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

[realdizfan]

^ Excellent point

In reality, those investments in 2005 were to combat the massive downturn in the industry whereas the money being spent now is simply to add to an already solid bottom line. I'm still trying to figure out why anybody with a shred of business savvy would want additional capital poured into a product that's already the highest in its market by miles? Besides, Universal is doing all of the necessary building to draw two day visitors to their parks that turn around and spend twice and much and twice as long (if not more) at WDW. It's win-win!

 

[jt04]

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.

It appears to me Iger has carefully created the foundation at WDW and DL to allow the next CEO to expand content in the parks.

Thanks for factually addressing just exactly how much is being invested and dispelling the many unfortunate myths that get repeated on these boards too often. IMO.

 

[realdizfan]

^ Unlike Eisner, who never bothered to consider how much money was being leveraged on top of a poor foundation with bad infrastructure. Sklar is pretty biting with that exact criticism in Dream it! Do it!

Not that Eisner was a poor steward, he needed to take extreme measures to stabilize the failing Disney brand including the parks. But it got us stuff like Downtown Disney @ WDW, Disneyland Paris and DCA. All of which have very poorly implemented infrastructure that is taking decades and billions to correct. Is anyone else as miffed as I am that pre-1989 WDW has no stop lights and never a traffic issue (save for Christmas Break), yet MGM/Epcot Resorts and DTD was all snarled with traffic? Should have just grade separated everything from the start and avoided the current mess!

 

[Rteetz]

^ Unlike Eisner, who never bothered to consider how much money was being leveraged on top of a poor foundation with bad infrastructure. Sklar is pretty biting with that exact criticism in Dream it! Do it!

Not that Eisner was a poor steward, he needed to take extreme measures to stabilize the failing Disney brand including the parks. But it got us stuff like Downtown Disney @ WDW, Disneyland Paris and DCA. All of which have very poorly implemented infrastructure that is taking decades and billions to correct. Is anyone else as miffed as I am that pre-1989 WDW has no stop lights and never a traffic issue (save for Christmas Break), yet MGM/Epcot Resorts and DTD was all snarled with traffic? Should have just grade separated everything from the start and avoided the current mess!

DTD at WDW opened in 1975 as lake buena vista shopping district that's prior to Eisner. DHS and AK were all Eisner tho. Both need and are getting major investments.

 

[Nick Pappagiorgio]

"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.

That is exactly why I have never used charging privileges. Although this last time they wouldn't simply "turn them off" if I wanted no charging privileges I had to pay the room off in full (I was using disney gift cards so it worked out fine). Is that the policy now or did I just get a bad CM?

 

[DVCOwner]

(Now I am just kidding, but I no feel this way sometimes) None of these numbers can be true. If you read posting on this web site everyday you will see that no one is going to Walt Disney World, they are all going across town to Universal Studios where everything is done right. I learned by reading on this web site that because the cost of Magic Bands, Disney is losing money and cannot invest in anything new. Also I know that no one wants to stay in Disney hotels. So all the numbers in this report most be made up by Disney accountants, because they run the company anyway.

 

[ParentsOf4]

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)

Interesting numbers. Adding them up comes up to $1.58 billion.

You make reference to the New Fantasyland (which took several years to build and opened in 2012) all the way through Avatar (2017) and Pixar Place (no date announced). Roughly, you're covering a 10-year span, or roughly $158 million per year in spending.

Disney's Parks & Resorts revenue was $15.1 billion in 2014, which means the investments you identified average to slightly over 1% of annual revenue, given revenue was lower in the past and assuming revenue will grow in the future. Add up all the numbers you identified ($1.58 billion) and that's about of 10% of Parks & Resorts revenue for just 2014.

Under Michael Eisner, P&R capex averaged about 22.9% of P&R revenue for each year. Eisner spent more than $1.5 billion in non-inflation adjusted dollars in 1994, 1998, 1999, 2000, and 2001. This during a period when Disney's Parks & Resorts generated roughly one-quarter to one-half of the revenue it generates today.

Considering how much P&R generates today versus how much Disney used to spend, the investments you identify don't seem particularly impressive.

 

[realdizfan]

Fortify those estimates with resort construction, road improvements, MM+ and Disney Springs which are all part of the revenues and thus should be included in outlays and you're going to conservatively triple the outlays. If you want to get into the entire outlay of capital for Parks and Resorts (including financing Paris's repeated failures with no interest and hundreds of millions in lost royalty collections), then you're talking probably 10 times my figure once you factor in Shanghai, DCA's makeover, Disneyland's Star Wars, Disneylands (extremely expensive) parking overhaul that is long overdue, new resorts and makeovers for the current ones, the bus fleet I mentioned and of course MM+, which is still in the roll out stage and not nearly finished on the back end or front end as far as the whole P&R chain is concerned.

But they're not intended to be impressive anyway. They're intended to maximize long term profitability for a company that's dominating the market and has no reason to dump additional funding into their flagship at some astronomical rate like Eisner had to do in order to rebuild the brand. The brand is rebuilt, it's a stable, mature product with continuous growth and a potential to continue that with minimal levels of investment for at least another decade.


