Samsonite International S.A. (SMSOF) Q4 2022 Earnings Call Transcript

Samsonite International S.A. (OTCPK:SMSOF) Q4 2022 Earnings Conference Call March 15, 2023 8:00 AM ET

Company Participants

William Yue – Director of IR

Kyle Gendreau – CEO

Reza Taleghani – CFO

Conference Call Participants

Dustin Wei – Morgan Stanley

Anne Ling – Jefferies

Perry Yeung – UBS

Operator

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to Samsonite International 2022 Annual 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

Thank you, operator, and thank you, everyone, for joining the call. Tonight, we have the pleasure of having, our CEO, Kyle Gendreau; and our CFO, Reza Taleghani, through the presentation. And our CEO, Mr. Gendreau, will start with a few opening remarks.

Kyle Gendreau

Okay. Thanks, everyone. Thanks for joining our call. As the title of our presentation says Travel is Back, that is how we’re feeling as we present our results for 2022.

So if I start on Page 5. 2022 was a great year for Samsonite. Most of you have been following us and following our progression, and we finished very strong, and we are really poised for tremendous growth in 2022 — ’23. Our teams are very, very energized. So I’m sitting here in Singapore for this call. We’ve been traveling and meeting with all of our teams over the last few quarters. And I would tell you the energy level of the business is tremendously high.

We’ve navigated through almost more than two years of disruption. And I think we’ve achieved some tremendous results, and you’ll see it in our ’22 numbers. And our ’23 is off to an incredible start. We’ll give you a sense for that as well. So ’22 sales improved to $2.9 billion, an increase of 57 — a little over 57% from 2021, really driven by travel demand across the world, and we’ll walk you through some of that by region and a few countries.

Our second half results were effectively flat, down 0.8%. If I adjust for China, which as most of us know, in November and particularly December was heavily down, our second half number is up 3.5%. This is compared to down 20.4% in the first half. So really amazing progress through the year.

Our full year numbers ended up at down 10.4%. The reopening of ports in China should help drive further growth in ’23. We’ll give you a sense for what that’s looking like. Our January and February results, including China, were tremendously strong, up 16.5% in 2019. So again, up 16.5% compared to the second half of the year was effectively flat. So really strong progress month-to-month. We’re seeing a similar story as March plays out for us as well.

Our gross margins move back in line with where we were hoping to achieve. We’re up 130 basis points from 2021, pretty close to 56% and in line with historic levels. And you should see this growth in ’23, particularly as Asia’s growth continues to accelerate in Asia as we, as you know, has a higher gross margin. So just mix effect, you’ll see our gross margins moving in a positive way in 2023.

We achieved a very strong adjusted EBITDA and adjusted EBITDA margin, we achieved $472 million in EBITDA. EBITDA margin of 16.4%, well ahead of what we thought we would be achieving as we stepped into the year and even as we were at end of Q1 and Q2. This has continued to accelerate every quarter with a very strong Q4 EBITDA margin.

It’s $290 million better than ’21, and it really underscores and reflects a lot of the initiatives that we did to reposition this business on the cost side and really reposition it for strong growth as the recovery is happening, and that’s exactly what we’re seeing in our EBITDA numbers. That EBITDA is inclusive of $74 million of additional advertising spend in ’22 versus ’21, as we move to start to push back advertising in the business, and advertising was up 130 basis points to 5.4% in ’21 from 4.1%. And you should expect us to increase this in all through the year, have covered in the slide. We’ve been bringing advertising up as we’ve seen the business recovering.

We generated positive cash, $75 million in ’22 despite moving our inventories back into the right position and with $339 million of inventory increase, we still generated positive cash flow. And as most of you know, we repaid a meaningful amount of our debt this year as we saw the business stabilizing. We started to repay against the money we’ve thrown down. $751 million of our outstanding debt was repaid in the year.

Our net debt position at the end of ’22 is only $78 million to pre-pandemic levels, when you think about what we’ve navigated where we are today, we’ve largely kept the net debt in the right place. And our net leverage has ended at the end of the year a little better than I was expecting at 2.85 times EBITDA versus — which is below the 3 times that I was thinking we were going to achieve. So really solid balance sheet.

I would call a rock-solid balance sheet as we labeled it in our presentation. We’re still sitting at $1.5 billion of liquidity. And our teams are really in the exact right place to really continue to grow market share as we step into this year.

Going to the next slide. During pandemic, we continue to drive and focus on, I believe, the exact right areas. So with more than two years of disruption, we never stopped investing in product. And what you’ll see in some of my slides, and if you’re watching our business that you’re moving across the globe you’ll see an amazing assortment of products that we started to launch during ’22. You’ll see some amazing introductions in ’23. And that’s been one of our core strengths, so we never stopped this.

I’m really very excited about the products that we have in hand as the business is really starting to move and people are really traveling. We’ve managed the supply chain perfectly is the way I would describe it. Massive challenges all through the pandemic. As things started to turn on, we started to bring back inventory levels, and bring inventory levels back even slightly ahead of historic level, so we’re not missing any sales.

Our teams have worked very, very closely with our suppliers to get us in exactly the right place so we can fully service sales and the demand that we’re seeing, particularly as we step into ’23. And as you know, we are also focused on SKU reductions. So I would tell you, our inventory is clean and healthy as it can be at this moment. So it’s really a testament to all of our supply teams that have worked through this.

We’ve restructured our stores. Most of you know, we restructured stores in 2021, but we’ve continued to selectively invest in new stores. We’re starting to open stores again, we opened stores in ’22. We’re starting to lean into some locations in ’23, particularly in Asia, in Tumi within Europe, where there are real opportunities, and we will continue to do that in a very careful way as we capture the rebound and the travelers.

And we continue to focus on CapEx very closely in ’22, but we started to make some targeted investments on store refreshes. And you’ll see us do more of that in ’23 as the business trends on where we have a fleet of stores that maybe we haven’t refreshed in a couple of years. It’s time to do that. That really moves the needle from a performance perspective, and we’re doing that as we step into ’23 for sure.

The other thing we continue to prioritize all through pandemic is focus on our e-commerce sites and our whole initiative around digital sales. We continue to focus on ESG, I am really excited about the progress we’ve made and what’s coming on that front.

And as I said, we’re leaning into advertising, and we’re really in the exact right position to lean in, and you should expect for this coming year, we’ll spend close to 6.5% on advertising. We ended 2022 Q4 spending at that level, and I’ll go through that a little bit later in my deck as well. So we’re able to invest and drive in the right areas of our business as things continue to perform very well.

Page 8, really captures a very high-level snapshot of the transformation from ’19, ’21 and ’22. I think the two takeaways I take from this page is, our sales increased close to $860 million from 2021 to 2022, but our EBITDA dramatically increased, as I said, $290 million. But I think one of the big milestones is when you look at EBITDA margin. And so for a business that has sales not fully recovered, our EBITDA margins have gone from 13.5% in ’19 to 16.4%, close to 300 basis point improvement in EBITDA margin. And I’ll cover that in a bit more as we move through the deck, but really an amazing position for the business as we step into 2023.

