Key points:
- As previewed, Disney produced strong theme park results, whereas United Parks & Resorts, soft results. Competition from Epic Universe, adverse weather, and soft international visitation to Florida all played a role.
- The industry’s season runs from Memorial Day to Labor Day; we expect that competition for visit share to be fierce, especially as Epic opens more capacity and given the very large amount of new attractions coming online across the large operators. That makes for once again another rough season for smaller operators.
As previewed, Disney produced strong theme park results for CQ1, whereas United Parks & Resorts, soft results. Starting with Disney, reported attendance for the US parks (including international visitors) declined -1%, reflecting a decline in international visitors. On an underlying basis, the trend was similar QoQ (Q4 benefited from the absence of any meaningful hurricanes). In-park F&B spend was -200bps softer QoQ (as previewed), which we suspect was due to adverse weather in Florida resulting in shorter visits. Resorts & Vacation revenue slowed by -100bps (excluding new cruise ships) and occupancy was weaker than previewed. The adverse weather, Epic, and other non-disclosed headwinds may have contributed to the softer occupancy.
Disney’s incoming CEO Josh D’Amaro said, “Both revenue and segment operating income were ahead of our prior expectations… Over the past few quarters, the team has successfully navigated known attendance headwinds, we are now starting to lap these headwinds and expect attendance trends at our domestic parks to improve in FQ3 when compared to the results we reported for Q2 today… The strong demand that we're seeing for these attractions reinforces our confidence in the long-term opportunity across our portfolio of experiential assets, parks, cruise line, and immersive experiences alike. We remain mindful of the near-term variability, but are also well positioned to benefit from sustained consumer demand for live entertainment at a scale unique to Disney.”
CFO Hugh Johnson said, “We haven't seen any change in consumer behavior from elevated gas prices thus far and aren't currently seeing a material impact on the remainder of the fiscal year based on forward bookings. We expect international visitation and Epic-related headwinds to ease in the coming quarters as we begin to lap both of those impacts. Q2 Experiences results came in ahead of our prior guidance despite the fact that these headwinds did have some impact in the quarter on segment OI, which was up 5%, and attendance in domestic parks, which was down 1%. While Q2 bore the full impact of those headwinds, excluding just the international visitation impact at domestic parks attendance, would have grown… The good news is, as we look forward, we expect growth to improve in the back half, and our forward bookings are very encouraging as we look to the rest of the year.” (A quote that aligns with our conclusions in the preview note.)
Turning to United Parks (Busch Gardens and SeaWorld), attendance declined -5%, but in-park per capita spend increased +5.3%, both well aligned with our preview. QoQ the deceleration in attendance was -760bps, which reflects weaker results at the parks in Florida -- Epic, weather, and international visitors (down). CEO Marc Swanson said, "First quarter results fell short of our expectations primarily due to unfavorable weather… and a decline in international attendance. Attendance in the first quarter was negatively impacted by approximately 140,000 guests due to weather and approximately 80,000 guests due to declines in international visitation. Adjusting for these impacts, attendance would have increased more than +1% for the quarter." The release read, “In park per capita spending improved primarily an increase in demand across many in-park offerings...” The expanded time per visitor (per preview) translated into the higher spend. A decline in admission revenue per admission demonstrates that they are leaning on price to fill the parks, as was the case in Q4.
Swanson went on to say, “I also want to be sure to communicate that we are well aware of and acknowledge the current reality of geopolitical and macro uncertainties and the current level of gas prices in particular and the potential impact on consumers… What I can tell you today is that we can't obviously see a material slowdown or other issues with our consumers' interest and willingness to spend...” (Which was our conclusion about gas prices in our preview.)
