Flight Centre (FLT) shares have crashed 16% today after the company delivered a market update downgrading its profit outlook. Profit is expected to drop into the $355-365 million region for the current financial year, the bottom of the $360-$390 million previous guidance.
But the forecast is still only down 4.4% on the record $376.5 million profit before tax achieved in 2013/14.
So investors must be seeing something else in the results given they knocked more than 16% off the share price at one stage before the current recovery back to $36.70.
Consumers seem to be the culprit in hurting earnings with FLT’s warning to the ASX citing “lower gross margins and revenue, brought about by consultant discounting to stimulate demand among cautious leisure consumers during the first half.” It also highlighted competition in the corporate travel market as another reason why profit is under pressure.
Certainly the growth rate of outbound tourism relative to inbound tourism has slowed. But both inbound and outbound tourism hit record highs in the year to March.
Whether it’s the lower Aussie dollar changing preferences or simply a weaker economy FLT said “our international business will deliver solid profit growth but the Australian business will not achieve it’s normal growth trajectory.
Perhaps this is why investors are selling so aggressively today.
The Australian business has grown 2.7% this year not the “usual” 8.5% over the last five years as outbound tourism took of with the strong Aussie dollar. Perhaps investors are surmising that something closer to 2.7% might be more normal.
That would explain why the stock price is getting crushed.