With the fiscal year complete, it’s time to comment on the financial performance of Disney’s Parks & Resorts (P&R). (Disney’s fiscal year runs from October to September.)
Disney’s P&R segment is divided into two unequal parts. Domestic P&R includes Walt Disney World (WDW), Disneyland Resort (DLR), Disney Cruise Line (DCL), and Disney Vacation Club (DVC). International P&R includes Disneyland Paris (DLP), Hong Kong Disneyland (HKDL), and the recently opened Shanghai Disneyland (SDL). (Disney has no ownership interest in Tokyo Disneyland.) Disney retains full ownership of its domestic ventures, while Disney shares ownership of its overseas resorts.
Let’s start with the good news. There’s a lot of it in the United States.
Domestic Parks & Resorts
Domestic P&R operations had an excellent year, with operating margin up to an outstanding 24.8%, a margin the U.S. parks have not seen since 1990.
Domestic revenue was up a weak 4.6%. For reference, it averaged 10.0% from 2012 to 2015. The slow grow is a bit deceptive since last year’s number included an extra week. Still, even taking that into account, it’s the weakest performance since the last recession despite the most favorable consumer market in nearly a decade. Operating income was up 14.7%, better but still below its recent annual average of 21.3%.
Domestic attendance was down 1%, the effect of an announced strategy to increase prices to ease overcrowding through higher prices. Again, last year included an extra week. Over a comparable period attendance was up by about 1%. Really though, the goal was to improve margin by driving away low-value customers. It’s a tactic employed by many businesses today, where total profit is less important than return on investment. Some will point to attendance as a sign that Disney has overreached but, in doing so, they’ll miss what Disney is really trying to achieve: higher margin. Per Capita Guest Spending (PCGS) was up a healthy 7%, roughly where’s it’s been since 2012; Guests are still spending.
Hotel occupancy improved to 89%, up considerably from a few years ago when it averaged 81%. There’s a little smoke-and-mirrors here. The actual number of occupied rooms fell slightly from last year when the occupancy rate was 87%. (The number of available room nights decreased by 2.5%. Again, last year included an extra week, accounting for most but not all of the decline in available room nights.) Whether its 88% or 89%, it’s still a very good number. Per Room Guest Spending (PRGS) was up a weak 3.4% compared to the previous 4 years when it averaged 5.2%. Let’s see what happens with next year’s unusually steep 4.5% rack rate increase.
Most exciting is that Disney is spending some serious money at WDW and DLR to build new attractions. Estimated theme park growth capital expenditure (i.e. capex less depreciation) was $833M in 2016, a number Disney’s domestic theme parks haven’t seen since 2000.
To give this some perspective, a Clinton was in the White House in 2000. 9/11 was simply the day after 9/10. The Cubs, White Sox, and Red Sox had not won a World Series in a combined 257 years. With several major projects under way, fans of Walt Disney World should have a lot to look forward to in the coming years. Those of you too young to remember should get a taste of what it what like in the 1980s and 1990s.
I realize that many are concerned with recent artistic choices as well as some embarrassingly tacky money grabs (seriously, cabanas at the theme parks?) but Disney’s domestic theme parks performed well and are being infused with large investment dollars. For fans of Walt Disney World, it’s the best news in a long time.
International Parks & Resorts
Overseas financial performance is a different matter. Overseas, it’s a mess.
Disney’s international P&R operations continue their downward spiral. Operating loss finished at –$299M in FY2016, almost tripling last year’s loss of –$105M. There’s little good news here, other than announced investments at all three international resorts designed to improve future financial performance.
