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Coverage Initiation: TUMI Holdings (TUMI)
Value Line recently initiated coverage of TUMI Holdings (TUMI) in its flagship product, The Value Line Investment Survey. The company describes itself as a “premium lifestyle brand renowned for quality and innovation.” Those are pretty haughty words for what many would see as little more than a luggage company, but the company’s aficionados would likely support the flattering description.
TUMI was founded in 1975 and initially sold high-end leather bags. This remained its niche for many years, until in the 1990s it began to focus more on its product variety and image. Today it offers a series of different products, including its traditional luggage, accessories, women’s bags, and an assortment of fashionable bags. It has recently extended its products by offering limited edition designer bags and accessories, including a line created by Ducati, a well-known motorcycle manufacturer.
For many shoppers, however, the TUMI brand is obscure at best. A lack of brand recognition, however, didn’t stop other high-end brands from going mainstream. Indeed, many companies have seen their products go from being viewed as simply expensive to being seen as aspirational purchases. In fact, TUMI is reminiscent of Coach (COH) prior to that brand’s lurch into consumer consciousness. With only about 100 stores, TUMI believes it can accommodate around 200 more company owned outlets. It is planning to open between eight and 16 stores this year, with a similar number planned for next year. At that rate, there would appear to be years of expansion ahead.
That said, the company is not simply a luggage maker, it is delving into fashion. With that comes the risk of missing trends and misjudging fashion styles. A material issue, since a few fashion miscues can take a company from fashion forward to fashion pariah. Offsetting this risk, however, is the fact that its products are not as sensitive to fashion shifts as, say, a clothing retailer’s might be.
An even larger issue than fashion sense would likely be if TUMI’s image as a purveyor of high-quality merchandise were tarnished. The company is relatively small and relies on a network of contract manufacturers. Its partners hail largely from Asia. Any disruption in its supply chain could materially impact both the top and bottom line. In addition, it has just three distribution facilities. Its U.S. facility functions as its main hub, and it is capable of picking up the slack if its other properties are temporarily unavailable, however it is unlikely that the other facilities could make up for the loss of the U.S. location.
Although the company earns a material portion of its revenue from company owned stores and its own website, it also distributes through a network of retailers. In describing these retailers, management reports that “any of our wholesale customers are family-run enterprises that have limited access to capital and undefined succession plans.” While this is true, and presents a risk, it is notable that TUMI has a presence in around 1,500 stores, making the loss of any one merchant less material.
It is important to note that TUMI is at its heart a luggage company. So while, like any retailer, economic vagaries will impact top and bottom line results, so, too, would a drop in travel. While this might be associated with economic malaise, it is possible that travel could fall off in even a period of robust growth.
Investors should be aware that privately controlled Doughty Hanson has a greater than 50% stake in TUMI. This not only means that Doughty Hanson has the ability to dictate how the company is operated, but it also means that TUMI qualifies as a “controlled company” under the governance standards of the NYSE. As such, TUMI does not have to comply with some of the corporate governance requirements that non “controlled” companies would—ultimately reducing the regulatory protections typically afforded to shareholders.
Subscribers interested in taking a position in a luxury retailer that appears to have material room for expansion should consult the regular quarterly reports for TUMI Holdings to keep up on management’s efforts to grow its business. Note, that material news on this and other topics will be highlighted in supplemental reports as the news occurs.
At the time of this articles writing, the author did not have positions in any of the companies mentioned.