On the Beach issued a profits warning today due to a plunge in sterling amid no-deal Brexit fears.
The online beach holiday retailer said it “anticipates delivering a full year performance below the board’s expectations”.
In an update on current trading, the company outlined how it operates a flexible model incorporating dynamic rather than currency hedged pricing for the packages it provides.
Podcast: On The Beach’s Simon Cooper speaks to Lee Hayhurst
“With the increased likelihood of a no deal Brexit, sterling has significantly devalued against the euro since the beginning of May and this accelerated at the end of July, continuing into August,” the statement to the London Stock Exchange said.
“Whilst the group has seen a strengthening of demand in H2, this weakening of sterling leads to a significant increase in On the Beach prices versus full risk competitors with currency hedges.
“As On the Beach remains focused on profitable growth, these relative price increases make it difficult for the group to gain share of market while maintaining margins.”
However, the group has continued to increase investment in both talent and infrastructure in areas that offer the most significant expansion opportunities, despite the difficult market conditions.
The company has signed more than 1,000 agents through its Classic Package Holidays portal launched following the acquisition of Classic Collection Holidays a year ago.
More than 1,500 agents are expected to be using the platform by the end of the 2019 financial year.
On the Beach said it was “confident that this new channel will deliver a meaningful contribution to group performance” in 2020.
The company revealed that long-haul revenue have more than doubled as it moves to integrate more airlines onto its platform after the introduction of British Airways and Emirates.
“We will enter FY20 with all key airline partners integrated whilst we continue to build our portfolio of directly contracted hotels,” the company said.
“We continue to actively explore acquisition opportunities and are delighted that Adam Hansen will join us later in August from Rothschild as corporate development director.” (See separate story)
Chief executive Simon Cooper said: “In what is a difficult general economic climate, we remain confident in the resilience and flexibility of our business model, focusing on profitable growth and an ability to capitalise on any structural changes in the market.
“In FY19 we have invested significantly in our infrastructure, talent and technology to ensure that we build strong foundations to support our strategic objectives.”
Institutional stockbroker Numis reacted by saying it remained “highly supportive” of the On the Beach business model.
However, it cut its full year pre-tax profit estimate for the company by 9% to £34.3 million.
Numis also said it was “prudently cutting” its full year 2020 estimate by 7% given a weaker demand backdrop for winter 2019-20 and summer 2020 bookings as outlined by research firm GfK plus uncertainty over Brexit and foreign exchange.