Guests explore Star Wars: Galaxy's Edge at Disneyland Park in Anaheim, California, May 29 2019. Picture: REUTERS/MARIO ANZUONI
Guests explore Star Wars: Galaxy's Edge at Disneyland Park in Anaheim, California, May 29 2019. Picture: REUTERS/MARIO ANZUONI

Los Angeles — Walt Disney shares took their worst tumble in nearly four years after the opening of the most highly anticipated theme-park attraction in the company’s history fell flat, hammering results in its latest quarter.

Profit at the company’s domestic resorts slumped in the period, which was marked by the ballyhooed opening of Star Wars: Galaxy’s Edge, the largest addition ever to the Disneyland resort in Anaheim, California. A second version of the space-themed park opens in Florida this month.

The report came after markets closed on Tuesday, and the entertainment titan’s high-flying shares fell as much as 6.8%, the most since August 2015, to $132.26 in New York trading on Wednesday.

The earnings shortfall was a shock to investors who were counting on Disney’s market-dominating theme parks and films to shoulder the burden of growth as the company goes head to head with Netflix in streaming. Spending on movies and TV shows for new online services led to a $553m loss in Disney’s direct-to-consumer division.

Last quarter, the company released Avengers: Endgame, the highest-grossing movie of all time, as well as Aladdin and Toy Story 4. But Dark Phoenix, a Marvel movie inherited in the $71bn acquisition of Fox assets, spoiled the party, and the company took a write-off on the film.

Christine McCarthy, Disney’s CFO, acknowledged on a call on Tuesday that fewer annual pass holders visited the company’s California resort. She also said some potential visitors to Florida parks put off their trips to await the opening of the new Star Wars land there.

Disney shares were up 29% this year up to Tuesday’s close, compared with 15% for the S&P 500 index, even though the California-based company had warned of high costs in the years ahead as it presses into streaming.

As the Star Wars park opening approached, Disney tried to manage an anticipated surge in crowds at its California resort. For example, the company allowed only those with reservations to enter the attraction for the first three weeks. But social media was aflutter with images of lightly walked streets and short waits for attractions. Sales of Star Wars merchandise slumped, the company said on Tuesday.

CEO Bob Iger had said he didn’t even need to advertise the new attraction, since anticipation among Star Wars movie fans was so high. But the company has since stepped up promotions of Galaxy’s Edge park on billboards and social media. Disney also lifted restrictions on employees attending the attractions and introduced some discount pricing for season pass holders.

Big miss

It all added up to a big miss for the usually reliable entertainment giant.

Disney’s profit, excluding some items, slumped to $1.35 a share in the quarter ended June 29, missing the $1.75 average of analysts’ estimates compiled by Bloomberg. Revenue missed forecasts by more than $1bn, with the company saying the lower attendance led to reduced profit at its domestic parks.

“The market will be disappointed with the top- and bottom-line misses,” said Richard “Trip” Miller, founder of Gullane Capital Partners. “This is a transition quarter for Disney, as they onboard Fox assets and spend capital to invest in the three direct-to-consumer products.”

Profit at the TV division, Disney’s biggest, rose 15%, buoyed by the cable division, which absorbed Fox channels including FX and National Geographic. Disney incurred restructuring charges of $207m related to the Fox acquisition following the first full quarter of ownership.

Iger said he had no long-term concerns about the Star Wars attractions. “There was tremendous concern in the marketplace that there was going to be huge crowding when we opened Galaxy’s Edge and so some people stayed away,” he said on a conference call. “All the local hotels in the region, expecting an influx of visitation, raised their prices. So it simply got more expensive to come stay in Anaheim.”

Disneyland’s own price increases also may have kept crowds at bay, he said. “We feel great about the product. It could just take some time for things to work themselves out.”

With Kamaron Leach

Bloomberg