Just another look at sales and EBITDA in 2019 to ’22 because we had fairly massive currency impacts on the business. And so if I adjust for currency, we give you the constant currency sales, which are down 10.4%. But if I adjust the EBITDA for currency, which is later in the deck and resi bridges, but if I do that at this moment, you’ll see that our EBITDA adjusted for currency would have been $525 million on an apples-to-apples basis, which is up 7% in 2019. So really, the transformation of the profit profile of the business is quite dramatic, and you’ll see that continue as we play out 2023.

Next thing really gives you a sense for the journey we’ve been on. We’ve shown this slide a few times really to just give you a sense of how we ended the year. And so you can see, as we trend across, we saw a really meaningful improvement over all quarters for the last few years. But you can see as we stepped into Q2 and in Q3, which went positive, we’ve talked about this already.

Q4 slightly negative. But that was really impacted by China, where December — November, December, particularly came down. If I adjust the second half, just to exclude China for that time period, our second half is up 3.5% in 2019. I think from a trend and where we’re stepping off, and I’m sure people have questions or guidance.

To give you a sense for what year-to-date February looks like I mentioned earlier, is up 16.5%. And the quarter looks to be running kind of in that same zip code, I’d say, up mid-teens for Q1. That is real momentum when you think about where we stepped out of Q3 — I mean, Q4 and step into Q1. And those numbers are inclusive of China. And China for Q1 looks to be running down around 14%, which is a tremendous improvement from where they were in Q4, but still down and moving into positive territory as we step into Q2.

Our adjusted EBITDA margin improved to 17.2% in the second half versus 15.4% in the first half. And this is with advertising stepping up in the second half. We spent 6.1% on advertising versus 4.5%. So if you really look at the margin expansion improvement with our ability to invest in advertising you’re seeing real acceleration and profit profile of the business as the sales continue to recover. So very, very strong end to the year and a very strong start to ’23.

Just to look by region, to give you a sense by region because this is really playing out across all regions really towards the end of the year and for sure, as we step into ’23. If you look at North America, you see were positive year-to-date February, 1.5% — sorry, 3.1%, my eyes are a little blurry. Ended the year, Q4 down 1.5%. But if you remember, and we talked about APAC — are we okay? Yes. I’m sorry.

We have ebags, third-party sales that we exited. We had been in ’19 and when we were restructuring the business, we exited those. If I adjust for that, our year-to-date February, North America sales are up 9.7%, and the second half of the year would have been up 4%. So a very similar trend in North America, adjusting for the strategic decision to adjust the ebags business.

Looking at Asia. This is really where it sticks out as far as performance. And if you look at Asia, as reported, down 13% in Q2, down 14% in Q3. But as we expected the year-to-date February, plus 12%, and this is with China. If I adjust China out, the second half of the year was down 4.5% and year-to-date February is plus 21%, excluding China. So really amazing movements.

And I got — the next slide will give you a sense by country in some regions within Asia what’s happening, but really rapidly moving into positive territory. Europe has been very strong. Europe was the first market to really go comfortably positive on our larger markets. You can see the progression over the quarters. And you can see year-to-date February out of the gate, tremendously strong. Our outlook for Europe travel is very strong, particularly heading into the summer season, and it’s clearly showing in the numbers. So a very positive result for Europe.

And then Latin America, which has been running very, very strong for over a year now continued into February with a really high result in February off of a back-to-school season. Again, this was compared to ’19 that really hit particularly markets like Chile and Brazil, very strong back-to-school season. In 2019, they were slightly weaker, which is why it’s so strong, but really strong momentum across all of our countries in Latin America, really driving a terrific story there.

The next slide, on Page 12, I thought giving some color on Asia because there’s a lot of moving pieces all moving in similar directions. But just to give you a sense for where we are. I’m going to start all the way to the right of the page, which is Asia, excluding China. And I’m guessing one quarter from that, we’ll probably not be doing major excluding China because China is going to be so positive for us.

But because Q3 and particularly Q4 was under some strain, we thought we should adjust that. So you can get a sense for what the recovery trend in Asia is looking like, excluding China, and it’s quite dramatic the movements Q2 to Q4 — Q3 to Q4, which is almost back to ’19 levels. And the step into ’23 year-to-date February at plus 21%.

If you go to the rest of the page, you can see India has been performing very positively for several quarters and had a terrific year-to-date February number. You can see Japan, which has been a little slower to recover, they’ve been stuck in its own kind of down 30%, 40%. We saw some real improvements in Q4 as people started to move travel restrictions really started to adjust and a positive year-to-date February up 1% and really being in the right direction. Korea has been improving as well. Again, another market that was stuck down 30%, 40%. And with travel restrictions and regulations changing quickly adjusting, our Korean business and generally Korea needs Chinese stores to drive some of the rest of the recovery here, which is why this looks that way.

And as I think the Chinese start to move back to Korea and Japan, you’ll see these big important markets moved quickly into positive territory. Southeast Asia, I’m sitting in Singapore and much of Southeast Asia is performing tremendously well and almost surprisingly well as we exited Q4 plus 24% and 81% up in year-to-date February. Just amazing result.

Australia running a little bit like North America, up into kind of mid-single-digit territory Q4, Q1. And then China, you can see the story. And you can see China, particularly in Q4, was down 54% as China went back into heavy lockdowns. But as restrictions lifted, we really saw China moving. And so our year-to-date February is down 19%. I think our Q1 is going to be down 14% or 15%, so improving from that.

And really, as we look forward, I think you’ll see single-digit — mid-single-digit growth in Q3. I mean, Q2 and Q3 and Q4, I really believe, and as we look at our own modeling and with some conservatism, we probably made the opportune growth in the back half of the year for China. And I think that will really fuel the rest of the story for Asia, which is already performing very, very well.

On the next slide, which is — and we’ve shown this chart all through pandemic, it’s pretty amazing when you think back to where we depth in March and April, where we are today. I think the key takeaway for this that which is international passenger miles or kilometers, which is a measure of how much people are traveling. This continues to recover every month. The takeaway I would ask you to look at is there’s still recovery to go. And China is a big piece of this as markets that still have some recovery. This is an international view of the world with domestic still down around 20%. International down around 24%, and this is through December.

As we step into the year, you’re going to see these things get back to historic levels. And the next slide really, and this was another slide we’re looking at now. This is TSA numbers within the U.S. And you can clearly see, as we stepped into January of this year and February is looking like a similar number from what we can tell, that went to positive to 2019. So 3.3% versus we were kind of mid-single digits down in Q4.

If any of you have traveled in the U.S., it’s full on. Travel is booming. I guess I would say everyone, traveling is booming. But in the U.S., for sure. I mean clearly, as we stepped into the start of ’23, a very strong number.

On Page 16, just another lens of what’s to come. We clearly see business travel starting to move ourselves is within Samsonite, we’re moving and teams are getting together around the world, again, very important for businesses to kind of reconnect and push conferences are starting. And I would tell you that, that’s really just starting. And so as we step into this year, we look at one slice of data, which is businesses used to forward projections on travel budgets and expectation for travel more than half the companies are saying their budgets are up versus 23%.

