Samsonite confident worst of China’s luxury crackdown is past

March 19, 2014 5:11 am
Samsonite confident worst of China’s luxury crackdown is past
By Jennifer Hughes in Hong Kong
The worst of China’s luxury crackdown has passed, according to Samsonite, the premium luggage maker that warned last year that Beijing’s austerity drive was hurting its high-end sales in the country.

Hong Kong-listed Samsonite on Wednesday reported an 18 per cent year-on-year rise in 2013 net profit to $197m, and record revenues of $2bn, up 15 per cent.
The higher revenues were driven by a strong US performance and growth in Asia – the company’s single biggest market – where sales rose almost 16 per cent. Of that, however, sales in China rose just 5.3 per cent.
The company said it still considered China its number one strategic market. Tim Parker, chief executive, said the company had a more optimistic outlook and that the effects of the austerity drive were “dropping off”.
“I think the worst is behind us. There’s a difference between people having bags for work and people having luxury handbags and other more ostentatious products,” said Mr Parker. Samsonite added about 200 outlets in China last year and expects to do the same this year.
Companies including Kweichow Moutai, maker of a pricey white liquor favoured by Chinese officials; Diageo, the world’s biggest spirits maker; and Pernod Ricard, the owner of brands including Absolut vodka and Jameson whisky, have warned that the crackdown on official ostentation had hurt sales.
Overall average luxury spending in China dropped 15 per cent in 2013 compared with the previous year, according to a recent survey of the country’s wealthy.
Mr Parker added: “The leadership in China is starting to realise some consumption is good. The culture of gift giving isn’t going away entirely and people do need to buy products, like cases, for travel and for employees.”
Samsonite shares rose almost 11 per cent by noon in Hong Kong to HK$22.90, helped by an unexpected doubling of the company’s full-year dividend. It will pay out 5.7 cents per share, equivalent to 45 per cent of net profit this year. Analysts had expected a payout ratio nearer 25 per cent as the company retained cash for acquisitions.
Mr Parker said he was actively seeking deals and that the higher dividend payout was a reflection of the company’s stronger – and sustainable – cash generation.
Samsonite has no debt and has said it could spend up to $1bn on deals.
“For every four or five businesses we look at maybe one gets to the stage of completing a transaction. You have to invest a lot of time,” said Mr Parker. “Our market is fragmented and there are a lot of companies out there.”
Samsonite has previously hinted at deals in China, which accounts for 9.5 per cent of its sales.
Mr Parker also announced on Wednesday that Ramesh Tainwala, previously head of Samsonite’s Asia business, was to become chief operating officer. Mr Parker would focus instead on strategy and investor relationships.
Asia including China makes up 38 per cent of Samsonite’s sales. The US and Europe account for roughly a quarter each, with Latin America producing 7 per cent. Sales in the US rose 24 per cent in 2013 year-on-year.
Excluding the acquisition of Hartmann, the luxury brand, and High Sierra, a backpack maker, US sales rose 14 per cent.