Disney operating income down, revenue up in parks and products division, despite lower attendance

Posted Wednesday, October 23, 2019 8:44 AM | Contributed by Jeff

From the press release:

Parks, Experiences and Products revenues for the quarter increased 7% to $6.6 billion and segment operating income increased 4% to $1.7 billion. Operating income growth for the quarter was due to increases at our consumer products businesses and Disneyland Paris, partially offset by a decrease at our domestic parks and resorts. Results included a benefit from a shift in the timing of the Easter holiday. In the current year, the entire Easter holiday fell in the third quarter, while the third quarter of the prior year included only one week of the Easter holiday.

The increase at our consumer products business was due to growth at our merchandise licensing and retail businesses. Growth at merchandise licensing was primarily due to higher revenue from merchandise based on Toy Story, partially offset by a decrease from Star Wars merchandise. The increase at our retail business was due to higher comparable store sales and online revenue.

Higher operating income at Disneyland Paris was primarily due to higher average ticket prices, partially offset by labor and other cost inflation and lower attendance.

The decrease in operating income at our domestic parks and resorts was due to higher costs and lower volume, partially offset by increased average per capita guest spending. Higher costs were driven by labor and other cost inflation and expenses associated with Star Wars: Galaxy’s Edge, which opened at Disneyland Resort on May 31. The decrease in volume was due to lower attendance, partially offset by higher occupied room nights. Guest spending growth was primarily due to higher average ticket prices and increased food, beverage and merchandise spending.

Read the press release from The Walt Disney Company.

Wednesday, October 23, 2019 9:54 AM

I'm not a finance guy, but if I'm reading this correctly; domestic attendance is down, but guests are spending more so revenue and operating income are up. But operating expenses are also rising putting a damper on profits.

In the end, isn't this exactly the strategy that Iger announced a few years ago? Less guests, but more spending?

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Wednesday, October 23, 2019 10:07 AM

It sure sounds like it. I know as a passholder, visiting the rat definitely costs more. Food and drink costs are up probably 20% in the last two years, and the passes themselves hurt a bit this year. We haven't bailed, but we have friends who have not renewed.

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Wednesday, October 23, 2019 10:48 AM

Domestic park revenues also decreased. So although overall park revenues were up (with lower attendance), that was not the case in the US.

Is the expectation that attendance at US Disney parks once the two Star Wars lands get settled (don't know if they are there yet) will be less than it was before the lands opened?

Last edited by GoBucks89, Wednesday, October 23, 2019 10:50 AM
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Wednesday, October 23, 2019 11:24 AM

I will say this, and I know that comparing WDW to Discovery Cove is a bit apples to oranges. However, I went to Discovery Cove several years ago and while it cost me a small fortune, it was one of the most enjoyable attraction/entertainment experiences that I have ever had. I believe they limit daily attendance to around 1,000 guests.

Not one sense of crowds, no fighting for a lounge chair, pretty much everything including food and drinks and lockers were bundled in the admission price. For me, it was worth every penny.

You certainly pay for it, don't get me wrong, but the "less crowds, pay more" revenue concept is really intriguing and a model that more and more attractions are heading toward.

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Wednesday, October 23, 2019 12:42 PM

There are a lot of things that are better with smaller crowds. Anything with limited capacity and the potential/need for lines (which covers a lot of experiences). Many people like crowds at a sporting event or concert but generally the less crowded the better in terms of an experience. But there is a sweet spot. Would Discovery Cove have been better with fewer guests? Would it have been worse with slightly more guests. Presumably yes but marginally in each instance. But looking at your costs, revenues, capacity, etc. the sweet spot varies in terms of maximizing profits over the long term.

It makes sense to me that Disney and Discovery Cove would take the higher price/lower crowds/higher revenue/income approach. It makes a lot less sense to me that Cedar Fair or Six Flags would take it (and it may be that they are already there). Many businesses would love to take the Iger approach. The issue isn't that they don't want to or just don't understand how it could work. It just won't work.

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Wednesday, October 23, 2019 12:53 PM

GoBucks89 said:

Is the expectation that attendance at US Disney parks once the two Star Wars lands get settled (don't know if they are there yet) will be less than it was before the lands opened?

Beats me, but if you can have a higher occupancy rate and boost per cap spending, that seems like an ideal trade. They managed to get two $4 Thermal Detonator® sodas out of me, and a hotel stay, and I live almost across the street.

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Wednesday, October 23, 2019 2:55 PM

I would be surprised if their expectation is that attendance at the US parks would be less after the Star Wars lands hit their stride than it was before those lands opened. But maybe not.

Ultimately the strategy of decreasing attendance with higher per caps/revenues doesn't work run to the horizon though like they say in economics in the long run we are all dead. Declining US park revenues though likely are not part of the plan (doubt that continues though).

Quarterly financial statements don't typically have footnotes. Maybe your soda purchase and hotel stay will be mentioned in the footnotes to the annual report. Could be part of the earnings call I suppose.

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Wednesday, October 23, 2019 4:43 PM

Didn’t Disney recently walk an exec out the door over under-performing US parks? And by that I mean post Star Wars attendance figures not showing the boost they had predicted?

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Wednesday, October 23, 2019 5:19 PM

The news read like that, but to me it sounded like a reorg for efficiency.

And that's great sarcasm about me not being mentioned in the press release. It was obviously an oversight.

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Wednesday, October 23, 2019 6:16 PM

Can someone explain the difference between operating income vs revenue?

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Wednesday, October 23, 2019 8:41 PM

In basic terms, revenue is the money you collect from your customers. For amusement parks, its what they pay for admission tickets, food/drinks, merchandise, etc. As noted in I think the Cedar Point thread recently, some of the amounts paid for passes are deferred and become revenue over the operating season.

Operating income is basically what you make from your operations. Its your revenues less the costs to operate the park. Employee wages/benefits, cost of food and merchandise, etc.

Net income includes additional income/revenues/costs/expenses. Such as administration costs (for management), taxes and interest costs. Ultimately net income includes everything in the way of revenues and expenses. For different companies/industries what is broken out on what line items can vary somewhat.

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Wednesday, October 23, 2019 11:09 PM

I'm not being a smart ass here. I was curious about your question, so I Searched and found an answer. Then I thought, why not post this page that I found to help ShaneDenmark with his question.

https://www.investopedia.com/ask/answers/122714/what-difference-bet...evenue.asp

...And after reading the article, I have come to realize that I am business illiterate.

Last edited by LostKause, Wednesday, October 23, 2019 11:14 PM
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Thursday, October 24, 2019 12:11 AM

That makes sense. So Operating Income is a more accurate measure of how effectively you’re running your business. But it’s still kinda a BS measure, since taxes and administrative costs etc are all real costs that come off your bottom line.

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Thursday, October 24, 2019 3:15 PM

None of the various financial measures is perfect. But that doesn't make them invalid. You just have to know their limitations. And understand that the financial results/health of a company are more than just any one number. Each of the various measures/data points provides insight into different parts of the entire picture. And you need to go beyond the numbers in many cases.

Disney parks are but one part of a much larger company. In addition to parks/resorts, you have tv, movies and merchandising. Iger manages all of them. How do you allocate his salary to each of them? Its a big reason why they report operating revenues/income. Its also helpful to be able to see results by segment rather than just the overall results for the entire company.

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