Disney earnings will shed light on whether theme parks are starting to recover

Featured, Jason Garcia, News — By Jason Garcia on November 10, 2009 at 11:47 am

The Walt Disney Co. will report year-end earnings Thursday, and everyone from Wall Street analysts to Orlando tourism promoters will be searching for clues about whether business at the company’s theme parks continues to slump or is beginning to recover. There is likely to be evidence both ways.

Combined attendance at Walt Disney World and Disneyland during the company’s fiscal fourth quarter (essentially July through September) is expected to be roughly flat with a year ago, but only because this year’s fourth quarter has an extra week thanks to a quirk in Disney’s fiscal calendar. When the impact of the extra week is stripped out, attendance is forecast to come in around 7 percent below last year’s pace. What’s more, Disney has also had to continue using discounts to stimulate travel, most recently by bringing back a seven-for-the-price-of-four hotel-night promotion.

But Disney has also been slowly scaling back the size of its discounts. Unlike the first iteration at the beginning of the year, the new seven-for-four offer applies only to Disney World’s mid-priced and most-expensive hotels; people booking the resort’s cheapest hotels, such as Disney’s Pop Century Resort, can get seven nights for the price of five. And late last month, Walt Disney Parks and Resorts Chairman Jay Rasulo said Disney has begun to see many more “lookers” visiting its travel Web sites, though the increase in Internet traffic had yet to translate into an increase in bookings.

Analysts at Goldman Sachs predict that revenues in Disney’s global parks and resorts division fell just 2 percent for the quarter to $2.91 billion, which would be the softest decline at the segment since the global recession began two years ago. But they predict operating profit at the parks fell 25 percent to $309 million, reflecting the continued pressure on margins from the discounting.

Citigroup is more pessimistic when it comes to overall sales, as analysts there predict revenues fell 8 percent for the quarter to $2.73 billion. But they think operating profit dropped only about 7 percent to $385 million (compared with operating profit declines of 24 percent, 50 percent and 19 percent during the first three quarters of Disney’s fiscal year).

“We look for the top line declines at parks to continue to moderate on the impact of the promotional activity,” Citi analyst Jason Bazinet wrote in a research note. As a potentially optimistic sign, he noted that domestic traffic at Orlando International Airport rose 3.3 percent in September — the first such increase in a year-and-a-half at OIA.

From a longer-term perspective, Disney executives may also provide more details about their plans for a new theme park in Shanghai, China, which was recently approved by the Chinese government. The resort, with an initial phase that will reportedly cost about $3.6 billion and take between three and five years to build, becomes the newest big-ticket capital project in the works at Walt Disney Parks and Resorts, joining the expansion of Fantasyland in Disney World’s Magic Kingdom, the expansion of Disney’s California Adventure in Anaheim, two new cruise ships and an 830-room standalone resort in Hawaii.

“Disney and its partners appear not to want to end up building too small a park, which happened in Hong Kong. It also sounds, given the term ‘initial phase,’ that if the first park is successful, they are open to building a multi-park destination,” Deutsche Bank analyst Doug Mithcelson wrote in a research note. “This could be the key toehold in China that Disney has been seeking.”

 Print This Post Tags: Disney Cruise Line, Disney Vacation Club, Disney World, Magic Kingdom, News