Thomas Cook guides lower on profits, but confident on medium-term outlook

Thomas Cook guided towards the lower end of market expectations for its full-year underlying earnings on Tuesday, blaming the impact from hot weather in June and July and margin pressures on its tour operations in the Spanish islands, amid aggressive competition and bed cost inflation from hoteliers.

In a trading statement for its third quarter, the tour and travel operator said revenues had risen by 10% to £2.479bn but that gross profits declined 3% to £443m as gross margins dipped by 240 basis points from a year ago to 17.9%.

"Bookings for the summer are up 11% overall, fuelled by strong growth in our Group Airline, in line with the planned increase in capacity, particularly in Germany. This has helped to offset a slowdown in package holiday bookings in recent weeks with customers across our European markets delaying decisions about their summer holidays as they enjoy the record temperatures at home," group chief executive Peter Frankhauser said in a statement.

"It's clear that we remain in a competitive environment, particularly in the UK where the growth in popularity of higher-margin destinations like Turkey and Egypt has not fully offset the continued pressure on margins to Spanish holidays. Based on our current view, we now expect growth in full year underlying operating profit to be at the lower end of market expectations."

On a like-for-like basis, group operating profit before exceptionals rose by £1.0m to £14.0m, with a £5.0m increase in its airline arm offsetting a £6.0m reduction at its group tour operator.

In parallel, corporate costs were down by £2.0m, albeit mainly due to the timing of head office items.

EBIT separately disclosed items meanwhile worsened by £8.0m to £21.0m due to the need for new air operator certificates and disruptions in the UK and Germany in the wake of the bankruptcies at Monarch and Air Berlin.

Meanwhile, non-recurring payments to the Co-op after exiting its UK retail joint-venture, saw net debt balloon by £64.0m to £468.0m, although in LFL terms and excluding cash items and currency effects it decreased by £73.0m.

"There is no change to our outlook beyond 2018. While it is early in the booking cycle, we are encouraged by booking and pricing trends for the Winter 2018/19 and Summer 2019 seasons.

"[...] We are also confident that the strategic actions we are taking to better position the business."

As of 1524 BST, shares of Thomas Cook were extending their recent bounce, rising 3.36% to 100.10p.