But you can see international travel is stuck, right? So there's been a slight improvement from the floor. But until we really get international travel moving, this number will stay down. And my personal view is you need vaccines start to move and you need international borders to struck to loosen up to see the international travel pickup. But I do think that's coming. And I think the domestic will continue to improve. So these are really -- when you think about what's fueling kind of that sequential recovery, these are important factors for us.

The other thing we're seeing is parts of the world are moving at different paces. And we've put a China slide here, I'm on Page 10, to give you a sense for China, which one will argue, that's where the virus started. And the law of China was actually in February, not April, like the rest of the world, down 70%. But then a very steady improvement in China over the months. And you can see in the last 3 months, very dramatic improvement.

So if I looked at the total, which is the darker line, you can see these percentages, down 50% in August, down 27% in September, down 18% in October, really dramatic improvements in the business. You can see the orange line, which is our D2C channels recovered fairly quickly, but really dramatic improvements there. We're just pinging Frank, who runs our China business about Double 11 day, and that's been a tremendous day for us. So I think you will see a very strong November story for China as well.

Equally as important, and it's not on the page, but China had shifted to profitability for us in June. So down 56% with the actions we've taken. We're back to making money, $1 million, and it's sequentially grown. So in the month of October, we've made $5.5 million off of a business down 18%. And that $5.5 million is better than what we did last year within China for the month on an EBITDA basis. So really dramatic improvements, steady improvements and in the recent months, I would say, dramatic improvements in China.

Moving to Page 11. I think when we look at progress, we've made on EBITDA progression and cash burn, one of the big drivers has been the initiatives we've had on changing the cost profile of the business. And very aggressively and very fast, we've moved the needle. So we were happy to report, in Q2, how fast we're able to move the needles when we're talking about the half.

And with an overall SG&A down 47%, dramatic reductions in our fixed SG&A, down just shy of $95 million. And the overall cost structure, when we think about SG&A, down $157 million. That's continued into Q4, down roughly 47%. Our fixed SG&A, which is the bottom section, down $101 million just in the quarter. And overall, we've reduced the cost structure by $178 million in the quarter. So building off of what we achieved in Q2. Reza will walk through more details on that in his section. But this really is fueling how we're moving the needle on the EBITDA side. This is what we can control, and we are controlling it very aggressively.

And if I move to Page 12, I think this slide is a very important slide. It captures the progress we've made from the start of pandemic to where we're sitting at the end of Q3. And I would say, against the trend lines that I've just talked about, that has an improving story as we move forward. So you can see in Q2, we had a negative EBITDA of $127 million. Asia had a negative EBITDA of $33 million, and we had a cash burn of $167 million. That cash burn, as we move to Q4, is approximately $1 million, $100 million better, $67 million burn in Q4 ahead of our own expectations as we really drove the business on the cash side. And our EBITDA dramatically improved from $127 million to $50 million from Q2 to Q3.

And you can see our overall Asia business in Q3 moving to positive EBITDA, $1.9 million, with a very steady story. July was down $1.1 million; August, positive $1.5 million; September, positive $1.5 million; October, positive $3.5 million roughly for Asia. So a really testament to the efforts that all of our teams, and particularly, Asia is put in. So with the business still down in this kind of 60% ZIP code with that we're off to making money in Asia. And I think all the rest of our regions aren't so far away from getting to breakeven and positive EBITDA even as we have pressure on the top line.

And from a cash burn perspective, when I look at Q4, I think it will be in a similar to slightly higher ZIP code than what we saw in Q3, but that's really around working capital timing. Working capital was heavily in our favor in Q3. You'll see it continue to improve in Q4, but maybe not at the same pace as we saw in Q3. But still heading in the right trajectory from a cash flow perspective for Q4.

So if I move to Page 13, there's a few pages with a lot of words on them, but I'll talk you through them carefully. We have a lot of liquidity. We're at a $1.5 billion liquidity. We knew we -- when we took actions in Q1 and Q2, we needed to make sure we gave ourselves the runway to manage this business through. And we've clearly done that. I feel so confident in kind of our liquidity position, what's in front of us, what we have to do that I know we can navigate this business through this, probably with plenty of capacity on the other side. And if it stalls a little and recovery stalls a little, we still have capacity to manage this business through.

Not only did we put the dollars on the balance sheet, but we've also got the covenant as we talked about in the last earnings release in the right place. So that our next covenant measure is Q3 of '21. And I think we'll be -- and Reza will talk about that some more, I think we'll be in the right place from a covenant perspective as well.

We've seen massive actions from this comprehensive cost reduction on cash burn. Q1 cash burn was negative $122 million. Q2 was $167 million. As I said, Q3 is around $68 million. And Q3 of last year was down $63 million. We actually have a quarter where our cash burn is about the same level as the prior year, which is really a testament to all the levers that we've pulled to manage the cash profile of this business, and I'll cover that on the next page in a little more detail.

We've also, in Q3, saw a meaningful impact from working capital I think 1 of the numbers that really stuck out to me is when you think about a business that's got sales down close to 60%, and we've been able to move our inventory down almost $100 million year-over-year, which is a testament to our sourcing teams and our supplier organization that we're working very closely with manage the inventory and the cash flow of the business.

Moving to the next page. So we are very focused on cash preservation. And I think equally, if not more important, we're very focused on saving initiatives that reposition the profit profile of this business, not only for navigating through what we're dealing with today, but also positioning this business so that we step out the profit profile of this business will be in a better footing for sure. Something as I stepped into the CEO role, I talked about looking to achieve and we will achieve this despite what we're facing.

And so where are we getting the cash savings and the fixed savings. Fixed operating expenses, down $310 million, and it's up $38 million from what we said at the half. We've continued to push the business to identify savings. So close to $40 million improvement just from 3 months earlier when we were talking about our half year results. Where is it coming from, permanent headcount reductions? I'll cover that in a bit. Store closures for stores that we needed to close. I'll cover that in a bit. Really meaningful and hard work to do there, but we've done that. We're getting the benefits of furloughs and salary reductions that all of our employees have taken bonus elimination, rent abatements and other temporary reductions that you'd expect an organization to do. We've not left anything unturned here. We've been very aggressive as I think you see in our numbers. We had $130 million in annual advertising reduction. We just grabbed the lever. It's a lever we always knew we could grab, and we grabbed that and produced meaningful savings.

As you know, we suspended our distribution to shareholders year-over-year, $125 million benefit. We virtually [indiscernible] CapEx. So we'll have $90 million, I think it will be a little higher than that, than versus our '20 plan on CapEx savings. So we've shut that valve down almost completely to put cash in the right place on our balance sheet.

And we continue to execute on savings actions. We've identified. We're executing. There's a little more that we're executing in Q4. There's not anybody in this organization that isn't very focused on how do I achieve maximum savings. And then equally as important, how do I retain them as we move into next year. And so we've become laser-focused on ensuring that all of our savings that can stick, and I'll cover that in a second as well.

Up and above the $600 million in in-year cash savings, which are really around actions. As I said earlier, we've had dramatic improvements in our working capital. And so that's up and above that triggered just on the inventory side, $100 million in benefit year-over-year.

So moving to Page 15, just a little bit more color on actions. So we have taken this business on a journey to ensure savings and preserve cash. We're repositioning our store portfolio, and we are very focused on sustaining profitability on a go-forward basis that will have meaningful benefits as we get towards the end of next year for sure.

