Been there, done that. Restless investors, like travellers, like to look ahead. The investment case for Samsonite has been based on a turnround, fast-growing sales and a cheaper valuation than rival luggage maker Tumi. The first is done, sales can’t outpace global tourism forever, and the discount is not what it was. So what’s next?
Admittedly, sales growth of 15 per cent, as reported in Wednesday’s full-year earnings, only looks poor next to the 20 per cent rate Samsonite has managed since Tim Parker was parachuted in as boss in 2009. Samsonite has not provided forecasts for 2014, but analysts are pencilling in 11 per cent this year and next. Not bad given Samsonite’s sales must be linked with leisure spending over the long term. International trips rose 5 per cent last year and are expected to grow slightly slower in 2014. There is no reason to think that, as Samsonite settles, its luggage growth will be much more spectacular. Suitcases are mostly practical items that needn’t be upgraded as fashions change.
What seems to be next, then, are deals. The company has ambitions and net cash of $212m. Mr Parker says it can spend up to $1bn. That would result in manageable leverage. There is certainly potential to expand: luggage makes up only a third of the bag market, Samsonite says, with the rest split evenly between handbags and other more casual items. Deal-fuelled top-line growth would also detract attention from the fact its operating margins, at 14 per cent, remain stubbornly shy of Tumi’s 18 per cent. Since Tumi rebuffed Samsonite and instead listed in 2012, the latter has cut its discount from half Tumi’s valuation to a third less, at 19 versus 25 times expected earnings. At its best last October, it got within a tenth. Tumi expects up to 17 per cent sales growth this year. Mr Parker had better get his cheque book out soon.