Driven by online traffic, a new generation of influencer cities is “burning” all over the country. From the explosion of barbecue in Zibo to the “village supermarket” in Guizhou, from checking in “Shengtang Secret Box” in Datang City in Xi'an to the rise of snow and ice tourism in Harbin, the domestic tourism market has achieved a strong recovery, and cultural tourism consumption has also ushered in one climax after another. “Best” has become a “footnote” to the best performance of listed travel companies.

The industry generally believes that in 2024, the main tone of China's tourism industry will shift from “rapid recovery” to “rational prosperity.”

According to data released by the Ministry of Culture and Tourism's data center, the cumulative number of travelers this year has undoubtedly reached 119 million, which has recovered to the level of 106% in 2019. Revenue from tourism is also impressive. In 2024, it has recovered to $53.95 billion, an increase of 12.7% over the same period in 2019. Cultural tourism consumption has basically rebounded to pre-pandemic levels, surpassing 2019 for the first time in nearly three years.

Despite the increase in travel travel, the Q1 performance of luggage leader Samsonite (01910) was not as good as expected: in the first quarter of 2024, the company achieved net sales of about 859.6 million yuan (unit: US dollar, same below), slightly lower than the market estimate of 895.8 million yuan, up 0.9% year on year; gross profit of 519.5 million yuan, up 5% year on year; profit attributable to equity holders was about 802.9 million yuan, up 12.3% year on year; adjusted EBITDA was US$161.2 million, up 3.1% year on year.

As soon as the financial report came out, Samsonite's stock price fell sharply by 13% in early trading. By the close, it was reported at HK$25.8 million, with a turnover of about HK$909 million.

Major brokerage firms have also lowered their target prices one after another. According to the research report, Samsonite's adjusted EBITDA and sales performance in the Eurasian region in the first quarter were lower than expected. The bank lowered the Group's net profit forecast for 2024 to 2026 by 2%, 3%, and the target price was lowered from HK$36.3 to HK$34.4. Bank of America Securities released a research report saying that it is estimated that Samsonite (01910)'s growth this year will mostly be concentrated in the second half of the year, reducing earnings estimates per share by 5% this year and next, and lowering the target price from HK$36 to HK$35. According to a research report published by Macquarie, Samsonite's first-quarter results were mixed, and the Group's annual adjusted net revenue forecast for 2024-26 was lowered by 2.4% to reflect the reduction in expected revenue. The bank lowered its target price from HK$45 to HK$43.9.

Is tourism+marketing still not driving product volume?

As a luxury luggage giant, Samsonite Group, which has a century-old history, is mainly engaged in the design, manufacture, procurement and distribution of luggage, computer bags, leisure bags and travel accessories around the world. It owns 11 brands including Samsonite, TUMI, American Travel, SPECK, Gregory, and eBags, and about 60% of its revenue comes from luggage bags.

2024Q1, Samsonite is trying to rely on marketing to drive revenue growth.

During the period, the company's marketing expenses were 52.8 million yuan, up 5.6% year on year, accounting for 6.1% of net sales, up 0.2 percentage points year on year. The company said it will continue to invest in marketing to drive further growth in net sales.

Obviously, the effect of increasing incremental marketing revenue was not ideal; the company only increased slightly by 0.9% during the period.

By region, although China's revenue also increased by 17.7%, India's poor performance (down 10.8% year on year) caused the Asian region's revenue to rise by only 3.3% to 340 million yuan. North America, Europe, Latin America and corporate revenues were $285 million, $176 million and $58.5 million, respectively, with changes of 0.3%, -2.5%, 0.2% and -29.3%, respectively. In short, the Asian region had the strongest year-on-year growth. North America and Latin America were almost flat, Europe even recorded a year-on-year decline, and the decline on the enterprise side was even more significant.

By brand, the revenue of the company's core brands Samsonite, TUMI and AmericanTourister was 440 million yuan, 194 million yuan and 151 million yuan respectively, with year-on-year changes of 3.7%, -0.3%, and -0.1%, respectively; the percentages of net sales were 51.2%, 22.5% and 17.6%, respectively. The year-on-year changes were 0.4 percentage points, -0.3 percentage points, and 0.1 percentage points respectively. Simply put, with the exception of Samsonite brands that recorded growth, TUMI and AmericanTourister both declined year over year.

By category, Samsonite's products can be grouped into two major categories: travel and non-travel. Going back in history, the share of travel products affected by the global pandemic declined in 2020, and the overall proportion remained about 1:1. Since 2023, due to the accelerated recovery of leisure and business tourism in China, the share of net sales of travel products has risen to about 60%. In Q1 2024, travel products already accounted for the majority of net sales, but growth has slowed. During the period, tourism products contributed 558 million yuan, and non-travel products contributed 301 million yuan, an increase of 0.5% and 1.6%, respectively, over the previous year. It can be seen that the improvement in the tourism industry in Q1 2024 did not drive the volume of new and beautiful tourism products.

