Samsonite increases net profit but challenges still seen ahead

PUBLISHED : Thursday, 17 March, 2016, 8:20pm
UPDATED : Thursday, 17 March, 2016, 9:17pm

Samsonite International, the world’s largest luggage maker, on Thursday reported an increase of 6.1 per cent in net profit last year thanks to stronger sales in mainland China, but a senior executive warned of challenges ahead.

Samsonite’s net profit stood at US$197.6 million for the 12 months to December, on turnover that rose 3.5 per cent to US$2.4 billion thanks to stronger sales in many Asian markets including Japan and mainland China.

The strong sales, however, were offset by foreign exchange rates since the depreciation of the yuan and other Asian currencies against the US dollar last year, Sales in local currencies saw a valuation loss of US$198.2 million when reported in US dollars.

Timothy Parker, the chairman of Samsonite, said the trading conditions last year were some of the toughest he had encountered since the global financial crisis in 2008, while he warned that the outlook was “uncertain” with China’s slower economic growth and the strength of the US dollar.

We will not close any stores in Hong Kong and we are optimistic for Hong Kong business in the long term
Ramesh Tainwala, chief executive

Chief executive Ramesh Tainwala warned that Hong Kong will still face tough conditions this year, as the tourist flows continue to fall amid the Hong Kong dollar’s recent strength.

“We will not close any stores in Hong Kong and we are optimistic for Hong Kong business in the long term,” Tainwala added.

However, Victor Au, the chief operating officer at Delta Asia Securities, said it could take a year before a recovery is seen in the Hong Kong tourism industry.

“The sales growth of Samsonite has already decelerated following a weaker China and global economy and growth that was even worse in Hong Kong,” he said.

Samsonite’s Hong Kong sales rose a moderate 3.1 per cent last year, much lower than mainland China’s 11.1 per cent growth.

Tainwala said China will be the key driver in the following five years. Net sales in Asia are expected to maintain double-digit growth. The luggage giant said it will continue to open stores in Asia and stressed that e-commerce channels are also a priority.

Samsonite last week said it would buy luxury baggage maker Tumi for US$1.8 billion, a price which Tainwala said was not expensive because Tumi is a good brand with sound profitability.

Two-thirds of Tumi’s sales come from the US, but the strong dollar hit its business last year.

However, Tainwala believes Samsonite’s experience can help make up for Tumi’s limited presence in Asia and Europe. “The real opportunity for Tumi is outside North America,” he said. “Tumi has very limited presence in China which will be a great market for the brand.”

Samsonite is willing to let Tumi operate with its own teams rather than by way of distributorship after the acquisition deal is finished, Tainwala said.

He also said that Samsonite had not ruled out more acquisitions, but for now the company is focused on integrating Tumi.

However, Au said Samsonite needs to acquire more brands and further diversify its product range amid decelerating sales growth.

The price of Samsonite’s shares dropped 0.39 per cent to close at HK$25.80 Thursday. Au believes its current price is mainly supported by recent acquisition news, but based solely on the company’s core business, it is slightly expensive.