Disney's fourth quarter and full year results

[Princess Jes]

So, I'm a financial accountant. Actually, my current title is "Brand Finance Analyst" for a large fashion retailer in Australia (and we have over 100 stores in the USA also)
I look at figures all the live long day.
I look at sales growth all day.

I have an observation to make:
Guest attendance: up 7%
Resort spending: up 7%
In park spending: up 1%

Does anyone else see something that I see?

If this is a $ for $ comparative, this isn't a great sign.
Yes, attendance is rising despite ticket price and resort price increases, both growing at the same rate year on year, but in park spending is only up 1% on last year.

To me, this reads as a comparative decrease in in-park spending per guest.

So, are people making up the difference in ticket increases by not spending in the park as much?

Is this where we will see the hurt first?
People buying from garden grocer, eating off site at perhaps one of the establishments JL and Teresa have reviewed for example?

This seems like it was overlooked, but I think it's something to keep an eye on. Ok, it's not going to sink Disney by any means, but it does tell a story.
Free dining was reduced for September and October this year right? So in-park spending (on dining) should have increased.

Thoughts? Opinions?

 

[GAN]

It definitely looks like they fell short ...I'd like to see historical numbers though. 1% park spending growth might be good for 7% attendance growth, maybe it took 10% growth in attendance last year to achieve that number? But let's face it, people budget a vacation if one variable goes up another must go down ..and let's not assume Disney doesn't figure that as well.

 

[OKW Lover]

I'm a recovering beancounter but I still pay attention to the financial results of my favorite companies. I see what @Princess Jes is saying here, but don't entirely agree. The fact is that in-park spending is up. Yes, not as much as attendance is, but still its up. That tells me that while people may be cutting back on their in park spending, they are still spending more than before. So, it looks like in-park spending is still somewhat elastic and there is still room for growth in the face of future price increases.

 

[SorcererHeidi]

Nice analysis, Jes, and I admire that, not being of a "financial brain" myself. I can certainly see (and agree with) what you're saying, from the limited amount of financial brainpower I do have. I know that would probably be how I would "cut back" if I went. And - as I've said before - I used to go every year (sometimes blessed to go twice), or at least every other year regularly since '93. Now I haven't been in over 3 years, and have NO IDEA when my next visit will be, due to all the price increases - tickets, food, resort, airfare, etc.

 

[jcb]

So, I'm a financial accountant. Actually, my current title is "Brand Finance Analyst" for a large fashion retailer in Australia (and we have over 100 stores in the USA also)
I look at figures all the live long day.
I look at sales growth all day.

I have an observation to make:
Guest attendance: up 7%
Resort spending: up 7%
In park spending: up 1%

Does anyone else see something that I see?

If this is a $ for $ comparative, this isn't a great sign.
Yes, attendance is rising despite ticket price and resort price increases, both growing at the same rate year on year, but in park spending is only up 1% on last year.

To me, this reads as a comparative decrease in in-park spending per guest.

So, are people making up the difference in ticket increases by not spending in the park as much?

Is this where we will see the hurt first?
People buying from garden grocer, eating off site at perhaps one of the establishments JL and Teresa have reviewed for example?

This seems like it was overlooked, but I think it's something to keep an eye on. Ok, it's not going to sink Disney by any means, but it does tell a story.
Free dining was reduced for September and October this year right? So in-park spending (on dining) should have increased.

Thoughts? Opinions?

It appears to me that the percentages you quote are not entirely accurate, well, the percentages are accurate, but the categorization is not. I blame the Orlando Sentinel. they did report that "Excluding the benefit of an extra week in the quarter, 7 percent more visitors walked through the turnstiles than the previous year. The guests spent 1 percent more, on average." http://www.orlandosentinel.com/business/os-disney-earnings-20151105-story.html When Leah paraphrased the OS story, she summarized it as saying "In spite of ticket prices passing $100 per day, attendance at the parks increased, with 7 percent more visitors than last year; on average, those visitors spent 1 percent more at the parks." From this, it is easy to think Disney separates out in park spending.

