Covid hangover lingers for Tourism Holdings as earnings slide

Tourism Holdings (THL) chief executive Grant Webster did his best to sound upbeat last Thursday at the company’s annual meeting in Auckland after a horror year for shareholders that has seen the value of their shares almost halve in value since the start of the year.
Describing the company’s dramatic profit downgrade in May – when its profit guidance was slashed to between $50 million and $53m from $75m previously – as “a defining moment for THL” requiring deep reflection, Webster said it had led to “significant questioning and a review of the state of tourism and its prospects by everyone involved, given the quantum and timing so close to year-end”.
It has been a very public fall from grace in recent years for the country’s largest tourism operator after once boasting a share price near $7 back in 2018, pre-Covid of course. As of Friday, those same shares now trade at less than $2, after plunging by more than 30 percent in the wake of May’s profit downgrade.
THL generates the majority of revenue from its campervan rental (Maui and Britz) and resale businesses in Australia, NZ and North America. It also owns a number of smaller manufacturing and tourism businesses in NZ, including operating the Waitomo Glowworm Caves.
So what went wrong?
Covid obviously was a major contributor to the change in the company’s fortunes and despite the pandemic now largely being consigned to the history books for most people, it’s impact continues to linger in the broader tourism and leisure sector according to Webster.
“The scale of the May downgrade was partly a hangover from the pandemic, where we achieved record sales margins and fleet values appreciated, resulting in an unusually large earnings exposure to our projected vehicle sales volumes. This came to the fore in the fourth quarter of FY24 where we sold fewer ex-fleet vehicles in Australasia and recreational vehicle (RV) demand in North America did not recover in line with broader industry,” Webster told shareholders.
THL has a total of 24 sales locations with five here in New Zealand, seven in Australia, nine in North America and three in the UK/Ireland. The company sells all of its ex-rental vehicles exclusively through it retail dealerships both here and in Australia.
Noting that a key indicator for its RV rental business was the state of international tourism, Webster said that while the recovery of tourism back to 2019 levels continues, the pace of growth has been slower than the industry expected this year, particularly in New Zealand and Australia.
“Year-to-date, international arrivals to our main operating countries are between eight to 16 percent down on 2019, while vehicle sales continue to be challenging. Consumers have chosen to close their wallets on big-ticket discretionary expenses in response to increasing economic uncertainty,” Webster said.
“This is even the case for our main customer base, which leans towards older retirees that are less likely to have a mortgage and more likely to have benefitted from the higher interest rate environment. Some of the data we see from the larger RV markets in Australia and the US indicates that the overall RV sales market is down by nearly 40 percent from its peaks.”
However, striking a more optimistic tone, Webster also noted a recent statistic out of the US indicating that during the pandemic the median age of a first-time RV buyer went from 41 to 32, in what he said was a favourable sign for the future.
“This can only be positive for the long-term outlook for our industry, in which we regularly see RV buyers trade-up from towable and campervans to motorhomes over the years as their family grows. We see the improvement in vehicle sales being closely connected with the recovery in overall economic conditions.
“In the US, which is the world’s largest RV market, industry projections are for a seven percent increase in RV shipments in 2025. Our experience has been that US market trends tend to lead 6 to 12 months ahead of other markets.”
As expected, Webster said the challenging operating conditions for vehicle sales from the fourth quarter of FY24 had persisted in the first half of FY25 but he remained optimistic of achieving improved profitability in the second half of FY25, driven primarily by stronger rental activity in New Zealand through the high season and targeted operating cost savings of more than $12m.
“We have to be fast, assertive and agile. Better than we have ever been so that we are leading as a more effective business when market conditions improve,” Webster concluded his presentation.
Shareholders will certainly be hoping that improvement in the company’s performance, and its share price, isn’t too far away. A record 30 percent of them opted to take their recent dividend in additional shares, suggesting they continue to be optimistic about THL’s outlook despite its current woes.
It was a week of contrasting fortunes for commodity markets as worries eased about an escalation of tensions in the Middle East pushing the price of oil down more than seven percent, while the price of gold hit a new all-time high of US$2730 an ounce, bringing the precious metals year-to-date advance to more than 30 percent.
Bitcoin also recovered strongly in the wake of the more positive tone on markets, with a gain of 8.4 percent for the week.
The New Zealand sharemarket managed to recover from a sharp selloff last Wednesday in the wake of the release of the September quarter CPI reading that saw the NZX50 slide more than 1.5 percent, as investors worried about the extent of the slowdown in economic activity.
However, a re-weighting of energy stocks as part of a rebalancing of the S&P Global Clean Energy Index saw more than 45.9 million shares worth $156.3m traded on Friday erasing most of Wednesday’s losses with the NZX50 closing out the week down just 0.2 percent at 12,824.
Both Meridian and Contact Energy’s weightings in the index will be increased which saw both stocks finish the week higher, while shares in Manawa, which is subject to a potential takeover by Contact, gained 3.4 percent to end the week at $5.48, a 20-month high.
Markets remain volatile as central bank rate cuts, economic stimulus in China and geopolitical risk in the Middle East continue to be the main themes occupying the minds of investors.
The European Central Bank reduced its official rate for the third time this year, cutting its key interest rate by 25 points for the third time this year to 3.25 percent.
Locally, 11 listed companies will hold their annual meetings this week including Ebos, Freightways, Chorus and Port of Tauranga. There will be particular interest in Fletcher Building’s AGM on Wednesday as recently appointed chief executive Andrew Reding fronts shareholders for the first time following  the company’s recent $700m capital raising. Fletcher shares gained for a fifth straight week finishing at $3.18 after falling as low as $2.58 last month.
Even high end Chinese consumers, who helped drive an unprecedented boom in the global luxury sector in recent years, are feeling the pinch.
Their dramatic slowdown in spending in what has become a crucial market for luxury goods is taking its toll on some of the sector’s biggest names.
Shares across the industry weakened last week after Dior owner LVMH, the world’s biggest luxury group, reported an unexpected fall in third-quarter sales on the back of falling Chinese demand. 
Sales in LVMH’s core fashion and leather goods division — the industry bellwether that houses top brands including Louis Vuitton and Dior — fell five percent, the first contraction since the start of the Covid-19 pandemic in 2020 and much worse than consensus expectations.
Dior chief executive Delphine Arnault — the eldest child of LVMH’s billionaire owner and chief executive Bernard Arnault — is now under pressure to stem the slide in sales. At the start of last year, following a period under her predecessor Pietro Beccari, the brand’s sales grew fourfold to about €10 billion.
The world’s biggest luxury group with a market value of €312b, LVMH owns almost 100 brands ranging from hotel chains to perfumes, but Louis Vuitton — a megabrand with roughly €22b in annual sales — and Dior are the two biggest contributors to profits. Together they accounted for about 65 percent of group earnings before interest and tax last year, according to HSBC.
Average prices for luxury goods tracked by HSBC have risen 50 percent since 2019. Dior has raised them the most, according to one analyst, pushing up like-for-like price tags on “evergreen” products by more than 60 percent between 2020 and 2023.
“At some point in the consumer’s mind, the absolute numbers just don’t make sense,” one  luxury financier told the Financial Times. For the industry as a whole “you can no longer just grow through price” — particularly at top brands such as Dior and Vuitton that are now so big that they need to look beyond the ultra-wealthy for sales. 
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