Disney earnings: How long will theme park promotions continue?

[CR Resort Fan 4 Life]

http://thedailydisney.com/blog/2010/05/disney-earnings-how-long-will-theme-park-promotions-continue/

 

[skiingfast]

I think Disney is really digging itself into a ditch. Not because of the problem of getting more customers and earning less. Not because the guests are accustomed getting discounts.

But because Disney raised prices through the last couple troubled years. While businesses weren't giving raises Disney expected one from the customer. At the same time it has added hotel rooms and is adding ships.

It will probably need to keep giving incentive to stay on propety so that people continue to buy food, merchandise and park tickets.

Tough problems can arrise between segment managers. Why would food want to bare the burden so resorts can make more? Stuff like that happens.

The shocking thing is the profit estimate for the park division. $107M when they have 65M domestic visitors in 2009 that's 16M a quarter and they are only earning $7 a guest. I wonder why their margin is so eroded.

 

[Disco]

The shocking thing is the profit estimate for the park division. $107M when they have 65M domestic visitors in 2009 that's 16M a quarter and they are only earning $7 a guest. I wonder why their margin is so eroded.

I wouldn't mind seeing a little more analysis behind those figures. Could be that they are leveraging future project costs (like building the new cruise ships) against that quarters numbers. Maybe it has something to do with the CA or FL renovations?

 

[skiingfast]

Well I don't know, but I do believe the DLC is a serparate division.

But I don't know if it is seperate for marketing or operational reasons. I would agree that the Fantasyland and DCA work probably has somthing to do with it, but likewise I don't know how they account for these. Both projects are spread out over years. I've read that DCA itself is a special case itself. It had to be board arrproved. I worked at a place where, when expenditures had to be approved high up, they came out of a general budget and not a department budget.

Still for simplicity sake say they are spending 3B for DCA, MK and DLC. The work is over 5 years, or 20 quarters. So the added expense is 150M a quarter. Doesn't look real big in camparison to the 107 in profit.

I know that Disney sales are roughly 30B and profit is roughly 3B. I've read that the parks input is a small part of that. I'm just surprised that it is a 30th on the profit side.

 

[skiingfast]

Disney annouced earnings. Better than expected. Theme park attendence flat, hotel occupancy down. Said discounts are going to be reduced so they can stop using them.

http://thedailydisney.com/blog/2010...o-movie-blockbuster-but-parks-still-struggle/

 

[skiingfast]

In the OP new post he put this link.

http://thedailydisney.com/blog/2010...r-but-business-travel-to-parks-is-picking-up/

In a paragraph in the middle Disney is saying it is seeing strength in conventions and business travel as are other hotel chains. This is a sign of broadspread economic prosperity.

I'm sure this has more to do with why Dinsey would trim offers beyond them thinking they would not like to offer them.

 

[akcire]

Our family will go to Disney with or without discounts, we just like Disney--for us it is an easy and fun quick vacation. That said, the past 5 years we have gotten no less than 6 pin codes per year for discounts/free dining, etc; all of these are in addition to the publicly available discounts.

Between the discounts and the decline in original awesome park merchandise, we now spend 35-40% less than we did in the past when we are in Disney. All the while our personal financial situation has improved, and we would gladly spend.

Disney is not doing a very good job of getting our money--and all the discounts result in eroded margins. The one that made me really chuckle happened this past December--while staying on a free dining pin. A family member wanted to buy all the girls the Disney Dooney & Burke bags as Christmas gifts, I had a hard time finding them so essentially waited to the last minute (assuming I would use mail order if needed). In my checkout folio was a 35% off coupon for park merchandise with few exclusions--I headed to DTD and purchased the bags--essentially eliminating their margin.

If Disney keeps giving away the margin and if there is any strengthening in the US dollar...Disney will be in a world of hurt.