What Disney reported in the November 5, 2015 earnings call (mp3 available at https://thewaltdisneycompany.com/investors/events, start listening at about 16:08) was:

“Attendance at our domestic parts was up 15 percent in the quarter and up 7 percent [for the fiscal year], excluding the benefit of the 53rd week. Disneyland, in particular, saw very strong attendance growth, due to tremendous excitement for the 60th anniversary celebration. Per capita spending was up 1 percent on higher admissions, merchandise, and food and beverage spending. Per room spending at our domestic hotels was up 7 percent and occupancy was up 1 percentage point to 84 percent.”

Disney has historically separated "per capita spending" and "per room spending." I don't understand this data to be directly comparable (but I could be educated). I understand these to measure the same basic thing but separating out the spending growth attributable to spending by guests who stay in Disney owned hotels and those who don't. (I could be wrong, but that isn't my fundamental point so I'll move on.)

Also notice that the CFO did not say whether the "per capita spending" percentage was for the quarter or fiscal year (it is typically stated for the quarter). For FY 2014, Disney reported that "fourth quarter per capita spending in our domestic parks up 6% on higher ticket prices, food and beverage and merchandise spending." (http://cdn.media.ir.thewaltdisneycompany.com/2014/q4/q4-fy14-earnings-transcript.pdf, page 7). For FY 2013, Disney reported that "For the quarter. . . Domestic [parks] per capita spending was up an impressive 9% on higher ticket prices and food and beverage spending." (http://cdn.media.ir.thewaltdisneycompany.com/2013/q4/q4-fy13-earnings-transcript.pdf, page 7).

Certainly, 1 percent per capita spending is a much slower growth rate than in the same quarters in the two prior fiscal years. But since "per capita spending" includes ticket prices (and ticket prices have historically risen annually), I don't know that we have the raw data to conclude that "people [are] making up the difference in ticket increases by not spending in the park as much." Also, I don't think Disney's "per capita spending" figures for the quarter fully reflects the impact of the comparatively recent hike in ticket prices. The real test will come next year at this time.

Even so, it makes sense to me that higher ticket prices are one cause of a decline in growth for per capita spending but I believe that is attributable to overall price increases in the last several years.

You can bet Disney is watching this figure closely (they report on it every quarter, after all). We'll know that the lower percentage of growth concerned Disney if we see merchandise and food discounts. I'm not holding my breath. The 1 percent figure represents growth as compared to the prior two comparable quarters, at least one of which was an "impressive" growth. Disney may well be satisfied that the percentage increased at all.

 

[SorcererHeidi]

It appears to me that the percentages you quote are not entirely accurate, well, the percentages are accurate, but the categorization is not. I blame the Orlando Sentinel. they did report that "Excluding the benefit of an extra week in the quarter, 7 percent more visitors walked through the turnstiles than the previous year. The guests spent 1 percent more, on average." http://www.orlandosentinel.com/business/os-disney-earnings-20151105-story.html When Leah paraphrased the OS story, she summarized it as saying "In spite of ticket prices passing $100 per day, attendance at the parks increased, with 7 percent more visitors than last year; on average, those visitors spent 1 percent more at the parks." From this, it is easy to think Disney separates out in park spending.

What Disney reported in the November 5, 2015 earnings call (mp3 available at https://thewaltdisneycompany.com/investors/events, start listening at about 16:08) was:

“Attendance at our domestic parts was up 15 percent in the quarter and up 7 percent [for the fiscal year], excluding the benefit of the 53rd week. Disneyland, in particular, saw very strong attendance growth, due to tremendous excitement for the 60th anniversary celebration. Per capita spending was up 1 percent on higher admissions, merchandise, and food and beverage spending. Per room spending at our domestic hotels was up 7 percent and occupancy was up 1 percentage point to 84 percent.”

