Cruise vacation company Royal Caribbean (NYSE:RCL) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 7.3% year on year to $4 billion. Its non-GAAP profit of $2.71 per share was 7% above analysts’ consensus estimates.
Revenue: $4 billion vs analyst estimates of $4.02 billion (7.3% year-on-year growth, in line)
Adjusted EPS: $2.71 vs analyst estimates of $2.53 (7% beat)
Adjusted EBITDA: $1.36 billion vs analyst estimates of $1.33 billion (34% margin, 2.1% beat)
Management raised its full-year Adjusted EPS guidance to $15.05 at the midpoint, a 3.8% increase
Operating Margin: 23.6%, up from 20.1% in the same quarter last year
Free Cash Flow Margin: 30%, similar to the same quarter last year
Passenger Cruise Days: 13.77 million, up 618,624 year on year
Market Capitalization: $63.34 billion
StockStory’s Take
Royal Caribbean’s first quarter results reflected ongoing consumer demand for cruise vacations, with management highlighting higher close-in bookings and strong onboard spending. CEO Jason Liberty attributed these trends to valuable guest experiences compared to land-based alternatives, supported by investments in loyalty and digital platforms. Liberty noted, “The combination of the world-class experiences we deliver, continued strong secular tailwinds and the persistent value gap to land-based vacation positions us well to navigate the current environment.” Management raised full-year adjusted EPS guidance to $15.05 at the midpoint, citing robust WAVE season bookings and successful new ship launches. New fleet additions and expanded private destinations are key to sustaining growth despite macroeconomic uncertainty.
Key Insights from Management’s Remarks
Royal Caribbean’s management pointed to several factors driving recent performance and shaping its outlook. The team emphasized close-in demand, new ship launches, and strategic guest engagement initiatives as primary contributors to the quarter’s results and future momentum.
Close-in Booking Strength: The company experienced higher-than-expected demand for last-minute reservations, resulting in increased pricing power and onboard spending. Management credited improvements in digital booking tools and loyalty initiatives for making the customer journey more seamless and repeatable.
Onboard Spending Growth: Participation in onboard activities and pre-cruise purchases exceeded prior years, reflecting guests’ willingness to pay for premium experiences. This trend was especially evident among loyalty program members, who spend more per trip than non-members.
Fleet Expansion Impact: The launches of Star of the Seas and Celebrity Xcel, alongside the ramp-up of other new ships, have driven both higher pricing and capacity growth. Management noted that the timing of ship deliveries may temporarily affect yield growth in the second half of the year, but expects these vessels to add value long-term.
Private Destination Portfolio: The upcoming opening of Royal Beach Club Paradise Island and continued development of exclusive destinations are expected to enhance guest satisfaction and generate higher-margin revenue. These properties are core to Royal Caribbean’s differentiation strategy.
Cost Control and Balance Sheet: The company reported disciplined cost management, aided by favorable timing of expenses and efficiency initiatives. Management highlighted its upgraded investment-grade credit rating from S&P Global Ratings and continued efforts to strengthen the balance sheet, including opportunistic share repurchases. The company remains focused on its Perfecta Performance Program, targeting a 20% compound annual growth rate in adjusted EPS through 2027 and return on invested capital in the high teens.
Drivers of Future Performance
Management expects the combination of continued demand, disciplined execution, and new product offerings to influence results throughout 2025. The outlook is shaped by the ability to capture premium pricing, manage costs, and roll out new assets efficiently. Capacity is expected to grow 5.5% in 2025.
New Ship Deliveries: The introduction of additional Icon and Edge-class ships, as well as exclusive destinations, is expected to support capacity and yield growth (guided at 2.6% to 4.6% for the full year) through differentiated guest experiences.
Secular Demand Trends: Management believes that the persistent value gap between cruise and land-based vacations, combined with growing consumer prioritization of travel, will underpin demand even in a complex macroeconomic environment.
Operational Efficiency: Ongoing investments in digital tools, loyalty integration, and fleet modernization are expected to drive higher guest retention and spending while containing costs. Management cited the Perfecta Performance Program as central to maintaining margin expansion and cash flow.
Top Analyst Questions
Matthew Boss (JPMorgan): Asked about drivers of close-in demand and resilience in bookings; management cited digital investments and loyalty programs as supporting elevated last-minute demand and pricing.
Ben Chaiken (Mizuho): Questioned the impact of new ship deliveries on yield growth in the second half; CFO Naftali Holtz explained timing effects, with ships entering service later in the year causing temporary yield headwinds (approx. 140 bps in H2, mainly Q3).
Steven Wieczynski (Stifel): Inquired about the company’s approach to guidance amid macro uncertainty; CEO Liberty outlined a conservative range to account for potential shifts in consumer spending, noting high booking visibility for the year.
Lizzie Dove (Goldman Sachs): Sought color on booking trends by itinerary and guest segment; management reported generally stable demand across geographies and segments, noting some softness in Canadian markets (though immaterial overall) but no significant changes in customer behavior or trade-down activity.
Vince Ciepiel (Cleveland Research): Asked about capital allocation priorities and the rationale for share repurchases; management emphasized balance sheet strength (including navigating covenant constraints), ongoing investment in growth, and opportunistic buybacks without compromising financial flexibility.
Catalysts in Upcoming Quarters
Looking ahead, key items to monitor include (1) the launch and initial guest reception of Royal Beach Club Paradise Island, (2) the continued ramp-up and pricing performance of new ships such as Star of the Seas and Celebrity Xcel, and (3) the effectiveness of digital initiatives and loyalty integration in driving higher repeat bookings and onboard spending. Management also expects to further reduce leverage below 3 times by the end of 2025. Execution on these fronts, alongside disciplined cost management, will be central to tracking Royal Caribbean’s ability to deliver targeted earnings growth.
Royal Caribbean currently trades at a forward P/E ratio of 15.2×. Should you double down or take your chips? Find out in our free research report.
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