Club Med reports first-half loss on costs to upgrade resorts
Resort owner in push to lure wealthier clients
Club Méditerranée SA, Europe’s largest resort company, reported a first-half loss after spending more money to improve properties and paying most of its annual rental costs at the start of the year.
The net loss of $15.4 million U.S. for the six months through April compares with a year-earlier profit of $1.5 million, the Paris-based company said yesterday in a statement. The loss was more than the $3 million average estimate of six analysts surveyed by Bloomberg News. A tax gain contributed to prioryear earnings.
The resort owner is making a final push to refurbish and improve all of its 80 outlets by the end of this year to lure wealthier clients and bolster profitability. Club Med, which pays most of its real-estate bills in the fiscal first half, said it will report an annual profit on the planned sale of the Jet Tours unit and a majority stake in a health-club chain.
“Club Med has a good strategy,” said Guillame Rascoussier, an analyst at Oddo & Cie. in Paris, who rates the stock an “add.” “It’s very costly in the short term, but the long-term benefits are considerable. The cost of restructuring was a little higher than we expected.”
Operating profit from leisure activities jumped 61 per cent to $46 million, the statement shows, matching the analysts’ average estimate. Sales gained 13 per cent to $1.45 billion. Club Med added 20,000 new clients in the winter, and bookings for the current summer season have advanced 8.8 per cent.
The shares have slid 22 per cent this year, more than the 15 per cent drop by the 20-company Bloomberg Europe Entertainment Index, as slowing economies and higher fuel costs have sapped confidence in travel businesses.
“Winter was particularly satisfying, with a sharp improvement in operating performance and faster net customer gains,” chief executive officer Henri Giscard d’Estaing said yesterday at a press conference in Gregolimano, Greece.
Club Med has shut down some resorts since the CEO took over in 2002, while spending more than $1.5 billion to add the likes of luxury suites, spas and flatscreen televisions at others. All its properties will boast at least three tridents, the equivalent of the hotel industry’s stars, by the end of the year and three will have five tridents.
A “shift toward the high-end market is probably necessary, but it’s extremely expensive,” said Jean-Paul Pierret, a strategist at Dexia Securities in Paris. The company is “in a fairly delicate period now,” he said.