We've taken very tough decisions. We talked about this last time. It's a little bit emotional when we talk about it, but we and our entire senior team and all of the managers on our business are taking the tough actions to ensure we're in the right place. Our teams are engaged despite everything that's coming at us, they're energized. I'm spending a lot more time making sure that our teams feel the energy and feel where we can take this business. And it's really getting this position poised to capture the travel recovery, which will come for sure.

The company has identified in-year savings, permanent savings of $64 million. What's more important is those translate into annual run rate savings of $200 million, of which I think most of that will carry into next year. We've made amazing progress on streamlining the organization. This is tough work, but we've reduced our non-retail FTEs by 25% compared to last year. That's everybody stepping in. This is the entire organization having to get behind this. And it's tough stuff because often, these are your colleagues and friends that you're doing. But we're repositioning and not afraid to take the actions we need to ensure the business is in the right place.

We're taking aggressive actions in our store fleet. As you know, our retail business is around 25% of our sales. So it's not a huge portion of our business, but it's meaningful and it's meaningful when the business comes under pressure, as you would expect. We've taken action on either through closures or heavy rent adjustments or renegotiation of leases over half, 53% of our retail footprint, and there'll be more to come as we continue to work here.

We've closed, we've physically closed through September 146 stores. We have 74 other stores that we will exit early, either accelerating the end of their lease term, all of which will play out in Q4. Maybe a tad will carry into Q1, but we're pushing the organization to get this done in Q4. We've successfully renegotiated 174 store leases, and this continues. And just with what we've achieved there, that $7 million in savings in annualized cash rent. So all of that continues, amazing progress across both the cost side and the retail side of the business.

So moving to the next page. And this is a little bit kind of forward stepping before I turn it to Reza because I wanted to walk through a few of these things because these continue in the business. So despite all the actions, we haven't lost focus on our commitment to sustainability. And if you remember, right as this pandemic was starting, we had launched our responsible journey, which our entire company is behind and continues to be behind.

My personal view is this sustainability focus will strengthen our long-term market position in the business and have an impact to the world that we're working in. So our teams feel the same way as I do, it's becoming part of the culture of who we are. We've always had it, but we've put laser focus on this. And our responsible journey really is around the global commitment to lead the industry in sustainability. And we continue to push. And I'm really excited about when business really starts turning on to step out on this footprint.

Just to remind you, we're diverting water bottles in a meaningful way. And even though the business is down, we've continued to grow on this front. And so 63 million water bottles since we started in the middle of 2008 converted for recycle, which we're using in a lot of our materials. This number will grow substantially as we move forward.

Our commitment to reduce our carbon footprint 15% a year through 2025, our commitment to 100% renewable energy and achieving carbon neutral by 2025, all of that is very much intact. So despite the business taking tough actions, we've not lost focus on our sustainability journey.

And then just a few products before I hand over. And we're excited to be talking about products again because we're about to turn the corner here in my view as we step into next year. In the midst of everything going on, we launched a very exciting product called Proxis made with our rock skin technology. This is something we're producing internally in Hungary. It's an amazing product. We've launched it in Asia and Europe in July. It had very good reception. Despite sales being down, the reception to the marketplace has been very strong. This will launch in U.S. and Latin America in 2021. We thought right to push it off and have the teams focused and allow it to play out in Asia and Europe in the reception, the media reception, the customer feedback, super strong.

This product has components of recyclability and end-of-use programs that we're working with our customers. And it's a virtually indestructible bag, the bag is amazing. And so I look forward to all of you getting to see it as you start moving around again. And so our teams are very excited. Again, made in our Hungary facility.

We've been very focused on with kind of current trends, what consumers are looking for. And so I'm on Slide 18 and really thinking about where we are on antibacterials treatments and incorporating -- really incorporated anti material -- antibacterial technology into our bag -- for our bags that help with antibacterial kind of points, which the world has been focused on. We're starting to work, and it's early days, but we're starting to work with very exciting antiviral technologies. Our hope is we'll be able to incorporate that into our bags in the future, but there's a lot of work to do here still. And there is a world that's focused on this. And as you would expect, as industry leaders, we are here and we are focused on this. And so I'm hopeful in the near future, you'll see us work that out. But we're being very careful on following the science and doing the right things here. But very exciting moments for us. And all of our regions are focused here, and there's more to come on this front from us.

And then just lastly, before I hand to Reza, another very exciting product we launched. When we think about our non-travel and our backpack business and the progress, amazing progress we've had, we've partnered with Jaycar to launch Connect eye, which is a back tax that's incorporating the Google Jaycar technology, which is really around smart fabric technology where you can message to your phone and control your phone by the swipe of your hands on the handle. Some of this has worked into -- or on the shoulder strap. This has worked into some fabrics, but I think it's perfectly suited for backpacks and free movements. And just imagine being able to answer your phone, change your channels, take a photo by just touching the strap of your bag without having to dig your technology out, all really does make a meaningful impact from a technology perspective.

I started to use one of these bags. I've traveled a bit in the U.S. over the last 3 months, and it's quite exciting. And it's maybe for tech-savvy, I want to call myself the most tech-savvy, but it's -- I think there's going to be a huge pickup on this. And it really is a testament to real kind of technology innovation in non-travel category. This is launching globally around the world, and the media pickup has been tremendously strong with this bag as well. So hopefully, you get a chance to check that as well, check it out online as well, too. That's out there on our sites and both in social media.

So with that, that's my update. I'll turn it to Reza to walk through some more of the details, and I'll come back at the end.

[Reza Taleghani, executive]

Thank you, Kyle, and we're on Page 21 of the materials. So starting with just the Q3 results overall. So we're reporting sales of $327 million in the quarter, which is improved from Q2 where we reported $201 million. But really, the story for the quarter is around cost and continued discipline in terms of making sure that we're rightsizing the business for the future.

So while sales in Q2 were down a little bit shy of 78% on constant currency terms, Q3 is still down 64.7%. But really, when we work our way over to adjusted EBITDA, I think that's where we're very pleased with the results. We've been able to see that we're narrowing the gap and getting closer to breakeven. So adjusted EBITDA for the quarter was down negative $51 million. And that compared to -- for those of you who are on the half call, for the half, we've reported down negative $123 million. So really material improvement, I think. And that's largely driven by all the cost cuts that we have been talking about and that you're continuing to see in the quarter.

When we look at gross margin, I wanted to make a point of actually bifurcating what's been going on in terms of -- there is some increased reserves that are going in. There's obviously -- we have a manufacturing facility, the 3 plants that work their way in that fixed cost base in gross margin. So the bullet point that you see on the bottom of gross margin, we did want to isolate for that and just make the point that if you're looking at the quarter, backing that out, the gross margin would have been 54.9%, the percentage, as compared to a 58% number for the previous quarter. And really, there -- it's mostly a shift in sales mix that would be the difference between that as you look at the different products and the brands that are performing.

And on a net income basis, it's largely the flow-through of adjusted EBITDA. So we're reporting adjusted net income of negative $99 million. Again, if you compare that to the half, we were at negative $173 million. So we are narrowing the gap there. And really the flow-through as you go between adjusted EBITDA to adjusted net income, as most of you are aware that we did have increased borrowing costs that are working their way in, and that's that interest expense that is appearing there.

On Slide 22, just the breakdown of the Q3 sales by region. I think the message is all of the regions are still under strain. Obviously, Asia is starting to perform a little bit better with some green shoots there as compared to some of the other. But on a constant currency basis, if you're looking at Q3, North America, down 64.3%; Asia, down 63.4%; Europe down 65.7%; Latin America, having a little bit of a tougher time with the virus, down $74.2 million.

