Not cutting through the pandemic — and a 24% operating margin (2022)

The high margin that came from not cutting

At the centre of this judgement is a paradox: that not shrinking the business in a crisis produced both the speed of the recovery and the thickness of the margin. A structure with its counters gathered onto travel routes sank deepest when the crowds vanished, dropping every segment into loss at once. But because it held on with its counters, its brands and its core staff intact, it could turn to increased selling faster than anyone else the moment restrictions were eased. The assets not cut in the defensive period fed directly into the high profitability of the offensive one.

That said, an operating margin of 24% owes much to the tailwind of tourism and the sharp rebound of inbound visitors. The structure that maps the ebb and flow of people directly onto results has not changed, and rising raw-material and labour costs — along with the amplitude of the next decline in footfall — sit behind the high margin. The choice to hold rather than cut worked partly because the reading that demand would return proved right. Beyond the 30% recurring-profit margin the company now aims at, the question is how much of this wide margin can be sustained as a normal-times constitution when the flow of people next moves.