Normalization Will Unleash Persistent Headwinds In The Luggage Market

Key Takeaways

• Normalization of global travel and shifting consumer preferences away from physical goods will hinder long-term revenue and sales growth.
  
• Rising competition, regulatory pressures, and lengthening product replacement cycles are set to weaken market share, margins, and recurring revenue.
  
• Diversified revenue streams, cost discipline, product innovation, and flexible supply chain management are boosting Samsonite's profitability, brand strength, and resilience against market volatility.

Catalysts

Engages in the design, manufacture, sourcing, and distribution of luggage, business and computer bags, outdoor and casual bags, and travel accessories in Asia, North America, Europe, and Latin America.

• The company's exceptional revenge travel driven growth from 2021 to 2023 has resulted in inflated expectations, but normalization is underway as global travel returns to historic growth rates and Samsonite must now lap several years of extraordinary outperformance, leading to much slower revenue expansion in the years ahead.
  
• A persistent global shift in consumer preference toward experiences over ownership and away from discretionary physical goods like luggage threatens to cap long-term demand, creating a secular drag that will stagnate Samsonite's sales growth and compress top-line expansion over time.
  
• Intensifying competition from low-cost private label and digital-native luggage brands, which are rapidly taking share at the value-end, is forcing Samsonite to avoid competing on price in several major markets. This dynamic will erode market share, weaken its revenue base, and risk brand dilution if competitive pressures intensify.
  
• Sustained global trade tensions, shifting tariffs, and the growing burden of climate-driven regulation and sustainability mandates are likely to increase Samsonite's materials and manufacturing costs, reducing long-term profitability by putting persistent downward pressure on gross margins and net earnings.
  
• The increasing durability of quality luggage is lengthening replacement cycles across the industry, permanently stretching out the cadence of repeat purchases. This structural headwind will translate to lower recurring revenue and reduced operating leverage, limiting both revenue growth and earnings progression for the foreseeable future.

Samsonite Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Samsonite Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Samsonite Group's revenue will grow by 1.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 8.5% today to 8.3% in 3 years time.
• The bearish analysts expect earnings to reach $300.6 million (and earnings per share of $0.21) by about August 2028, up from $294.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 10.0x today. This future PE is lower than the current PE for the HK Luxury industry at 10.1x.
• Analysts expect the number of shares outstanding to decline by 3.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.56%, as per the Simply Wall St company report.

Samsonite Group Future Earnings Per Share Growth

Risks

• The robust growth and margin performance of Samsonite's direct-to-consumer channels, now accounting for 40 percent of net sales and still rising, increases revenue visibility and margin stability, supporting improved net margins and long-term earnings.
  
• Strong expansion in the non-travel category, which now represents over 36 percent of sales and continues to show positive constant currency growth despite soft consumer sentiment, diversifies revenue streams and reduces dependence on cyclical travel, bolstering total revenue and profit resilience.
  
• The company's success in managing costs and maintaining discipline-evidenced by distribution and G&A expense rising less than 1 percent even as 57 net new stores were added-enhances long-term profitability by supporting stable net margins and operating profits.
  
• Ongoing product innovation, high-profile collaborations, and sustained marketing investment are demonstrably elevating brand equity across all core and emerging brands, allowing for premium pricing and strengthening top-line growth.
  
• Effective tariff mitigation and flexible supply chain management, together with strategic inventory management and price leadership, are enabling Samsonite to absorb regulatory shocks and inflationary pressures, helping protect gross margin and long-term earnings power.

Valuation

• The assumed bearish price target for Samsonite Group is HK$13.97, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Samsonite Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$30.9, and the most bearish reporting a price target of just HK$13.97.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $300.6 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.6%.
• Given the current share price of HK$16.57, the bearish analyst price target of HK$13.97 is 18.6% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.