S&P Global Ratings reported an upgrade in the debt ratings of Samsonite International S.A., the parent of Gregory and High Sierra, due to improved credit metrics driven by strong operating performance and disciplined expense management.
Other brands owned by Samsonite include Samsonite, Tumi, American Tourister, Kamiliant, ebags, Lipault, and Hartmann.
Samsonite’s issuer credit rating was raised to ‘BB+’ from ‘BB’ while the issue-level rating on its senior secured debt was upgraded to ‘BBB-‘ from ‘BB+’ and the rating on its senior unsecured debt to ‘BB+’ from ‘BB.’
The rating’s stable outlook reflects S&P’s expectation that Samsonite will maintain an S&P Global Ratings-Adjusted EBITDA margin near current levels while expanding revenue, resulting in an adjusted leverage of under 2x over the next 12 months.
S&P said, “Samsonite’s improved credit metrics are driven by strong operating performance and disciplined expense management. For the trailing 12-month (TTM) period ended March 31, 2024, S&P Global Ratings-Adjusted Leverage improved to 1.9x compared to 2.7x in the TTM period ended March 31, 2023, due to top-line growth and gross margin expansion.
“The company reported revenue growth of about 1 percent (+4.1 percent constant currency) during the first quarter of 2024, underpinned by growth in leisure and business travel, particularly in Asia. Gross profit margin increased 240 basis points (bps) in the first quarter of 2024, compared to the first quarter of 2023, driven by a shift in sales mix toward direct-to-consumer (DTC) channel and growth in Asia sales, both of which generated higher gross profit margin.
“We believe an intent focus on operational efficiency, combined with a significant recovery in the travel industry, has allowed Samsonite to enhance profitability even against a difficult macroeconomic backdrop.
“We expect continued EBITDA expansion as the company implements key operating and cost-saving initiatives. We believe Samsonite will continue to benefit from its ongoing momentum and forecast revenue growth of about 7 percent in 2024 alongside continued operational efficiencies.
“We anticipate the EBITDA margin to be sustained in the 23 percent range as growth rates at the higher margin for the Samsonite and Tumi brands remain ahead of the company’s other brands, and revenue contribution from Asia remains robust. Though we expect softening consumer spending, consumers continue to show a willingness to spend on experiences, including travel, which bodes well for Samsonite as it returns to a more normalized operating environment.
“Samsonite’s products are discretionary in nature, and there is risk that weaker consumer spending could hurt financial performance. However, Samsonite’s diverse portfolio of brands, including value-oriented brands such as American Tourister, may offset the risk by appealing to price-sensitive customers even in an economic downturn.
“Notwithstanding its recent operating successes, we believe changing consumer-buying habits along with the discretionary nature of its product offerings and exposure to the highly volatile travel industry increases the potential for performance volatility. Therefore, we continue to apply a negative comparable rating modifier to capture this standing in relation to its ‘BBB-‘ rated peers.
“We expect the company’s conservative financial policy and strong cash flow generation to support the ratings. We project Samsonite will generate a free operating cash flow (FOCF) of around $450 million in 2024 after $120 million of capital expenditures (capex) for new stores, remodels and product development.
“Samsonite reported that its net leverage improved to 1.48x as of March 31, 2024, compared to 2.53x in the prior year, reflecting its lowest leverage levels since acquiring Tumi in 2016. Given the lower leverage, we expect Samsonite will place greater emphasis on deploying cash for shareholder returns as opposed to further debt reduction. Still, we expect Samsonite will maintain a disciplined financial policy, and we forecast S&P Global Ratings Adjusted Leverage will be maintained below 2x in our base case scenario.
“The stable outlook reflects our expectation for Samsonite to maintain consistent operating performance, which includes revenue expansion, margin stability, and leverage below 2x over the next 12 months,” concluded S&P.
Image courtesy High Sierra
