2nd Qrt Results
While sales in the rest of the country are holding up and sales to existing owners remain strong, we are lowering our revenue and EBITDA guidance, which Gina will detail in a minute.
Now turning to vacation exchange and rentals, for the quarter, Group RCI did a
great job managing costs in the face of slowing economies in some key markets,
including Denmark, the UK, and the U.S. Revenue growth was 9% and EBITDA growth
was 10% reflecting a focus on cost reductions in management across the entire
business as well as the effect of a $6 million adjustment related to consulting
activities in the second quarter of 2007.
In the vacation exchange
business, the average number of exchange members continued a steady growth at 5%
for the period. But annual dues and exchange revenue per member was down 3% for
the quarter reflecting tighter booking windows of longer range vacations, fewer
higher-priced international exchange requests, and we believe, some customers
choosing to return to their home resorts where an RCI exchange is not required.
In the face of economic uncertainty, higher gas prices and airfares,
Group RCI has aggressively stepped up its regional drive-to direct marketing
efforts, highlighting vacations closer to home for fall and winter, and
featuring select vacations that are only a short drive away.
Turning to
Group RCI’s rental business, revenue growth of 12%, 3% adjusted for currency,
was driven by our Landal GreenParks business. Overall average net price for
vacation rental increased 15%, or 5% in constant currency, reflecting a more
favorable pricing mix in the Landal property conversion of a franchise to a
managed park. This double-digit increase in price was partially offset by a
lower number of rental transactions, which were down 2%, primarily due to
softness in our Holiday Cottages brand in the UK rental market, our U.S. member
rentals, and our Novasol business in Denmark. To support the U.S. member rental
business, we are emphasizing our value proposition by promoting lower priced
inventory and increasing the frequency of closer-in travel
campaigns.
Interest in our vacation ownership product is holding up well,
particularly when compared to well-publicized demand declines and other consumer
discretionary purchases such as boats, RVs, and second homes. Tour flow and
gross VOI sales for Q2 experienced modest year-over-year increases of 3% and 2%,
respectively. And our selling efficiency remains stable with our volume per
guest essentially flat year-over-year.
...
Similar challenges in the
hospitality industry, we are seeing some challenges in Hawaii and Las Vegas,
which together contributed 18% of our revenue last year. And our sales plan
assumed continued growth in both markets this year. Sales to new customers
declined at both sites driven by reduced tour flow in Hawaii and lower volume
per guest in Las Vegas.
While sales in the rest of the country are
holding up and sales to existing owners remain strong, we are lowering our
revenue and EBITDA guidance, which Gina will detail in a minute.
We
continue to be pleased with the performance of this business, and remain
confident in this long term growth prospect for several reasons. First,
timeshares at sold, not at soft (inaudible). Our sales and marketing strategies
address this within centerpiece offers to drive consumer behavior. Second,
unlike traditional real estate, timeshares purchased with a singular intent to
use it year-after-year for great vacations. Our value proposition is not built
on any expectation of profit from rental or gain from future sales. And thus,
there are fewer hurdles to overcome during the purchase process. In fact, our
value proposition is actually enhanced in difficult economic times as consumers
previously in the market for a vacation home now look for more affordable
alternatives. Third, our customers keep using what they’ve already purchased.
Occupancy for the second quarter in our timeshare resorts is roughly 80%, and
that’s consistent with last year. Not surprisingly, some of our customers will
be visiting resorts closer to their home this year, but our extensive network of
drive-to locations accommodate these shifting travel patterns and our points
program gives star owners the flexibility to use their timeshare asset as their
leisure time permits. Our owners are taking their vacations, enjoying the
flexibility of the timeshare product, and buying even more points while staying
at our resorts.
Third quarter advanced reservations are up 14% over the
same period last year reflecting some great addition to our resort network.
During Q2, we added more than 500 units with a successful new resort opening in
New Orleans as well as additional development at existing projects in Orlando,
Las Vegas, and Wisconsin Dells. We also commenced sales for new projects in San
Francisco, in Washington D.C.’s National Harbor.
Clearly, the remainder
of 2008 is expected to be challenging and most economists believe the weakness
will carry into and possibly through 2009. We are taking proactive steps to
position ourselves to face these economic headwinds by leveraging our flexible
business model. For example, in our timeshare business, we remained firmly
committed to our strategy of increasing our margin while maintaining
double-digit growth on the bottom line. A major component of this strategy is to
refine and refocus our tour generations efforts on our most – to our most
efficient marketing programs such as those associated with our new Wyndham
branding while eliminating more costly, lower performing tour
sources.
The consumer finance portfolio continues to grow with our
increase in VOI sales with modest increases in weighted average coupon and
borrower equity in our loans compared to 2007. The consistency of the
portfolio’s quality and performance has supported our completion of two
securitizations during the second quarter totaling $650 million, and all our
securitizations are performing within their predetermined tolerances. Given the
unsettled nature of the credit market since last year, we were pleased to be
able to complete these two term securitizations at a cost of 7.37% excluding
transaction fees, and at a combined leverage rate of about 76%. That compares to
a blended cost of 5.7% and a combined advanced rate of 87% for the three
securitizations that we did in 2007. We’re already working on renewing the
conduit and our consent and our ability to get that deal done.
