Disney's FY20 Q3 Earnings (8/4/20)

[WDW Pro]

They are losing less money with them open than they are with them closed.

That has yet to be seen.

 

[tirian]

Well, a lot of the current attendance are passholders, so there's little extra profit on the admission.

And while it's great to see the parks open again and the low waiting times do look appealing, it's hard to justify the current admission prices (I don't see a COVID discount on that) for the stripped down Disney experience. I wonder if there's a special part of the report for the firework cost ;-)

The current level of operating expenses might a bit lower due to that than the normal cost with this attendance.

You know those savings are being reported as income. Maybe.

 

[flynnibus]

Shutting everything down again simply won't work because we can't sit in our homes for 6+ months and we'll return to unrecoverable economic ruin.

You mean like the country just basically did? And the stock market basically said "no problem!" and made tons of people rich by buying in after so many panic'd when the train was staring them down?

We are in ruin by most reasonable factors... low demand, high unemployment, poor outlook, entire market segments shutdown, GDP output in the toilet... businesses are closing left and right... and the stock market is near record highs, the luxury good market is on fire, and if you played your cards right you made about 6x money in just 3 months on the market.

This is the bat@#$% crazy world we have right now.

 

[flynnibus]

So, let's consider Disney. During a time when so many big name companies are filing for bankruptcy (e.g., Lord & Taylor) and the expectation that Disney would be in horrible condition thanks to parks and filming production closing down, it turns out that Disney's operations turned a small profit!

...by mortgaging its future by deferring today's real costs until the future....

But let's not talk about that... and live in the now!

 

[flynnibus]

What is NOT opinion is that NOTHING material has changed about Disney's products/services and the demand for them given a normal scenario. This is entirely a macro story that has hurt them. When that improves, demand bounces back. This is not a Disney problem. Go look at the 10 years prior of record setting Parks attendance/revenues/operating income. Yeah, real dire over there

The problem is if you are heavily vested in a market segment like... oh I don't know... cruise lines? international tourism? selling timeshares? -- These segments aren't going to magically bounce back to past levels+growth overnight. If you are overbuilt in a new world order... that is a Disney problem.

GDP is down - that doesn't magically return when a travel ban lifts.

 

[mkt]

I think you already have to be a NZ citizen, permanent resident, or visa holder don't you?

I guess the person in question could be a Kiwi or maybe the NZ government will grant special permission on the basis of wanting to see Mulan on the big screen.

Pre Covid, New Zealand was one of the easier countries for US citizens to immigrate to.

Post Covid... not so much.

 

[flynnibus]

Focusing on Parks, Experiences and Products Operating Expenses, which improved by only 48.3% even as theme park revenue plummeted by 96.5%, Disney had this to report:

Operating expenses include operating labor, which decreased $943 million from $1,587 million to $644 million, cost of goods sold and distribution costs, which decreased $460 million from $698 million to $238 million, and infrastructure costs, which decreased $45 million from $607 million to $562 million, all of which were lower as a result of the closure of our theme parks, resorts and retail stores and the suspension of cruise ship sailings. The decrease in labor costs also included the benefit of government credits for certain employee costs. Lower infrastructure costs from the closures were partially offset by the write-down of assets at our retail stores. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, decreased $233 million, from $590 million to $357 million due to the suspension of operations, partially offset by higher charges for capital project abandonments.​

Operating Labor was down by 59.4%.

Costs of Goods Sold & Distribution Costs was down by 65.9%.

Infrastructure Costs was down by 7.4%.

Other Costs (supplies, commissions/fees, entertainment offerings) was down by 39.5%.

What leaps out is the small decrease in Infrastructure Costs. Even though Disney closed down its theme parks, hotels, and cruise line, it still incurred a ton of infrastructure costs. As Disney explained: "Lower infrastructure costs from the closures were partially offset by the write-down of assets at our retail stores."

I don't know what "assets at our retail stores" could have "partially offset" Disney's "Lower infrastructure costs from the closures" but I cannot envision these covering most of the $562 million. Therefore, I suspect most of the $562 million represents operating expenses associated with maintaining its theme parks, hotels , and ships, even when these are closed or in port.

This might suggest why Disney wants to reopen its theme parks. Along with depreciation, a lot of theme park expenses are fixed even when they are closed.

Yeah but we know they basically went to skeleton crews - so even things like recurring normal upkeep expenses should have gone to zero. Expenses for operational stuff that isn't capital improvements should have gone to bare bones. So when you take the labor out of the equation... do we really believe 600 million represents all of their non-capital expenses for the gap between basically ZERO operations and running at 'best ever capacities'??

600 million is their difference between mothballs and 'full capacity'?

And that eliminating virtually all front-line staff in parks, resorts, cruiselines, etc... only covers 2/3rds of their labor expenses? (yes I know they've been paying benefits, etc)

These are the things that make me wonder what's really behind the numbers how they book their normal 'baseline' costs.

