Skift Take

SeaWorld said a lot during this call after a dismal quarter, but equally interesting is what the company didn't address. We wonder if higher spending on advertising will help the operator address the issues that have resurfaced — and what it will do if not.

Another quarter, another batch of bad news for SeaWorld Entertainment.

The theme park operator’s efforts at a turnaround continue to be thwarted, this time by lower attendance from the UK and domestic locales, a $269 million write-down, and the resurgence of “perception issues” that had been kept at bay by robust advertising spending.

“To be clear, we are not satifisfed with our results,” president and CEO Joel Manby said. “This quarter provided us with a better understanding of what is working and where we need to intensify our focus, and we have already taken action to address these areas.”

Problems stemmed mainly from falling attendance at SeaWorld parks in Orlando and San Diego, which led the company to tweak its marketing strategy to highlight new rides and attractions. SeaWorld owns and operates 12 parks in the U.S., including Busch Gardens and Sesame Place.

New CFO Marc Swanson, who was named to the role this week, said that while attendance from Latin America had stabilized following a decline last year, visitor numbers from the UK are expected to be down 20 percent for the full year. UK visitors make up 5 percent of total attendance.

Competitive pressure in Orlando was intense in the second quarter, when bigger rivals opened new attractions: Pandora — The World of Avatar at Disney’s Animal Kingdom and Universal’s Volcano Bay water park.

Even more concerning for SeaWorld was the return of “public perception issues” affecting the San Diego park. Manby said the company had elevated marketing spending over the past two years above industry averages to address negative publicity around its treatment of killer whales and to promote the end of its orca breeding program.

This year, SeaWorld dropped its ad spending and consolidated brand and reputation-focused campaigns. It didn’t go well.

“We have learned that if we are going to generate the necessary levels of national awareness and website traffic, we cannot reduce our domestic advertising spending as we did over the last few months and we must continue to address perception issues,  particularly in Southern California,” Manby said.

Barclays analyst Felicia Hendrix was blunt as she questioned the decision.

“How much do you study the potential impact of certain decisions before they’re made? As you were cutting back your advertising, did you have folks studying the impact of that?” she asked. “It’s just kind of hard to take for granted your comments that the changes you’re making are the right ones when each quarter there seems to be another execution issue.”

Manby defended the advertising decision, calling it “very data driven” and “much more efficient.” Still, he said, the company has adjusted accordingly and sees increased traffic to its websites.

Tough Results

For the quarter ending June 30, attendance was up by 138,000 compared to the same time last year — but only because the Easter holiday fell in the second quarter this year compared to the first quarter in 2016.

While revenues increased 1 percent to $374 million, total per-capita revenue dropped from $62.02 in the second quarter of 2016 to $61.05 in the second quarter of this year.

The company reported a net loss of nearly $176 million due to a $269 million non-cash goodwill impairment charge at the SeaWorld Orlando park. Adjusted earnings before interest, taxes, depreciation, and amortization — or EBITDA — increased 24 percent to $104.2 million.

When holidays fall in a different quarter, travel companies often like to compare their performance over the course of six months to the same time period a year earlier. But in this case, the bigger picture did not look better.

For the first half of the year, attendance fell by 353,000. Revenues dropped 5 percent to $560 million, and the company reported a net loss of $237 million. Adjusted EBITDA fell by 5 percent year-over-year to $74 million.

The company lowered its forecast for the full year to $280 million to $310 million in adjusted EBITDA, down from $330 million to $360 million.

“With the bar fully reset for 2017, we’d like to think today’s print will serve as a bottoming out point for the shares by better aligning investor expectations with the realities of the business,” Stifel analyst Steven Wieczynski wrote in a note to investors.

His headline on the note: “We Were Prepared for Bad but Maybe Not This Bad.”

Wieczynski said the lower guidance, negative comments about attendance in San Diego and Orlando, and impairment charge would not likely go over well with investors.

Indeed, shares slid to close at $12.76 Tuesday, down more than 6 percent.

There wasn’t much of a positive spin to put on the results, but Manby tried: In Orlando, attendance from visitors 300 miles and in went up 15 percent. And season pass sales increased in all major markets but California.

“This success demonstrates the attractiveness of our new rides and attractions and strong appeal to those most familiar with our parks,” Manby said. He said those new additions are getting positive reactions from guests, and an evening festival in San Diego is also performing well.

Left Unmentioned

Not part of the discussion — by executives or analysts on the call — was the disclosure SeaWorld made in June that it was under federal investigation for commentary made by officials in the company about the impact of the critical Blackfish documentary. In public statements, executives downplayed the effect the movie had on the company’s performance. It wasn’t until August of 2014, more than a year after Blackfish was released, that anyone acknowledged business was suffering.

Executives also did not address comments made by UK-based Merlin Entertainments CFO Anne-Francoise Nesmes last week about potential interest in Busch Gardens.

“It takes two parties to do a deal, so we do not know what SeaWorld’s intentions are,” she said. “But we do believe that those assets [Busch Gardens] are interesting and we could certainly do a lot with them, particularly around accommodation. So to us, it’s about having the right discussion with a willing partner and making sure we have the right financial return.”

The company also did not talk about reports that it had brought in a banking advisory firm specializing in, among other things, mergers, acquisitions, divestitures, and restructurings.

“Given the pressures on the business, particularly with respect to the SeaWorld-branded parks, and the presence of several marquee assets within SEAS’ portfolio, we have to think conversations around strategic alternatives will intensify going forward,” Wieczynski wrote.


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Tags: earnings, seaworld, theme parks

Photo credit: Killer whales leap into the air as part of the One Ocean show at SeaWorld Orlando. The performance is being transitioned to a more natural exhibition at all of the company's parks that have orcas. SeaWorld Orlando

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