Disney's Q2 FY15 Earnings - Increase in WDW attendance and guest spending

[wdwmagic]

http://thewaltdisneycompany.com/sites/default/files/reports/q2-fy15-earnings.pdf

Parks and Resorts

Parks and Resorts revenues for the quarter increased 6% to $3.8 billion and segment operating income increased 24% to $566 million. Operating income growth for the quarter was due to an increase at our domestic operations, partially offset by a decrease at our international operations.

Higher operating income at our domestic operations was due to increases in guest spending and volumes, partially offset by higher costs. Guest spending growth was primarily due to increases in average ticket prices at our theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates. The increase in volumes was primarily due to attendance growth at Walt Disney World Resort and sales of vacation club units at Disney’s Polynesian Villas & Bungalows, partially offset by lower attendance at Disneyland Resort. Cost increases were due to labor and other cost inflation and higher pension and postretirement medical costs.

Lower operating income from our international operations was primarily due to lower attendance at Hong Kong Disneyland Resort, higher operating costs at Disneyland Paris and Hong Kong Disneyland Resort, and, to a lesser extent, higher pre-opening expenses at Shanghai Disney Resort. These decreases were partially offset by higher average ticket prices and food, beverage and merchandise spending at Disneyland Paris.

 

[GhostHost1000]

Translation: it's time they do more at WDW for even more ROI

 

[sshindel]

While encouraging news, as a complete financial moron and layman, I'm looking forward to one of these when they mention that growth is NOT due to ticket price increases and hotel room rates. I see guest spending mentioned in there, but I'd hazard a guess that the major driver is they are charging more money.

 

[CaptainAmerica]

I'd hazard a guess that the major driver is they are charging more money.

They say that explicitly.

Guest spending growth was primarily due to increases in average ticket prices at our theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates.

Note that they list these things by order of magnitude.

 

[roodlesnouter]

Wish it was so easy for me in my job to achieve such increases without adding anything to the business, then again my customers would tell me where to get off if I kept diluted the offer yet charging more.


Shame on you Disney!

 

[doctornick]

Well, it certainly explains why they have not been aggressive investing in the parks. Not saying that I approve of it, but the sharp pencil guys are surely happy.

 

[realdizfan]

It's really not hard to do a little research and add it all up.

Aggressive spending in the parks:
$450 million for new Fantasyland
$50 million for infrastructure related Fantasyland updates including FoF, Pooh queue, Pan queue, Tangled restrooms
$50 million for infrastructure relating to the hub expansion
$50 million for new Star Tours (split of $100 mill for the entire project- of which plenty went into royalties and had little to do with actual R&D/ride system costs)
$300+ million waiting to be green lit for Star Wars (which I'm sure will end up being $450 when all is said and done)
$100+ million already green lit for Pixar Place
$50 million for Harambe's expansions/Kilimanjaro's infrastructure upgrades
$400 million for avatar/rivers of light (I'm sure over-runs will push it closer to $500 million)
$50 million for the Soarin/TSMM expansions (which will have over-runs like Disney typically has and end up being closer to $80 million)
$80 million for the Frozen expansion at EPCOT ($80 spent and waiting for an additional $40 million in fall once over-runs hit them too)

While it may be wildly overpriced and taking forever, lots of these projects are necessary and visibly improve the parks without being considered new attractions (though there are plenty of those too). And while everyone is busy ing and moaning over WDW's "supposed" lack of investment, they've spent or will be spending over $1.5 billion in improvements this decade. Of course I left out the over $1 billion in park related spending for MM+, which brings the tally to over $2.5 billion. Those numbers don't account for Disney Springs or the $100 million that they've allocated to replace/refurbish the bus fleet over the next decade (though that's on shaky ground at the moment, likely to be canned). There's also the investments being made at resorts, and the huge sums of money they're dumping into road projects (hint: roads cost more than theme park rides).

Whether or not this is a wise use of that money is a totally different question. WDI and TDO operate like NASA, $50,000 hammers and all. But the money is being allocated and spent despite the claims of lots uninformed keyboard jockeys- it's just not always visible or what the fans want.

