Disney’s Parks, Experiences, and Products business brought in the lion’s share of the Walt Disney Company’s profits in 2022. Now, there’s a growing concern among financial analysts that theme parks could be losing their magic.
The company has said that the second half of this year will see “a moderation in demand” at the domestic parks, especially when compared to last year’s 50th-anniversary celebration at Walt Disney World.
“This comparison, coupled with inflationary cost pressures, including from a new union agreement, is expected to drive a modest adverse impact to domestic parks and experiences operating margins in the third quarter compared to the prior year,” former CFO Christine McCarthy warned during the company’s latest earnings call in May.
Sources report, that, according to data provided by Touring Plans, a trip-planning company that tracks wait times at theme parks, the Fourth of July holiday was relatively quiet at both Walt Disney World and Disneyland.
Orlando’s Walt Disney World saw average July 4 wait times hit 27 minutes at Magic Kingdom, 27 minutes at Epcot, 18 minutes at Hollywood Studios, and 25 minutes at Animal Kingdom.
July 4, 2022, saw wait times at Magic Kingdom average 31 minutes. Epcot clocked in at 35 minutes while Hollywood Studios and Animal Kingdom saw delays of 44 minutes and 34 minutes, respectively.
Compared with the data for pre-pandemic times, Touring Plans said Magic Kingdom averaged 47 minutes on July 4, 2019, with Epcot at 33 minutes, Hollywood Studios at 33 minutes, and Animal Kingdom at 37 minutes.
Touring Plans has noted that the drop in wait times could be traced to several factors, including the intense summer heat in Florida and more Americans pulling back on vacations following last year’s “revenge travel” phenomenon.
While lower wait times don’t necessarily translate to a big drop in attendance, the data underscores Wall Street’s worries about the theme parks business slowing as Disney battles other challenges in the entertainment business and a broader industry shift to streaming.
‘Meaningful uncertainty’
Disney’s shares have struggled despite cost reductions and restructuring efforts. The ongoing company-wide layoffs have recently affected on-air talent at ESPN.
The stock is down about 8% on a year-over-year basis and has sunk roughly 12% over the past three months.
Disney Parks remain critical to the company’s bottom line, which casts validity to Wall Street’s concerns.
In its most recent quarter, the operating income for the parks hit $2.17 billion, representing a 23% year-over-year increase. Last year, the business accounted for 65% of Disney’s total segment operating income of $12.1 billion.
KeyBanc Capital Markets analyst Brandon Nispel, who downgraded the stock late last month on what was termed “meaningful uncertainty” surrounding the 2024 financial setup, said recent theme park softness was a stop headwind heading into earnings.
The analyst believes that the company’s new labor contract in Florida, combined with the shutdown and accelerated depreciation of the Galactic Starcruiser hotel, will further pressure margins.
The company has made several changes to its theme parks in recent months, including the return of Walt Disney World annual park passes, after sales were stopped more than a year ago.
The annual passes, which range in fees from $399 to $1,399, come with previously announced perks like free digital photo downloads and the opportunity to visit the theme parks after 2 p.m. without a reservation (except on Saturdays and Sundays at Magic Kingdom).
Prior to those updates, customers had complained about lengthy wait times and sky-high ticket prices. Disney CEO Bob Iger reportedly had expressed concerns regarding significant price increases at the company’s parks implemented by former CEO Bob Chapek.
Disney fans could possibly see a reduction in the number of increases, although it is unlikely that Iger will cut prices. However, Disney may offer more discounts and incentives.
Have you noticed a decrease in demand at Disney theme parks?