A weaker gross margin at travel agent Thomas Cook (TCG) has taken the shine off the company’s full year results with the shares slumping 9.2% to 110.5p.
The company says the gross margin has declined by 130 basis points, driven by more competition in the sector and higher costs, particularly for holidays to Spain.
The company reports high demand for Spanish holidays in 2017, up 42% from a historic average of 30% due to turbulence in the eastern Mediterranean, although this is expected to ease back.
Unfortunately the high demand, inflated costs and weaker pound hit margins as Thomas Cook could not pass the costs entirely to the customer through a hike in prices.
AVERAGE SELLING PRICES
Average selling prices are up by 2% for the winter 2017 period. On a region specific basis, average selling prices are up by 6% for Northern Europe.
The company says summer 2018 sales have started well with bookings and pricing ahead of the previous year. Demand for holidays to Turkey and Egypt is particularly strong, says the company.
LATEST FINANCIAL RESULTS
Outside of margin pressure, underlying profit from operations jumped 28% to £330m in the year to 30 September, with sales up 15% at £9bn.
Langton Capital analyst Mark Brumby says the full year results should be encouraging for the group’s recovery although he concedes it ‘has some way to go’.
The analyst is optimistic about Thomas Cook’s joint venture with Chinese conglomerate Fosun, flagging it as ‘potentially very exciting’.
The joint venture expands the travel agent’s holiday offering and provides multiple channels to market. Thomas Cook made good progress in its first full year of operations, sending 20,000 customers to China since September 2016.
