Disney fires back after warning from analyst over prospects for 2008

[CanadianGuy]

A + B = C

Where A is revenue from room rates and B is revenue from food sales and such, isn't C less if A is less?

Maybe I'm missing something.. but you can charge less for rooms (A) and fill more rooms with more bodies... who will then spend more cash (B).. potentially making C the same number with more guests spending less per guest.

Is it ideal? No, it doesn't maximize the revenue potential per available guest/room (REVPAG/REVPAR). However, if the rooms are going to sit empty because nobody is willing to pay the full rate, then it's a no brainer.

Could it keep the revenue side of the balance sheet intact? Potentially, yes. Disney's been doing exactly this for a few years.. (40% off, 30% off, 20% off.. Free Dining etc) ... something the folks on this board lament on a regular basis -- why would anyone be surprised they'd continue to do so in 2008?

The real profit center in the parks is made-in-China souvies with 400 to 1000% markup .. not in food sales... altho in some respects food sales are nothing to sneeze at either.

Knox

 

[Another Voice]

Maybe I'm missing something.. but you can charge less for rooms (A) and fill more rooms with more bodies... who will then spend more cash (B).. potentially making C the same number with more guests spending less per guest.

But there is a substantial cost to filling the hotel room as well. There's housekeeping, maintenance and utilities on the room itself, then there's the general costs of having more people at the resort in total. At a certain point, it does make sense just to shut-off hotel rooms and not even sell them at a discounted rate. Disney has been doing it for decades, shutting down entire sections and floors. That often accounts for the "they must be full becasue I can't get a reservation" comments you hear around the boards.

Food may have a low margin, but it is one of the highest volume items on property. Disney has been able to offset the discounted and free food by radically reducing its costs (lowering the quality of food and slashing the number of offerings). And the real margin they make is on the booze -they're more than happy to give away a dinner if you order a bottle of wine or a couple drinks.

All of this also leads into what the big problem is. In order to keep attendance up, Disney has had to reduce its margins on the bread-and-butter earners (hotel rooms and food) and relay more and more on admission tickets and the "revenue enchanments" to make-up the difference. But now there are clear signs the pubic isn't going to go beyond $75 a day for the theme parks. And the first thing people are going to stop buying are photo packages and Stitch pop-corn buckets.

So where exactly can Disney earn it's profit? People now expect cheap motel rooms, free food and have already swtiched off their Pal Mickey.

 

[DancingBear]

Maybe I'm missing something.. but you can charge less for rooms (A) and fill more rooms with more bodies... who will then spend more cash (B).. potentially making C the same number with more guests spending less per guest.

Understood, but that only works if you are in fact using the discounted rooms to bring in more bodies to fill empty rooms. And I thought Disney was touting very high occupancy rates last year.

 

[CanadianGuy]

Understood, but that only works if you are in fact using the discounted rooms to bring in more bodies to fill empty rooms. And I thought Disney was touting very high occupancy rates last year.

I'm definitely missing something.

I'm not aware of Disney offering discounts for any other reason???

And yes, they touted high occupancy rates.. but that doesn't mean that those high occupancy rooms were at full rate across the board.

Last year in January they offered a 40% discount offer for a number of 'slow weeks' throughout the year and they've done the same thing this year. The response to the 40, 30 and 20 offers seems pretty good if you go by the posts on the Codes & Rates board... I know that's not the be-all-end-all barometer.

Disney offered healthy discounts throughout the 2007 calendar year... but that clearly paid off in terms of Revenue Per Available Guest.

Knox

 

[wulfgeat]

I may be wrong, but I thought that most of Disney's income was generated from other than the parks. I know if you lose a big chunk of your most profitable sector it really hurts, but I would think the all of the media would be a better generator of income and profit. Any additional cable subscribers do not cost a penny more than what you are already spending. Maybe Disney is partially insulated from the writers strike, too, but slowing economy and all other factors can not help.

 

[DancingBear]

CanadianGuy, I can't vouch for the extent to which that analyst looked at one year's discounts vs. another. From the second-hand report I quoted from earlier it referred only to his observation that Disney did last-minute discounting in the fourth quarter due to (according to his info/opinion) softer-than-expected demand.

 

[CanadianGuy]

The fourth calendar quarter of 2007 is actually Disney's first quarter of 2008 the way I read things.

Again, I don't equate discounting to a reduction in revenue necessarily. Disney's systems.. antiquated tho some of them may be, are actually capable of only offering room discounts to guests who previously charged more than 75$ per guest/per day to the room... for example.

So either way, it will be interesting to see the 1st Q 2008 results when they are released next week to see if a drop in revenue is noted in the Parks/Resorts division.

I'm sorry but I just don't think there will be. Could be wrong.. it has happened before.

 

[CanadianGuy]

And this juicy tidbit.. from the Los Angeles Business Journal..

Shares in Walt Disney Co. rose nearly 3 percent early Friday after the entertainment giant was upgraded by Oppenheimer & Co., which said Disney’s fiscal first-quarter results will be better than expected.

Analyst Jason Helfstein raised his rating to "buy" and added that he expects strong attendance at Disney’s theme parks. Helfstein also said that compared to the Standard and Poor's 500 index, shares in Burbank-based Disney is at its lowest value in five years.

Disney is scheduled to report its fiscal first-quarter results on Feb. 5.

The upgrade comes after Citi Investment Research analyst Jason Bazinet downgraded the stock earlier this week due to concerns that a slowing economy has begun to cut into the company’s revenues.

Shares in Disney were up 2.9 percent to $30.70 in early trading Friday morning on the New York Stock Exchange.