Disney has historically separated "per capita spending" and "per room spending." I don't understand this data to be directly comparable (but I could be educated). I understand these to measure the same basic thing but separating out the spending growth attributable to spending by guests who stay in Disney owned hotels and those who don't. (I could be wrong, but that isn't my fundamental point so I'll move on.)

Also notice that the CFO did not say whether the "per capita spending" percentage was for the quarter or fiscal year (it is typically stated for the quarter). For FY 2014, Disney reported that "fourth quarter per capita spending in our domestic parks up 6% on higher ticket prices, food and beverage and merchandise spending." (http://cdn.media.ir.thewaltdisneycompany.com/2014/q4/q4-fy14-earnings-transcript.pdf, page 7). For FY 2013, Disney reported that "For the quarter. . . Domestic [parks] per capita spending was up an impressive 9% on higher ticket prices and food and beverage spending." (http://cdn.media.ir.thewaltdisneycompany.com/2013/q4/q4-fy13-earnings-transcript.pdf, page 7).

Certainly, 1 percent per capita spending is a much slower growth rate than in the same quarters in the two prior fiscal years. But since "per capita spending" includes ticket prices (and ticket prices have historically risen annually), I don't know that we have the raw data to conclude that "people [are] making up the difference in ticket increases by not spending in the park as much." Also, I don't think Disney's "per capita spending" figures for the quarter fully reflects the impact of the comparatively recent hike in ticket prices. The real test will come next year at this time.

Even so, it makes sense to me that higher ticket prices are one cause of a decline in growth for per capita spending but I believe that is attributable to overall price increases in the last several years.

You can bet Disney is watching this figure closely (they report on it every quarter, after all). We'll know that the lower percentage of growth concerned Disney is about the decrease when we see merchandise and food discounts. I'm not holding my breath. The 1 percent figure represents growth as compared to the prior two comparable quarters, at least one of which was an "impressive" growth. Disney may well be satisfied that the percentage increased at all.

Wow - I am just astounded at how financially and anayzinglyl (is that a word?) smart some of my fellow posters are - I am being TOTAL serious here, NO sarcasm intended - I am in awe!! Wish I could look at the numbers and speak with 1/2 the logical knowledge I see here, I truly do!!

 

[Princess Jes]

It definitely looks like they fell short ...I'd like to see historical numbers though. 1% park spending growth might be good for 7% attendance growth, maybe it took 10% growth in attendance last year to achieve that number? But let's face it, people budget a vacation if one variable goes up another must go down ..and let's not assume Disney doesn't figure that as well.

Absolutely, growth is growth no matter how you look at it. However, there are things that while showing growth, so raise alarm bells.
For example, in retail, we use a term called "comp", it means "comparative growth" and what that means is, how is the core business actually doing?
For example:
Our year on year (YOY) growth is 11%, but our Comp is only 1%
So, as a business, all of our stores sale's increased on the same period last year by 11%
However, that includes new stores, which, ideally have a big opening, boosted sales, before coming back to earth and stabilizing.
So, if comp growth is only 1% that means that the stores that are established, eg, been open for at least a full 12 months, have only grown by that 1% so it takes out that "noise" of hyped new stores etc. that's what the business needs to survive, stable core business.
So yes, we grew in the double digits, but the more important factor is that 1%
In fact, there are times when a business can grow YOY but the comp growth is negative, that's not what you want!

I'm a recovering beancounter but I still pay attention to the financial results of my favorite companies. I see what @Princess Jes is saying here, but don't entirely agree. The fact is that in-park spending is up. Yes, not as much as attendance is, but still its up. That tells me that while people may be cutting back on their in park spending, they are still spending more than before. So, it looks like in-park spending is still somewhat elastic and there is still room for growth in the face of future price increases.

I agree, however, I was looking at it on a "per person" or per capita base, as outlined by Jack.

