Buried within Global Blue's recent earnings transcript lies a tantalizing secret – a potent lever capable of catapulting the company's profitability to unprecedented heights. While analysts and investors alike have focused on the company's steady recovery and promising long-term targets, a deeper dive into the numbers reveals an intriguing, and largely unnoticed, narrative – the potential for a profit explosion driven by the resurgence of Chinese shoppers.

Global Blue, a leading provider of tax-free shopping and payment solutions, has been patiently navigating the choppy waters of a post-pandemic world. Their recent Q3 2024 results, while positive, have painted a picture of steady, incremental progress. Revenue is up, EBITDA is climbing, and the company is aggressively chipping away at its debt. But the real story isn't about gradual improvement, it's about the explosive potential lurking just beneath the surface.

The key to unlocking this potential lies with the Chinese shopper – a demographic that once accounted for a staggering 56% of Global Blue's 2019 sales in store. According to Jacques Stern, CEO of Global Blue, while the reopening of Chinese borders in January 2023 has sparked a resurgence in travel, the return of Chinese shoppers to their pre-pandemic spending levels has been more measured. However, recent data suggests that the tide is turning, and it's turning fast.

Consider this – in January 2024, Chinese shopper spending in APAC surged to 127% of 2019 levels, a significant jump from the 105% recovery seen in Q3. This acceleration is fueled by two powerful trends – a substantial increase in average spending (up 115% compared to 2019) and a steadily increasing number of travelers. While the number of Chinese travelers still lags behind pre-pandemic levels, it's important to note that air capacity is rapidly recovering, with Tier 1 cities already at 84% recovery for Europe and 90% for APAC. As air travel becomes more accessible and affordable, and as visa processing times improve, we can expect this gap to close rapidly.

The implications of this are profound. Global Blue's CEO, Jacques Stern, has laid out a compelling "what-if" scenario. Their Q3 annualized adjusted EBITDA stands at €159 million, implying a 52% recovery in mainland China revenue. If, as air travel capacity and visa issuance suggest, Chinese shopper spending reaches a full recovery (100%) in the coming quarters, Global Blue's EBITDA could soar to a staggering €202 million. This isn't just a theoretical exercise, it's a very real possibility grounded in both data and recent trends. The Chinese appetite for shopping abroad remains voracious. Global Blue's monthly surveys of over 10,000 Chinese consumers consistently reveal a strong desire to travel and shop internationally, with over 76% expressing a willingness to do so.

Furthermore, the spending patterns of returning Chinese shoppers mirror a global trend – a pronounced shift towards luxury purchases by high-net-worth individuals. In both Europe and APAC, affluent Chinese shoppers are spending multiples of what they did in 2019, suggesting a sustained desire for high-end goods. This bodes well for Global Blue, positioning them to capitalize on a lucrative segment that is less susceptible to economic fluctuations.

Potential EBITDA Growth Driven by Chinese Shoppers

While the company's guidance for fiscal year '23-'24 remains at €145 million to €165 million, the potential for a Chinese-driven profit surge in '24-'25 is undeniable. With a target of "more than €200 million" in EBITDA, Global Blue is implicitly acknowledging the possibility of this hidden lever being pulled.

Here's where it gets really interesting. Global Blue's current market capitalization hovers around $977 million. Assuming a conservative €200 million EBITDA in '24-'25 and applying a reasonable EV/EBITDA multiple of 15 (in line with comparable companies in the sector), we arrive at a potential enterprise value of €3 billion. Deducting net debt, this translates to a market capitalization of approximately €2.5 billion – a potential upside of over 150% from current levels.

The stage is set for Global Blue to ride the wave of Chinese shopper resurgence to a new era of profitability. While the company's strategic focus on digitalization, new country expansion, and deleveraging are all critical components of their long-term growth story, it's the sleeping giant of Chinese shopper demand that holds the key to unlocking truly exceptional returns.

The potential for a profit tsunami is real, and investors who recognize this hidden lever stand to benefit handsomely. The question is, are you ready to ride the wave?

"Fun Fact: The average Chinese tourist spends over $6,700 per trip, making them one of the most valuable demographics for the global tourism industry."