It's all out there in plain sight. There projects don't just happen for free. They cost massive amounts of money and are pretty much all necessary and good for the resort. New rides are nice too of course.

 

[sponono88]

Gee, with the increased prices in food/bev and merch, it's no surprise guest spending is up again. It always is!

 

[realdizfan]

^ Yet I can still get a burger, fries and a coke at WDW for less than I can at a Cedar Fair or Six Flags park.

 

[ParentsOf4]

While encouraging news, as a complete financial moron and layman, I'm looking forward to one of these when they mention that growth is NOT due to ticket price increases and hotel room rates. I see guest spending mentioned in there, but I'd hazard a guess that the major driver is they are charging more money.

That actually happened last quarter; growth was primarily due to increased attendance, not prices.

Yes, it was the first time in ages that Disney did not report higher prices as the primary cause of gains.

 

[CaptainAmerica]

That actually happened last quarter; growth was primary due to increased attendance, not prices.

Yes, it was the first time in ages that Disney did not report higher prices as the primary cause of gains.

You're off your game today. Guest spending AND volumes.

Higher operating income at our domestic operations was due to increases in guest spending and volumes, partially offset by higher costs. Guest spending growth was primarily due to increases in average ticket prices at our theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates. The increase in volumes was primarily due to attendance growth at Walt Disney World Resort and sales of vacation club units at Disney’s Polynesian Villas & Bungalows, partially offset by lower attendance at Disneyland Resort.

 

[epcotWSC]

Increasing ticket prices each year with zero attendance drop off is a surefire way to increase YTY revenue. Makes it simple. I wonder what the breaking point will be (if there ever is one?). At some point one would think that there'll be a price point that starts to make attendance slide. Until then, Disney can keep raising prices and keep seeing revenue growth.

 

[CaptainAmerica]

Increasing ticket prices each year with zero attendance drop off is a surefire way to increase YTY revenue. Makes it simple. I wonder what the breaking point will be (if there ever is one?). At some point one would think that there'll be a price point that starts to make attendance slide. Until then, Disney can keep raising prices and keep seeing revenue growth.

Not just zero attendance drop off, but attendance increases. There aren't many products in the market that can raise prices and see demand increase.

 

[Skippy]

You're off your game today. Guest spending AND volumes.

Higher operating income at our domestic operations was due to increases in guest spending and volumes, partially offset by higher costs. Guest spending growth was primarily due to increases in average ticket prices at our theme parks and cruise line, increased food, beverage and merchandise spending and higher average hotel room rates. The increase in volumes was primarily due to attendance growth at Walt Disney World Resort and sales of vacation club units at Disney’s Polynesian Villas & Bungalows, partially offset by lower attendance at Disneyland Resort.

I thought @ParentsOf4 was referring to Q1 2015. From that press release:

"Higher operating income at our domestic operations reflected both higher volumes and guest spending growth at our parks and resorts and, to a lesser extent, at our cruise business, partially offset by higher costs. Guest spending growth at our parks and resorts reflected higher average ticket prices and increased merchandise, food and beverage spending."

Still spending and volumes, but the order was reversed (not an expert, but you mentioned they're listed by magnitude).

 

[ParentsOf4]

I thought @ParentsOf4 was referring to Q1 2015. From that press release:

"Higher operating income at our domestic operations reflected both higher volumes and guest spending growth at our parks and resorts and, to a lesser extent, at our cruise business, partially offset by higher costs. Guest spending growth at our parks and resorts reflected higher average ticket prices and increased merchandise, food and beverage spending."

Still spending and volumes, but the order was reversed (not an expert, but you mentioned they're listed by magnitude).

Right, I was referring to the 1st quarter. Domestic theme park attendance increased 7% and hotel occupancy increased 8%, while PCGS increased 4% and PRGS increased about 3%.

 

[danlb_2000]

It's really not hard to do a little research and add it all up.