And again, if you're comparing it quarter-after-quarter, there is sequential improvement. So Q2 North America was down 74%; Q2, Asia was down 75%; Q2, Europe was down 85%; Latin America was down 94%. And so there is improvement, but this isn't really a sales story that we're focused on. It's very much focused in terms of what we're trying to do to manage the EBITDA.

On Slide 23, we did a little bit of a deeper dive on some of the themes that Kyle was talking about. So here, we're looking at the air traffic within China specifically. And there is a correlation. It's not a perfect correlation, but there is a correlation in terms of the growth of air traffic and how our business performs. And so we're looking at in the lines on here what's happening with China as we compare it to Asia. And then looking at the bars and what's happening to traffic. And what you're starting to see is that as you work your way towards September, while we're still down year-over-year, you're starting to see some really good performance out of China, and that's flowing through to Asia.

And overall, for the quarter, so if you're looking at Q3 Asia, we were down, as I just said, down 63.4%, but the trend is improving. And that trend is continuing to improve as we look at October as well. But most meaningfully, and I think it bears repeating. Even with Asia down, 63.4% on sales, they've managed to approach the positive EBITDA of $1.9 million, which really is a great feat in terms of what they've been able to do in terms of the cost structure. And that's on the back of the SG&A. So that last bullet point on the page that, looking at SG&A, including the advertising and promotion, there is a decrease of $116 million overall. And that's what's really driving this performance.

Looking at the year-to-date numbers. Net sales, $1.1 billion of year-to-date numbers. And again, you see that there's a sequential improvement. So obviously, Q1 was down 26%. Q2 really was the bottom where we hit almost 78% down, with a slight rebound in Q3. As we look forward to Q4, it's getting slightly better. But as Kyle noted in his remarks, I think we have to be cautious as you look at what's happening with Europe and what's happening with the virus in the U.S. as well. But please, rest assured that the levers that we have, we continue to push on. We're very, very aggressive in terms of managing the cost structure. And I think the results for this quarter continue to show that.

So as we work over towards adjusted EBITDA, overall, year-to-date, adjusted EBITDA is negative $174 million. But that's largely on the back of what happened in Q2, and we're starting to narrow the gap as we get into Q3, and hopefully, narrow even further in Q4.

Looking at year-to-date sales, again, this is just a breakdown of the year-to-date numbers across by region. I think you're starting to see that it's the same theme that every region is battling with the virus on Slide 25. And when we look at year-to-date, the good news is, as you look at the quarter-over-quarter, Q3 is better than Q2. And we hope that Q4 will be a little bit better as well as we look at it across every region. And we expect Asia to do slightly better as compared to the other.

On Page 26, we put together an adjusted EBITDA bridge. You saw this in the last presentation as well. I think what we're looking at here is the year-to-date numbers, but I do think it bears just a couple of minutes for me to go through in terms of what the quarter improvement has been. So that large bar -- I mean at the end of the day, the biggest story is when you have the sales that are falling off, that large bar is the gross profit decrease from lower sales. So as we work our way from left to right, we're looking at the year-to-date numbers in 2019, there's a little bit of a minimal FX impact of $5 million. But really, the large negative is coming from $857 million of gross profit decrease from lower sales.

That number, if I was looking at it quarter-after-quarter, in Q2, there was about $401 million of negative impact in Q3. That's now down to $329 million. So there is a little bit of sales positivity, I would say, quarter-over-quarter that's coming in, but it's still a massive number. And I think the message here really is, as you work your way to the right, you're battling a very, very tough sales environment. But if you look at the green bars, that's the actions that we as a management team collectively have taken to try to make sure that we try to claw back.

So if we hadn't done anything between the gross profit decline from sales and the gross profit decline from the margin impact that we had, we would have been sitting here and saying that we would have been negative $594 million. And obviously, we're not sitting here and getting paid to sit on our hands, we've taken aggressive action. And the good news is we've taken that negative $593 million and clawed it away and as we work our way to the right to a negative 173 in number, which, again, we hope to get to breakeven and then really positive numbers next year.

And the largest bar here is that fixed SG&A decrease. And this is something that we have repeatedly talked about, and we're very pleased about. Because there's a component of natural SG&A that comes from the variable that will flex up and down as with sales. But I think what's really meaningful here is that $224 million number. And that $224 million number, in Q2, we had $100 million of benefit. In Q3, we've added another $100 million of benefit to this bar. And that fixed SG&A improvement is something that's going to reward us going into next year and beyond as well. So as we think about the EBITDA margin of this business, those actions are where really is going to help reset this business, both in terms of headcount reductions as well as what we've done in terms of rationalizing our store fleet.

Going to the next slide, just to touch on some of the financial highlights on 1 or 2 pages. We've talked about net sales overall each quarter, so I won't spend much time on that. The adjusted EBITDA for year-to-date September is at negative $174 million. We're reporting an adjusted net loss of $271 million. But again, I think it bears noting that as you're looking at it from a quarter after quarter perspective, this is the year-to-date number. In Q1, that adjusted net income was negative $38.6 million. In Q2, we added another negative $134.5 million.

And when we look at Q3, we're looking at a little bit shy of $100 million. So you're looking at between $90 million and $100 million of remainder. So we are narrowing the gap as we look at every subsequent quarter.

In terms of restructuring charges and impairments, most of this we talked about on the last call. Again, I'll give you the quarterly breakdown because we're looking at a year-to-date number here. The year-to-date number here is $37.8 million. At the half, we reported $28.8 million. So really, in this quarter, we have another $9 million of restructuring charges. Those restructuring charges are as a result of one-offs in terms of basically headcount reductions and store closures. So as bad as they are -- we don't like charges, the foot side is they do have run rate benefits to us as we go into the future.

And as it relates to impairments, a de minimis amount for this quarter. So year-to-date, we're reporting $882.7 million. But I think the important point of that is, at the half, we had reported $877 million. So in Q3, we just basically have an incremental $5.6 million of impairments that have to do with our IFRS 16 right abuse assets.

Moving on to Page 28. I think it was a very important point and something we're really proud of. Networking capital in September was 800 -- $85.9 million lower than September of last year. And if you think about that, that's not an easy thing to do when sales are down significantly. So I think it's a testament to the team's discipline in terms of both the supply chain management, but as well as working down the inventory levels that we were able to achieve that. This CapEx number is something else that I think we're really proud of. Because oftentimes, we get questions about what's truly maintenance CapEx versus what needs to be done. I think over the last 2 quarters, we've really displayed the fact that we do have the ability to throttle back the CapEx in this business.

And so yes, in Q2, you were looking at $2 million of CapEx, $2.3 million to be precise. And in Q3, we had $1.2 million of CapEx. And we're not starving the business. I mean, we're looking at it and just being very, very disciplined in terms of what really needs to be done. Obviously, if we had store openings and things like that, there would be CapEx associated with that. But in an environment where we're being very rational in terms of our store fleet, we're able to manage the CapEx aggressively as well.

Our net debt position is at $1.7 billion as of September. And most importantly, we have $1.5 billion of cash and cash equivalents and liquidity of about $1.5 billion. Those of you who've been following us and were on our Q1 call and on our Q2 call, we were preparing for a scenario where we might have been burning anywhere close to $300 million a quarter of cash. We're nowhere near that. And I think the really good news is if you look at this $1.5 billion, we feel very, very confident. And we said the same thing at Q2. We're going to repeat it here again, that this is absolutely adequate liquidity for us to get to the other side of this pandemic. And we hope to be able to show you that the insurance capital that we ended up taking up in terms of the term loan B, the incremental $600 million of borrowings that we took out, that we'll be able to repay that at some stage next year and reduce our debt levels as well.