And clearly, corporate travel is going to move forward, and we’re starting to see that in our own numbers as well. And so I think that’ll be another piece that fuels the rest of that recovery in 2023. And one of the takeaways on market share, and this is a view from ’20 to ’22. It’s clear, and this is your amount of data that we have added to our market share.

I think we’re in an incredible position of strength as far as inventory, our ability to invest behind our business and ability to really capture demand as consumers are moving out. And I feel we’re capturing it everywhere it’s happening. And we’re up 200 basis points of market share from 2020 to 2022.

So again, a strong testament, and that’s really an area of focus for all of us as we move forward. Which would feed into advertising, which is Page 17, to show we also have the ability to approach the business by getting back to spending advertising. I would say at historic levels, but the reality is ahead of historic levels because for a period of time, we’ve been in this 5% to 5.5% range.

You can see in Q4, we spent 6.5%. Our Q4 EBITDA margin was 17.4% with advertising at 6.5%. And again, you should expect us, as we move into the full year of 2023, to spend at a similar level, 6.5%. I think Q1 will be slightly below that as we get ready for the advertising into the summer season in Q2 leading into Q3.

So — and that will really allow us to continue to push our story. As I said, we have the most amazing assortment of products that we’re launching. We started to launch last year this year to be able to not only watch them, but to feed that with advertising really moves the needle in our business. And we’re advertising across all brands and really pushing the story very solidly.

And just a few quick bits of advertising. I’m sure if you’re looking at us, if you can look online and see much of these. Here’s advertising in Asia, we kicked off ’23 in Asia with a new beginnings campaign. As people start to move in Asia, we’re able to advertise with some of our best-selling products in this advertising campaign and really help people travel back and we’re here to support them.

In Europe, we had a paradigm. This paradigm, we have Eco Diver. We’re pushing all of these, what I would call unstructured travel bags, backpacks that holds really a way that consumers were traveling during pandemic, which continues to be carried into this year, with really amazing advertising campaign.

This — that paradigm, Eco Diver, which is another similar product in this family, all made from recycled materials to our PET, both exterior and interior, really an amazing product that’s driving huge sales.

New York is been also advertise expect one for you. This will be — as we get into the end of Q3 to push people business back to work or people back to work and back to business. And these are two of our really important non-travel lines, PRO-DLX, which has been aligned for a long time as long as I’ve been here actually since 16 years, this is probably like six and amazing that I’m traveling with this bag, and we’ve relaunched the interior this bag as recycled material.

ZALIA 3.0 is a terrific women’s bag. I’ll show these products a little bit later in the deck, really off to an amazing start fully redesigned driving our women’s category for non-travel business. And we’re very excited to support this with real campaign dollars to move the needle.

On Page 21, this is our brand. Just to give you a sense that this is happening across brands. Samsonite is very, very strong, up 72%. As you can imagine, as travel is really rebounding, particularly for that slice of consumer, that business is very strong.

Tumi is very strong, is up 35.5%. Tumi is impacted a bit by some inventory challenges in the first half of the year. We talked about those, which are fully recovered as we step into ’23. So we’re back in amazing position for Tumi. We also had Tumi Asia, particularly Tumi China, Hong Kong under more pressure than the rest of the globe, which is why, Tumi looks like it’s lower than Samsonite, American Tourister, but actually, on a trend basis, stepping out of the year is very, very strong.

American Tourister is up 66%. Some of our small brands all contributing as we’re doing some adjusting with these brands and repositioning, and they’re all delivering on a growth story across the business.

On the ESG front, I’m on Slide 22. We continue to be very focused on this. If you remember, we launched our responsible journey in 2020, effectively as the pandemic was starting. And — but we continue to push forward. This is the right movement for us. And as we think about the steps we’ve made and the progress we’ve made, that you can follow in our ESG report, it’s been really tremendous.

From a product perspective, globally, 23% of what we sold in ’22 incorporated some level of sustainable recycled material. That’s up from 17% last year. But from just 5% in 2019, where we really started to test the water. So really dramatic improvement, and you should expect more from us. Every next product we launch incorporates recycled materials. So more to come here.

We recycled — producing and using RPET, we helped divert 1 million water bottles just in 2022. That’s nearly as much as the four years since we started doing this. So the four previous years, we used around 100 million bottles just in 2023, we’re able to repurpose 100 million plastic bottles. So really moving in a positive direction because of our scale, we can deliver this without dramatically impacting margins, and we can really make a difference in the marketplace here. We expanded and tested and further testing our take-back and recycling programs. So in Belgium and Netherlands, we’ve done some.

I’m sitting here in Singapore, Singapore, Malaysia, Indonesia, we’ve done recycled, Take Back programs, where people can turn their bags back in, and we’ll repurpose and recycle them into other products or usable materials. And you should expect more from that as we continue to evaluate and find partners around the world that can do more of that with us.

And I think importantly, and I’ll cover it in the ESG report in more detail, so I highly recommend you to take a look at that, where we’re starting to think about the product life cycle assessment and developing really a circular economy framework for how we think about products and develop products. And so you should expect that every product that we’re evaluating as we move forward and develop we’re taking this in and to really drive not only our recycled content and back of the overall carbon footprint for our bags. So much more to come there, and we’re laser focused. And again, ESG report will give you a bit insight on that as well.

We’re taking action on climate. We continue to push here. We more than doubled the share of our electricity coming from renewable sources to 25% this year. We, for the first time, calculated our Scope 3 greenhouse gas emissions in 2022. And in ’23, we’re evaluating potential carbon reduction goal. And really, you should expect us to start to set goals that we can really impact, not just our four walls, but our whole supply chain and business.

We established council, the Global Sustainability Council with the Head of Sustainability reporting directly to me and be part of this council with leaders from across our business, across regions and functions to really help drive accountability and help set goals, global goals for the teams. And we’ve created subcommittees some on product sustainability on communication and shareholder engagement and also diversity and inclusion, which I covered in the last report. So we’re really making good progress here. And this report will get published in April, and I hope you take a look.

On the product side, just a last couple of slides for me and I’ll turn to Reza.

Just a few products that I think are really exciting to just give you a sense for where we are. Essence will be a product that we’re launching in Q1. This is a product designed and made in Europe. It’s a three-point lock, but it’s really the next generation three-point lock for us, the lightest in its category. Really an amazing product, the picture doesn’t do it justice.

So if you’re moving about definitely try to take a look at this product, you can’t miss it in our stores within Europe in the coming weeks. It’s exceptionally light, by the way we designed it. The outage shell was made with at least 70% post-consumer polypropylene, which is really what we call yogurt cups. This is landfill plastics coming from homes that we’re able to work with material producers to produce the pellets to do this. The interior lining is 100% recycled RPET. Really an amazing, sustainable story. It’s built for repair. This is click on wheel assembly. This is a bag that’s delivering in so many ways on the sustainability front.

