A silver lining in Walt Disney's (NYSE: DIS) otherwise unimpressive quarterly report last week was the performance of its theme parks. Of the media giant's four segments, its parks and resorts division was the only one to post year-over-year revenue growth in its fiscal fourth quarter. It was also the only segment to push its operating profit higher.
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Disney's theme parks came through with a 6% increase in revenue and a 7% gain in operating profit for the fourth quarter. It was also Disney's only segment to post positive revenue and operating profit for all of fiscal 2017.
The segment's results could've actually been better. Disney's domestic theme parks experienced a 2% uptick in attendance, and that was with Hurricane Irma-related closures and its hotel occupancy rate declining from 87% to 84%. The House of Mouse estimates that attendance would've clocked in 5% higher if not for the September windstorm disrupting Disney World.
It's not just roller coasters that bank
Disney's theme parks had a surprisingly robust quarter, storm-related park closures and cruise cancellations notwithstanding. May's addition of Pandora -- The World of Avatar at Disney World's Animal Kingdom and Guardians of the Galaxy -- Mission: BREAKOUT at Disney's California Adventure proved to be big draws this summer.
It's only the beginning. After years, if not decades, of coasting, Disney is ready to kick things up a notch. Comcast's (NASDAQ: CMCSA) Universal Orlando has closed the attendance gap on both coasts with its Harry Potter-inspired additions, and now is Disney's time to start widening the gap again.
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Disney's putting the finishing touches on Toy Story Land, which should open in six months at Disney's Hollywood Studios in Florida, if not sooner. The real prize will come in 2019 when Star Wars: Galaxy's Edge opens in Disneyland, followed a few months later by a similar 14-acre expansion at Disney World. Comcast is also loading up with new attractions at Universal Orlando to open in 2019 -- with new hotels in development --- but Disney has a busy slate of new attractions, lodging, and even transportation options on the way.
Attendance should continue to grow for Disney in the coming years, and folks will be willing to pay more for the experience. Disney revealed during last week's earnings call that domestic resort reservations are trending 1% lower than they were a year ago -- the result of Disney reducing its room inventory as a result of conversions and refurbishments -- but booked rates are 9% higher than a year earlier. Just wait until the value proposition improves as sky gondolas whisk guests throughout Disney World and sci-fi buffs can start booking an immersive Star Wars hotel.
Right now, the declines in Disney's other business are more than offsetting the gains at its theme parks. However, just as we've seen Disney's theme parks segment go from less than 31% of its revenue in fiscal 2016 to more than 33% in 2017, it won't be a surprise to see theme parks eventually overtake Disney's media networks as the leading top-line contributor. It may take longer for the lower-margin theme parks to be leading the way on the bottom line, but just wait until Disney's big investments start to pay off.
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