Kyle touched on cash burn. As you can tell, we're very proud of the number that we're posting for Q3. Q3 cash burn of $68 million. It's basically the same number we had last year. Last year, we were at $63 million. As we look in Q4, Kyle did mention this as well. Q4 will be somewhere in line with that. It will be a little bit higher because we'll have some inventory build that we're doing as we prepare for sales for next year. But I think we feel really good about the actions we've taken on cash burn overall as well.

On Page 29, just a little bit of additional detail on the SG&A cuts that we talked about. So $310 million of expected in-year savings. So that's another $38 million that we're reporting this quarter. And so we've continued to find savings that actually hit us this year. And as we look at it, really, what we're happy about is what's that projection look like as we go into next year. And so we have in-year permanent actions of $64 million, but given as the timing that those actions were taken, that translates to $184 million of annualized run rate savings. And that's what you can expect if you're modeling us out into the future in terms of what the flow-through is going to be. That's the difference in terms of the SG&A structure that we see.

I'll get into those in a little bit greater detail, but I'll just review it with you right now. We do get the question in terms of you've rationalized the store fleet, what's the impact of that on sales. In addition to this, there are other savings that we've also pulled back on that have a flow through. So the EBITDA benefit that flows from this is basically the same number. So the net-net of this is, even though you have some sales that are coming down, I think you should expect that as you look at next year, that this $184 million number is something that projects on a run rate basis going forward as well.

SG&A, including A&P within the adjusted EBITDA number decreased by $177 million or 46.5% in Q3 compared to Q3 of 2019. And again, the reason we're highlighting this with such emphasis here is, it's one thing to say in Q2 and at the end of Q1 that we've taken actions that have the benefit, you're actually starting to see the numbers flow through the results now.

Moving on to the next page, a little bit of greater detail on the SG&A. So we've continued to identify and execute additional fixed cost savings. We have the $184 million of estimated annual run rate savings. Again, if you looked at the same slide from our last presentation, we were $128 million at the half. So we're pleased to set down even more savings from the last time we got together. And the breakdown of this is coming from headcount reductions and store closures. We feel pretty good about our store fleet overall. We've exited 146 stores so far. Another 74 are due to close as well. So you're looking at 220 total exits in aggregate. That's off of a store fleet of 1,294 at the end of the year. So -- and we feel pretty good that these are locations that we aren't taking actions on stores that we thought that would impact our revenue environment if you're looking next year or the year after. We looked at these are these were marginal stores. And given the performance that we were expecting over the next couple of years, we felt that it was prudent to exit these. And we feel really good about the remaining store fleet that we have. There's still a very strong DTC strategy that we have. And if we feel that it's the right type of stores as well as the right locations as we look forward as well.

We're planning on actions on approximately 53% of our entire store fleet. So those stores that we haven't exited, we've renegotiated leases. So far, we have 187 stores that we renegotiated rents. That was another improvement that we had from the last quarter, and you start to see that benefit as well as you look at it in terms of our overall SG&A going forward.

On Page 32, this is a slide that Kyle touched on a little bit earlier as well as you look at the sequential kind of quarter-after-quarter improvement on fixed variable and A&P. The one point that I'll note on here is if you look at Q3, Q3 2020 versus Q2 2020, there is an increase on SG&A, even though it's a massive decrease. Please bear in mind where that comes from. That's because we have incremental sales. So the sales start to go up, the variable component of SG&A is a little bit higher. So you see that 30.2% number in Q2 has grown to $41.1 million. That's not a bad thing. So as you have higher sales, you have a higher variable. But I think the important point here is looking at that fixed bar, that fixed bar in Q2 2020 of $155.1 million is now down to $150.5 million. And we hope to be in that ZIP code as we work our way forward as well.

Moving to the balance sheet on Slide 33. Again, we've talked about the cash burn a lot. So I won't spend a lot of time there. We feel pretty good about our liquidity position and where cash stands. We took very aggressive action very early on in terms of shoring up the balance sheet and making sure we have adequate liquidity, you're continuing to see that benefit here. The one thing that I would say is like, as you think about our interest cost, it is a little bit inflated right now because we have incremental debt that we took on. We thought that, that was prudent to do to make sure that we have ample liquidity to make it to the other side.

As we work towards next year, we're going to revisit that at the appropriate time and figure out what we should do in terms of converting some of that cash and paying down debt as well. But we remain very committed in terms of making sure that we maintain leverage coming out on the other side of this pandemic.

On Page 34, in terms of working capital. And I'm sorry, before I move on to working capital, I should just make a note. We do get questions around covenants. Covenants have been suspended. The only thing that we're monitoring is minimum liquidity of $500 million. With $1.5 billion of liquidity, we're triple where we need to be. And the next time covenants get measured are this time next year. And we feel pretty good about our trajectory of our business to be able to meet those covenants at that stage when we get there next year.

In terms of working capital, I've touched on this already. Very good working capital quarter after quarter. We're seeing an improvement despite the weaker sales environment. And we've highlighted the inventory number here because inventory at September 30, was $95.5 million lower than the prior year period as well. So that working capital benefit really is coming from good work around inventory levels and inventory management despite the weaker sales environment.

Page 35. Again, if you look at the CapEx trend, this business, typically, if you look at us last year, thereabouts, we're doing $90 million to $100 million of CapEx is kind of a normal run rate benefit. But we have said this consistently that we do have the ability to dial back on it, and I think everyone can see based on the numbers that you see here. When we took the decision in Q1 that we're going to dial back, we dialed back aggressively. And so year-to-date, we have $22.7 million of CapEx. And that would have been even lower if we wanted to dial things back in Q1. So Q2 and Q3, you're talking about $3.5 million of CapEx over 2 quarters. So we feel pretty good about that level overall.

So with that, I'll turn it back to Kyle to talk about the outlook.

[Kyle Gendreau, executive]

Great. Thanks, Reza. So William, I'm on Page 37, which is really, when I think about it, kind of near-term focus, and I might say, medium-to long-term views as well. So just to recap, one of the things that we have been very focused on, and I would be remiss not to talk about this is ensuring the safety and well-being of our employees, customers, all of our partners continues to be a top priority in our company. We have varying offices opened around the world or reduced capacity in Europe. We've seen a lot of recent close downs, and we followed protocols across all of our business to ensure our employees are safe. As we manage our stores and our store fleets as they've kind of started to reopen over the last quarter, ensuring that, that's set up the right way. And so we're doing the right things here, and it's a focus for all of our management team.

We've taken -- and I think you've seen in this presentation, significant actions to preserve cash. We continue to focus on identifying and executing on permanent savings, and we've had tremendous success in reducing the fixed cost base of the business. And we will hang on to it.

One of the real tricks for this management team now as we step into next year is to ensure that these fixed cost benefits, we retain as much of them as we can, which really do reposition the profit profile of this business as we move forward.

As I said earlier, reopening stores in a cost-effective and safe way in an efficient way. We're opening stores in many markets because our landlords are pushing or the centers, we're in are pushing. And we need to make sure that as we're reopening, we're keeping people safe, but also ensuring that the profit profile or the cost of opening stores kind of lines up as we carefully open stores and get ready for when the world starts to move again. So we're very focused there. Our retail teams and our retail teams in regional teams that have been doing an excellent job here as well.

