Expansion Into DTC And Tumi Growth May Boost Future Revenue, But Consumer Sentiment Remains A Concern

Key Takeaways

• Strategic expansion in DTC and Tumi brand investment is set to boost revenue through direct consumer engagement and premium positioning.
  
• Diversification into non-travel products and operational efficiency initiatives are aimed at enhancing revenue and supporting earnings growth.
  
• Softer global consumer sentiment, elevated promotional environments, and geopolitical tensions threaten Samsonite’s revenue growth, margins, and earnings potential.

Catalysts

Engages in the design, manufacture, sourcing, and distribution of travel luggage bags in North America, Asia, Europe, and Latin America.

• Samsonite International's strategic expansion of direct-to-consumer (DTC) channels, including selective retail openings and increased e-commerce sales, is expected to contribute to future revenue growth by capitalizing on more direct engagement with consumers.
  
• The company’s investment in growing its Tumi brand, particularly through new product launches and store openings in Europe and Asia, is likely to enhance revenue and potentially increase margins due to Tumi's premium market positioning.
  
• Ongoing improvements in travel trends post-pandemic, with projections of approximately 5% annual growth, are expected to drive long-term sales growth, benefiting Samsonite's revenue as global travel correlates strongly with their sales.
  
• Samsonite's commitment to expanding its product offerings beyond travel-related items, such as casual bags and business products, may boost revenue by capturing demand in the non-travel segment.
  
• Initiatives to increase operational efficiency and control expenses, evident in their strong cash flow and maintained gross margins despite challenging market conditions, are likely to support earnings growth and margin improvements.

Samsonite International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsonite International's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 11.1% today to 9.3% in 3 years time.
• Analysts expect earnings to reach $408.1 million (and earnings per share of $0.28) by about January 2028, up from $398.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $467 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from 10.2x today. This future PE is greater than the current PE for the HK Luxury industry at 9.5x.
• Analysts expect the number of shares outstanding to grow by 1.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

Samsonite International Future Earnings Per Share Growth

Risks

• Softer global consumer sentiment, particularly in key markets like China and India, has negatively impacted sales, and if this persists, it could continue to affect Samsonite's revenue growth.
  
• Elevated promotional environments, notably in India, have led to decreased sales and increased competitive pressures, posing risks to net margins by driving potential price wars.
  
• The slowdown in the premium and luxury retail sectors, affecting brands like Tumi, may continue to impact higher-margin sales and ultimately diminish earnings potential.
  
• The reliance on travel trends for sales growth means economic downturns or shifts in consumer travel habits could adversely affect future revenue and profitability.
  
• Uncertainty surrounding potential trade tariffs and geopolitical tension implies a risk to the cost of goods sold and subsequent pressure on gross margins, particularly if tariffs extend beyond China affecting Southeast Asia production.

Valuation

• The analysts have a consensus price target of HK$26.86 for Samsonite International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$31.25, and the most bearish reporting a price target of just HK$19.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $408.1 million, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 8.2%.
• Given the current share price of HK$22.6, the analyst's price target of HK$26.86 is 15.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.