Travel Luggage Market Leader: Samsonite

Samsonite International is principally engaged in the design, manufacture, sourcing and distribution of luggage, business and computer bags, outdoor and casual bags, travel accessories and slim protective cases for personal electronic devices.

The company was founded in 1910 in Denver, Colorado, US. It is headquartered in Luxemburg and its share trade in Hong Kong – what a combination.

Samsonite is the world’s largest travel luggage company, with a heritage dating back more than 100 years. Samsonite’s market-leading position is results from strong international brand presence, significant scale, global distribution and sourcing ability and not least high quality products.

Management of Samsonite continue to develop the company into a well-diversified multi-brand, multicategory and multi-channel luggage, bag and accessories business. The company sells its products in over 100 countries through a variety of wholesale distribution channels. Samsonite is not dependent on the success of a single market. On the other hand, the different customer demands of the different markets pose challenges.

 

 Company’s business

As a business, international luggage industry is increasing although it’s typical “low frequency” business. People on average do not buy travelling bag every year – rather every fifth or tenth year. Unit prices are quite expensive and quality products normal last long time. But then again, the world will carry on traveling. People become wealthier and will travel more year by year. The worldwide luggage market forecast to grow at an annual rate of 6.1% between 2017 and 2021.

 

Growth drivers

Samsonite’s organic business has delivered solid growth for years. In the US market, more acquisitions have been used to achieve growth. On August 2016, Samsonite completed the acquisition of Tumi Holdings. Tumi is a leading global premium lifestyle brand offering a comprehensive line of business bags, travel luggage and accessories. The brand is consistently recognized as “best-in-class” for the high quality, durability, functionality and innovative design of its products, which range from its iconic black ballistic business cases and travel luggage synonymous with the modern business professional, to travel accessories, women’s bags and outdoor apparel. Samsonite and Tumi share many common values, and this has helped the integration process. Tumi is growing fast, not only in US, but also in several key markets in Asia. So far It seems justified acquisition.

The company consider that consistent investment in their brands to be the second key driver of long-term growth. Lately Samsonite has been strong especially in the two major markets of the US and China.

As a third key driver distribution channel e-commerce business is a big challenge, but also a great opportunity. Necessary investments eat funds in a short term and presumable benefits will come in the long term as direct-to-consumer sales will increase.

For a long time, Samsonite’s business was primarily centered on the Samsonite brand, focused largely on travel luggage and distributed principally through the wholesale channel. After 2012 the company has strategically diversified its business in order to reduce its reliance on any single brand, market, channel of distribution or product category. And in line with the goal of not just building a bigger business, but a stronger one as well.

 

Financials

Samsonite is growing at a convincing pace. During the past 5 years revenue growth rate was 11.40% per year, earnings per share growth rate was 20.20% and growth rate of free cash flow was 32.80%. It will be challenging to maintain these figures.

On the other hand, Samsonite is very profitable company. Its ROE is about 20% and ROIC nearly 20%. Also margins of company are strong. Gross margin has been many years over 50%, approaching 55%. Net margin is around 10%.

The dividend flow is increasing and payout ratio is moderate 0.36. The dividend yield itself is quite modest 1.6% – typically for fast growth company. Samsonite promises to continue to follow a progressive dividend policy. And it will be easier because of strong cashflow.

In the balance sheet you can recognize a sharply increased debt after the acquisition of Tumi Holdings. Although 1.28 debt to equity ratio is not ideal, it’s under the control because of company’s profitability and otherwise strong balance sheet.

Also return on retained earnings are 23,5% during the past 5 years. This means that Samsonite is effective compounding machine.

 

Conclusion

Is it right time to buy Samsonite? It’s very good question. The company is not the cheapest one, but it is a typical situation for growing quality companies. The problem is that for pure value investor these companies are maybe never cheap enough. But if we think of the company as a truly long term investment, the situation can be different.

Samsonite’s P/E is fairly high 23. On the other hand, it has very rarely been traded less than 20. Essential is what kind of return company will deliver over the next 5 to 10 years. Right now the company has every chance to continue its current way. I admit that the current stock price of company does not give a great margin of safety. If you are looking for compounding quality company, Samsonite is worth of studying. My recommendation: put it on your watch list.

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