Many of our restructuring actions impact our people. It impacts me and Reza impacts all of our senior team and all of our managers and so one of the things we need to do in this business and one of the real strengths of this business has always been the people we have and ensuring that our teams stay energized and empowered to navigate through this off the backdrop of some really heavy actions that we've had to take. But I feel very strongly that our teams are in the right place. And as I said earlier, I start to spend much of my time on ensuring our teams are in the right place and are feeling engaged and empowered, of which I'm very happy with our team.

We do have a global platform with diverse products and product categories, and we talked about how the mix has impacted our business and how our way to market with different channels has impacted our business with very strong regional teams and regional focus. And that's always been one of the strengths of this business. And as we see the world recovering and the world really getting back to travel, which I know the world is anxious to do. I know myself, I'm very anxious to start moving again, I think we're really well positioned to capture the business as it comes back both on the travel side, the nontravel side, which has performed well across all of our channels. You'll see e-commerce as a bigger percentage of our business as we move forward. That will continue to grow. Our e-com teams across the globe have done amazing work. And I think we're well positioned with this balanced story that we had before going into COVID. And on the -- coming out of this pandemic, I think the true colors of that diversity really show in this business.

We're very focused, as I said earlier on the sustainability and innovation. There isn't a moment where we've stopped thinking about innovation and what's next for us. We might have slowed down the pace of what we're releasing to the market, but be assured in the background, we're laser-focused on innovation, sustainability. And we're very excited as a company to really step out of pandemic with this as a wonderful foundation to come out with. So the teams are very engaged here.

I do think the marketplace will be disrupted. I do think there'll be smaller plays in the industry that struggle to kind of come out of this. But it will remain competitive and remain fragmented. As you know, this market is very fragmented. But I do think we'll have an upper foot in many markets as the competitive landscape is in a difficult place. And we'll be driving business and should be in a position to gain market share as things turn on.

And then lastly, in [indiscernible] and I had it, what we've done to ensure liquidity and capacity to navigate through this is clearly paid out. We have excess capacity here, which I think is important. And so even if COVID takes some stutter steps and we're looking at the news today, everybody is watching the news, Europe is in a difficult place. The U.S. market is in a difficult place and other markets around the world as COVID-19 has a little bit of a resurgence and step. We've got plenty of capacity to navigate. It will navigate. The vaccine news -- I think all of you have seen our share price in the last few days. Vaccine news about the world getting back to travel and the pent-up demand for travel really will bode well for this business, and we're in a position that we can navigate through that with the liquidity we have.

So that's our presentation. We're very happy to turn it over to questions, William. And hopefully, we've given you a good picture of where we are. And hopefully, you've got to vibe for, despite still being in a heavy situation, kind of the energy and the excitement that our company has as far as our ability to navigate through. And we're really excited for when people start to travel again. And so with that, William, I'll turn it back to you.

[William Yue, executive]

Thank you, Kyle and Reza, for your presentation. And before we take calls, questions from callers, why don't we -- I'd like to go through a few questions that we've received online. Basically, they have fall into 2 buckets.

The first 1 is around the savings. First question, how much of our SG&A savings come in from solo. The question here is, obviously, these are -- as stores reopen and government reduced the support for the seller programs these savings will go away. So that was having a bearing on cash burn going forward.

And related to that, there are a couple of questions about how to think about cash burn going forward? Is Q3 cash burn a good number to use for modeling cash burn going forward? And looking ahead into 2021, but we look -- do we think we'll be able to get back to positive cash burn? Are we looking at possibly 0 cash burn in the first quarter and then positive cash generation in the second quarter? And what will our what will our priorities be as far as debt reduction or investments and CapEx and building up the business again.

[Reza Taleghani, executive]

William, why don't I take that, and then Kyle can obviously chime in with his views as well. So as it relates to SG&A, the numbers that we're talking about. So when we're talking about kind of run rate savings that are, quite honestly, fast approaching $200 million, don't think about the -- those are the permanent reductions that are going to flow through to next year. So when I talk about temporary savings, which is not included in that number, that's the furloughs. So that is a shift in the fixed cost base that you should assume will continue on to next year. And the point that I made, as I was going quickly through my presentation as well is yes, there are some reductions that happen in terms of stores that you would have a revenue impact as well. However, it is safe for your modeling to assume that 180 to 200, if you want to range it, that will be an EBITDA benefit. Because there's other savings such as the furloughs and other things, so for instance, as Europe is shutting down, again, there's some temporary savings that you'll even see in Q1 of next year. Things like that or shifts that we'll have in terms of our T&E and consulting spend and things like that. When you net all of that out, the net-net of it from an EBITDA perspective is that you should expect next year and beyond to have anywhere between $180 million to $200 million of EBITDA benefit that comes from permanent fixed reductions in SG&A. So that's the way that I would think about the furlough piece of it. So essentially, we're excluding the furlough component when I'm giving you that number.

Where you would have seen furlough number is, well, we're talking about in-year savings because -- and obviously, the in-year savings are significant. So when we talk about $600 million-odd of in-year savings, that's where you see benefits from furlough, et cetera. So it's on top of that.

As you think about cash burn, where we've come to now is a -- what I would say, you have a normalized number, but working capital is a component that's going to shift. So if you think about Q4, we will be anywhere in the same range to slightly higher in Q4 on cash burn, simply because we're expecting sales to pick up next year. And so we're going to be starting to take some orders in, and there's going to be some inventory that we're going to start to take. And there is some seasonality in the business as well when it comes to working capital. So I think that cash burn number -- and again, Q1 of next year, we're not expecting a wildly different sales environment to Q4. So if you're thinking about cash burn in Q1 next year, it should be in the same sort of ZIP code as you're seeing in this quarter. Where you will start to see breakeven cash burn and start to see growth is really Q2, latter part of Q2 next year, and then Q3 and beyond. And that will come in with the sales environment picking up again. And again, we were previewing -- the reason we spent some time talking about China and Asia on this call is you're starting to see, even with sales down, 50% to 60%, you start to generate cash, you start to generate EBITDA. And for the entire business, we expect that to start to happen really on the back end of kind of Q2 next year going into Q3.

[Kyle Gendreau, executive]

Yes, I think that's exactly right. We're going to stay disciplined next year. When you think about '21, we're still in recovery mode. And so we'll be feeding the business and pushing the business. But from a cash flow and management perspective, we'll be keeping tight reins on all of that. So from a thing like an advertising expense, which would arguably be an investment in the business, we're going to keep advertising at a similar percentage to what we're running today. So as the business is recovering, we'll be feeding advertising in. But we're not going to get ahead of ourselves because I think recovery really is a building story for next year. Q1, Q2, Q3, every quarter should get sequentially better. My personal view is vaccines will start to work out towards the end of the second quarter in a way that I think Q3 and Q4 will be better situations. And I think, as Reza rightly said, that's when you'll start to see cash burn turn back into cash generation with really strong discipline in managing the cash flows of the business. The key messaging I've had to the team is do not let our guard down at all. On the savings we've achieved and on the cash burn or cash generation opportunities of this business, we need to be very focused right through next year is the way we're managing the business. Okay. William?

[William Yue, executive]

Okay. Just one more question around KPIs for the team going both in the short term, the next year or so. And then in the long term, what are we looking at, what would be the team focused on in terms of KPIs?

