Just have one doubt on Samsonite's long-term profitability. I heard that the company raised price for most of its SKUs in late 2022 & early 2023 - to cope with inflation at that time. The average price hiked up 10-15% and respond to 80% of adjusted operating profit raise in 2023 as well as early 2024.
However, as global consumer demand staying low, Samsonite is losing market share to local brands in multiple areas (NA, EU, India, China), as showned in company's 3Q result (Global Air RPK goes up in 2024 while Samsonite sales record a decline, probably implying a negative market share shift under current price policy?).
I simply fear that Samsonite's current profibility is unsustainable. Eventually, the company will have to provide discounts to maintain market share and same store revenue, which will further result in a decline in profitability. And if that's true, company bottomline will suffer for the next 2-3 years as profitability normalize (and you are paying 15x PE 2025 at the moment).
I mean, if you look at historical data from 2011 to 2017 (18/19 is more about poor management), the average EBITDA/Adj. OP margin of this business is 16%/13% - only jumped to 20%/16% in 2023 and 17%/15% in 3Q24.
Do you have any solid evidence to show that current profibility level is normalized/ company has experienced a structural change resulting a 2-3% sustainable hike in OPM?
First of all, I don't believe 15% price increase is too much, if not too few, compared with the inflation we have seen in the past few years. Based on our talk with industry people, the market share of non-branded luggage has been stable over the years.
Secondly, we learnt that Samsonite is still the one-of-the-kind player in the industry, if you take luxury Rimowa aside. The emerging brands don't make profits and COVID gave them a huge blow.
Thirdly, the cost cutting in the past few years, like closing underperforming stores, are real so the margin expasion is somewhat legit.
However, we do think there is a chance that Samsonite has been overearned a bit, not because of the price hike, but they may have do too much control on the marketing and product innovation. We'd love to see the company to spend 1-2% more on those functions to further boost revenue growth.
Thanks for the update. I am a bit nervous also with the acquisitions topic in CakeBox. And not so sure about the expansion in France, they have pretty good bakeries there, but ok, I guess they will go for the low-level income people. Other than that, pretty solid results and let's see if they bring the buybacks soon!
The acquisition is a big question mark. I'm very cautious about it. Hope they are more cautious than us.
France, I think it's a nice try. Correct me if I'm wrong, France is famous for breads but not cakes. I googled the leading bakery chains in France and found they don't have big celebration cake offerings. Therefore, I don't think Cake Box has very strong competition there. Now I'm still viewing international expansion as an option, and leveraging franchisees to do it is a very cost-efficient way. It's still a long way to go, yet Cake Box can afford it if it doesn't go as planned.
I see. Assuming it's a 70m rev, 20m+ EBITDA and EBIT breakeven company by then. I have no clue what multiple a sub-scale SaaS company can get. What do you think?
Many iGaming assets are valued at very high implied discount rates. I can see a fair value that is triple the current share price depending of course on strong execution of the management plan… and that would also require continued growth beyond 2026… and some re-rating (or decrease in discount rates).
It’s very early in the turnaround…so take it with a big grain of salt >> I think on strong execution on the plan, FCF generation could exceed EUR 5m p/y.
Zeus Capital’s estimate is EUR 2m for 2026 (after lease payments).
EUR 5m is not brilliant yet vs the current EUR 50m-ish market cap. I believe it can get very exciting if management overdeliver on the plan and/or GIG continues to grow solidly beyond 2026.
Incremental profits are potentially huge in this business. A few more years of growth should be highly accretive.
I see a very wide range of potential outcomes, and that’s already before talking about m&a.
Hi Alex, thanks for the update!
Just have one doubt on Samsonite's long-term profitability. I heard that the company raised price for most of its SKUs in late 2022 & early 2023 - to cope with inflation at that time. The average price hiked up 10-15% and respond to 80% of adjusted operating profit raise in 2023 as well as early 2024.
However, as global consumer demand staying low, Samsonite is losing market share to local brands in multiple areas (NA, EU, India, China), as showned in company's 3Q result (Global Air RPK goes up in 2024 while Samsonite sales record a decline, probably implying a negative market share shift under current price policy?).
I simply fear that Samsonite's current profibility is unsustainable. Eventually, the company will have to provide discounts to maintain market share and same store revenue, which will further result in a decline in profitability. And if that's true, company bottomline will suffer for the next 2-3 years as profitability normalize (and you are paying 15x PE 2025 at the moment).
I mean, if you look at historical data from 2011 to 2017 (18/19 is more about poor management), the average EBITDA/Adj. OP margin of this business is 16%/13% - only jumped to 20%/16% in 2023 and 17%/15% in 3Q24.
Do you have any solid evidence to show that current profibility level is normalized/ company has experienced a structural change resulting a 2-3% sustainable hike in OPM?
Hi Peter,
Thank you for the thoughtful question!
First of all, I don't believe 15% price increase is too much, if not too few, compared with the inflation we have seen in the past few years. Based on our talk with industry people, the market share of non-branded luggage has been stable over the years.
Secondly, we learnt that Samsonite is still the one-of-the-kind player in the industry, if you take luxury Rimowa aside. The emerging brands don't make profits and COVID gave them a huge blow.
Thirdly, the cost cutting in the past few years, like closing underperforming stores, are real so the margin expasion is somewhat legit.
However, we do think there is a chance that Samsonite has been overearned a bit, not because of the price hike, but they may have do too much control on the marketing and product innovation. We'd love to see the company to spend 1-2% more on those functions to further boost revenue growth.
Hope that's helpful!
Thanks for your reply! Very helpful insights indeed.
Thanks for the update. I am a bit nervous also with the acquisitions topic in CakeBox. And not so sure about the expansion in France, they have pretty good bakeries there, but ok, I guess they will go for the low-level income people. Other than that, pretty solid results and let's see if they bring the buybacks soon!
Thanks a lot for sharing your thoughts!
The acquisition is a big question mark. I'm very cautious about it. Hope they are more cautious than us.
France, I think it's a nice try. Correct me if I'm wrong, France is famous for breads but not cakes. I googled the leading bakery chains in France and found they don't have big celebration cake offerings. Therefore, I don't think Cake Box has very strong competition there. Now I'm still viewing international expansion as an option, and leveraging franchisees to do it is a very cost-efficient way. It's still a long way to go, yet Cake Box can afford it if it doesn't go as planned.
Those that believe the GIG Software management plan will not be valuing the stock on the 2025 figures. It’s all about 2026.
I see. Assuming it's a 70m rev, 20m+ EBITDA and EBIT breakeven company by then. I have no clue what multiple a sub-scale SaaS company can get. What do you think?
It is a tough question for sure.
Many iGaming assets are valued at very high implied discount rates. I can see a fair value that is triple the current share price depending of course on strong execution of the management plan… and that would also require continued growth beyond 2026… and some re-rating (or decrease in discount rates).
It’s very early in the turnaround…so take it with a big grain of salt >> I think on strong execution on the plan, FCF generation could exceed EUR 5m p/y.
Zeus Capital’s estimate is EUR 2m for 2026 (after lease payments).
EUR 5m is not brilliant yet vs the current EUR 50m-ish market cap. I believe it can get very exciting if management overdeliver on the plan and/or GIG continues to grow solidly beyond 2026.
Incremental profits are potentially huge in this business. A few more years of growth should be highly accretive.
I see a very wide range of potential outcomes, and that’s already before talking about m&a.
I see. It's an interesting one to monitor. I like what Richard has delivered so far.