Royal Caribbean’s Sail to Profitability Delayed; Shares Plunge 4.8%

Shares of Royal Caribbean Group (NYSE: RCL) were down 4.8% on February 4, after the cruise operator reported worse-than-feared Q4 loss and warned that its return to profitability would be delayed by a few more months.

The quarterly miss was driven by the intensified short-term disruptions caused by the Omicron variant impacting the crucial holiday season bookings.

Q4 Numbers

The company reported an adjusted loss of $4.78 per share, much worse than the street’s estimated loss of $3.92 per share. Comparatively, the company reported a loss of $5.02 per share for the prior-year period.

However, revenues jumped manifold to $982.2 million compared to pandemic hit revenues of $34.1 million in the prior-year quarter. However, revenues lagged consensus estimates of $1.04 billion.

Booking Update

With an increase in near-term cancelations in December, the Omicron variant led to a slowdown in bookings, which remained low over the crucial holiday season.

However, the company added that bookings have begun to increase with each week since the beginning of 2022 and are similar to pre-Omicron levels. Furthermore, for the second half of 2022, cumulative advance bookings are within historical ranges and reflect higher prices.

RCL CFO, Naftali Holtz, stated, “Similar to our experience following Delta, we expect bookings to materially increase as we get further beyond the peak of cases. We are already seeing cancellations subside and bookings improve to pre-Omicron levels, and we have adjusted our sales and marketing efforts in anticipation of a delayed and extended WAVE period.”

FY2022 Outlook

The company anticipates reporting a net loss for the first half of 2022, with an expected return to profitability in the second half of 2022.

Royal Caribbean Group expects to return the full fleet before the summer of 2022, with load factors projected to reach historical levels in the third quarter of 2022.

However, in the first half of 2022, load factors are expected to remain below historical levels due to the impact of Omicron.

CEO Comments

Looking ahead, Royal Caribbean Group CEO, Jason Liberty, commented, “We expect 2022 will be a strong transitional year, as we bring the rest of our fleet back into operations and well-nigh historical occupancy levels.”

However, he added, “Omicron created short-term operational challenges that have unfortunately weighed on close-in bookings. While the timing of Omicron was particularly unfortunate for the first half of 2022 bookings and will likely delay our return to profitability by a few months, we do not expect it to impact our overall recovery trajectory and the strong demand for cruising.”

Wall Street’s Take

Following the Q4 results, Deutsche Bank analyst Chris Woronka reiterated a Hold rating on Royal Caribbean with a price target of $81 (7.2% upside potential)

Overall, the stock has a Hold consensus rating based on 1 Buy, 2 Holds, and 2 Sells. The average Royal Caribbean price target of $91.50 implies 21.1% upside potential from current levels.

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