Disney not too long ago reported its second quarter fiscal 2024 earnings, with the corporate’s Experiences (Parks & Resorts + Shopper Merchandise) reporting $8.3 billion in income. This covers the nice & dangerous of those outcomes as they relate to Walt Disney World & Disneyland, and why regardless of the robust efficiency for parks, CEO Bob Iger is warning traders of an attendance slowdown…and what that really means.
Throughout the primary presentation, Disney CFO Hugh Johnston shared that this quarter’s development was pushed by development of Disney Cruise Line and Walt Disney World on the home facet, with Hong Kong Disneyland outperforming among the many worldwide facet. With regard to HKDL, this makes lots of sense. Hong Kong is undoubtedly seeing lagged pent-up demand because it reopened slower, which means it has simpler comparisons from the final couple of years. Add the brand new World of Frozen to the combo, and HKDL is more likely to outperform for the subsequent few years. As that little park has struggled for therefore lengthy, we like to see it doing so nicely that it warrants mentioning on the earnings name.
Walt Disney World is the largest shock, as I imagine that is the primary earnings name in over a yr with it being talked about as a shiny spot. For the final a number of calls, Disneyland was outperforming and Walt Disney World was weakening. Now, the other is true. Johnston additionally indicated that Disneyland’s outcomes declined regardless of rising attendance and per-capita visitor spending, as a result of value inflation and better labor bills.
Wanting ahead, Johnston additionally mentioned that though customers proceed to journey in file numbers and Disney continues to be seeing wholesome demand in consequence, the corporate is beginning to see some proof of a world moderation from peak post-COVID journey. He appeared pretty unfazed by this, noting that subsequent quarter gained’t see a lot development, however largely as a result of one-offs like Disney Cruise Line launches (Lighthouse Level and the brand new ships), with increased labor prices and the aforementioned post-pent-up demand normalization additionally taking part in a job.
Regardless of this and demand impacts, Johnston expects year-over-year Disney Experiences working revenue development to rebound considerably within the fourth quarter as a result of “fewer comparability or timing components.” That doesn’t precisely sound like the corporate is worried in regards to the Parks & Resorts enterprise.
Nonetheless, throughout the Q&A, CEO Bob Iger struck a barely totally different tone. He was requested about his expectation for attendance after lapping COVID, and whether or not that will stabilize or soften into fiscal yr 2025. Particularly, whether or not traits could be adequate to count on attendance to have any type of year-on-year decline?
“By way of attendance, what we’re mainly speaking is relative to the post-COVID highs, issues are tending to normalize. The parks enterprise did 10% development within the quarter. And clearly, that’s a particularly excessive income quantity. That mentioned, we nonetheless see within the bookings that we glance forward towards point out wholesome development within the enterprise. So we nonetheless definitely be ok with the alternatives for continued robust development,” Iger defined.
“I definitely really feel just like the Parks enterprise continues to be doing very, very nicely. Clearly, we’ve bought the very best within the enterprise when it comes to product. And folks nonetheless have a powerful want to mainly go on trip and are available to see us.”
If all of this sounds acquainted, it ought to. This additionally isn’t the primary, second, and even third time the corporate has immediately addressed it and indicated that pent-up demand has been exhausted at a few of the parks. No, the parks aren’t useless or ghost cities or completely empty, however they’re down as in comparison with the peak of pent-up demand.
None of that is significantly stunning. We’ve been documenting the slowdown in crowds at Walt Disney World, which began final yr following spring break. Nonetheless, that development reversed itself in early 2024! When the primary two months had been busier than anticipated, we began discussing Re-Revenge Journey at Walt Disney World in 2024. We’ve theorized there’s a second wave or reverberation of pent-up demand after each month final yr after January was down as in comparison with 2022.
These outcomes corroborate that, no less than partly. Walt Disney World outperformed in the newest quarter after being a laggard for the final year-plus. So why did Iger and Johnston make these feedback about declines and normalization because of the exhaustion of pent-up demand? Almost definitely as a result of the Parks & Resorts enterprise is much more than simply Walt Disney World.
As a reminder, that is one thing that dearly-departed CFO Christine McCarthy braced traders for precisely this throughout the identical earnings name one yr in the past, in Could 2023: “Please remember the fact that within the again half of this fiscal yr, there will likely be an unfavorable comparability towards the prior yr’s extremely profitable fiftieth anniversary celebration at Walt Disney World. We sometimes see some moderation in demand as we lap some of these occasions, and third quarter-to-date efficiency has been consistent with these historic traits.”
That warning got here true, and Walt Disney World underperformed final yr as each different park continued to outperform. Executives principally attributed this to timing, indicating there was a drop in demand on the Florida parks whilst Disneyland and worldwide parks’ attendance stayed robust. This was as a result of Disneyland reopened a yr later than Walt Disney World. That together with each different vacation spot skilled delayed pent-up demand as in comparison with Walt Disney World, since Florida reopened ahead of…just about all over the place.
