Meeting Takeaways: 1Q22 in line; faster momentum possible once China resumes a recovery mode

  • Samsonite’s 1Q22 registered a 25% sales decline vs. pre-pandemic period of 1Q19, based on constant currencies and excluded Speck that was divested on 30 Jul 21. Such momentum continued to improve from the 28% sales dip in 4Q21 vs. 4Q19, despite rising number of COVID-19 cases and tightening social distancing policies in selected regions (e.g., China) as well as inventory delays in N. America so far this year.
  • All regions saw sequential improvements in 1Q22 on constant currencies against their respective pre-pandemic levels, seeing sales in N. America down by 16% instead of 21.6% should we exclude impacts from inventory delays (4Q21: -21.3%); Asia down 38.6% (4Q21: -39.3%); Europe down 21.5% (4Q21: -28.4%); and Latin America up 28.7% (4Q21: +7.7%). Reported revenue scored 61.7% y-o-y growth to US$574m (or up 74.9% on constant currencies). 
  • Gross margin increased by 6ppt y-o-y to 54.7% in 1Q22, amid price lifts that took effect around 2H21 to minimize rising freight & duty costs impacts and lower promotional discounts to steer towards the normalized level of 56.6% in 1Q19. Adjusted EBITDA margin reached +12.8% in 1Q22 versus -8% in 1Q21, and was even 2.6ppt higher than 10.2% in 1Q19 due to overall cost restructuring initiatives since 2 years ago. 1Q22 Adjusted EBITDA reached US$73m (1Q21: -US$28m) and Adjusted Net Profit reached US$23m (1Q21: -US$67m), in line.
  • Fixed SG&A expenses were lowered by US$88m in 1Q22, as compared to 1Q19, well ahead of its target for c.US$200m annual savings following strong efforts on cost retrenchment initiatives since 2020. Parts of the savings will be reinvested into more advertising & marketing expenses this year (1Q22: 4.2% of sales) as sales momentum continued to improve. Net debt had also been reduced by US$258m over the year to US$1.5bn as of Mar 2022 and the company will continue to deleverage.
  • Cash burn of US$58m in 1Q22 was mainly for its rebuilding of inventory. The company will continue to increase its stock level, which is still below the amount in Mar 2021, to ensure capturing all orders ahead in view of strong demand across all brands (e.g., Tumi even saw its sales surpassing 1Q19 in some markets).
  • Latest sales for Apr 2022 saw c.22% revenue decline as a whole, excluding Speck and its Russian operations that have been suspended since late-1Q22. For 2Q22, Europe could continue to improve and see 18-19% sales decline vs. 2Q19, while Asia could see a high-twenties’ decline if not because of China’s slowdown, suggesting that a meaningful recovery has been seen in the rest of Asia.
  • China has probably seen one of the slowest months in Apr 2022 since its recovery so far. Revenue fell by 80-90% in Apr 2022 and c.65% in May 2022 against pre-pandemic levels given the lockdown in selected cities with COVID-19 resurgence. It is believed that some improvements could be seen by Jun-Jul 2022, so that the whole Asian region should reaccelerate its recovery again. As China still delivered an EBITDA margin of c.15% even when sales were down by c.30% versus pre-COVID level, any improvement in China ahead should also contribute well to the bottom-line.
  • With a firm recovery in international travels to sustain ahead, improving COVID-19 situation in China to normalize production capacity and supply chain, and diminishing challenges from shipping delays by 2H22, Samsonite should stay in a better position for more significant sales improvement. For the full year of 2022, Samsonite targets to achieve a 15-20% sales decline vs. pre-pandemic level, and a teens rate in Adjusted EBITDA.