Flight Centre shares drop amid profit forecast

Flight Centre shares drop amid profit forecast
By admin


Confidence in Flight Centre slighted on the ASX in early trading this morning following the travel giant’s warning it may struggle to meet its profit growth targets.

After reporting a record FY14 underlying profit before tax of $376.5 million from its leisure business, up 9.7% from 2013, the company said it would target a further 5-8% growth for 2015 amounting to a pre-tax profit between $395 and $405 million.

Managing director Graham Turner said today at the company’s AGM achieving the target would “not be a formality” and that first half growth was likely to be” subdued”, causing shares to fall by 3% in early trade today, now levelling to a 2.2% drop.

Turner said he hopes to end the year with “profits broadly in line with the corresponding half last year, which was a relatively strong trading period”.

“In Australia, we expect a gradual recovery in demand and consumer confidence as the financial year progresses, which will hopefully lead to accelerated second half growth,” Turner said at the AGM.

“Of course, we cannot guarantee this recovery will eventuate and, while sales are growing modestly in both leisure and corporate travel, we are yet to see significant improvement.”

According to Turner, several countries have started the year solidly, including its businesses in the UK, South Africa and Singapore, however in Australia first quarter sales – while increased by 3-4% – was less than its record Q1 last year and at a lower rate than the company’s overall growth rate which was about 7%.

“This slower than normal sales growth and an increased cost base, linked to ongoing investments, means that Australian profits are currently down slightly on the prior year,” he said.

Costs were attributed to changes in consultant wage structures and investments into customer experiences, which included a new customer insights team and broader product and customer area.

“As of last week, we also have a single view of the customer, which is a significant step forward from our previous decentralised mode and will enable us to better meet customer needs and enhance our marketing efforts,” Turner said.

Meanwhile, Turner said new Flight Centre “megastores” are expected to open in key shopping centres and high profile locations. These are smaller than its hyperstores already operating in Perth and Brisbane, with a third earmarked for Darwin.

The company opened its first Asia-based hyperstore in Delhi with another planned for Mumbai.  It also plans to open a hyperstore in Abu Dhabi’s Yas Mall by the end of 2014.

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