Now, the other seems to be taking place. Similar to Walt Disney World “lapped” the fiftieth at the moment final yr and was thus going through unfavorable comparisons proper as pent-up demand started exhausting itself, it has now as soon as once more lapped these weaker numbers and has simpler comps. In contrast, lots of the different parks–together with Disneyland–discover themselves in the identical place that Walt Disney World was in a single yr in the past.
None of those numbers are static–they’re all relative to the prior-year, which is a time when Walt Disney World was doing “worse” (as in comparison with the yr earlier than that), whereas Disneyland and the worldwide parks had been doing “higher” (additionally as in comparison with the yr earlier than that). If we simply zoom out a bit, the image turns into prettier for the entire parks.
In different phrases, don’t really feel too badly for Disney throughout these making an attempt occasions of normalizing attendance and demand. Walt Disney World and each different vacation spot continues to be performing nicely above pre-COVID ranges–with income, working revenue, and per visitor spending all up significantly at each vacation spot as in comparison with fiscal yr 2019.
That is beginning to normalize, as Disney has needed to pull extra “levers” to entice company to go to. And by that, we largely imply higher reductions. As we’ve talked about repeatedly, Walt Disney World has pulled out the 2019 deal playbook for 2024. It’s mainly again to regular on the deal entrance, and most of those reductions have been launched sooner than regular by historic requirements, and provide higher financial savings than their counterparts from the final two years. Some are superior to 2018 or 2019, however baseline costs and perks have additionally modified since then.
It’s not simply room-only charges or Free Eating to drive up occupancy. Walt Disney World additionally introduced out the 4-Park Magic Ticket, V.I.PASSHOLDER Days, and extra in an try to give demand a shot within the arm and buoy bookings. Reductions accomplish that, however they sometimes accomplish that on the expense of upper per visitor spending. Nonetheless, we’re speaking a couple of lower relative to the peak of pent-up demand in 2022–just about every little thing continues to be up significantly as in comparison with the 2019 baseline.
In the end, the ‘warnings’ of Disney CEO Bob Iger and CFO Hugh Johnston had been measured as a result of the scenario continues to be removed from dire for the Disney Parks. This will likely be painted as a five-alarm hearth by these cheering for Disney’s downfall, however that’s not actuality. Particularly not at Walt Disney World when in comparison with final yr, which is what issues to most of you.
It’s nonetheless attainable the Florida parks are down this summer time as in comparison with final, however I wouldn’t wager on it. Anybody simply now overlaying declines at Walt Disney World is actually over a yr late to the celebration. That began in February 2023, grew to become actually noticeable in mid-April 2023, and continued for the rest of final yr. The month-to-month development in 2024 (minus April) has stabilized or elevated.
This yr, the slowdown goes to disproportionately happen at Disneyland and the worldwide parks (seemingly minus Hong Kong), as they had been slower to see pent-up demand arrive and at the moment are on the bottom of that. Regardless, a slowdown from unprecedented demand is just not a disaster, it’s a normalization. After all, Disney would’ve cherished to keep up record-breaking numbers or that development trajectory, however even internally, they knew a slowdown was on the horizon.
All of that is what we’ve been anticipating and hoping to see for some time. Pent-up demand lasted longer than anticipated, and albeit, it was a distortion that had unhealthy penalties for the broader financial system (past Disney). Placing that within the rearview mirror could also be dangerous for the corporate, nevertheless it’s good for customers and the nation as a complete.
I’m not a doomer greedy at straws on the lookout for Disney’s downfall, however actually, I hope that even Walt Disney World sees a decline (in attendance, income, per visitor spending–all of it!) within the quarters to return. The numbers are nonetheless method up as in comparison with 2019, even assuming a wholesome development trendline. Disney not doing record-breaking numbers whatever the guest-unfriendly choices they make–and as a substitute having to really compete for purchasers and make constructive adjustments–is an efficient factor!
Frankly, I don’t know why there’s this want to color that as a unfavourable, when it ought to be construed nearly as good for customers and company. As with the arrival of Epic Universe, plainly disgruntled former followers need to see Disney taken down a notch and are engaged in lots of fully unmoored wishful pondering. Whereas I’d welcome much more of a “normalization” to carry numbers nearer to 2019, I don’t need to see an excessive amount of of a drop. The very last thing the corporate wants earlier than the blockbuster D23 Expo is seeing unfavourable outcomes out of Parks & Resorts that spook them out of saying plans for the $60 billion investments.
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YOUR THOUGHTS
What do you consider the Walt Disney Firm’s ‘warning’ that attendance goes to normalize within the post-pent-up demand surroundings? What about per visitor spending at Walt Disney World and Disneyland, or different theme park outcomes? Ideas on a slowdown at Walt Disney World or Disneyland? Predictions about different “levers” the corporate will pull to spice up demand and buoy bookings? Assume issues will enhance or worsen all through this yr? Do you agree or disagree with our evaluation? Any questions we may also help you reply? Listening to your suggestions–even whenever you disagree with us–is each fascinating to us and useful to different readers, so please share your ideas beneath within the feedback!
