Merlin Entertainments Plc shares plunged after the operator of the London Eye and Madame Tussauds attractions gave the strongest indication yet that an increased terror threat is set to take a lasting toll on business.
A summer in which visitor numbers were hit by the fallout from attacks in London and Manchester is likely to become closer to normal, Chief Executive Officer Nick Varney said in an interview Tuesday after the company forecast full-year earnings below analyst estimates. The shares fell as much as 21 percent, their steepest drop since the June 2016 Brexit vote.
“The terror threat isn’t going away,” Varney said by phone. Underlying cost pressures brought about by things like tougher U.K. employment laws are also here to stay, he said.
The tougher environment has caused Merlin to rethink its investment plans. The company is shelving planned capital spending of 100 million pounds ($133 million) over the next four years to add new features at existing attractions. Instead, the money will be poured into building more themed accommodations and increasing productivity through measures such as automated kiosks at theme-park entrances.
“Merlin is driven by two things: the desire to give customers safe, fun, memorable experiences, and on the other side, the desire to deliver good return on capital,” Varney said. “The truth is that in this environment, we don’t think we’re going to be able to deliver that from the existing estate.”
Business in the third-quarter showed a marked slowdown. A 3.7 percent increase in like-for-like sales in the first 26 weeks of the financial year narrowed to just 0.3 percent after 40 weeks. The figures imply a decline of about 3.2 percent in the latest quarter, according to Morgan Stanley analyst Jamie Rollo.
“A slowdown was expected, but this is materially worse than forecast,” Tim Barrett, an analyst at Numis, said in a note.
After a strong first quarter in which Merlin benefited from sterling’s weakness pulling in more foreign tourists, the London and Manchester attacks weighed on business in the U.K. Visitor numbers were further reduced by bad summer weather in Britain, northern Europe and Italy, followed by Hurricane Irma causing the temporary closure of Merlin’s attractions in central Florida.
Legoland New York
The company now expects 2017 earnings before interest, tax, depreciation and amortization to be between 470 million pounds and 480 million pounds, less than the median analyst estimate of 491 million pounds based on data compiled by Bloomberg.
On a brighter note, the company announced that Legoland is set to come to New York by the end of 2020 with the opening of a new theme park. The total capital cost of the project will be about $350 million, Varney said.
Merlin also said it has signed intellectual property partnerships with Entertainment One Ltd., owner of the Peppa Pig brand, and The Bear Grylls Adventure.
©2017 Bloomberg L.P.