 

[Disco]

Disney annouced earnings. Better than expected. Theme park attendence flat, hotel occupancy down. Said discounts are going to be reduced so they can stop using them.

http://thedailydisney.com/blog/2010...o-movie-blockbuster-but-parks-still-struggle/

Well $150 million in profit on 2.4 billion in revenue does sound low.
None of the facts really state what is included in the 2.3 billion of expenses (other than ship fuel). Would be nice to know what is in those expenses.
If 100 million is being spent on the WoC and another 100 mil is being spent on a new cruise ship, than it wouldn't sound so bad. You'd be talking 10-15% in profits really, just that they are reinvesting a chunk of it on future growth opportunities.

 

[skiingfast]

Well $150 million in profit on 2.4 billion in revenue does sound low.
None of the facts really state what is included in the 2.3 billion of expenses (other than ship fuel). Would be nice to know what is in those expenses.
If 100 million is being spent on the WoC and another 100 mil is being spent on a new cruise ship, than it wouldn't sound so bad. You'd be talking 10-15% in profits really, just that they are reinvesting a chunk of it on future growth opportunities.

Well from the 2.3 in costs I imagine fuel for the ships isn't big piece of the pie, just the most volatile. Of course at WDW fuel is probably big there too, to run the boats and buses. I've always wanted a close look at the WDW facilities to see if they produce any electricity. I know this is a big cost. DLR has always used a large component of the Anaheim electricity. Other than that labor numbers are probably out there somewhere. I'm sure every now and then payroll taxes come out in public. They have to buy a lot of food and merchandise too.

 

[eliza61]

I've always thought the constant discount were a horrible business plan. they usually are for most business. sub par discount rarely translate into better profits even if you pack the house with people. Low profit margin some times means no money to reinvest into the business and we are seeing the effects of that (or at least I am).

I know it sounds selfish but I rather they got rid of the discounts, increased and reinvested their profits and bring back better quality food and service.

 

[CandyMandy]

I know it sounds selfish but I rather they got rid of the discounts, increased and reinvested their profits and bring back better quality food and service.

I'm not sure it is selfish to feel that way and you are not alone.

Endless discounts which lead to things like homgenization of dining and merchandise may be great strategies to grow mass market sales -- in the short term. But what historically keeps people coming back to Disney are the premium elements.

Erode those too much (as many of us fear Disney is doing) and you eventually poison the well.

 

[skiingfast]

I don't think Disney is cutting back reinvestment. Even quite the contrary. MK expansion, DCL expansion, Honk Kong DL expansion, New WDW hotel AAR and the resdesign and expansion in DCA.

I do agree that dining is homogonized but I think that is more a result of the similar tastes of Americans.

 

[Disco]

I don't think Disney is cutting back reinvestment. Even quite the contrary. MK expansion, DCL expansion, Honk Kong DL expansion, New WDW hotel AAR and the resdesign and expansion in DCA.

I do agree that dining is homogonized but I think that is more a result of the similar tastes of Americans.

Honk if you love Kong.
Yeah, Disney parks are going through the largest expansion they've had for quite a long time. The new cruise ships and their Island are also other big dollar expansions.
The question is really if the money mentioned in that 2.3 billion of expenses includes all these new projects? If so than the parks department is doing just fine. If not, phew, that is razor thin margins and I'm worried about their future prospects. I can't imagine that, even after all the Disney promotions, they are not profiting off of me with $10 hamburgers and $82 dollar motel rooms.

 

[eliza61]

I don't think Disney is cutting back reinvestment. Even quite the contrary. MK expansion, DCL expansion, Honk Kong DL expansion, New WDW hotel AAR and the resdesign and expansion in DCA.

I do agree that dining is homogonized but I think that is more a result of the similar tastes of Americans.

But the things you have the biggest profit margin on generally are "consumables". Things that you have to replenish and can mark up. Dining is not only homogonized but mediocre.
Most people expect a certain markup when you go to vacation places but then add on subpar quality and you get folks who will only eat at your restaurants if they are on the DP or during free dining. Would you really pay the prices these restaurants charge for the quality of food they serve?

Same thing with souviners (sp?). Now rumor has it that they are getting rid of resort specific items. Tee shirts have a tremendous markup. So now you get John P Public who may be there on a limited budget and only there because the discounts have made it possible, it's already hard to get him to part with his hard earned dollars, now you offer him the same design and quality that he can get at home at walmart for 1/3 of the price, you get a large population that's not going to spend. The big draw in going to the souvineers shops was the originality. I've heard many, many complaints from people about "why is Hannah Montanna in every single shop"? especially when you can get HM shirts at your local mall for a fraction of the cost.