It appears to me that the percentages you quote are not entirely accurate, well, the percentages are accurate, but the categorization is not. I blame the Orlando Sentinel. they did report that "Excluding the benefit of an extra week in the quarter, 7 percent more visitors walked through the turnstiles than the previous year. The guests spent 1 percent more, on average." http://www.orlandosentinel.com/business/os-disney-earnings-20151105-story.html When Leah paraphrased the OS story, she summarized it as saying "In spite of ticket prices passing $100 per day, attendance at the parks increased, with 7 percent more visitors than last year; on average, those visitors spent 1 percent more at the parks." From this, it is easy to think Disney separates out in park spending.

What Disney reported in the November 5, 2015 earnings call (mp3 available at https://thewaltdisneycompany.com/investors/events, start listening at about 16:08) was:

“Attendance at our domestic parts was up 15 percent in the quarter and up 7 percent [for the fiscal year], excluding the benefit of the 53rd week. Disneyland, in particular, saw very strong attendance growth, due to tremendous excitement for the 60th anniversary celebration. Per capita spending was up 1 percent on higher admissions, merchandise, and food and beverage spending. Per room spending at our domestic hotels was up 7 percent and occupancy was up 1 percentage point to 84 percent.”

Disney has historically separated "per capita spending" and "per room spending." I don't understand this data to be directly comparable (but I could be educated). I understand these to measure the same basic thing but separating out the spending growth attributable to spending by guests who stay in Disney owned hotels and those who don't. (I could be wrong, but that isn't my fundamental point so I'll move on.)

Also notice that the CFO did not say whether the "per capita spending" percentage was for the quarter or fiscal year (it is typically stated for the quarter). For FY 2014, Disney reported that "fourth quarter per capita spending in our domestic parks up 6% on higher ticket prices, food and beverage and merchandise spending." (http://cdn.media.ir.thewaltdisneycompany.com/2014/q4/q4-fy14-earnings-transcript.pdf, page 7). For FY 2013, Disney reported that "For the quarter. . . Domestic [parks] per capita spending was up an impressive 9% on higher ticket prices and food and beverage spending." (http://cdn.media.ir.thewaltdisneycompany.com/2013/q4/q4-fy13-earnings-transcript.pdf, page 7).

Certainly, 1 percent per capita spending is a much slower growth rate than in the same quarters in the two prior fiscal years. But since "per capita spending" includes ticket prices (and ticket prices have historically risen annually), I don't know that we have the raw data to conclude that "people [are] making up the difference in ticket increases by not spending in the park as much." Also, I don't think Disney's "per capita spending" figures for the quarter fully reflects the impact of the comparatively recent hike in ticket prices. The real test will come next year at this time.

Even so, it makes sense to me that higher ticket prices are one cause of a decline in growth for per capita spending but I believe that is attributable to overall price increases in the last several years.

You can bet Disney is watching this figure closely (they report on it every quarter, after all). We'll know that the lower percentage of growth concerned Disney if we see merchandise and food discounts. I'm not holding my breath. The 1 percent figure represents growth as compared to the prior two comparable quarters, at least one of which was an "impressive" growth. Disney may well be satisfied that the percentage increased at all.

Thanks jack! I hadn't gotten to read the full financials as yet, and would like to look at the P&L when I have an hour spare, but yes, leaving out the per capita distinction is crucial.
If average spend per guest is up, then that's good, but if over all spend is up but at a lower % point than attendance, my point stands.

Wow - I am just astounded at how financially and anayzinglyl (is that a word?) smart some of my fellow posters are - I am being TOTAL serious here, NO sarcasm intended - I am in awe!! Wish I could look at the numbers and speak with 1/2 the logical knowledge I see here, I truly do!!

When it's your job, you get used to it. I've been to university to study and worked in the industry for a while now, but I still have a long way to go. I'm astounded when I listen to my boss talk, he has a great knowledge and analytical brain, and it's something I strive towards.
But, we all have our strengths, there is certainly something you can talk to with confidence and knowledge that I wish I could do.
I'm far from creative, so anyone who is, is astounding to me!

