Many investors might be unaware that shares of the world’s largest travel luggage maker are actually traded on the Hong Kong Stock Exchange. That’s where we find Samsonite International S.A. (SEHK:1910), although the company’s roots are in fact American and its official headquarters is located in Luxembourg.
That’s fitting for a company that makes its money by selling the top brands of luggage we regularly see riding on airport conveyer belts every time we travel. The products are well known but the company isn’t necessarily familiar to investors. Let’s take a closer look at it.
A well-travelled business
Samsonite is an old company. Founded in the US in 1910, it assumed the Samsonite name in 1965. Over the subsequent decades it acquired and divested numerous assets, and went through several rounds of ownership changes to arrive at the publicly-traded entity it is today.
Today, Samsonite is comprised of a sizable collection of brands, some more familiar than others. The top three of these are the eponymous Samsonite line, luxury brand Tumi (which is acquired in 2016), and American Tourister. Collectively, the three are responsible for around 83% of the company’s total sales.
On an annual basis, sales have been rising more or less steadily over the years. In the company’s fiscal 2018, its revenues came in at just under HK$30 billion (US$3.8 billion), nearly 50% higher than its 2016 revenues. The company also tends to book an annual bottom-line net profit; last year this was almost HK$1.9 billion. Across the past five years, this has fluctuated between HK$1.4 and HK$2.6 billion.
Rising revenues and dependable profits usually bode well for a company’s stock price over the years. However, if we look at Samsonite’s we see that it’s now trading more than 50% down from its 2018 peak. So what’s going on?
Well, for one there are its Q3 FY 2019 results. The company reported a quarter full of declines in key line items such as net sales and adjusted net income, the latter of which fell a steep 45%. The company attributed this to “economic headwinds” affecting some of its top global markets. It particularly noted South Korea, the US, and the huge B2B segment in China – all of which are suffering.
Samsonite is also directly impacted by the worsening US-China trade dispute; its products are directly in the line of fire for tariffs from the US side. Considering that the US is a top consumer for the company’s product lines, this will probably continue to affect its performance.
Finally, there’s some difficult recent history behind the share price weakness. In May 2018 an activist hedge fund called Blue Orca Capital began to short Samsonite’s shares, an assault that brought other shorts into the fray.
Blue Orca decried the company’s “history of mediocrity which included lurching from the precipice of one restructuring to another,” as well as its “questionable accounting practices and poor corporate governance.” It particularly zeroed in on then-CEO Ramesh Tainwala, whom it said was party to “dodgy” transactions with his company, and had lied on his resume about academic credentials.
In another pithy yet hurtful blow, it described Samsonite as “a mid-level brand masquerading as a premium luxury player,” presumably referring to the upmarket Tumi line. CEO Tainwala’s resignation subsequent to the short attack apparently didn’t quell investor discomfort over the stock. In fact, the short interest in Samsonite has actually grown (in terms of pure share count) as of the most recent Securities and Futures Commission data.
Might doesn’t make right
For me, there are too many concerns and question marks about Samsonite right now. The US-China trade war might soon subside, and perhaps those key markets will start buying more Samsonite goods. The investors holding short positions might move on to other targets. That’s a lot of “mights,” however, so for now I’d hold off on investing in Samsonite stock.
HK MoneyClub (www.hkmoneyclub.com)