Aggressive spending in the parks:
$450 million for new Fantasyland
$50 million for infrastructure related Fantasyland updates including FoF, Pooh queue, Pan queue, Tangled restrooms
$50 million for infrastructure relating to the hub expansion
$50 million for new Star Tours (split of $100 mill for the entire project- of which plenty went into royalties and had little to do with actual R&D/ride system costs)
$300+ million waiting to be green lit for Star Wars (which I'm sure will end up being $450 when all is said and done)
$100+ million already green lit for Pixar Place
$50 million for Harambe's expansions/Kilimanjaro's infrastructure upgrades
$400 million for avatar/rivers of light (I'm sure over-runs will push it closer to $500 million)
$50 million for the Soarin/TSMM expansions (which will have over-runs like Disney typically has and end up being closer to $80 million)
$80 million for the Frozen expansion at EPCOT ($80 spent and waiting for an additional $40 million in fall once over-runs hit them too)

While it may be wildly overpriced and taking forever, lots of these projects are necessary and visibly improve the parks without being considered new attractions (though there are plenty of those too). And while everyone is busy ****ing and moaning over WDW's "supposed" lack of investment, they've spent or will be spending over $1.5 billion in improvements this decade. Of course I left out the over $1 billion in park related spending for MM+, which brings the tally to over $2.5 billion. Those numbers don't account for Disney Springs or the $100 million that they've allocated to replace/refurbish the bus fleet over the next decade (though that's on shaky ground at the moment, likely to be canned). There's also the investments being made at resorts, and the huge sums of money they're dumping into road projects (hint: roads cost more than theme park rides).

Whether or not this is a wise use of that money is a totally different question. WDI and TDO operate like NASA, $50,000 hammers and all. But the money is being allocated and spent despite the claims of lots uninformed keyboard jockeys- it's just not always visible or what the fans want.

It's all out there in plain sight. There projects don't just happen for free. They cost massive amounts of money and are pretty much all necessary and good for the resort. New rides are nice too of course.

If you look at their capital expenditures as a percentage of income you will see that they are not spending as much as they used to, there is no "supposed" about it.

 

[realdizfan]

If you look at their capital expenditures as a percentage of income you will see that they are not spending as much as they used to, there is no "supposed" about it.

You never heavily invest in a product that already generates boatloads in returns without those investments. It's just plain stupid to allocate additional capital when it's not necessary. Return on investment long term isn't dependent on new attractions or silly marketing campaigns, it's contingent on being able to offer a quality product with a high profit margin that does not need massive amounts of capital leveraged in order to keep it at the top of the market. Disney's already achieved that, and their capital projects reflect that.

 

[Dice50]

As someone who wants Disney to build a lot of new attractions at WDW should I be hoping for bad financial news/lower attendance? What scenario is more likely for Disney to build new attractions... them seeing attendance falling off and going to Universal, or them seeing attendance/revenue increasing, generating lots of surplus cash that they can spend on projects?

It seems like the former is the best shot, so this news isn't good.

 

[toasty]

"guest spending growth" = magic bands do indeed make it easier to spend money.

I know there are those that doubt that, but it has totally been our experience that paying by touching your wrist to a reader makes impulse purchases VERY easy to make. We've definitely spent more per trip than we did before Magic Bands were implemented.

 

[sshindel]

If you look at their capital expenditures as a percentage of income you will see that they are not spending as much as they used to, there is no "supposed" about it.

This is a question for the financial gurus, but I'm using your quote to set up the question.
Is it always the case that capital expenditures should increase as a percentage of income?
Again, I'm terrible at finances. But if in 2005 Parks and Resorts had an operating income of 1.178 billion, and in 2014 they had an operating income of 2.663 billion, is it reasonable (or required) for them to invest more than double into their capital expenditures?
Lets say they invest 20% for easy math (I have no concept of the real capital investment percentage). In 2005, that would be 235m. Is it reasonable that because they are making more, they have to keep at that level, now investing 532m?
I know that is probably a philosophical question that will cause much argument, but it's something I've wondered about. If Disney only is investing half of what they did percentage-wise, it's still investing more actual money in the parks (not adjusting for inflation).
Again, I just don't know enough about these things. I know I want them to invest tons upon tons of money into their parks, because I enjoy their product and would like to continue to enjoy more and more. But that doesn't mean it's always the correct business decision, which is what I'm more interested in for this line of questioning.