 

[jcb]

I hadn't gotten to read the full financials as yet, and would like to look at the P&L when I have an hour spare

Just FYI, these figures come from the earnings call, not the P&L. Disney puts a pdf transcript of the earnings call on its website. That's a lot easier to digest than the sound file.

The more I think about the numbers, the more I think we are seeing one of the big reasons for the significant increase in the cost of an annual pass to the domestic parks. Remember, these figures combine stats for WDW and DL. So, domestic park attendance for the quarter is up 15 percent (some of that is for DL's 60th anniversary) but per cap spending is up only 1 percent. Attendance, I would think, includes annual pass holders (I don't know for sure). If Disney wants to drive up per capita spending in the future, and/or balance out double digit attendance growth against low single digit per cap spending, then why not raise the price on AP holders because that (so my theory goes) will help drive up per cap spending (for those AP holders who pay the higher price to renew) and decrease (to some degree) attendance (for those current AP holders who have been priced out of renewing). Of course, if Disney raises annual pass prices too high, it will decrease both attendance and per cap spending. You can be sure that Disney has studied this price point quite thoroughly.

I've long suspected that Disney's primary source of theme park revenue is from non-AP guests who do not book a Disney vacation once a year, or even once every two years. (Disney has no repeat guest affinity program. Disney is decreasing extra-contractual benefits for DVC members. Repeat guests get a modest discount if they book before leaving the resort.) So I believe Disney decided to "right" the per cap spending to attendance ratio by squeezing AP holders after concluding that the likely lost revenue from decreased AP sales would be a drop in a very large bucket of revenue derived from all its other guests.

Of course, this theory relies on the assumption that AP holders add a lot more to the attendance figure than they do to the per cap spending figure. That might not be the case.

 

[Princess Jes]

Just FYI, these figures come from the earnings call, not the P&L. Disney puts a pdf transcript of the earnings call on its website. That's a lot easier to digest than the sound file.

The more I think about the numbers, the more I think we are seeing one of the big reasons for the significant increase in the cost of an annual pass to the domestic parks. Remember, these figures combine stats for WDW and DL. So, domestic park attendance for the quarter is up 15 percent (some of that is for DL's 60th anniversary) but per cap spending is up only 1 percent. Attendance, I would think, includes annual pass holders (I don't know for sure). If Disney wants to drive up per capita spending in the future, and/or balance out double digit attendance growth against low single digit per cap spending, then why not raise the price on AP holders because that (so my theory goes) will help drive up per cap spending (for those AP holders who pay the higher price to renew) and decrease (to some degree) attendance (for those current AP holders who have been priced out of renewing). Of course, if Disney raises annual pass prices too high, it will decrease both attendance and per cap spending. You can be sure that Disney has studied this price point quite thoroughly.

I've long suspected that Disney's primary source of theme park revenue is from non-AP guests who do not book a Disney vacation once a year, or even once every two years. (Disney has no repeat guest affinity program. Disney is decreasing extra-contractual benefits for DVC members. Repeat guests get a modest discount if they book before leaving the resort.) So I believe Disney decided to "right" the per cap spending to attendance ratio by squeezing AP holders after concluding that the likely lost revenue from decreased AP sales would be a drop in the a very large bucket of revenue derived from all its other guests.

Of course, this theory relies on the assumption that AP holders add a lot more to the attendance figure than they do to the per cap spending figure. That might not be the case.

I wholeheartedly agree.
In the thread that was going when the AP increase was announced, the outrage at reducing the DVC benefits and AP price rise because they're disney's most loyal fans and spend so much on a DVC contract was so high, and I tried to point out that no, Disney doesn't care about giving them more perks.
They're the ones who know the tricks to save money, they use the kitchens in the villas to cook some meals, and yes, they're there more often, but they likely aren't spending as much as the family who saved and saved and will buy the snacks, Merch, resort rooms, highest level tickets (which amount to almost the same as an AP anyway)
Disney knows that the once every few years guests are the ones dropping the big bucks (for the most part, I know I know, there's exceptions to this rule)
Disney is one of the biggest companies in the world, they don't make decisions on a whim, or without thorough bean counting to understand the cost, benefit, and opportunity costs (opp costs are what you're essentially sacrificing by choosing option A vs option B for example)
Many accountants and finance heads are working on these decisions for months before they happen. Disney knows their opportunity costs well before making the decision and implementing it

 

[OKW Lover]

Of course, this theory relies on the assumption that AP holders add a lot more to the attendance figure than they do to the per cap spending figure. That might not be the case.