Just an example.

As a fanatic that tries to go often, that has me concerned.

 

[skiingfast]

But the things you have the biggest profit margin on generally are "consumables". Things that you have to replenish and can mark up. Dining is not only homogonized but mediocre.
Most people expect a certain markup when you go to vacation places but then add on subpar quality and you get folks who will only eat at your restaurants if they are on the DP or during free dining. Would you really pay the prices these restaurants charge for the quality of food they serve?

Same thing with souviners (sp?). Now rumor has it that they are getting rid of resort specific items. Tee shirts have a tremendous markup. So now you get John P Public who may be there on a limited budget and only there because the discounts have made it possible, it's already hard to get him to part with his hard earned dollars, now you offer him the same design and quality that he can get at home at walmart for 1/3 of the price, you get a large population that's not going to spend. The big draw in going to the souvineers shops was the originality. I've heard many, many complaints from people about "why is Hannah Montanna in every single shop"? especially when you can get HM shirts at your local mall for a fraction of the cost.

Just an example.

As a fanatic that tries to go often, that has me concerned.

I would say WDW getting rid of resort merchandise is nothing more than a rumor. A previous president of the Anahiem resort changed the DL retail areas to sell all the same items with only a few expceptions. Of course this is gone and now the Disney stores sell store specific lines of items.

Of course I would pay the prices for the food. People do. Not everyone in the park today is eating on the DP. Most of the thousands of cars in the parking lots belong to people not on the DP but most of them are going to eat today in WDW.

 

[crocko]

When looking at DCL's income statement numbers, don't forget about Depreciation Expense. That is probably a significant number and it is a non-cash expense.

 

[Dznefreek]

According to recent article in the Sentinel WDW is ready to stop discounting this fall.

Disney profits surge thanks to movie blockbuster, but parks still struggle
FEATURED, JASON GARCIA, NEWS — BY JASON GARCIA ON MAY 11, 2010 AT 3:25 PM
Updated at 6:47 p.m.
After more than a year of using deep discounts to prop up traffic in its theme parks, the Walt Disney Co. said Tuesday it is prepared to absorb a short-term attendance hit to restore pre-recession prices.
The company said it expects to cease widespread discounting beginning this fall.
“We are determined and confident that we can take our pricing back to normalized levels,” Walt Disney Co. Chief Financial Officer Jay Rasulo said during a conference call with stock analysts.
The comments followed Disney’s announcement that companywide profit surged 55 percent during the its fiscal second quarter, as the Burbank, Calif.-based entertainment giant reaped a windfall from its hit 3-D movie Alice in Wonderland.
Disney said it earned $953 million during the three months that ended April 3, up from $613 million a year ago. The gain was driven in large part by the company’s movie studio, which rebounded from a moribund performance a year ago thanks to the strength of Alice.
The film, directed by Tim Burton and starring actor Johnny Depp, has rung up $962 million in global ticket sales so far, making it the second-highest-grossing film in Disney history.
The company’s total revenue rose 6 percent to $8.6 billion.
Disney’s theme parks continued to struggle, however, despite an improving overall economy. Operating profit at Walt Disney Parks and Resorts sank 12 percent for the quarter, falling from $171 million a year ago to $150 million. Sales inched up 2 percent to $2.4 billion.
Rebounds at Disney’s theme parks typically lag broader economic recoveries because of the lead time involved in booking vacations.
The parks unit was also hurt by declines at Disney Cruise Line, which was squeezed both by rising fuel costs and greater promotional activity to stimulate bookings.
Attendance fell 4 percent at Disney’s U.S. theme parks as the head count was down 6 percent at Walt Disney World but flat at Disneyland in Anaheim, Calif. The decline was partly the result of a shift in Disney’s fiscal calendar that stripped from the second quarter the typically busy week around New Year’s. Without that shift, Disney said, domestic attendance would have been flat.
Hotel occupancy also fell, sinking eight percentage points in Orlando to 81 percent and two percentage points in California to 67 percent.
Disney has already begun reducing the size of available discounts in recent months, and the effect was clear in the second quarter. While attendance and occupancy fell, guest spending climbed from a year ago, when Disney was offering its steepest promotions.
Average guest spending rose 5 percent in Disney theme parks, while per-room spending in its hotels jumped 8 percent.
Still, Disney appears destined to absorb an even larger attendance drop in the current quarter: The company said room reservations for the April-through-June period are running 10 percent behind last year’s pace, though executives said the shortfall was not surprising given the reduced level of promotions.
“We made a decision to reduce the size of the discount. In doing so, we were pretty certain, short-term, that was going to reduce volume,” Disney President and Chief Executive Officer Bob Iger said. Iger added, however, that bookings have very recently begun to accelerate, suggesting, he said, “It’s possible that we’re starting to see signs that the consumers are starting to look past” discounts.
Across Disney’s other divisions, the company’s cable- and broadcast-television networks reported flat operating profit of $1.3 billion, though executives said they were seeing strong growth in advertising rates. Operating profit in Disney’s consumer-products unit grew 37 percent to $133 million, while the company’s digital-media operations reported an operating loss of $55 million, 10 percent better than a year ago.