And I think just a good example of where we are, where we can, where we can continue to push the business. And the bags are customizable and you can change colors. There’s a lot of really fun things you can do with bag. But really an amazing story. So I highly recommend you look at that.

Within Asia, we’re launching Beamix, Beamix, and this is a Red Dot Winner from 2021, which we’re just launching now because it wasn’t the right moment to launch the business in ’21, and particularly in Asia, it wasn’t moving. So we’ve launched this. This is an amazing bag with technology fingerprint unlocking. It’s got an illuminated logo, which I quite like. So if you’re moving around, the logo lights up, which is quite need at night. It’s got some of our best wheels, so it’s effortless travel. And the white case is made with the part — with the material that we’ve partnered with Sony and looking for the name of the material, I forgotten it. But it’s on — maybe not on the page.

But this is — we effectively recycled CDs and material that can create this shell, I mean really exciting recycled story. And the liners in all of these cases are obviously using Recyclex rPET. This will launch in Asia in Q1. It might have launched or launching in days. And again, this is a Red Dot Winning award designed by our teams within Asia sitting here at Singapore and really amazing product.

And then lastly, on PRO-DLX 6 and ZALIA 3.0, just give you a sense for non-travel products across all brands we’ve been pushing here. These are big relaunches. These are category driving non-travel bags within our business, PRO-DLX is amazing. The interior lining is fully rPET and just a terrific bag, really amazingly designed. And ZALIA 3.0, which is really driving a huge piece of our women’s business collection, and this is both interior and exterior recycled rPET Recyclex rPET. So really amazing stories here. You’ll see us advertising and pushing these in Q3.

And with that, I’ll turn it to Reza, and I’ll jump back at the end.

Reza Taleghani

Thank you so much, Kyle. So we’re going to get into the numbers in a little bit greater detail. We are on the slide with the results highlights. So just to go through the numbers.

Net sales, $2.879 billion, an increase of $859 million over last year. That’s a constant currency, 57.4% increase in sales. As I work my way to the right of the page, every single metric, we are very, very pleased to report that we did better than expected.

If you’re looking at gross margin, our gross margin percentage 55.8% for 2022, a 130 basis point improvement year-over-year. Importantly, we’re ahead of 2019 on gross margin despite inflationary pressures. The teams have done a remarkable job in terms of maintaining discipline around gross margin, both in terms of price increases, but also maintaining and managing the supply chain effectively.

Our adjusted EBITDA, as Kyle said, $472.3 million. Obviously, that number was impacted by currency. So it would have been even higher than 2019 were it not for the currency headwinds. But the margin is 16.4% for the year, an increase of $290 million from 2021.

If we’re looking at adjusted net income, an important metric. We did $80 million better than 2019 when it comes to adjusted net income. So we reported adjusted net income of $296 million for the year, which is a significant improvement over last year, which was slightly over breakeven on the net income line.

Going to the next slide, looking at constant currency sales. As we just said, net sales in 2022 of approximately $2.9 billion, an increase of 57.4%. Importantly, that’s nearly $200 million would have been higher about $200 million were it not for the currency impact, just year-over-year. So that’s a theme that’s impacting the sales number.

Excluding China, the second half of the year, sales increased 2.5% compared to 2019, as we’re going to talk about a little bit, we have a very strong start to the year, and we’re expecting that China is going to rebound over the course of this year, as Kyle just mentioned.

Adjusted EBITDA of $472 million, an increase of $290 million from last year, 16.4% on margin. And compared to 2019, we’re only $20 million lower in terms of adjusted EBITDA even though the sales were $759 million lower.

Going to the next page, on Page 30. Gross margin, a great story in terms of increasing it by 130 basis points year-over-year. We’re very disciplined in terms of lowering promotional activity across the brands. We obviously had mentioned throughout the year that we’ve increased price to try to offset the higher product cost. But we’re also starting to see some of the inflationary pressures that dissipate as well, especially as prices start to come down as we look in 2023.

Our fixed SG&A expenses, we have been talking over the last couple of years about maintaining significant discipline in terms of what we’re doing on the fixed cost base. We absolutely maintain that discipline. And for 2022, we were almost $300 million lower on fixed SG&A in 2019, which exceeded all of the goals that we have set for the year, and that is continuing into this year and beyond.

We have a very strong focus in terms of increasing advertising spend. Advertising spend increased by $74 million to $156 million as compared to 2021 that was 5.4% of net sales. As we think about 2023, we’re increasing that even further to invest behind the brands. We would like that number to be at 6.5% for the year with the focus of trying to get that advertising up.

On Page 31, comments on our cash generation. Significant cash generation, $75 million is the total number. But keep in mind that after investing almost $340 million of inventory. So if you’re thinking about where we are in 2023, we have very healthy stock levels to begin the year. And so we would anticipate this cash generation continuing as the sales environment improves.

As we generate cash, we — as we have said repeatedly, our focus was to delever, which we did. Our net debt position improved to $1.34 billion at the end of the year. And we have $636 million of cash. Our net debt position was only $78 million higher than our pre-pandemic level at the end of 2019. Importantly, we made voluntary debt repayments of over $700 million over the course of the year. And as we continue to generate cash, our plan is to continue to pay down debt.

As Kyle mentioned on this first page, our leverage profile were down to 2.8 times, 2.85 times leverage. Our expectation is that we will continue to delever and get to the mid-2s over the course of the quarter or two.

Annualized interest expense savings, just as a result of paying down our borrowings in an environment where base rates are continuing to go higher and interest rates are going to go higher as a result of paying down this debt voluntarily, we’ve saved approximately almost $40 million on interest rate costs with ample liquidity as well.

Moving on to Page 32, strong net sales across all of the regions. You have the constant currency growth levels here. North America delivering $1.1 billion — over $1.1 billion in sales, Asia at $916 million; Europe, $675 million; and Latin America at $168 million.

Looking at the constant currency growth, I would just focus on the Q4 numbers. So North America Q4 constant currency growth of 25.2% year-over-year. Asia, 39.9% year-over-year. And if you exclude China, the Q4 number was up 65%. So we’re seeing significant acceleration in growth side of Asia. Europe, 53.2% year-over-year in sales and Latin America in Q4 was 13.2%. As you know, Latin America actually has a very strong Q1 seasonal business that comes with the back-to-school season and as the year continue starts to come down a little bit.

Looking at adjusted EBITDA on Page 33 for every region. And really — I’m really focused on the EBITDA margin numbers that we look at. So North America’s number, 19.3% adjusted EBITDA margin, well ahead of what we’ve been historically, largely due to the fact that we’ve reset the business in terms of the cost structure. Asia is already at 18%, and this is for the full year. And as you look at quarter after quarter, the Asia profile, that’s the one region that we’re expecting to increase significantly to get back and hopefully exceed the 2019 levels.

But if you look at Europe, 18.3% EBITDA margins, well ahead of over 500 — 5 points better than where we used to be in 2019 And Latin America, the business has been completely transformed in terms of the cost structure as well as the revenue profile as we grow into regions such as Brazil, delivering $21 million of EBITDA, 12.4% EBITDA margins for that business.