DLP’s operating loss plummeted to –€242M, with Disney carrying 81% of this. Loses would have been higher if Disney had not waved royalties and management fees in the fourth quarter. Total attendance at the two theme parks was 13.4M, down 9.5%, while PCGS was up a pitiful €0.34. At the hotels, occupancy was down 2% to 77% with PRGS at €235, dropping back to where it was in 2013. Not only is attendance and occupancy down but, combined, Guests are spending less than what they did last year. Disney suggested these declines were the result of the “lingering effect of terrorism and economic and political uncertainty”. However, it must be remembered that DLP’s numbers have been unhealthy since its opening in 1992, with DLP losing money the last 4 consecutive years. Disney took over majority ownership of EuroDisney last year and has plans to restore DLP to profitability through new theme park offerings, the traditional life blood of amusement parks.
HKDL has yet to release earnings for the completed 2016 fiscal year. (Typically it waits several months before doing so.) During Disney’s latest earnings call, Iger suggested that HKDL wasn’t impacted by the opening of SDL: “we haven't seen a negative impact at Hong Kong due to Shanghai at all. In fact, there was some uptick initially on Hong Kong attendance when Shanghai opened.” What Iger didn’t mention is that attendance plummeted by 9.3% in 2015, and fell another 6.1% for the first three quarters of 2016. In 2014, 48% of HDL’s attendance came from mainland China. That dropped to 41% in 2015. To address these declines, Disney laid off 100 employees and announced plans to spend $1.4B on new attractions (with more than half coming from the Hong Kong government). With construction scheduled to complete in 2023, things could get worse before they get better.
One might expect SDL to be a bright spot; certainly Disney is trying to sell it that way to Wall Street: “The financial results for the park’s first full quarter of operations were ahead of our expectations. As we look to fiscal 2017, we expect Shanghai Disney Resort to be very close to breakeven for the year.” Yet SDL is off to less than a stellar beginning, with appreciable losses over its first 4 months of operation. This was expected. Still, it’s a staggering amount considering Disney’s positive reaction to attendance.
Iger reported that SDL’s attendance was 4 million during its first 4 months of operation and gave guidance without giving guidance: “Some of you may infer from this early performance that we could achieve 10 million in attendance in the park’s first year – a number we would be thrilled with, but we are not providing any annual guidance at this point”. (Sorry but if you are saying you’d be “thrilled” with 10 million, then you are giving guidance.) 10 million visitors would be excellent for a non-castle theme park. However, 10 million would place it well below the 3 profitable castle parks in Anaheim, Orlando, and Tokyo, and on par with Paris’ castle park where loses continue to accumulate. Considering that SDL opened during peak season with a lot of buzz in a country of 1.4 billion, 4 million does not sound particularly good.
Recalling Iger’s statement that “Over 300 million people will be able to travel to Shanghai Disneyland within a 3-1/2 hour trip” and his more recent statement that “more than half our Guests come from outside Shanghai”, it’s unclear how many of SDL’s first 4 million Guests will transform into repeat visitors, and how many were one-timers wanting to see what the hubbub was all about.
Arguably more important than attendance is spending. Iger emphasized “that consumers are staying longer” than expected. He didn’t say Guests are spending more than expected. This could be bad, very bad. Staying longer without increased spending means more expense without additional revenue. Yet Disney reported an aggregate International P&R PCGS increase of 5%, while PCGS was up less than 1% at DLP in 2016 and 3% at HKDL in 2015. This suggests spending was pretty good at SDL. If so, it’s puzzling why Iger didn’t highlight this.
Meanwhile, influential Chinese billionaire Wang Jianlin continues to threaten to make SDL “unprofitable”, going so far as to hire former Hong Kong Disneyland Managing Director Andrew Kam.
Finally, remember that with the exception of Tokyo Disneyland (which Disney does not own), there has never been a successful Disney theme park outside the United States. Despite widespread name recognition, 76.6% of company-wide sales are in the United States and Canada. Disney’s brand of Americana has shown to be a tough sell overseas.
Taken together, it’s unclear which way SDL will go. It’s much too early to suggest that SDL will fail. However, it’s also too soon to declare it a success. Disney is predicting SDL will nearly breakeven in fiscal 2017, with profitability achieved after that. We will see.
