Alexandra Canal· Senior Reporter Tue, July 11, 2023 at 4:27 PM EDT In this article:
Disney’s (DIS) parks, experiences, and products business brought in the lion’s share of profits for the entertainment giant last year. Now, there’s growing concern that theme parks could be losing their magic.
The company said the back 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.
There are signs that moderation is coming to fruition. 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 Disney’s domestic parks in both Florida and California — further emphasizing signs of a summer slowdown.
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.
Looking at 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 said the drop in wait times could be due to several factors, including the intense summer heat in Florida and more Americans pulling back on vacations following last year’s “revenge travel” phenomenon.
And obviously, lower wait times alone don’t necessarily translate to a big drop in attendance. Still, the data underscores Wall Street’s worries about the theme parks business slowing as Disney combats other challenges in its entertainment business amid a broader industry shift to streaming.
Disney did not respond to Yahoo Finance’s request for comment on the Touring Plans data.
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Disney’s parks business remains important to thecompany’s bottom line — hence Wall Street’s concerns.
In its latest 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 “meaningful uncertainty” surrounding the 2024 financial setup, said recent theme park softness was a top headwind heading into earnings.
“Disneyland growth due to its 100th anniversary celebration is more than offset by [Walt Disney World’s] contraction from comparisons against its 50th anniversary celebration. We worry the ‘tough comps’ are not properly reflected in consensus,” he wrote in a note to clients on June 29.
The analyst added the company’s new labor contract in Florida, coupled with the accelerated depreciation of the Starcruiser hotel, will further pressure margins.
The company has made several changes to its theme parks in recent months, including bringing back its Walt Disney World annual park passes after halting sales more than a year ago.
The annual passes, which range in fees from $749 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.
Although unlikely Iger will reverse the price hikes, Disney fans could possibly see a reduction in the number of increases in addition to more incentives for parks members.
Alexandra is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at email@example.com