[Kyle Gendreau, executive]

Well, I would say for next year, it's what I just said. The organization, and when we think about next year, it's around achieving a level of EBITDA that I think we're able to achieve. I have the business very focused on that. And related to that cash generation, it's the wrong moment to try to switch KPIs to revenue in an environment where we're not going to really be able to drive the revenue. So it's a recovery zone. I think as we step back into '22 and 23, I think 2022 could be one of the best years for this business when we think about kind of revenue starting to come back, our profit profile dramatically improved from kind of the initiatives we've achieved here. And what we really need to do in 2021 is retain as much of these savings as we can, allow the business to convert to cash generation again. And I have the teams, and we all have the teams, the senior management team, very focused on that. And so you'll have a guarded KPI for next year around profitability, cash generation, and then we'll start to turn it back into initiatives that will drive the business. I want to put it past to start to put incentives around revenue growth tied to sustainability. This is thinking forward. This isn't concrete. But when I think about what really excites this whole organization, it's around how do we move the needle in this business, drive revenue growth while delivering on the story that I've talked about for several years, which is a profit profile that moves up above the mid-teens level, which I think this business has the capability of doing. But that's too early to start to set those targets now, William. It will really be as we come out of the recovery year of next year.

[William Yue, executive]

Thank you very much, Kyle. Operator, why don't we start taking questions from people calling in.

Thank you.

[Operator]

[Operator Instructions] Our first question comes from Erwan Rambourg with HSBC. .

[Erwan Rambourg, analyst]

So maybe three follow-ups. I think, Kyle, you've talked about the competitive landscape. Still the market being competitive when the world will reopen. I'm just wondering if you've seen anything in the short term in terms of some of your competitors disappearing or some of your competitors resorting to sort of extreme actions in terms of discounting or anything that would move the needle in terms of the way you would think about the business overall? Secondly, I'm wondering if you could comment on what level or what timing you could go back to making money outside of Asia? I think it's incredibly impressive that you're actually managing a positive EBITDA, despite sales being down 63%. How do we need to think about other regions getting to that point where you're starting to make money again? And then sorry to be a bit short-term, but any indications on how we should think about Q4 ending up in terms of sales declines and EBITDA levels? It seems that the business is basically improving by a few percentage points month-after-month. Should we basically draw a line there or is there anything we should have in mind for the short term?

[Kyle Gendreau, executive]

Okay. So why don't I take them and then, Reza just pipe in. So from a competitive noise perspective, Erwan, as you know, there's not great visibility, but you can just get a sense for -- by the noise you hear on the Street. And so I do think some players will struggle to sort out their funding to pull out. We've not seen anything specifically. But anecdotally, I know that many players are wondering around their own liquidity challenges. If noise on the Street or noise in our wholesale customers or noise digitally are any indication, the marketplace has gone very, very quiet. In many ways, we're the only noise out there, and we've got ourselves really restrained on the spending. So sorry to not be more specific, but it's a general vibe that's clear in the marketplace. And I think there are brands around the world that are on some sort of life support. If you're a European brand, maybe you're getting more subsidy within Europe, but that's not going to be a recipe for a strong recovery. Hopefully, you get on our tone, we're excited about a strong step out. And I think many people are worrying if they're going to step out. So I think that makes a big difference when I think about where we're sitting today.

Moving to profitability and breakeven, which is really what we're pushing this business to. I would say we're getting very, very close across all of our regions on achieving profitability. I -- Q4, it's hard to call at the moment. I think maybe a week ago, I would have been saying the trend continues. I think we're seeing Europe and the U.S. have a little bit more noise of COVID. We're seeing Europe have some refresh lockdowns. I think there's a scenario where Q4 might look like Q3 from a sales perspective, maybe it's had better. Because from a -- if Europe and U.S. are taking a little bit of a start-up, and it's really Europe more than the U.S.

Asia is having a moment that continues to be strong. And so if Asia can continue its trend, it might just blend it out, and we'll see that continued sequential improvement. Where I sit today, November kind of feels like what the October number is. And so if that gives you any indication, maybe it kind of -- it slows down just a bit. And I'm not so worried about a slowdown that kind of takes a month or 2 because I think the overall trajectory will be fine. So hopefully, that gives you a little bit of an insight for Q4. Our Tier 1 view is we should be able to get this business. If we're able to get the business into, let's say, low to mid-50% decline, which I think is probably a realistic view for Q1. And again, we're not controlling the measures there, right? So we'll all be watching what will be. But let's say it plays that way, which isn't such a dramatic improvement from where we're trading right now. I think this business gets right up to the edge of breakeven, if not positive EBITDA consolidated. So that's what we're shooting for.

As you know, we're controlling everything we can. It really is a function of are sales down 50%, are they down 55%. We'll be right on the razor's edge, Erwan, which I think is a huge accomplishment. You imagine the business down in that 50% ZIP code breakeven or making money. And I think I've got -- our whole teams are very laser-focused on attempting to achieve that. I think we're going to get really close to it. When I look at kind of month of October trading, we're -- every region is very, very close to what I would say, smelling distance to breakeven at down 58%.

[Operator]

Our next question comes from Anne Ling with Jefferies in Hong Kong. .

[Kin Shun Ling, analyst]

Management team, I just -- I also want to talk about 4Q. Would you share with us like you just mentioned about like October trend to us. Would you like give a little bit more breakdown in terms of by markets or like in certain key countries. You talk a lot about like China, but what about, for example, like South Korea or some of the other markets. You will share a little bit more with us the sales trend quarter-to-date? And yes, this is a key question that I have.

[Kyle Gendreau, executive]

It's a little bit forward, but maybe we'll give you some color by region. I think we can do that and how's that for October?

[Kin Shun Ling, analyst]

Yes.

[Reza Taleghani, executive]

Yes. And Kyle started to say it as we were just going through it. So the trend right now, we covered Asia in detail. So -- and Asia's recovery is obviously being led by China. But the other Asia countries are starting to contribute. So as you look at October, it's not just the China story anymore. So if you were looking at the Q, it was basically China was the reason that Asia ended up being in -- at positive EBITDA. But as you work your way into October and the early numbers for November as well, you're starting to see some recovery in some of the other countries. So for instance, south Korea is a good example, where you're starting to see some better numbers there. If you're looking at it on a regional level, Asia is starting to come out of it the fastest. Europe was on a positive trajectory in Q2, but now they're actually lagging because of they're going back into shutdown again. So we started to see it in Germany, you start to see it in France. Belgium is obviously where our headquarters, the European headquarters is having some of the highest percentage of COVID cases. So I would say Europe is probably the laggard as well as Latin America, which Latin America is one of our smaller businesses. But Latin America had a really, really tough time in Q2 just because everything was shut down. That one is starting to rebound in Q4, but it's a smaller number. I think what's meaningful is if you think about our direct-to-consumer business versus wholesale as well. Because I think that's another important point because what's driving the revenue declines is the fact that our stores are shut, our channels are shut. And there is still some wholesale because when we think about our wholesale channel, it includes some e-tailers such as Amazon and others. And so there is some -- so if you think about our North America business, North America Samsonite is doing better than North America Tumi because the Tumi storage is still lagging, and there isn't as much traffic going right now. So just to recap it, as you think about Q4, you're going to see Asia up at the forefront. You're going to see North America Samsonite starting to come back and approaching breakeven. Europe is going to be a laggard as compared to the other regions. It doesn't mean that they're not narrowing the gap because they are, but just because things are being shut down. And Latin America is reversing its course from a really, really bad Q2 to slightly better in Q3 and Q4, I think, is going to start to trend positive as well.

[Kyle Gendreau, executive]

Yes. There's a very good chance our Q4 looks like what we're seeing at the end of Q3. Our own modeling would say Q4 is going to be kind of 55%, 56%. There's a very good chance it looks like 58% with what we're seeing in Europe. But it's hard to call, right? And again, that's not so troubling for us because we've continued the trend. And even when you look at our Q3 numbers, a lot of what we achieved happened within Q3, so the effect they'll have on Q4 will have a kind of building effect. So I do expect our EBITDA profile to continue to improve in Q4, even if sales are -- we're talking points. Even if sales are off a point or 2, we're still going to see progress on the bottom line. And the off point of 2 are really around how the worlds are reacting to COVID, what's the period of lockdown, how does that progress.