As I have for years, I’ll continue to monitor Disney’s theme parks and let you know what I think as more numbers are released.
Disney’s P&R segment is divided into two unequal parts. Domestic P&R includes Walt Disney World (WDW), Disneyland Resort (DLR), Disney Cruise Line (DCL), and Disney Vacation Club (DVC). International P&R includes Disneyland Paris (DLP), Hong Kong Disneyland (HKDL), and the recently opened Shanghai Disneyland (SDL). (Disney has no ownership interest in Tokyo Disneyland.) Disney retains full ownership of its domestic ventures, while Disney shares ownership of its overseas resorts.
Let’s start with the good news. There’s a lot of it in the United States.
Domestic Parks & Resorts
Domestic P&R operations had an excellent year, with operating margin up to an outstanding 24.8%, a margin the U.S. parks have not seen since 1990.
Domestic revenue was up a weak 4.6%. For reference, it averaged 10.0% from 2012 to 2015. The slow grow is a bit deceptive since last year’s number included an extra week. Still, even taking that into account, it’s the weakest performance since the last recession despite the most favorable consumer market in nearly a decade. Operating income was up 14.7%, better but still below its recent annual average of 21.3%.
Domestic attendance was down 1%, the effect of an announced strategy to increase prices to ease overcrowding through higher prices. Again, last year included an extra week. Over a comparable period attendance was up by about 1%. Really though, the goal was to improve margin by driving away low-value customers. It’s a tactic employed by many businesses today, where total profit is less important than return on investment. Some will point to attendance as a sign that Disney has overreached but, in doing so, they’ll miss what Disney is really trying to achieve: higher margin. Per Capita Guest Spending (PCGS) was up a healthy 7%, roughly where’s it’s been since 2012; Guests are still spending.
Hotel occupancy improved to 89%, up considerably from a few years ago when it averaged 81%. There’s a little smoke-and-mirrors here. The actual number of occupied rooms fell slightly from last year when the occupancy rate was 87%. (The number of available room nights decreased by 2.5%. Again, last year included an extra week, accounting for most but not all of the decline in available room nights.) Whether its 88% or 89%, it’s still a very good number. Per Room Guest Spending (PRGS) was up a weak 3.4% compared to the previous 4 years when it averaged 5.2%. Let’s see what happens with next year’s unusually steep 4.5% rack rate increase.
Most exciting is that Disney is spending some serious money at WDW and DLR to build new attractions. Estimated theme park growth capital expenditure (i.e. capex less depreciation) was $833M in 2016, a number Disney’s domestic theme parks haven’t seen since 2000.
To give this some perspective, a Clinton was in the White House in 2000. 9/11 was simply the day after 9/10. The Cubs, White Sox, and Red Sox had not won a World Series in a combined 257 years. With several major projects under way, fans of Walt Disney World should have a lot to look forward to in the coming years. Those of you too young to remember should get a taste of what it what like in the 1980s and 1990s.
I realize that many are concerned with recent artistic choices as well as some embarrassingly tacky money grabs (seriously, cabanas at the theme parks?) but Disney’s domestic theme parks performed well and are being infused with large investment dollars. For fans of Walt Disney World, it’s the best news in a long time.
International Parks & Resorts
Overseas financial performance is a different matter. Overseas, it’s a mess.
Disney’s international P&R operations continue their downward spiral. Operating loss finished at –$299M in FY2016, almost tripling last year’s loss of –$105M. There’s little good news here, other than announced investments at all three international resorts designed to improve future financial performance.
DLP’s operating loss plummeted to –€242M, with Disney carrying 81% of this. Loses would have been higher if Disney had not waved royalties and management fees in the fourth quarter. Total attendance at the two theme parks was 13.4M, down 9.5%, while PCGS was up a pitiful €0.34. At the hotels, occupancy was down 2% to 77% with PRGS at €235, dropping back to where it was in 2013. Not only is attendance and occupancy down but, combined, Guests are spending less than what they did last year. Disney suggested these declines were the result of the “lingering effect of terrorism and economic and political uncertainty”. However, it must be remembered that DLP’s numbers have been unhealthy since its opening in 1992, with DLP losing money the last 4 consecutive years. Disney took over majority ownership of EuroDisney last year and has plans to restore DLP to profitability through new theme park offerings, the traditional life blood of amusement parks.