And they didn't say how much of their covid-related expenses (or how they would bound that..) were deferred either.

 

[Goofyernmost]

Good for you! Disney stock was my first exposure to the market. (I miss the slick annual reports they used to make. Drool...) I don't have any Dis stock now. I'm glad I put some money in Apple back when the iPhone was new!

Other then my retirement program, I never really did any individual stock market speculations. About 16 years ago my sister gave me 5 shares of Disney as a present. At the time they were valued at $25 each. I watched it diligently for 5 or 6 years and it never change more then a dollar or two either way. I was paying more in brokerage fees then I was earning either in dividends, interest or face value. So I sold them. Wouldn't you know... it started to climb after that to where it was recently (I'm not sure what that is/was!)

 

[FerretAfros]

At the moment, Disney is trying to attract Passholders back with some steep hotel discounts. However, the cheapest rate I can find is Pop Century for $139/night (taxes included) in the middle of the week in September, which might not be enough of a discount to attract the numbers I suspect Disney is looking for.

They'll need to lower hotel prices to attract not just APs, but guests who will need to travel as well. Prices seem to be reduced industry-wide at the moment, and Disney simply isn't playing the game. I understand that they want to limit capacity to a degree and make more money per room, but the rack rates imply they don't want to compete with the other options available in the larger marketplace.

I just booked a little Labor Day getaway to the Ritz-Carlton near me (not Florida) because it was such a good deal that it was hard to refuse. Looking at WDW's hotels for the same dates, it's less than 70% of the price of the Pop Century, which is their cheapest option. The deluxe level hotels (which still don't approach the same level of quality and service) were more than triple the price.

Regardless of the difficulties and restrictions of long-distance travel right now, it's hard to justify the price of a Disney vacation when there are so many better deals out there. Especially when there are so many unknowns about what the economy might bring, I think a lot of people will be looking to spend less on discretionary things like vacations. If Disney wants to fill their hotel rooms they need to take into account the larger trends, not just the price that was assigned to the room by a tunnel-visioned algorithm 12 months ago. As it currently stands, they're out of step with their competition.

 

[Tha Realest]

They'll need to lower hotel prices to attract not just APs, but guests who will need to travel as well. Prices seem to be reduced industry-wide at the moment, and Disney simply isn't playing the game. I understand that they want to limit capacity to a degree and make more money per room, but the rack rates imply they don't want to compete with the other options available in the larger marketplace.

I just booked a little Labor Day getaway to the Ritz-Carlton near me (not Florida) because it was such a good deal that it was hard to refuse. Looking at WDW's hotels for the same dates, it's less than 70% of the price of the Pop Century, which is their cheapest option. The deluxe level hotels (which still don't approach the same level of quality and service) were more than triple the price.

Regardless of the difficulties and restrictions of long-distance travel right now, it's hard to justify the price of a Disney vacation when there are so many better deals out there. Especially when there are so many unknowns about what the economy might bring, I think a lot of people will be looking to spend less on discretionary things like vacations. If Disney wants to fill their hotel rooms they need to take into account the larger trends, not just the price that was assigned to the room by a tunnel-visioned algorithm 12 months ago. As it currently stands, they're out of step with their competition.

Man you’re not kidding. I’ve been toying with the idea of a quick WDW trip before “school” starts back up in a few weeks. I’ve been looking exclusively at WDW hotels or renting DVC and the prices are at least $200-300/night. But then I realized there’s hardly any benefit to staying on the resort (no early admission) and could argue that the hassle/on-site transportation exposes you more to infection. So I looked at very nearby hotels. Adding in the parking cost per day, it’s half the price (in some cases, 1/7 the price) to stay at a well-reviewed nice hotel and park than it is to stay onsite.

 

[SoFloMagic]

You're not lying. Similar to the predictions not materializing for previous 18 month expansions, they've not been able to meet 25% capacity, little alone 50%.

Yeah, but it's also not that simple. They've had many days when passholder slots are gone and they could have hit 25% if they shifted availability to the group that needed it.
But instead they want to keep their options open for the day 50 busses show up filled with people wanting to buy a single day ticket on the morning of.

 

[RunningKoen]

They are losing less money with them open than they are with them closed.

That's the status quo at this moment. There is a point where having the parks open will lose more money than with the parks closed.
Even lower attendance or a shift in the current attendance (even more of the 'cheaper' attendance with AP's, no hotel stays) can flip the operational profit to a loss.

You know those savings are being reported as income. Maybe.

Yeah. But at one point, those ' income' post will shift back to being 'cost', once they restart that kind of entertainment.
Lots of extra attendance needed to break even those extra cost.

 

[mikejs78]

That's the status quo at this moment. There is a point where having the parks open will lose more money than with the parks closed.
Even lower attendance or a shift in the current attendance (even more of the 'cheaper' attendance with AP's, no hotel stays) can flip the operational profit to a loss.



