Short sellers in retreat as Samsonite shares rise 6 per cent following first-half earnings result
Samsonite, the world’s largest luggage maker whose former chief executive was forced to resign after the company faced a short sellers’ attacks three month ago, saw its Hong Kong shares rally 6 per cent on Thursday after a management reshuffle helped deliver solid first half earnings.
The company’s share price was up as much as 9 per cent in intraday trade before ending the session at HK$31.15, up 6 per cent from its previous close. The company reported late Wednesday that its first half net profit excluding one-off write-offs of deferred financing costs stood at US$107.4 million, up 28.8 per cent from a year earlier.
“The solid result is the best evidence to show that the allegation made by the short seller Blue Orca Capital was inaccurate. The short seller report just wanted to create a negative voice. It is clear that the short seller has picked the wrong target this time,” said Kyle Gendreau, the Boston-based chief executive of Samsonite, in an interview with the South China Morning Post in Hong Kong on Thursday.
The rally stood in a contrast to three months ago when its share price slumped 20 per cent in a few trading days in late May to HK$25.8 after Blue Orca Capital accused Samsonite of “questionable accounting practises” and poor corporate governance.
In its short seller report, Blue Orca said Samsonite was worth HK$17.59 a share, 49.7 per cent below its weekly high of HK$35 before the report was released. It accused the company of inflating profit margins and concealing slower growth through debt-fuelled acquisitions, and called for more auditing oversight on transactions involving companies owned by Samsonite CEO Ramesh Taniwala and his family. It also accused Taniwala of lying about his academic background.
Samsonite rejected the report as “misleading”.
The management reshuffle saw Gendreau, the former chief financial officer, assume the post of chief executive on May 31, following the resignation of Taniwala for “personal reasons”.
Gendreau, 49, worked as an accountant and venture capitalist before joining Samsonite in May 2007.
“Mr Tainwala resigned for personal reasons, not because of the short seller report. It was his contributions to the company that led Samsonite to develop from a single brand to a multiple brand company with solid earnings,” Gendreau said.
Gendreau said the company has no intention to take any legal action against the short seller, and will instead focus on its strategic plan geared towards new e-commerce initiatives and attracting more female consumers.
“We have quickly responded to clarify the allegation. We have put it aside and let it die down. We will move forward to further develop our business,” he said.
Gendreau said he had been busy behind the scenes to address concerns raised by the short seller report.
“I have answered all queries from the staff. I have met the major shareholders one by one to explain about our financial report. The major shareholders, particularly the largest shareholder The Capital Group, have showed their support to Samsonite,” Gendreau said.
Since the release of the short-seller report in May, The Capital Group increased its holding in the company from 13.81 per cent to 16 per cent, while JPMorgan Chase boosted its holdings from 5.12 per cent to 5.94 per cent, and FIL increased its stake from 4.64 per cent to 5.02 per cent, according to stock exchange data.
Gendreau said the company’s earnings and sales growth in the first half were mainly driven by online sales, which rose by 40 per cent. He said internet sales now represent 10 per cent of all sales, up from 2 per cent five years ago. Twenty-three per cent of total sales were to Samsonite shops and the remainder were to wholesale distributors in Asia, Europe and North America.
Gendreau said traditional retailing remains an important channel to reach consumers, with US customers preferring to shop at large retail outlets while Europeans preferred smaller, independent shops. Asians also preferred to purchase luggage at large retail stores, he said.
Gendreau added that the company has shifted towards lighter materials and more colourful patterns in an effort to boost appeal among female consumers.
“Women are the shoppers at home. There are also a lot of professional women who need bags and luggage. They are our key customers,” he said.