As we've seen with Disneyland since the DCA makeover, sometimes it's not all about just jamming as many people into the park as you can without any ability to handle those crowds. Now DIsneyland is embarking on a policy of making the park unpalletable for locals because they'd rather fill their (underbuilt) resort with higher spending tourists. Is that what everyone wants at WDW? The hotels are at 90% occupency, DVC sales are only continuing to grow (despite the complaints, it's a steady revenue stream vs a room that may or may not fill), parking lots as nearing capacity and the parks infrastructures are already taxed. New rides don't solve those issues.

I'm super glad that WDW is addressing that before Avatar, Frozen and Star Wars explode their attendance at the three parks that aren't equipped to handle it at this time. Hollywood Studios needs a new parking lot and they have to move an entrance and lots of backstage to do what they want properly, AK's stopgap extra parking, limited shopping area and small food outlets aren't going to be enough when full-day guests clog the park; and I'm getting chills down my spine just thinking about how EPCOT is going to (short term) handle the Frozen mess from a logistics standpoint. Those investments alone are good for the next decade of solid growth at the parks.

 

[MichWolv]

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

That one way to read it. Of course, "more" of what? Could be "more" of what they've been doing...DVC, restaurant upgrades, technology, etc. Who needs big new attractions when the other stuff is working?

Of course, another way to read it is..."we've fallen behind at Disneyland -- better focus there."

 

[MichWolv]

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.

Actually, those words mean that spending growth was "primarily" due to the group of things that follow. One might intuit that they've listed it in oder of magnitude, but that is not necessarily the case.

Note that I do not have knowledge of how Disney is thinking when they write this stuff, so it's possible you are correct, but I do have massive amounts of experience writing, reading, and deciphering similar press releases and earnings' analyses.

All of that being said, of the things mentioned, two are explicitly "price increases", and one (or three, if you separate food, beverage, and merchandise) is "volume". The SEC regularly asks companies who make such statements to quantify how much is price and how much is volume. Apparently, they either haven't asked Disney to do so in this case, or Disney has asserted that such a breakdown is either not useful or not practicable to prepare.

Or perhaps the SEC filing will actually include such a breakdown.

 

[MichWolv]

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

Actually, the press release indicates "volume" (people buying more stuff) or "mix" (people buying higher priced stuff), rather than pricing for food, beverage and merch, and "pricing" rather than "volume" for parks and hotels.

 

[MichWolv]

^ 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.

Indeed. I find food prices at WDW to be high, but not outrageous, while food prices at Cedar Fair (except for the Chick-Fil-A locations in parks) and Six Flags are "I'll pack a picnic and eat at the car" high.

 

[MichWolv]

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.

Yep. Breaking down the whole paragraph, we have higher revenue at WDW due to:

• Increased ticket prices
• Some combination of: Increases in the amount of food, drink and merch, and/or a shift in patterns to higher priced food, beverage and merch; but not increased prices on those items.
• Higher hotel room rates
• Higher attendance
• Sales of Poly DVC

As I noted earlier, any assumption about relative magnitude is unwarranted from this language.

 

[MichWolv]

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?

No, of course not. If you are investing well, revenue and income rise much faster than capital expenditures.

 

[MichWolv]

Btw: WHERE DID YOUR HAIR GO?!

He had to sell it to afford the higher ticket prices and room rates.

 

[MichWolv]

For the most part, capex stays steady as a percentage of earnings. If you make more, you can spend more cash, but have the same percentage. It's when you see a sharp decline that is telling - what is the company preparing for? Are they sitting on their laurels?

Could also be that they are "done" with a major program. Capex will/should be higher in a period of intense expansion in comparison to a period of "normal" upgrades. Building a new park in comparison to just adding things at existing ones, e.g.

 

[draybook]

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.

And in that decade that you're boasting about, let's see how much stuff Universal puts out....

 

[Nubs70]

With the Fed rate at 0, now is the time to build out your park.

 

[realdizfan]

Disney doesn't borrow from the Fed or anyone else, they have a $180 billion market cap and bought back $8 billion in shares last year. In fact they're a quasi-guarantor for lots of ventures that they have stakes in.

 

[BernardandBianca]

Was your room paid for at check in? If so, they can be turned off on all bands but the admin band. Policy is to attach charging privileges to the admin band. It's basically the same as any hotel putting a credit card hold on for incidentals.

Perhaps you can explain to someone ignorant about how these things work, but Why must charging privileges be attached to the admin band if the owner of the admin band does not want it? And I don't see how it is the same as a hotel putting a credit card on hold for incidentals; if I tell the hotel I do not want the ability to charge incidentals to my hotel bill, then they will not allow me to charge, and will not put the card on hold. As a matter of prior experience, every time I check into a hotel they ask me would I like to leave a credit card to use for incidentals, and that is my decision, not theirs. I can understand charging the account for the room fees when I check in, but it makes absolutely no sense to me that I must accept charging privileges against my magic band.