Yeah. But at one point, those ' income' post will shift back to being 'cost', once they restart that kind of entertainment.
Lots of extra attendance needed to break even those extra cost.

I don't think Disney will let that happen.. They will keep entertainment light until enough people are going to support it.

 

[larryz]

Exactly. The worst is likely over. The hyperbole about our future is ridiculous but always happens.

"The Federal Reserve announced $2.3 trillion worth of new measures to prop up an economy...including plans to buy junk bonds and collateralized loan obligations"

If the Fed raises rates any time soon, they destroy themselves AND the economy. They probably can't meaningfully raise rates for at least 1-2 years. This means lower yields on other financial instruments / assets. What this all boils down to is the best place to put your money for a return IS and WILL REMAIN the stock market (for quite some time). That doesn't mean it won't have big moves downward though.

No raise in rates = a continuing upward stock market. Markets react of "better than expected news (even if the news is still bad) positively, they have trillions being pumped into them, and it's the best place to get sizable returns on your investments.

See, it does make sense!

The only people guaranteed to make money in the stock market are the brokers. They get YOUR money both coming and going.

 

[larryz]

Wish they would do drive thru flu shots....am going to begin pestering doctor's office about that.....

This is a bad idea from the aspect that some people (not everyone, but enough to make it dangerous) get light-headed and/or faint when someone sticks a needle in them.

 

[larryz]

Ha. My wife and I just watched Encounter at Farpoint on Netflix last night. (Man, did those early TNG episodes have bad acting... Glad they pulled it together after the first couple of seasons...).

The acting is a lot better if you watch it on CBS All Access...

 

[Tinkwings]

This is a bad idea from the aspect that some people (not everyone, but enough to make it dangerous) get light-headed and/or faint when someone sticks a needle in them.

They can be the passenger then! They do have drive thru blood testing and covid testing here currently....my FIL had to get his RBC tested several times last month and did it this way.....

 

[larryz]

Corn tortillas are better than flour!!

Shhh! The first rule about tortillas...

 

[larryz]

Focusing on Parks, Experiences and Products Operating Expenses, which improved by only 48.3% even as theme park revenue plummeted by 96.5%, Disney had this to report:

Operating expenses include operating labor, which decreased $943 million from $1,587 million to $644 million, cost of goods sold and distribution costs, which decreased $460 million from $698 million to $238 million, and infrastructure costs, which decreased $45 million from $607 million to $562 million, all of which were lower as a result of the closure of our theme parks, resorts and retail stores and the suspension of cruise ship sailings. The decrease in labor costs also included the benefit of government credits for certain employee costs. Lower infrastructure costs from the closures were partially offset by the write-down of assets at our retail stores. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, decreased $233 million, from $590 million to $357 million due to the suspension of operations, partially offset by higher charges for capital project abandonments.​

Operating Labor was down by 59.4%.

Costs of Goods Sold & Distribution Costs was down by 65.9%.

Infrastructure Costs was down by 7.4%.

Other Costs (supplies, commissions/fees, entertainment offerings) was down by 39.5%.

What leaps out is the small decrease in Infrastructure Costs. Even though Disney closed down its theme parks, hotels, and cruise line, it still incurred a ton of infrastructure costs. As Disney explained: "Lower infrastructure costs from the closures were partially offset by the write-down of assets at our retail stores."

I don't know what "assets at our retail stores" could have "partially offset" Disney's "Lower infrastructure costs from the closures" but I cannot envision these covering most of the $562 million. Therefore, I suspect most of the $562 million represents operating expenses associated with maintaining its theme parks, hotels , and ships, even when these are closed or in port.

This might suggest why Disney wants to reopen its theme parks. Along with depreciation, a lot of theme park expenses are fixed even when they are closed.

Exactly. What cranked my eyebrows was the extrapolation that doubling current expenses would raise intake SIX FOLD. That's a pretty healthy margin in anyone's books.

 

[HauntedPirate]

This has me wondering if Disney has/is going to mess with the Epcot capacity ratio for Food & Wine Festival. Getting local Passholders in to buy drinks & food at Epcot is better than it running under capacity.

At the moment, Disney is trying to attract Passholders back with some steep hotel discounts. However, the cheapest rate I can find is Pop Century for $139/night (taxes included) in the middle of the week in September, which might not be enough of a discount to attract the numbers I suspect Disney is looking for.

Slice that Pop room rate in half and they'd probably get some takers. As is, it's far too high to attract many guests.

So... Some room deals, but not many. No fireworks. Little entertainment (comparatively speaking). Maybe half as many food venues open, and less selection at those still open (from what I was told about Epcot last night, at least). But with full-priced admission? Limiting capacity on a group of guests that would come, but since TDO seems to be hoping for buses of people to show up they aren't opening up more slots for them? I'm not seeing the logic.