I think that's a pretty good assumption Jack.

There are probably a couple of different types of AP holders. Those that live nearby and go to the parks very frequently most likely don't buy a lot during their visits. When you just pop into the park for a few hours, there's really no need to spend a lot on food and the odd souvenir. However, those that have an AP because it makes sense for their travel plans (two trips of a week within a 365 day period perhaps) are probably more similar to "day guests" in their spending habits. I wonder just how fine Disney slices and dices.

 

[samsteele]

So, are people making up the difference in ticket increases by not spending in the park as much?

Yes. I would guess that is part of it. For both food and merchandise. Guests are watching their impulse purchases and trying to stick to the budget. They have less mad money because they spend more up-front on rising airfare costs, higher park admission and for many the more expensive Magic Your Way resort package with water park/park hopper tag ons.

Re food: Last week, I saw more people sharing entrees at both CS and TS restaurants than I have ever seen during any prior vacations. And I was at WDW during the Fall free dining. So a good percentage of park guests either were not resort guests or were resort guests who opted for the fall room discount in lieu of free dining. CS portions, in particular, are often huge and easily shared. WDW food prices are incredibly high (it is a theme park and a splurge venue like a major league ball game or hockey game so it is tolerated to a degree) but many would argue that to make the Dining Plan look like a smart purchase, food prices are inflated.

Re merchandise: the over-priced, generic plastic stuff just isn't moving like it used to. No wonder, since its the same recycled junkola that we have seen repackaged for over a decade. Even for the ideal WDW guest family, the one-timers who splurge out on that once in a lifetime grand Disney vacation, souvenirs aren't that exciting or unique if you see the same darn thing for a week in every shop and ride exit shelf. I love the new park specific, ride specific and resort specific goodies. Guessing there is a good reason (other than good taste) why WDW corporate finally agreed to test the more up-scale, niche market product. The generic junk, despite the big profit margin, probably isn't selling as well.

The other part of it may be that WDW may have hit its pricing ceiling. Or be darn close to it. In free markets we agree that the price is what the market will bear. What the consumer will pay. Guests continue to swallow park admission increases, annual pass increases and resort room increases. Not happily, but they do it because they still consider WDW a good value. Good value is such a fuzzy, funny thing. Because with WDW, what we get for our money is all mixed up with family memories, escapism and childhood. But possibly, and just possibly, we are starting to see the limit of what guests will pay. And we are starting to see it on the little things that families can more easily parse from their vacation. Expensive food and souvenirs. In park spending may be the canary. Its signalling that our wallets are not bottomless.

 

[DisneyKingpin]

Does anyone else see something that I see?

If this is a $ for $ comparative, this isn't a great sign.

You are overthinking this. All the numbers are up and Disney is thriving. Almost every company in the world would be thrilled to have those numbers. 1% = Millions.

 

[Princess Jes]

You are overthinking this. All the numbers are up and Disney is thriving. Almost every company in the world would be thrilled to have those numbers. 1% = Millions.

It's in my job description to overthink these things.
As I said, growth is growth no matter how you look at it, but relating to the comment of "despite ticket sales reaching >$100, attendance is up" is slightly misleading because yes, attendance is up, but in park spending isn't growing at the same rate, and from my experience and current role in the business I work in, we would look into that.
It's a key indicator and measure and as I said above, there are different things to look at (YOY vs Comp growth) and while Disney isn't going under anytime in our lifetimes, but I was just making an observation that while things read well doesn't always mean it's 100% perfect