By KRISTEN A. LEE (Forbes.com) from Associated Press
Wyndham Worldwide Corp. is eliminating jobs in its timeshare business and scaling back development plans even though sales have held up surprisingly well and defaults have risen only slightly, executives said Tuesday.
The company announced late Monday that it was cutting 4,000 jobs in its timeshare business, 12 percent of its overall work force. Wyndham now expects timeshare sales will fall to $1.2 billion in 2009, from $2 billion this year.
In a conference call with investors, Chairman and Chief Executive Stephen Holmes said the company’s timeshare sales met expectations in October and November, despite weakness in the Hawaii and Las Vegas markets related to reduced airline capacity.
Demand is holding up, but the credit market is the bigger issue. Wyndham finances about 70 percent of its timeshare sales. The company would then sell those loans and borrow against those proceeds to develop new timeshare properties. With the market for those kinds of securities virtually closed, it has become much more difficult for timeshare companies to fund new developments.
“While the reduction in timeshare sales could very well be interpreted as management possibly anticipating timeshare demand falling off a cliff, this decision appears to be driven by the credit markets, and not demand trends,” said JPMorgan analyst Joseph Greff in a note to investors.
Given the consumer spending situation, it’s surprising that sales “have held in there that well,” said C. Patrick Scholes, an analyst with Friedman, Billings, Ramsey, “but it’s unfortunate for the industry that they just can’t get financing for new units if people are still interested.”
In light of the troubled housing market, investors have also worried that defaults on timeshare loans will spike. Those concerns have weighed particularly on Wyndham’s stock, which has lost more than 75 percent of its value this year.
Wyndham said Tuesday that its timeshare loan portfolio is performing within expectations.
“So far, we haven’t really seen it fall off a cliff,” Scholes said about defaults.
Wyndham said it is taking steps to avoid problems by targeting potential owners with higher credit scores and raising their required deposit.
Wyndham’s shares surged as much as 21 percent during Tuesday’s session, but later fell with the broader market. The stock lost 15 cents, or 2.6 percent, to close at $5.53. The shares have traded between $2.55 and $25 during the past 52 weeks.