It is worth noting that Samsonite's DTC channel recorded a slight increase. As of the first quarter of 2024, the company added a net of 14 self-operated retail stores. As of March 31, the total number of self-operated retail stores was 1,066, an increase of 97. DTC retail channel revenue increased 2.4% year on year; DTC e-commerce channel grew stronger, with revenue of 87 million yuan, up 7.1% year on year, accounting for 10.1% of net sales. Overall, the company's net DTC sales were 319 million yuan, accounting for 37.1% of net sales, an increase of 3.7% over the previous year. At the same time, net sales from wholesale channels fell 0.7% year on year to 540 million yuan, accounting for 62.8% of total sales.

Overall, the combination of tourism and marketing still does not improve Samsonite's QI performance.

At the subsequent performance exchange meeting, the company slightly lowered its revenue growth guide to 10% (previously the guideline was high single digit to low double digit), including high single digit growth of 1H24 and low double digit growth of 2H24. The company maintains the adjusted EBITDA margin expansion guidelines of 20-30 bps.

Samsonite said that the company's 24Q2 performance will be superior to Q1, and H2 will be superior to H1. Growth in Europe was very strong in April, and Q2 will see strong growth with certainty. Global passenger traffic weakened slightly. This situation continued until April, improved in May, and is expected to continue improving in June.

The trend of concentration in the luggage industry is clearly competing for market share, leaving financial “sequelae”

From an industry perspective, there is a clear trend of fragmentation to concentration in the competitive landscape of the industry. CR5 and CR10 in the 2022 suitcase market were 33% and 37%, respectively, up 2 percentage points from 2021, and 5 percentage points and 4 percentage points from 2013, respectively. There is a clear trend of competition in the suitcase market from fragmentation to concentration, and Samsonite is expected to seize more market share as the absolute leader in the industry.

According to Euromonitor data, the compound growth rate of the global suitcase market from 2010 to 2022 was 1.8%, and the compound growth rate is predicted to increase significantly to 8.0% in 2027. In the context of industry growth, Samsonite's scale growth can be said to be definitive.

However, in order to compete for more market share at the time, Samsonite left behind many financial “sequelae.”

In 2016, after the company acquired the high-end brand Tumi for 1,824 billion yuan, goodwill and intangible assets surged. In 2015, goodwill and intangible assets totaled 1.06 billion yuan, accounting for 47.8% of total assets. In 2016, goodwill and intangible assets totaled 2.97 billion yuan, an increase of 1.91 billion yuan, accounting for 63.9% of total assets. At the same time, Samsonite's debt also skyrocketed. The total debt in 2015 was 820 million yuan, rising to 3.14 billion yuan in 2016.

In the first quarter at the beginning of the pandemic (2020), Samsonite reduced goodwill and intangible assets by a total of 740 million yuan, which caused Samsonite to lose 790 million yuan in the first quarter. After the depreciation, the goodwill and intangible assets on Samsonite's books are still 2.29 billion yuan, and there is still a possibility that the depreciation will continue.

In order to respond to the epidemic and supplement liquidity, Samsonite withdrew a revolving credit line of 810.3 million yuan and increased a revolving credit line of 200 million yuan. This further increased Samsonite's long-term loans, from 1.69 billion yuan at the end of 2019 to 2.51 billion yuan, total debt increased from 3.54 billion yuan to 4.15 billion yuan, and the balance ratio rose from 63.9% at the end of 2019 to 78.1% at the end of the first quarter of 2020.

As of March 31, 2024, Samsonite's cash and cash equivalents were $745 million, and outstanding financial debt was $1,825 million (excluding deferred financing costs of $16.2 million), resulting in a net debt of $1,080 million. In the same period, the company's total liabilities were 3,526 billion yuan; goodwill and intangible assets were 2,812 billion yuan, accounting for 52% of total assets; the balance ratio was still as high as 68.57%. The financial risks should not be underestimated.

With the rise of domestic brands, competition in the luggage market is becoming more and more intense. It is still a question mark whether Xinshui, the number one target, will become stronger in the “group fight”.

According to Zhitong Financial's information, Samsonite's management is in the process of promoting a second listing.

Earlier, according to public information, Samsonite is considering a dual listing in the US, but it still retains the possibility of a privatization deal. Global investment funds, including Carlyle and KKR, have shown initial interest in potential acquisitions. People familiar with the matter said that other companies such as CVC Capital Partners and DCP Capital Partners, which focus on the Chinese market, are also considering reaching a deal. As far as the purpose is concerned, whether it is a dual listing or privatization, it is all about maximizing the company's value.

In summary, in the first quarter of 2024, Samsonite's performance was not as good as expected. Perhaps it gave second-tier investors a signal that the growth in the tourism industry did not seem to help the company's performance increase as clearly as imagined. As far as this is concerned, Samsonite's true investment value is probably still open to discussion.