We have a bridge on Slide 34, going from left to right just with bridging sales. Again, this FX impact is very real for our business. If you looking at where we were last year and this year, although we do expect FX over the course of this year, hopefully, to revert back to where it’s been historically. But nearly $200 million of impact on FX translation, the bulk of that and the currencies that are listed here on the page. Obviously, the euro is the biggest exposure that we’re focused on.

Working our way across the page. Obviously, we sold our spec business and we exited Russia. So combined, those two had about $65 million impact, and then there were the impact of lockdowns on China sales. So about $50 million there.

And then if you look at it, the sales. North America delivering — it’s blended across every single region. North America delivering $345 million. Asia delivering almost $350 million. Europe was $400 million, a 103.6% improvement year-over-year. And Latin America was a significant pickup of 72%, which equates to about $76 million as well. So all regions delivering. And I think this year, you’ll start to see Asia actually over-delivering as compared to the other regions.

On Slide 35, stronger growth in our wholesale and retail channels. We’re basically now that we have over the course of the year, all of our retail DTC as well as wholesale doors have opened up again. So as you can imagine, the mix is starting to shift back to our traditional mix between wholesale and retail. And while we still have a focus on B2C e-commerce as well. So net sales by channel on the left-hand side of the page and travel versus non-travel, as we saw each market open up the travel mix was obviously favored if you’re looking at it compared to 2021, when we didn’t have as much airline activity and travel activity, obviously, the mix has shifted more towards non-travel.

Kyle just mentioned in terms of the brand performance on Slide 36. Every brand performing significant improvement. Samsonite sales, up almost 72% to $144 billion. Tumi sales of $654 million, significant growth, 35.5% year-over-year. That was held back by some inventories that we — stock levels that we had, and we feel very good about the inventory position where we are this year. And especially with Asia opening up, we expect Tumi to have a stellar year in 2023.

American Tourister delivering 66% growth, a lot of that coming from India, which has been absolutely on fire over the course of 2022. American Tourister was $519 million. And then looking at some of our smaller brands, Gregory performing well, 12.8% increase, and then — and Lipault delivering approximately the same number of about $13 million of sales as well.

Slide 37, really looking at the continued benefit of our fixed SG&A savings. And again, we see — if you’re looking at the EBITDA bridge, we’re going from 2019 here on the left-hand side of the page to 2022. Again, that FX impact, a very real number of approximately $53 million of impact just on FX. Obviously, we exited both Russia and Speck. And then we had the impact of the China lockdown.

So if we’re looking at the gross profit decrease from lower sales from 2019 to where we were in 2022, it was about $134 million. And then the SG&A base, which has been completely reset more than made that up. So we have a $202 million from decreased fixed SG&A levels, which we’ve continued to hold on to as we enter 2023 as well.

Again, the fixed cost base, a little greater detail on Slide 38. There’s a look at the SG&A that’s within adjusted EBITDA. That fixed component, $993 million, it was the number in 2019. We’re now at $695 million, so approximately $300 million lower on the fixed SG&A side.

As we look at 2023, we expect — obviously, we’re going to start making some investments in fixed SG&A as we start to invest in certain stores, specifically looking at Tumi in Europe as well as some of our Asian footprint. But we are going to be very, very disciplined in terms of making sure that, that footprint expansion is profitable in nature. I would also say that you’re going to start to see that advertising number purposefully increase as we look at 2023 as well.

On Slide 39, getting to the point around cash generation, we wanted to highlight, if you look at the — on the left-hand side of the page, inventory levels, over the course of the year, we have finally — if we go back to our earnings call every quarter at the beginning of the year and last year, we were constantly chasing inventory. So even though we have been very proactively increasing our POs with all of our vendors as well as increasing our own manufacturing capacity. The sales exceeded even what we were planning.

But pleased to finally say that as we enter Q4 of this year, we feel very good about our stock levels in all regions. And despite that, we’ve continued to generate approximately $75 million of free cash flow. So if you’re looking at the right-hand side of the page, that will give you the bridge in terms of where the generation of EBITDA, what’s been invested in working capital and what we’ve done in terms of still generating free cash flow over that. So obviously — and the lower left-hand side of the page, cash generation was something that was a huge focus in 2021 and 2020, positive cash generation every single quarter Q2, Q3, Q4, and that’s even after we’ve invested in inventory.

On Slide 40, we’ve discussed the balance sheet. Net leverage ratio covenants at 2.85 for the year. We’re almost at our pre-pandemic level of 2.63. We feel very good about our balance sheet. Obviously, we still have some time to our debt structure, which was refinanced right as we entered the pandemic. We’re beginning the process of reevaluating that. The debt, we have another year before it goes current. And actually, two years before it really comes the bulk of the facilities here.

But despite some headwinds in terms of interest rates, we’ve managed our interest expense relatively low by trying to continue to pay down the debt levels voluntarily as well.

And working capital, we’ve talked about this already in terms of the inventory levels that circle on the page here. Change year-over-year from September to December, our inventory stock levels are up $339 million. So again, what I would like to highlight here is think about the free cash flow that this business has generated after investing inventories to the tune of $339 million. We feel very good about our net working capital levels and no concerns around our net working capital efficiency, which is highlighted at the bottom of the page and the graph. We do expect that sales continue to increase as we get into the summer months that our efficiency will get back to historical levels as well.

And Page 42, again, giving you that quarterly build. Again, it’s been a journey in terms of trying to make sure that we got the inventory stock where they need to be. But as you can see, finally, in Q4, we feel pretty good about where we’ve managed to get it and going through quarter after quarter. So we’re back to historical levels and actually a little bit ahead because we’re expecting that our sales levels will actually be higher than 2019 as we look at this year.

And on Slide 43, finally for me, just CapEx. Specifically, in 2022, we invested $51.6 million of CapEx, if you include software of $62.8 million. It’s still below our historical levels. Historically, you would see about $100 million of CapEx. But we are investing specifically. So we’re investing in our retail footprint as it relates to refurbishing stores. We have also made some significant investments in our factories, both in India and Europe. So we spent nearly $13 million on CapEx for our European facility and about a little shy of $6 million around India facilities as well as we continue to ramp up production.

With that, I’ll turn it over to Kyle to talk about the outlook and then we’ll open up for questions.

Kyle Gendreau

Okay. Thanks, Reza. So just quickly, hopefully content by our tone that we’re pretty excited about 2022, and where we are as we step into ’23.

Our sales have largely recovered as we sit back to 2019 levels. As I mentioned, as we step into 2023, running well ahead of 2019 levels. And I think we’re really well positioned to further drive operating leverage at a fundamental higher operating margin in the business. And so we’re really well set up. And I can tell you from the start of ’23, it is tremendously strong.

