Down 24.5% year to date, Royal Caribbean (RCL 0.42%) hasn't escaped the impact of the 2022 bear market -- a cocktail of high inflation and rising interest rates that's battering the stock market in the wake of the COVID-19 pandemic. That said, management is hopeful about its ability to turn these near-term challenges into long-term success.

In November, the company announced its Trifecta Program, a three-year financial performance framework designed to chart a pathway to earnings above $10 per share (up from negative $6.89 over the trailing 12 months) by enhancing its ship capacity, using capital more efficiently, and keeping costs under control. Let's discuss three reasons achieving Royal Caribbean's ambitious goal will be easier said than done.

1. Operations are still weak and the future is uncertain

While Royal Caribbean is bouncing back from the worst of the coronavirus pandemic, there is still work to be done. Third-quarter revenue surged 555% year over year to $2.99 billion because of easy comparisons against the prior-year period. But while this represents a convincing recovery, sales are still below the $3.19 billion generated this time in 2019.

A cruise ship sailing at sunset.

Image source: Getty Images.

Earnings per share (EPS) of $10 will probably be harder to achieve than revenue growth, especially because annual EPS peaked at $9.54 in 2019 (and is negative $6.89 today). Essentially, the Trifecta Program aims to make Royal Caribbean more profitable than it was before COVID -- a time when it had less debt and fewer shares outstanding. This looks like a tall order that might not account for very real macroeconomic risks.

With a Bloomberg poll finding that 60% of surveyed economists predict a recession within 12 months, the company could find itself facing another consumer crisis before it has even recovered from the last one. High inflation is also increasing the cost of doing business by making fuel and employee wages more expensive than they were in 2019.

2. The debt

While Royal Caribbean's sales are rapidly recovering from the coronavirus pandemic, the impact on its balance sheet will be much harder to overcome. As of the third quarter, the company reports $19.4 billion in long-term debt (compared to $8.4 billion in fiscal 2019). This debt will hurt profitability through interest expense. In the third quarter, this outflow totaled $352.2 million -- significantly more than Royal Caribbean's operating income of $298.4 million.

The problem could worsen as the Federal Reserve hikes the federal funds rate. This process could make it more expensive for Royal Caribbean to refinance its debt (by taking on new debt) and increase the interest rate on its existing debt, 30% of which has a floating rate.

3. Equity dilution

Debt wasn't the only tool Royal Caribbean used to survive the coronavirus pandemic. The company also tapped equity markets by selling its own stock. Shares outstanding number 255.18 million as of October compared to 209.63 million at this time in 2019, an increase of 22%.

Equity dilution allowed Royal Caribbean to raise capital without tapping the risky and expensive debt markets, which was probably the right move at the time. But it isn't free money. Increasing the number of shares outstanding reduces the value of each share relative to future earnings (EPS). And the higher share count will make it that much harder for Royal Caribbean to meet its lofty profitability targets.

Should you bet on Royal Caribbean?

Royal Caribbean looks unlikely to meet the profitability goals outlined in its Trifecta Program because of challenges like debt and equity dilution, which will put pressure on EPS. The framework looks more like an aspirational target than reliable guidance, and the stock looks like a sell or a hold until more positive information becomes available.