Royal Caribbean checks into Sandals

Great news for lazy brides-to-be planning that bachelorette: Royal Caribbean may soon have you covered from the cruise ship to the all-inclusive resort.

Today the cruising company announced it will pay $3 billion for a 50% stake in Sandals and Beaches Resorts, the Caribbean all-inclusive vacation business behind adults-only Sandals and family-focused Beaches. The deal values the business at roughly $6 billion and marks Royal’s biggest push yet from the sea onto land.

The deal is expected to close in early 2027, and the company says it should start adding to earnings next year.

All-inclusive ambitions

Sandals gives Royal a big cross-selling opportunity: Royal can market Sandals stays to its cruise customers, Sandals can introduce resort guests to cruises, and some beachfront properties could eventually be worked into Royal’s destination network through shore excursions.

That diversification could also come in handy at a tough moment for cruising. Higher fuel costs and geopolitical disruptions tied to the Iran war have weighed on the industry, while weaker demand led Royal to trim its annual revenue-growth forecast this summer from 10% to about 9%. Sandals gives the company an alternative revenue stream while expanding its reach into the $2 trillion global vacation market.

Wall Street gets seasick

That all sounds pretty alluring. So why did shares sink 6% yesterday, and about 2% today?

“Clearly the market doesn’t like this type of transaction,” Stifel analyst Steven Wieczynski wrote in a note. “We think it’s fair to say that for the most part, when we have seen a company diversify away from their core competency, it typically hasn’t worked out in the long-term.” He also questioned the strategic fit: Sandals is adults-only, while Royal Caribbean’s namesake brand has leaned into family-oriented vacations.

The fact that Royal is funding the deal with debt doesn’t help, either. Goldman estimates that the transaction would increase Royal’s net leverage by about 0.3 times, leaving investors to weigh whether the potential cross-selling and expansion opportunities are worth taking on more debt for a business outside Royal’s traditional specialty.

That said, both Goldman and Stifel reiterated Buy ratings—so investors may not want to abandon ship just yet.—SY