Samsonite International SA (SEHK:1910), one of the world's leading luggage and bag makers, recently reported that 2019 first-half sales hit US$1.8 billion – a 5% drop from the same six-month period last year. Using a constant currency basis, a measurement controlling for foreign exchange fluctuations, revenue dropped 1.5%.

Coupled with a weaker macroeconomic and political environment, the slowdown was due to fewer tourists in key US markets, China's B2B initiatives, and softer sentiment in South Korea.

Travel accessories and a tablet.

Image Source: Getty Images.

The company also reported gross profit margins of 56%, a 50-basis point drop from the first half last year. US tariffs on China-produced products, sales mix, and higher raw material costs in Europe weighed on profit margins. Samsonite closed H1 2019 with net profit of US$97 million, a drop of 12.8% from a year earlier.

Tumi sales positive

Across products, Samsonite-branded goods, which account for almost half of the company's top line, dropped 2.4%. Tumi, which accounts for more than a fifth of sales and which Samsonite acquired back in early 2018, grew sales 4.8% overall.

American Tourister, which makes up less than a fifth of top line, decreased 0.8% due to a higher base than the previous year. Excluding the US, China B2B and South Korea, American Tourister revenues were up 4.7%. Across locations, North American sales were down 5.7%, while Asia gained 0.2%.

Offsetting tariff impact

With North America and Asia accounting for three-quarters of top line sales, the business will remain vulnerable to any US-China trade tensions. In response to an overall 25% tariff increase for goods imported from China to the US, management is expected to pass on approximately 12% of that to end customers.

While net sales stabilised in the second quarter, headwinds for the business remain. Management believes the US business will likely still be weak, down mid-single digits despite a more favourable base. As a result, the company is now more focused on cost control to protect margins.

Foolish last thought

Samsonite has engaged in a series of acquisitions on various brands, with the company holding around 13% global market share with multiple price points.

While the company trades at a single-digit multiple, the tariff overhang is likely to remain an earnings deterrent for the company.  However, better growth in Asian tourism should provide a structural catalyst for long-term growth but it may still be too early to get excited about a turnaround in the near term.

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