[Reza Taleghani, executive]

But it's still fair to say that if you think about sales, Q4 and Q1, we're not sitting here saying, Oh my God, we're going to have a huge recovery in the next quarter. So it's more of the same. So if you were looking at the Q3 numbers, you just carry that forward with some level of recovery. That's probably the next couple of quarters. And then it's really on the back-end comp of this a little bit earlier. It's really on the back of there's a vaccine. People are starting to move. Things are starting to feel better, things are starting to open up. Where probably the back half of Q2 would be our guess, but it's a guess, is when you really start to see that.

[Kyle Gendreau, executive]

I would say there is this kind of steady travel improvement, right? So I think the world is becoming more attuned to how to manage with COVID. I think we're seeing -- we see very slow but steady improvement in travel numbers. We're seeing it in Asia. There's domestic travel in Asia, for sure. We continue to see it in the U.S. I think Europe is going to have a little bit of a stutter step. But all of that feeds into a story that allows kind of the revenue number to continue to trickle in the right direction. And then I think the big wins are when people really start to get some confidence around vaccines and get their arms around. We're seeing some spikes in COVID today, but we're also saw periods where that started to -- we started to reverse that. And I think when we get to that point, those will be exciting moments as well. And I think that will, as Reza said, start to play out in Q1 and for sure in Q2.

[Kin Shun Ling, analyst]

Okay. Got it. And another question I have is on the GP margin. When will we be able to see like the GP margin recover back to the 50% plus level? Or 55% in general.

[Reza Taleghani, executive]

And the reason I wanted to take a little bit of point of just to isolate the reason that you're seeing it at that lower number right now. Because it gets a little bit muddy with the fact that we have manufacturing facilities and you have some inventory reserves and other things that are working its way into the number. The underlying number is already there. I mean, there's a little bit of sales mix that's there. And there's -- I mean, it's not like we're discounting like we've been actually fairly disciplined in terms of the pricing of the product as well. So it really is going to be -- if you start to see beginning of next year, it's going to start to come back again. But again, I would look at it just in terms of backing that out and saying, well, what's the normalized run rate that I'm looking at for that GP margin right now because I think that's the way that we look at it internally.

[Kyle Gendreau, executive]

Our total view for next year is we're back into the mid-50s gross margin. How that plays up in the quarter, we're still cooking. But the total view for next year is we think we can get to that kind of normal mid-50s range.

[Operator]

Our next question comes from Dustin Wei with Morgan Stanley, Hong Kong. .

[Dustin Wei, analyst]

So first question is regarding the Asia breakeven. So all the three major regions seeing sort of similar sales trend in the third quarter, while Asia have much better sort of breakeven, a little profit. So is that because of better gross profit margin? Or what's the reason behind?

[Kyle Gendreau, executive]

Yes. As you know, Asia was our highest margin business. It's a really good forward teller, right? When you really look at gross margin and EBITDA margin, Asia as a region has always had slightly higher margins. So they get to positive faster than the other regions largely because they've executed on the cost savings initiatives and have been able to kind of maintain their overall margin profile if you kind of weeded out the noise. So they get there faster, but it's a perfect tell tale of the rest of the regions get there when the profit -- when the sales number just improves a bit more, right? So it's not a surprise to us that Asia gets there a little bit ahead of the rest of the regions just because of the way the profit profile of the business works.

[Dustin Wei, analyst]

All right. That's great. Another question, a little detail on the China DTC that saw, I think, 30% growth in September. Is that because the pent up demand? Or how should we read that number? Should we expect that China TDC continue to be a strong double digit?

[Kyle Gendreau, executive]

Well, I think we're going to see a very strong China from Double 11, right? The early reads from our teams today is very strong. I do think there's some pent-up demand. I think China started to move a bit more. I think there was extended, if I was talking to Frank and extended back-to-school season in China that's played well. And when you really look at the underlying China, China is starting to move in a more meaningful way and that really started to show, I might say at the end of August, but clearly in September and as we stepped into October. So I think it's a combination of all of that stuff that feeds into the China business. China team is excited. They're hitting me with opening stores already, if you can imagine, because they're ready to go. And we're being disciplined there. But there's a real story around how well China has been able to manage this. And domestic travel in China is a big piece of that market. And as you see, domestic travel around the world starting to recover, China is getting a good uplift from that as well.

[Dustin Wei, analyst]

All right. So along that line, in terms of the e-commerce business for the group, what will be different after the pandemic? What's been changed now to strengthen the group's companies, e-commerce?

[Kyle Gendreau, executive]

Well, I think we had really strong teams already, Dustin. So I've been so happy with the organization and how we positioned in the midst of the pressure we've done, we've continued to do things like focus on our websites, improve speed time. I think one of the things that's come out of pandemic, and we were already focused on it and lots of companies, whereas the allocation of your marketing spend ends up on the digital side. But we're already moving there anyway. So I think what you'll see as we come out is that we'll be that much more focused and attuned to your marketing spend being driven digitally. And I've been happy with every 1 of our regions as far as what we've done. Even Latin America, which was -- and I've talked about this before, it's slightly behind the 8 ball on its digital team, and its allocation of marketing spend has made tremendous progress. I think when we look at markets like Brazil that we're focused on virializing the cost structure in a big way. You're going to see digital and e-com being a huge piece of Latin America as it steps out. Our European team has just crushed it that runs that. Edward has done an amazing job. Not only is he driving Europe, but he's helping all of our business with the work that he's done on managing data and directing marketing spend and being attuned to customers' requests and desires. And so I think we already had a strong team. I think it just laser focuses how we spend our money and how we drive. I think at the end of -- or within Q3, our digital -- our direct-to-consumer e-commerce business is around just starting to approach 15% of our sales. Last year, it was around 9.5% of our sales. And I do think, as this steps forward, you're going to see e-com as a percent of sales continue to be a stronger piece of our business. And we know that the margin profiles there are better for the business. And it's a starting point for where consumer shops. So you'll see our digital spend and marketing spend be that much more focused. So I think it's going to play out really well, Dustin.

[Dustin Wei, analyst]

Last question is on tariffs. So with the potential election result, would you sort of foresee that the tariffs being talked about in the trade, could that be clawback? And what's the progress in terms of the move of the supply chain?

[Kyle Gendreau, executive]

So I'm not expecting big tariff changes off of the administration change. I do think the dialogue will improve. So I do think there'll be chances in the medium-term to end up with positioning that's more appropriate instead of standoffish. So but I don't think there'll be this kind of immediate shift. We're not so bothered by it, to be totally honest, it will be helpful for us. But we're approaching levels where we've shifted out of China for our North America business well more than 50%, 60% of our business. I think my numbers for next year say we'll be sourcing less than 35% from China for the North America business. That was 95% 2 years ago. This team has really done an amazing job of shifting. And the quality of what we're getting outside of China is as good as ever. So it's -- I don't think it's going to have such an impact. We're not sitting here hoping that it would be nice to see some tariff kind of relief and some tariff cleanup. But we don't need it to deliver the margins that I just talked about for next year. We are looking at GDP countries because those do matter, and those are up for renewal at the end of the year for the U.S. So there are some countries that we shifted sourcing to that are subject to a GDP -- I'm sorry, GFP renewal. And but we expect that renewal to happen. That might be -- have a lag effect, which has happened in the past, so we're watching that. But that will be -- if it has an impact, I think it will be very short term for us, and the teams already layer focused on that as well. So but tariff in and of themselves, we're managing this business as if they're here. If we get some relief from it, it will be upside for us.

