Investors should be relieved that beach holidays retailer On The Beach (OTB) has avoided the same fate as rival Thomas Cook (TCG).
The latter has issued two profit warnings in three months and suspended its dividend. In contrast On The Beach has seen demand stay resilient, encouraging the company to raise it's own full year payout by 17.9% to 3.3p.
On The Beach saw headline sales jump 24.5% to £104.1m despite lots of British consumers choosing to stay at home during this year's long and hot summer.
Approximately £13.2m of sales was generated from new acquisition Classic Collection, a business-to-business distribution network, which offers access to over 5m holidays that are sold offline. Underlying revenue growth was about 9%, still very decent considering the backcloth.
That helped pre-tax profit increase 23.7% to £26.1m.
WHY MARKETING SPEND MATTERS
A key advantage the company has over competitors is the ability to flex its marketing spend as 85% to 90% of costs are incurred through paid searches.
If customers don’t click through to On The Beach’s website via Google, the company does not pay for the marketing. The percentage of revenue spend on marketing declined from 45.2% to 41.8% in the year to September.
ON THE BEACH’S WINNING FORMULA
‘It has identified its niche, continues to invest in people and technology and fine tune its proposition to capture the public’s attention and make it easy for to browse, research and ultimately purchase,’ comments AJ Bell investment director Russ Mould.
Despite the strong performance, hot weather remains an issue.
International sales plummeted from 51% growth in the first half to a 5.9% decline to £1.6m amid lower demand and heavy discounting by Swedish tour operators.
During On The Beach’s traditionally quiet first quarter, it is enjoying good early trading as people have been attracted by lower ticket prices over the winter period.
Shares in On The Beach rose 3% to 414.2p.
