Breakingviews - Samsonite luggage could travel more

HONG KONG (Reuters Breakingviews) - Samsonite would benefit from seeing a bit more of the world. On Thursday, the world's largest luggage-maker reported flat first-half earnings of $92.7 million, as it digests a big acquisition. Alone among fashion stocks, Samsonite offers a unique pure play on travel. The need is for geographical variation: for all its globe-trotting image, the $5.5 billion company looks over-dependent on American demand.

Samsonite is an investment oddity. Its flagship brand is deeply American, and yet it is listed in Hong Kong. And while the biggest names in fashion sprawl across shoes, clothes and jewellery, it is highly concentrated on travel bags. Last year’s $1.8 billion takeover of Tumi added an upmarket marque to its portfolio, alongside outdoorsy High Sierra backpacks and budget offerings like Kamiliant.

The focus has proven lucrative for shareholders. The stock hit a record last month. Total returns, including reinvested dividends, since listing are up more than 140 percent, compared to around 70 percent for the local Hang Seng Index. While the comparison is uneven, Samsonite also outperformed many luxury groups like Coach, LVMH and Prada, which is also listed in Hong Kong.

Graphic: Samsonite total returns have exceeded the benchmark index and luxury groups since listing: reut.rs/2isOVdo

But this stock has never been through a recession, which hits travel spending early and hard. Fundamentally Samsonite relies on people moving around, and replacing old bags. Both activities slow sharply in a downturn.

One way to offset such risk is regional diversification. Here Samsonite could do more. To be sure, it is early days when it comes to taking Tumi global. But for now, the deal has actually heightened Samsonite’s focus on North America - adding Tumi helped drive a 53 percent increase in regional sales to $589 million.

Graphic: The world is flying more and more – and now Chinese travellers are joining in: reut.rs/2g5USft

Other locations - including China - made more modest contributions to growth and total revenue. Chinese sales, for example, were $130 million, or up 11.2 percent after adjusting for currency movements. Other regions posted sharper rises but from much smaller bases.

An advertising blitz – spending is up 51 percent - in Asia and elsewhere could help Samsonite rebalance. So might innovations like luggage that can be tracked via cellphone, which could appeal to smartphone-wielding Asian consumers. Time to think global.