Samsonite International SA (HKSE:01910, Financial) (SMSEY, Financial) produces luggage, briefcases, computer bags, outdoor and casual bags, travel accessories and protective cases for electronic devices.
Founded in 1910 in Denver, Colorado, the company is headquartered in Luxemburg and its shares 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 the result of strong international brand presence, significant scale, global distribution and sourcing ability and high-quality products.
Management continues to develop the company into a diversified, multibrand, multicategory and multichannel 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, differing customer demands from different markets pose challenges.
The business
While the international luggage industry is increasing, it is a low-frequency business. The average person does not buy a new suitcase every year - rather every five or 10 years. Prices are quite expensive and quality products normally last a long time. But then again, the world will continue to travel. People become wealthier and will travel more year by year. The worldwide luggage market is forecasted 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 U.S. market, acquisitions have been made to achieve growth. In August 2016, Samsonite completed the acquisition of Tumi Holdings. Tumi offers a 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. Samsonite and Tumi share many common values, which has helped the integration process.
The company considers consistent investments in its brands to be the second key driver of long-term growth. Lately, Samsonite has had a strong performance in the U.S. and China.
A third key driver, its distribution channel e-commerce business, is a big challenge, but also a great opportunity. Necessary investments eat funds in the short term, but presumable benefits will come in the long term as direct-to-consumer sales increase.
For a long time, Samsonite’s business was primarily centered on its main brand, which focused largely on travel luggage and was distributed through the wholesale channel. After 2012, the company diversified its business in order to reduce its reliance on any single brand, market, channel of distribution or product category, making it stronger.
Financials
Samsonite is growing at a strong pace. Over the past five years, revenue has grown at a rate of 11.40% per year, earnings per share grew by 20.20% and the free cash flow growth rate was 32.80%. It will be challenging to maintain these figures.
On the other hand, Samsonite is very profitable company. Its return on equity is about 20% and the return on invested capital nearly 20%. The company's margins are also strong. The gross margin has been over 50% for many years and is approaching 55%. The net margin is around 10%.
The dividend flow is increasing and the payout ratio is moderate 0.36%. The dividend yield itself is a quite modest 1.6% - typical for a high-growth company. Samsonite promises to continue to follow a progressive dividend policy, which will be easy due to its strong cash flow.
Due to its acquisition of Tumi Holdings, Samsonite's debt has increased. While the debt-equity ratio of 1.28 is not ideal, it is manageable.
The return on retained earnings was 23.5% over the past five years. This means Samsonite is an effective compounding machine.
Conclusion
Is it the right time to buy Samsonite? The stock is not the cheapest, but this is a typical situation for a growing quality business. The problem is the stock may never be cheap enough for value investors. But if we think of the company as a truly long-term investment, the situation might be different.
Samsonite’s price-earnings ratio is fairly high at 23. On the other hand, it has very rarely been traded for less than 20. While the current stock price of $21.32 does not provide the best margin of safety, Samsonite is worth looking into due to its compounding ability. My recommendation is to put it on your watchlist.
Disclosure: The author owns no share mentioned.
