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Samsonite International’s Growth Strategy: Is it Creating Shareholder Value?

Samsonite International S.A. (SEHK: 1910) is the world’s largest travel luggage company and is principally engaged in the design, manufacture, sourcing, and distribution of luggage, business and computer bags, outdoor bags and travel accessories. The group owns brands such as Samsonite, Tumi, American Tourister, Speck, High Sierra and Hartmann.

Samsonite’s growth strategy over the years has mainly been one of the acquisitions to bolster their stable of brands. The idea of management was to acquire brands that can help the group to target different customer segments at different price points.

History of acquisitions

Over the last seven to eight years, the group has engaged in a series of acquisitions of various brands such as Hartmann in 2012, Speck in 2014, Rolling Luggage in 2015 and more recently, Tumi in 2016. In 2017, the group acquired eBags Inc, a web-only travel bag retailer, for US$105 million.

In 2018, Samsonite was reported to be eyeing a handbag brand as handbags would help fill a gap in the group’s stable of brands and as products designed for women account for less than 5% of the group’s sales. So it seems that Samsonite is far from done when it comes to acquisitions. But investors should be asking if these acquisitions actually help to boost revenues, profits and margins.

Tracking Samsonite’s financial metrics

Source: Samsonite FY 2018 Annual Report

From the above table, it can clearly be seen that revenue has been on a steady upward trend over the last five years. While part of this can be attributed to the organic growth of Samsonite’s existing brands, the regular acquisitions also do play a part in boosting overall sales as these are immediate “add-ons” when a brand is added to the group’s stable.

Revenue increases are therefore an expected function of acquisitions and should, therefore, come as no surprise. The litmus test is whether these acquisitions create value by boosting overall operating and net profit while also bumping up margins. On this count, Samsonite seems to have done well as operating profits have been trending upwards along with revenue.

In case investors assume that operating profits should also increase in line with revenue, note that this is not always the case as poor acquisitions that produce losses actually create a drag on profits. Impairments on poorly-executed acquisitions also weigh on overall group profitability.

Operating profit margins have hovered in the range of 12% to 13% over the last five years, and this shows that the acquisitions have been integrated well into the group.

Though net profit appears to have plunged in FY 2018 versus FY 2017, the group actually restated the numbers (due to one-off costs and items) to derive adjusted net profit. Adjusted net profit for FY 2018 and FY 2017 was US$294.5 million and US$260.6 million, respectively.

Increasing brand presence and equity

Aside from the improved financial numbers, investors should also note that Samsonite’s acquisition strategy has created a behemoth that owns a wide portfolio of brands.

This has increased the group’s brand presence and strengthened its brand equity as it continues to engage in its “bolt-on” acquisition strategy. By owning brands that reach out to different customer demographics and price points, the group is thus able to capture more mind share.

Investors should cheer this strategy but also remain watchful for any deterioration in numbers arising from it.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang does not own shares in any of the companies mentioned.