Samsonite expects trade war to hit China sales

Firm sees uncertainty leading into second half of the year

HONG KONG: The world’s top luggage maker Samsonite International SA says the trade war between the US and China is damping sentiment among Chinese consumers and will play into slower sales growth in its second-biggest market, in another sign of the fallout from the tit-for-tat tariffs.

“All the noise of trade wars creates a little bit of sentiment on Chinese consumers,” Kyle Francis Gendreau, the company’s new chief executive officer, said in an interview. “We saw a little bit of uncertainty in China leading into the second half of the year.”

The luggage giant expected to see overall tariffs on its luggage and travel products rise an additional 10% – effectively increasing levies on its products to 30% – if the US enacted the next round of tariffs on up to US$200bil worth of Chinese goods, said Gendreau.

Its products had been subjected to an overall 20% tariff for a while now, he said.

Samsonite, based in Mansfield, Massachusetts and listed in Hong Kong, has faced a difficult year. Criticism of the company’s management by a short seller led to the resignation of Ramesh Tainwala as CEO, while luggage and handbags have become a target in the trade war between China and the US. Its shares have tumbled 14% this year.

Still, the company said its business “did not miss a beat” after short seller Blue Orca Capital LLC attacked the company’s corporate governance, accounting linked to its takeovers and Tainwala’s credentials. Samsonite responded with a point-by-point rebuttal in June, and shares have rebounded after an initial plunge.

Samsonite shares jumped as much as 8.5% in early trading in Hong Kong yesterday. That’s the biggest one-day increase since Tainwala stepped down on June 1, though the stock has yet to fully recover from Blue Orca’s attack on the company.

The company posted net income of US$67.8mil for the first half on Wednesday, with strong net sales growth in all of its key brands.

Sales growth in China would likely soften to a mid-single digit percentage in the third quarter, with full-year growth of 7% to 9%, Gendreau said. China annual sales growth typically should be around 10%, he said.

A lack of progress in trade talks is setting the stage for the Trump administration to push ahead with the next round of tariffs while China has said it plans to retaliate. The tariffs would lead to higher prices for consumers as the industry factored in the added costs, Gendreau said.

If the next round of tariffs took effect in October or November, the industry would start to feel the impact the beginning of next year, he said, suggesting that’s when some companies may look to raise prices.

Samsonite had been shifting production from China to Vietnam and Thailand and would continue to do so as part of a long-term strategy, he said.

“Tariffs are a cost in the business,” said Gendreau. “I don’t think we should make radical changes to the way we think about the business because this is a component of cost, just like any other cost. The shame of this is it’s hard to predict.” — Bloomberg