There is worries in the world on inflation or recessionary concerns around the world. My view — our view, along with the general market sentiment, is that travel will continue to recover. And we’ll be, I think, well insulated as the pent-up demand for travel really continues to support, and we can see that in every single month as we were exiting 2022. And clearly, as we step into ’23, we can see it month-to-month, the travel continues to move. And this is with markets, big markets that still need to really catch up like China, which we’re starting to see happen right now.

And as I said, Korea, Japan, there’s plenty to go there as well. So much more to come here as travel continues to recover. We’ve done an amazing job of maintaining gross margin and getting gross margin back in the right place. And what I would guide for ’23 is Asia, as I said earlier, continues to get back to ahead of 2019 levels with a very strong gross margin. And the team within Asia has got the gross margins back to exactly where they need to be from a gross margin perspective. You will get a mix effect in our margin as well as we carry into 2023, which will just further improve the operating performance of the business.

We do anticipate China to move. We see it in just a few months that we’re looking at. So January, February, March, really a story clearly showing. Europe just have to take it from us. You can watch what’s happening in things like domestic travel in China, which from our reads is already back to historic levels as we get into the month of February. And International travel having a long way to go, but really signaling that it will start to go. And so when you blend the two of those recovery opportunities in China, I think it will just continue to move in the right direction. And we’re really well positioned here to capture this.

We’re in the right inventory position, the teams are highly energized. There’s been much of the China team just a handful of weeks ago, the sales meet, and we are ready to go in China, and our business is ready to go. So I think we’ll see great things coming from China as the year progresses.

We’ve covered it a few times, that we’re going to support our business and these amazing products we’re launching and our brands well with advertising. So you should expect us to push the business and push these stories with really terrific advertising coming from our marketing teams around the world. And so keep watching for that.

As Reza said, we have tremendous discipline within our SG&A, and it continues to deliver, I would say, even over delivered from our own expectations on our ability to deliver real leverage on our fixed cost in the business. You can see it in the benefits within SG&A as a percent of sales and that continues to carry into ’23. We are making select investments in the business as you would expect, but they’re really around core strategic functions to really drive and push the business, and we’ll continue to leverage the fixed cost structure overall.

I can’t tell you how energized the teams are as travels recover and what we’ve been able to accomplish as a team to navigate but that position ourselves for real success. In my view, and I’ve said this many times, this business has amazing brands with really amazing people and teams driving it. And I want to thank everybody for the efforts that are probably listening in on this call. And don’t underestimate the power of a really amazing team of good brands, and that’s what we’re seeing as we step into the year.

Our ongoing commitment to sustainability and innovation, with these teams around the world and the strength that we have and our ability to market with products, we really will continue to move market share and our market position as the business really fully recovers from COVID.

We have an amazingly strong balance sheet. We’ve navigated in my view, perfectly with lots of uncertainty over the last 2.5 years. But we never really swayed from this liquidity position of $1.5 billion. And so its surprise, our net debt is largely at the historic levels. Our net debt leverage ratio is really approaching historic levels. We have a massive amount of liquidity in the business to really be in the right position to capitalize on the growth that’s in front of us. And so that was no small feat, but really well executed by our teams.

And I think with that, we’re very happy to take questions and I’ll turn it back over to William.

William Yue

Yes. Thank you very much, Kyle and Reza, for your comments. And operator, we are open now for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Dustin Wei with Morgan Stanley. Please go ahead. Thank you.

Dustin Wei

Thanks a lot for taking my question. First question related to the sales by region. So let’s start from the North America. I think if we think about the ebags part of the business, it was like 5% to 6% of the U.S. North America sales in 2019. So we consider that impact. But I think that sort of January, February sales are like 9% a little lower than the other regions. And I think in the deck, you mentioned a logistics issue. Could you sort of elaborate that for the following quarters?

And also, is there still the impact from the weaker sales in the gateway city continue, so are we still waiting for some more tourists from Asia, from Europe to the U.S. for the sales to pick up. And the Europe sales, 26% growth in Jan, Feb is really strong versus 2019. Is there actually still some of the currency issue related to the depreciation of the Turkish Lira? And I think fourth quarter last year, there was a little bit choppy trend in wholesale because of the price increase. And are we actually seeing the wholesale sales coming back very strongly after that, so we are seeing a very strong start of this year. I just wanted to know some of the details.

And finally, I think for Asia, that India sales and Southeast Asia sales is really, really strong. Just wondering, are we seeing something, paradigm shift for those markets and gaining a lot of the share. How should we think about the sustainability of those markets?

Kyle Gendreau

Okay. I think we’ll tag team because Reza can probably answer some Europe. But, North America growth is very strong. And you’re exactly right. We’re still waiting. Within our retail stores, we’re still waiting for gateway tourists to come back. When I look at our retail comps within the U.S., they’re — I would say very similar to what we’re seeing around the world.

North America is a combination of Tumi and our core brands, Samsonite American Tourister. Both are performing very, very well, really strong comps. But both of those brands, Samsonite Tumi within gateway stores slated for Asian consumers. And so those comps have more room to go. So as I think we get to the end of Q2 and Q3 and start seeing more inbound, particularly Asian inbound, I think you’ll see the U.S. business continue to play out very strongly.

I think a high single, low double-digit growth for the full year is very achievable for North America. And I would say we’re hitting on all cylinders. There’s nothing in our North America business that isn’t every month exceeding our expectations other than for Gateway, which has a little bit more runway to go. And I think that will fuel the back half of the year. So North America is super strong across every channel is the way I would describe it.

For Europe, I think the Turkish there in resi connecting is a very small piece of the story. So it’s not really driving a meaningful impact to that growth track. What’s really driving that is volume. I think you asked what’s going with wholesale, wholesale customers are back to buying where this is again driven across all channels, our e-com business tremendously strong. Our direct-to-consumer retail stores are very strong and wholesale customers are buying many of these bigger markets like the U.K., which had a heavier wholesale mix are just continuing to perform tremendously strong.

And I would say that’s across much of Europe. I don’t think there’s any 1 country that sits in a mine that’s not performing at meaningful levels. And to be totally honest, it’s little ahead of our own expectation. This is performing very, very well. I think we are set up so perfectly for the summer travel season, which all forward indications would be it will be really strong in Europe. And we’re set to capture all of that. And so I’m really excited about what can happen in Europe.

On Asia, I think, the function of these lots to recover with lots of pent-up demand. I think what you’re seeing in Asia, is if you look at other markets, they were kind of slowly recovering quarter-to-quarter where Asia kind of took this step change and recovery really as we are stepping out of Q2 — I mean 3, but really Q4 and you clearly see it in Q1. And so it’s really drive of, I would say, pent-up demand by consumers, not even demand, desire to travel that’s really playing out and that’s super strong. So you should expect Asia to have a really meaningful story.

And this Asia number taking out China is super strong. But imagine, as China really starts to get moving again, which I have zero doubt on, we can already see it domestically and international with all the indications in countries being open up where Chinese can travel to all happening every week, there’s some new news that’s kind of positive territory with real pent-up demand for travel that I think you’re going to see really quite an exciting Asia story for the year as well.