HKDL has yet to release earnings for the completed 2016 fiscal year. (Typically it waits several months before doing so.) During Disney’s latest earnings call, Iger suggested that HKDL wasn’t impacted by the opening of SDL: “we haven't seen a negative impact at Hong Kong due to Shanghai at all. In fact, there was some uptick initially on Hong Kong attendance when Shanghai opened.” What Iger didn’t mention is that attendance plummeted by 9.3% in 2015, and fell another 6.1% for the first three quarters of 2016. In 2014, 48% of HDL’s attendance came from mainland China. That dropped to 41% in 2015. To address these declines, Disney laid off 100 employees and announced plans to spend $1.4B on new attractions (with more than half coming from the Hong Kong government). With construction scheduled to complete in 2023, things could get worse before they get better.
One might expect SDL to be a bright spot; certainly Disney is trying to sell it that way to Wall Street: “The financial results for the park’s first full quarter of operations were ahead of our expectations. As we look to fiscal 2017, we expect Shanghai Disney Resort to be very close to breakeven for the year.” Yet SDL is off to less than a stellar beginning, with appreciable losses over its first 4 months of operation. This was expected. Still, it’s a staggering amount considering Disney’s positive reaction to attendance.
Iger reported that SDL’s attendance was 4 million during its first 4 months of operation and gave guidance without giving guidance: “Some of you may infer from this early performance that we could achieve 10 million in attendance in the park’s first year – a number we would be thrilled with, but we are not providing any annual guidance at this point”. (Sorry but if you are saying you’d be “thrilled” with 10 million, then you are giving guidance.) 10 million visitors would be excellent for a non-castle theme park. However, 10 million would place it well below the 3 profitable castle parks in Anaheim, Orlando, and Tokyo, and on par with Paris’ castle park where loses continue to accumulate. Considering that SDL opened during peak season with a lot of buzz in a country of 1.4 billion, 4 million does not sound particularly good.
Recalling Iger’s statement that “Over 300 million people will be able to travel to Shanghai Disneyland within a 3-1/2 hour trip” and his more recent statement that “more than half our Guests come from outside Shanghai”, it’s unclear how many of SDL’s first 4 million Guests will transform into repeat visitors, and how many were one-timers wanting to see what the hubbub was all about.
Arguably more important than attendance is spending. Iger emphasized “that consumers are staying longer” than expected. He didn’t say Guests are spending more than expected. This could be bad, very bad. Staying longer without increased spending means more expense without additional revenue. Yet Disney reported an aggregate International P&R PCGS increase of 5%, while PCGS was up less than 1% at DLP in 2016 and 3% at HKDL in 2015. This suggests spending was pretty good at SDL. If so, it’s puzzling why Iger didn’t highlight this.
Meanwhile, influential Chinese billionaire Wang Jianlin continues to threaten to make SDL “unprofitable”, going so far as to hire former Hong Kong Disneyland Managing Director Andrew Kam.
Finally, remember that with the exception of Tokyo Disneyland (which Disney does not own), there has never been a successful Disney theme park outside the United States. Despite widespread name recognition, 76.6% of company-wide sales are in the United States and Canada. Disney’s brand of Americana has shown to be a tough sell overseas.
Taken together, it’s unclear which way SDL will go. It’s much too early to suggest that SDL will fail. However, it’s also too soon to declare it a success. Disney is predicting SDL will nearly breakeven in fiscal 2017, with profitability achieved after that. We will see.
As I have for years, I’ll continue to monitor Disney’s theme parks and let you know what I think as more numbers are released.
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