[Operator]

Our next question comes from [ Lu way Ho ] with CICC.

[Unknown Analyst]

Thank you, Kyle, and result for your hard work and efforts and congrats on the cost savings and sectional improvement. I've got three questions. The first one is to follow-up on e-commerce. In the 9 months of '20, our e-commerce has already made up 21% of the total sales, up from 15%. What is the benchmark level going forward for the company? And how much -- you talk about the margin advantages can you quantify that? Like how much op margin e-commerce is higher than the offline channels. And I'll ask the other 2 later.

[Kyle Gendreau, executive]

Yes. Well, I think I'm going to answer from a direction perspective. This isn't so different than what we were thinking already. I think we're just going to get there faster. I think there's no reason why our direct-to-consumer e-commerce business isn't in the 20% to 25% ZIP code. And I probably would, maybe 2 years ago, I would have said 20% is a good target. There's no reason why it probably doesn't get to 25% in the short-to medium-term. The other piece that is bundled into our wholesale business is our e-commerce wholesale customers are booming. And so when you blend that together with our digital -- our own D2C e-commerce, you're going to find that kind of digitally getting to our consumers has become a big piece of our story. And I think we're crushing it. I think when I look at the content and the creation of content and media, to not only support our own D2C, but our wholesale e-commerce customers really is going to move the needle. And we are already -- it was already heading there. I think it's just accelerated. So I might set you a target of the 20% to 25% range of our D2C e-commerce.

[Reza Taleghani, executive]

And I can just interject there just so you have the breakdown of it. So what we're talking about is when you talk about that 21% number, so about 13.3% of it is our D2C e-commerce business that Kyle is talking about and 7.7% of it is the wholesale piece. So he's basically saying that 13.3% will grow to that 20%.

[Kyle Gendreau, executive]

I'm saying that -- yes, just our D2C e-commerce. That's what I was focused on. Sorry. Yes. Our D2C e-commerce, which is at 13%, 14% today, there's no reason why that doesn't get to 2025. But overall, 21%, 22%, if you just do the math of that and assuming our digital customers and all of our wholesale customers are changing their games to focus digitally, and we're able to really support them very, very well. We show up with amazing products, but with content that they can really drive it on their own business will become a big piece of our story as well. So and steps that will grow at the same kind of range of magnitude, in my opinion.

From a profit profile perspective, our D2C e-commerce looks like our best retail store. And so if you think about gross margin mix, and I'll let you do the math, so I'm not kind of trying to give you an EBITDA margin. But from a gross margin perspective, on a digital e-commerce, on a blended business, we're probably closer to 63%, 65% against an overall gross margin of the business that's 55%. So you can do the math to say, as that kind of margin profile changes, that will have some effects. The flip side is as you grow your e-com business, your marketing spend mix increases. And so -- and I've messed it just before we get into COVID-19, you shouldn't -- you should probably assume that our marketing spend over time as the mix changes probably goes up as well. So it's not a straight pass-through of that margin dollar. You've got to spend more on the advertising side to do that. But we're not talking kind of major differences on the blended business. So if we were at 6% or 7% advertising, I started to say a year ago, that might have to go to 7% or 8% advertising as the mix of our e-commerce business changes. So there's a lot to cook out there. But overall, that will still have a blended gross margin -- EBITDA margin impact in the long-term for this business.

[Unknown Analyst]

Okay. Got it. Yes, that's good news. My main about the -- yes. The next question is about the industry landscape. In the COVID, do we see people buying more luxury luggage or cheaper luggage, to put it into perspective, do we see better Tumi cells or better convenience sales? And how are we looking at it going forward post dynamic. And that's about the industry price point yet.

[Kyle Gendreau, executive]

So for us, some of it has to do with how channels are performing. So I would say on balance, our Tumi brand and our Samsonite brand sales are running better than American Tourister sales. There's a slide I had in the presentation, you can go back to it. But you can see that there is some -- there's a little more pressure on American Tourister. I think that's to do with as much kind of bad consumer level, maybe not spending at the same levels, maybe they're feeling more of the pinch of this as we see people on furlough and unemployment. But also the channels that was being sold into have kind of shifted focus there, so travel is not as focused. So I would say, Samsonite and Tumi are performing better than American Tourister. But I think it's as much to do with kind of the consumers as it is to do with the channels that we're selling in. And Samsonite and Tumi, for example, are better positioned digitally than our American Tourister businesses. And so I think there's more opportunity for that to expand for American Tourister as well. So I think that's indicative of what we're seeing. I would tell you our nontravel, and I covered it in the presentation, has gone very well. And again, the mix of our business, nontravel to travel is better in Tumi, better in Samsonite than it is an American Tourister. So I think that's also like why those brands are performing better. In markets like China, we're seeing booming sales for Tumi. We're seeing Samsonite very strong. And we sell American Tourister and our wholesale customers, which were slightly lagging in China. So again, that's the same mix. There are moments where Tumi is up year-over-year. I think in the month of October or November, don't exactly which month. Tunes up year-over-year. And Samsonite is not so far behind when your business is down only 18%. So I think it gives you a little bit of a temperature that you're trying to get a read for Tumi in North America is a victim of -- it's a heavy retail footprint and retail traffic is down. So e-com is doing really well for Tumi but retail traffic in the U.S. is down. So Tumi is slightly lagging our Samsonite business in the U.S., which has a better mix of wholesale, retail and e-commerce. So again, channels really matter here as well. And again, all that's in the presentation, if you look at it, I think you can do a little dissect to see exactly what I'm saying when you look at that brand page.

[Unknown Analyst]

Got it. That's very clear. And yes. And my last question is housekeeping question. Going at the updated guidance for revenue and margins this year and next?

[Kyle Gendreau, executive]

Yes. Well, that's a trickier story. So I think we've given guidance for Q4. I think we've given you some indications for Q1. I do think next year is better. I think on a blended basis, next year, when you blend a tough start, Q1, Q2, some recovery in Q3 and Q4, but not recovering all the way back there's no reason why next year isn't down 30% to 40% to the '19 numbers. But that's because there's a building recovery going on. But that's our best view. It's a hard one to put your thumbs on because it's not fully in our control. But that's how we're modeling the business so that we can make the right decisions. We will deliver EBITDA, positive EBITDA next year. And I guess the only indication I'll give you is if that's all improving, and I think we can get to breakeven or positive in Q1, I think you can do the math to say, we should have a good story next year. And I think our exit run rate for the end of next year, I think, will be a really wonderful moment for this business. If you just do the math, think about the savings that we've talked about, what's there. But I don't want to be so crystal clear on guidance because there's a lot of moving pieces, if that's okay.

[William Yue, executive]

Thank you very much, everyone. Thank you, Kyle and Reza, for the presentation and the Q&A. We're getting close to the end of the presentation. So we'll just wrap it up. Thanks, everyone, for dialing in tonight. Thank you.

[Kyle Gendreau, executive]

Yes, I really appreciate it, everyone. As always, you can get to William with questions, and we really appreciate everybody's support. Thanks for the feedback and questions, too.

[Reza Taleghani, executive]

Thank you.

[Kyle Gendreau, executive]

Thanks, William.

[Operator]

Thank you. Thank you for your participation. This concludes the conference.