Norwegian Cruise Line Holdings Ltd. NCLH will likely benefit from solid booking activities, digital initiatives and fleet expansion efforts. This and the focus on booking window extension bode well. However, a volatile macro environment is a headwind.
Let us discuss why investors should hold on to the stock for now.
Improvements in booking activities have been aiding the company. The bookings include incorporating higher pricing and the dilutive impact of future cruise credits (FCCs). The company reported solid booking volumes during the second quarter, courtesy of a robust consumer demand environment. The company stated that the cumulative booked position for 2023 is higher than 2019 levels. Also, it reported strength in advance ticket sales. As of Jun 30, 2023, the company’s advance ticket sales balance came in at $3.5 billion, reflecting a rise of $167 million (from the previous quarter’s levels) and 56% (from 2019 levels). The company stated pricing levels to be elevated. The company intends to focus on strategic marketing efforts to drive demand and high-value bookings in the upcoming periods.
The company emphasizes its booking window to drive the top line. The initiative not only evaluates the extent and willingness of consumers to spend on cruise travel but also provides better visibility for price increases and moderating marketing expenses. During the second quarter, the company extended its booking window by 51 days (or 20% compared with 2019 levels) to enhance future visibility and reduce exposure to volatile bookings. The company anticipates the indicator as a driving factor in the upcoming periods.
Increased focus on digital initiatives bodes well. During the second quarter of 2023, the company created a simplified booking process that employs generative AI technology to personalize the experience for visitors. The initiative paves a path for optimization in pricing and marketing approaches. It is optimistic concerning the strategies and anticipates it to increase yields, guest satisfaction and guest repeat rates.
Norwegian Cruise is constantly looking to expand its fleet size to drive growth. It plans to introduce eight more ships through 2028. Most are on order for the Norwegian Cruise Line, while the rest are for Oceania Cruises and Regent Seven Seas Cruises. The Regent brand has one Explorer Class Ship to be delivered in 2023. The company has one Allura Class Ships for the Oceania Cruises brand to be delivered in 2025. The Norwegian brand has five Prima Class Ships on order, with scheduled delivery dates from 2023 through 2028. The company’s new build pipeline is likely to pave a path for 50% capacity growth by 2028, registering a CAGR of approximately 5% (from 2019 levels).
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In the past three months, shares of the company have declined 9.7% compared with the industry’s fall of 5.5%. The company’s operations are likely to be influenced by the volatility in inflation, rising fuel prices and rising interest rates. The company is cautious about the ongoing uncertain macroeconomic environment.
Norwegian Cruise has been bearing the brunt of high expenses for quite some time now. During the second quarter of 2023, total cruise operating expenses came in at $1,383.6 million compared with $1,073.3 million reported in the year-ago quarter. The company reported a rise in payroll, fuel and direct variable costs of fully-operating ships. The company anticipates inflation and global supply chain constraints to pressure margins in the near term. Also, it is cautious of increased fuel and capacity additions expense. For 2023, our model predicts total cruise operating expenses to rise 28.1% year over year to $5,464.8 million.
Zacks Rank & Stocks to Consider
Norwegian Cruise currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector include:
Royal Caribbean Cruises Ltd. RCL sports a Zacks Rank #1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 28.5% on average. Shares of RCL have gained 79.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 55.2% and 180.1%, respectively, from the year-ago period’s levels.
Skechers U.S.A., Inc. SKX sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 39.1% on average. Shares of SKX have increased 32.3% in the past year.
The Zacks Consensus Estimate for SKX’s 2023 sales and EPS indicates a rise of 8.7% and 42%, respectively, from the year-ago period’s levels.
OneSpaWorld Holdings Limited OSW currently carries a Zacks Rank #2 (Buy). OSW has a trailing four-quarter earnings surprise of 42.6% on average. Shares of OSW have increased 26.9% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 44.5% and 117.9%, respectively, from the year-ago period’s levels.
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