Royal Caribbean Earnings: A Generally Cautious Consumer Fails to Sink Cruise Demand

Narrow-moat cruise operator Royal Caribbean continues to buck softer consumer spending trends on discretionary goods. While the absolute price point of a vacation in an inflationary environment could be viewed as high, the cruise value proposition remains compelling, a factor we believe is key in the firm’s collection of $6.2 billion in advance ticket sales (up 3% sequentially). By all measures, Royal’s performance has been stellar, with second-quarter as-reported net yield growth of 13.2% ahead of our 11% estimate and net cruise costs excluding fuel of 5.5% lower than our 6% outlook. Such outperformance led to adjusted EPS of $3.21, $0.56 ahead of our forecast and 26% higher than the second quarter of 2019, even with a 34% higher share count.