 

[eliza61]

I would say WDW getting rid of resort merchandise is nothing more than a rumor. A previous president of the Anahiem resort changed the DL retail areas to sell all the same items with only a few expceptions. Of course this is gone and now the Disney stores sell store specific lines of items.

Of course I would pay the prices for the food. People do. Not everyone in the park today is eating on the DP. Most of the thousands of cars in the parking lots belong to people not on the DP but most of them are going to eat today in WDW.

Have to disagree, a large majority of the people with cars are staying off site and have no intention of eating a sit down dinner at the world. quick service is safe. I'm a dvc member and we always have a car for the simple fact of going off site to eat and all the dvc members I chat with here have one or two favorites but on the whole, they use their facilities. That's why disney promotes so heavily to stay on site and their free buses. they don't want you to have a car, they want you locked in.
We get post all the time specifically saying if they don't get free dining, they don't do sit down meals. There's got to be a reason for that. Basically high price and very mediocre quality.

 

[skiingfast]

We get post all the time specifically saying if they don't get free dining, they don't do sit down meals. There's got to be a reason for that. Basically high price and very mediocre quality.

This may very well be true. But Dinsey doesn't close the restaurants when they don't offer free dining.

Prices outside Disney do not suddenly drop to nothing either. If you want a cheaper meal you can go to Country Buffet but the food can't be argued as better. You can go to an Olive Garden but then the checks start to get high and you spent all that extra time and gasoline.

 

[eliza61]

This may very well be true. But Dinsey doesn't close the restaurants when they don't offer free dining.

Prices outside Disney do not suddenly drop to nothing either. If you want a cheaper meal you can go to Country Buffet but the food can't be argued as better. You can go to an Olive Garden but then the checks start to get high and you spent all that extra time and gasoline.

Guess it's a matter of perspective then. I'm a regular so little things like price and quality matter I guess a lot more (not saying it's not important to you. ) I'm lucky time is a minor consideration because I'm a dvc member and I know I'll probably be back very soon (God willing) Let me also say, that I grew up in my grandfathers and uncles NYC restaurant so I'm probably a little more aware of mediocracy in meals.

I've went to Olive Garden right outside of DTD in the crossroads. Plate of spaghetti and meatballs $11 bucks, plate of same at Tony's 17 bucks. So if every thing is roughly 6% more that adds up especially with 4 people PLUS any time Olive Garden food is better than your sit down, IMO that's a problem and no where else but disney could you consider Tony's good italian food.
I hate when I look forward to a meal and it's consistently mediocre. I will say I've never had a bad meal but I have seen a steady decline in offerings, quality and orginality. it always makes me laugh when I see reviews on Le Cellier and the best thing people rave about is the soup! LOL, you go to an expensive steak house and the best thing is the soup?

Sorry, didn't mean to go off on a tangent and hijack the thread.