Latin America, which is really performing and continuing. Latin America is not the biggest region for us, but every single market there continues to over-deliver even our own expectations as we continue to push. I would say Dustin, there’s something around travel recovery.

And I know this sounds a bit corny, but don’t underestimate really energized teams with real capacity to support and push their brand with really amazing product positioning and inventory positioning against the marketplace that’s maybe under inventory at the moment. So I think we have a good, competitive advantage at the end of Q4, clearly into the start of Q1, that’s also helping us drive our story as we get going.

Dustin Wei

Sure. I have no doubt about the energy. We can feel that from the call. Just since you mentioned the sort of business target for North America, would you mind us talk about that for Europe and Asia?

Kyle Gendreau

We don’t typically — I think I’ll have William come back to you. We won’t typically to go through, I was answering North America. I would say Asia is really solid teens growth for the year and maybe more as the China really gets going. I think we started the year very strong but I was modeling that zip code. And I think Europe should be really comfortable double-digit growth for the full year. I think we’re off to a really good start.

I think we’ll know really how much Europe can do as we get into April, May as we get into the summer holiday season. My indications are it will be very strong. But we’re — I think maybe Reza will come back afterwards, where Reza can add a little bit of color to that.

Reza Taleghani

What I would just tell you, if you think about how each of the markets have come back and recovered, so without giving the exact guidance in terms of by region, but North America obviously came out of the pandemic first. So they’re going back to a more traditional growth profile as you look at 2023. So they’ve already had the rebound. Europe was next, but what’s different with Europe is you have a market like Germany that still hasn’t fully recovered. So there’s still — and especially if you’re looking at it in terms of the unit, there’s still more and more to go there. So we feel pretty good about Europe continuing its trend.

And then Latin America, obviously, as Kyle said, the business has just been completely restructured, and we have real presence now in a country like Brazil, where there’s huge population dynamics that benefit our business. So, again it’s on a smaller scale, but we would expect that to outperform.

And then with Asia, which is really just starting in terms of the full opening, especially as it relates to one of our largest markets, which is China. So if you’re looking at Asia, the countries such as India are continuing to perform, you see South Asia continue to perform and then you have this big push that’s going to happen from China. So you should expect that Asia is going to get at least back to the historical levels, if not higher, as you think about 2023.

Dustin Wei

Got it. That’s very helpful. And regarding GP margin, you talk about the upside from the Asia. I remember in the past call you talked about how dollar appreciation actually have a lagging effect to benefit the GP margin. So do you actually expect that aside from the mix increase on Asia, like strong?

Kyle Gendreau

It’s very interesting, Dustin. So if you think about it, when we started talking about that last year, it was in an environment where we’re looking at inflation in terms of costs overall in terms of raw materials and shipping. What’s happened over the course of the last few months, shipping rates have come down significantly.

So we’re almost approaching where we were historically on that. And that’s depending on the product, given that a lot of it is luggage and it’s bulkier, had a significant impact in terms of the margin profile in terms of the land and cost that you’ll see in different regions. So if anything, some of the inflationary pressures anticipated if you see that. And you have some of your higher-margin businesses.

So specifically, if you’re thinking about Asia is historically a higher-margin business, Tumi in Asia is a historically higher business as those rebound, that mix effect should benefit us as well. So the combination of those two things, we just finished saying that we had an incredible year in terms of gross margin better than we were expecting and as we’re sitting here right now, looking at 2023, if anything, it’s going to continue to improve over the course of this year and it could be anywhere between one point to two points even better just because of the mix effect that you’re going to see as a result of that.

Dustin Wei

A point or two points sort of better in terms of GP margin in ’23 potentially?

Kyle Gendreau

Potentially, yes.

Dustin Wei

Okay. Thank you. And lastly, I think the inventory level that you explained a lot like this $687 million is there for the inventory level there for a good reason. Just wondering if you can share some of the operating metrics, such as like inventory aging structure? Well you mentioned the SKU reduction initiatives. So just sort of had a piece of mind that all those inventory is fresh and healthy?

Kyle Gendreau

Yes. I mean we obviously have to break down in terms of what we normally share in terms of the aging. But what you can see is not if you think of how all of the inventory, if you just look at the inventory build, it’s all fresh inventory. So we actually, when we went through the pandemic, we cleaned up all of the old stocks. And if anything, if you’re thinking about where we were at this time last year, we were chasing inventory. So as soon as it was coming in, it was going out. So where we are now, it’s very, very healthy inventory is a lot of the newer lines, so some of the stocks, some of the new products that Kyle was talking about, those are just starting to come in.

I think about Tumi, Tumi has had some new lines, the Voyager line, which is a very female-centric line is coming in right now as well. So it is largely all the new stock that’s in. So we feel really, really comfortable about where our inventory levels are, both in terms of the profile as well as where it’s located, so that we don’t miss any sales as the regions rebound.

Dustin Wei

Got it, got it. That’s all for me. Thank you very much.

Kyle Gendreau

Thank you, Dustin.

Operator

Next question comes from Anne Ling with Jefferies. Please go ahead. Thank you.

Anne Ling

Thank you very much for taking my call. I have two questions here. First, regarding some of the guidance, I think like last November, management mentioned about for 2023 and at least a 10% increase versus year 2019 in terms of sales growth. So based on the January trend, so obviously, this guidance seems to be a bit like conservative. So is it fair to say that we should be at least looking for like some teens growth in terms of like growth in terms of sales in local currency terms?

So — and secondly, in terms of the adjusted EBITDA margin. So we see very good trends quarter-after-quarter. So should we be expecting some good operating leverage, benefiting year 2023 adjusted EBITDA margin to like maybe even above 17%, even though you are increasing your marketing expense?

Reza Taleghani

I think the EBITDA margin one. I think you’re exactly right. My view on EBITDA margin for the full year, is we should be able to do 17% plus is what I would say. And that’s with advertising moving from 5.4% to 6.5%. So you can kind of get us for the math on some gross margin upside and continued leverage in the cost structure, allowing us to spend another full over one point in advertising and still delivering EBITDA margin, 17% plus is how I would describe it.

I feel very comfortable saying that we’re off to really tremendous start. I think it’s been an interesting Q1 number. In Q1 is normally our historically highest margin, advertising will be a little bit lower, but I think it will look great. But really, as Asia continues to fill in and China really kicks in, you’ll see margin profile expanding for the year. So I think that’s what I would guide I think last year, I guided 15%. This year I’m saying 17% is within our sites, and we have a little bit of habit slightly over beating that, but I would probably model to that level as we allow the business to play out.

For our overall growth guidance for the year, we’re out of the gate very strong. I’m not sure I would model the whole year as strong as what January and February are looking like. I think there is some really strong moments within there. We have, for example, Latin America back-to-school that’s really tremendously strong, that brings it up a little bit. I think for the full year versus ’19, so that probably can deliver kind of low teens kind of growth to maybe as high as 15% growth for the full year.

