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Samsonite International H1 2019 Results: Feeling the Trade War Heat

Samsonite International SA (SEHK: 1910), one of the world’s leading luggage and bag makers, recently reported that 2019 first-half sales hit US$1.8 billion – a 5% drop from the same six-month period last year. Using a constant currency basis, a measurement controlling for foreign exchange fluctuations, revenue dropped 1.5%.

Coupled with a weaker macroeconomic and political environment, the slowdown was due to fewer tourists in key US markets, China’s B2B initiatives, and softer sentiment in South Korea.

The company also reported gross profit margins of 56%, a 50-basis point drop from the first half last year. US tariffs on China-produced products, sales mix, and higher raw material costs in Europe weighed on profit margins. Samsonite closed H1 2019 with net profit of US$97 million, a drop of 12.8% from a year earlier.

Tumi sales positive

Across products, Samsonite-branded goods, which account for almost half of the company’s top line, dropped 2.4%. Tumi, which accounts for more than a fifth of sales and which Samsonite acquired back in early 2018, grew sales 4.8% overall.

American Tourister, which makes up less than a fifth of top line, decreased 0.8% due to a higher base than the previous year. Excluding the US, China B2B and South Korea, American Tourister revenues were up 4.7%. Across locations, North American sales were down 5.7%, while Asia gained 0.2%.

Offsetting tariff impact

With North America and Asia accounting for three-quarters of top line sales, the business will remain vulnerable to any US-China trade tensions. In response to an overall 25% tariff increase for goods imported from China to the US, management is expected to pass on approximately 12% of that to end customers.

While net sales stabilised in the second quarter, headwinds for the business remain. Management believes the US business will likely still be weak, down mid-single digits despite a more favourable base. As a result, the company is now more focused on cost control to protect margins.

Foolish last thought

Samsonite has engaged in a series of acquisitions on various brands, with the company holding around 13% global market share with multiple price points.

While the company trades at a single-digit multiple, the tariff overhang is likely to remain an earnings deterrent for the company.  However, better growth in Asian tourism should provide a structural catalyst for long-term growth but it may still be too early to get excited about a turnaround in the near term.

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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 Christopher Chu doesn’t own shares in any companies mentioned.