And I say that I think with an expectation for China that I think I’m keeping range of China over deliveries or moves at a faster pace that can be higher. But I think realistically, if I’m modeling that for around which is a tremendous year for us. That’s really meaningful growth over 2022, let’s say, 25%, 30%. And again, that could be a little bit higher China is moving faster.

So we’re really set up for a really strong play for the year. As far as we can see it now and the indications we’re giving you for January, February to really give you a little taste of what we’re seeing, which is very, very positive. So I wholeheartedly believe travel still has plenty to recover.

And I think about the rest of the recovery in international travel and the benefits you get, as you see those travelers moving across borders and really moving pieces and domestic travel, really pockets of the world where domestic travel is not back to like what we’re seeing in North America as that continues to play out, we’re well captured — we’re well placed to capture that. So we’re feeling bullish as we model a bit cautiously, just to make sure, but I think those numbers would be a tremendous success for the year.

Anne Ling

Got it. And regarding like in terms of volume and ASP, please correct me if I’m wrong, but I think we had roughly 10% increase across the board in the past two years in terms of the price hike. So meaning that we possibly at this stage are still about like 10% below 2019 levels in terms of volume.

So moving forward, this year, and approximately also get this volume back. And then in terms of price increases, are we more or less than now that the strong U.S. dollar start to stabilize a bit? Or are we seeing like no room for further ASP improvements with like better product? Or what are we looking at in terms of the ASP?

Kyle Gendreau

Yes. So I would — the first question was…

Reza Taleghani

Price versus volume.

Kyle Gendreau

Let me cover volume first, and then I’ll do price. So I would say between — if you’re really looking at it versus 2019, I would say our average pricing is probably up closer to 20%. That’s really the kind of journey that happened with the increases in cost in the business. And actually, if you remember the slide, I showed you around revenue miles or kilometers per passenger which still has around 15% to 20% to go. I would tell you, on a unit basis, we’re probably still down around 15% from normal unit levels in the business, which I think we will recover this year.

I think we’ll exit this year at unit levels ahead of 2019, and for the full year, I think we’ll bridge a lot of that. And it’s one of the things that makes me excited about the rest of the recoveries is still more to go.

And I think from a price increase perspective, we’re largely done. There we’re always evaluating prices. But you have to — for our business, you have to think about the refresh of products and the products that we’re bringing into market to a price positioning. And so we’ve been able to bring the full assortment. I would say what we’re selling today, at least 40% of that is new in the last six to 12 months, and we’ll continue that way as we play out ’23, which allow us to hit margins with products priced at targets that allow consumers to get there.

So it’s not quite as simple to saying price increases, but we’ve largely completed — we had largely completed that really before the second half of this past year. And so I don’t think you’ll see more other than where we have pockets that we need to move just to maintain margins.

Reza Taleghani

I think the long and short of that is there’s still plenty of unit growth to go, which is going to play out this year, and we’re well positioned to capture it.

Anne Ling

Got it. And for year 2024, so I’m sure that we have a very good year 2023 once things normalize. Now what you should we be looking at in terms of the industry growth, is it like mid-single digit or higher? What do you think about that? And how are we going to grow versus industry?

Kyle Gendreau

I think you want me to do your model for you. I am saying that jokingly. I would — I view ’23 as a transitional year still because there are still markets that are coming out. But my fundamental and forward guidance from industries that are paying attention here that I think travel will continue to be very strong in 2024. I think there is a fundamental reset in the way people think about travel, which is playing out now, and I think we’ll continue into ’24.

I think from an industry perspective, mid-single-digit growth is kind of the right way to think about it, and you would expect us with everything that we’ve just said that we will do a bit better than that. And I think that’s always been our guidance. So ’24, we’ll know a lot more depending on how ’23 plays out, really, as Q3 and Q4 playing out, it will set some expectations where ’24 is going to be.

But I think it will be a very strong kind of industry growth, maybe a tad bit better than what might say kind of long-term trajectories for industry growth, if you could imagine kind of the recovery in passenger miles and fleets continuing to play out this year, you’ll get the benefit of that growth next year because it’s not all areas, there’s still plenty of recovery happening this year as we start the year.

And so that will have a benefit for next year that will maybe push it even a little bit higher from an industry perspective. And if it’s pure growth off of the previous year, so.

Anne Ling

Got it, got it…

Kyle Gendreau

We’ll know more as ’23 plays out, but ’23 pretty strong. So I think it might look more like that.

Anne Ling

Yes. Yes. That’s definitely exciting. And for my final question, was very good cash flow. So, any chance that we have a dividend payout finally?

Reza Taleghani

I think we’ll — we still subject to Board. But my view is let’s navigate this year, and we will evaluate very closely in ’24, my instincts will be, we’ll be well positioned to do that, but it will be subject to discussion with the Board. But I’d love to get a little bit of deleveraging achieved again this year and just put the business right where it needs to be and then I think it will become more obvious that we will move back to a dividend policy in ’24, but I’m not confirming that I just feel that the business will be in a position to make that decision in ’24. And most likely, we’ll be leaning that way, but it’s subject to a lot of factors.

So, ’23, I think we stay focused. I think we have a real chance to get our leverage profile pretty close to 2 times at the end of the year. But just to tad over that, I think that’s a good target for us. And it’s one over the many years I’ve been asked what the target is, I think that’s the right zip code for us.

Anne Ling

So two chances in net gearing ratio? Or.

Kyle Gendreau

Yes.

Anne Ling

Okay, got it. Thank you.

William Yue

Operator, I think we’re coming close to the end of the call. So perhaps we’ll just take one more caller. So why don’t you check who’s next on the line, and we’ll take that call.

Operator

Sure. And final question comes from Perry Yeung with UBS. Please go ahead, Perry. Thank you.

Perry Yeung

Hi, Kyle, Reza, and William. Congratulations on a very solid quarter results and the encouraging business runway so far. I just have a quick question regarding the Q4 adjusted net income. So if I look at Q4 adjusted EBITDA, it was up 6% Q-o-Q, but the adjusted net income more than 100% for Q. I just wondered is there exceptional items that push up the adjusted net income?

Reza Taleghani

Yes, I can take that. So the biggest component over there is, we have tax payments to come in and they go up and down over the quarters. So specifically in Q4, there was a recognition of a deferred tax asset that drove a large portion of that. I should also just note we didn’t talk about it on this call, but if you’re looking at our overall ETR for the year, we always keep guiding to, as you’re modeling, looking at effective tax rate that should be probably in the mid-20s as the normalized tax rate that we have.

But if you look at what happened in ’22 because of this, the tax restructuring that we did and the recognition of the deferred tax asset and ended up actually being significantly lower than that. So it’s largely taxes that are the good guy, offset by some higher interest expense that we had over the course of the year just because of higher base rates.

Perry Yeung

Thank you very much.

Kyle Gendreau

Okay. Thank you, everybody, for joining our call. Look, if anybody has follow-on questions, William is always available. You can get to him.

William Yue

Okay. Thank you, Kyle. Thank you, Reza. And thank you, everyone, for taking the time tonight.

Reza Taleghani

Have a great night or day. Thank you. Bye-bye.

Operator

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