The Walt Disney Company stock closed for the day at $101.64 a share before reporting their earnings for the second quarter (Q2) of fiscal year 2020 which ended on March 28, 2020. The Walt Disney Company’s second quarter was hit hard by Coronavirus shuttering the parks across the globe, the shutdown of the cruise ships, and the closure of movie theaters delaying some films and pushing other to Disney+. According to Bob Chapek, the second quarter was impacted by the Coronavirus pandemic, however, the company confident in their ability to withstand this disruption and emerge in a strong position.
While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.Bob Chapek, Chief Executive Officer, The Walt Disney Company
The earnings report included an extra section to further discuss the Cornavius pandemic’s effect on the company.
The impact of COVID-19 and measures to prevent its spread are affecting our segments in a number of ways, most significantly at Parks, Experiences and Products where we have closed our theme parks and retail stores, suspended cruise ship sailings and guided tours and experienced supply chain disruptions. In addition, we have delayed, or in some cases, shortened or cancelled theatrical releases and suspended stage play performances at Studio Entertainment and have seen advertising sales impacts at Media Networks and Direct-to-Consumer & International. We have experienced disruptions in the production and availability of content, including the cancellation or deferral of certain sports events and suspension of production of most film and television content. Many of these businesses have been closed consistent with government mandates or guidance. We estimate the COVID-19 impact on operating income at our Parks, Experiences and Products segment was approximately $1.0 billion primarily due to revenue lost as a result of the closures. In total, we estimate that the COVID-19 impacts on our current quarter income from continuing operations before income taxes across all of our businesses was as much as $1.4 billion, inclusive of the impact at the Parks, Experiences and Products segment. Impacts at our other segments include lower advertising revenue at Media Networks and Direct-to-Consumer & International driven by a decrease in viewership in the current quarter reflecting COVID-19’s impact on live sports events and higher bad debt expense and a loss of revenue at Studio Entertainment due to theater and stage play closures.
Diluted earnings per share (EPS) from continuing operations for the quarter decreased 93% to $0.26 from $3.53 in the prior-year quarter. Excluding certain items affecting comparability, diluted EPS for the quarter decreased 63% to $0.60 from $1.61 in the prior-year quarter. EPS from continuing operations for the six months ended March 28, 2020 decreased 73% to $1.44 from $5.42 in the prior-year period. Excluding certain items affecting comparability, EPS for the six months decreased 38% to $2.14 from $3.45 in the prior-year period. Results in the quarter and six months ended March 28, 2020 were adversely impacted by the novel coronavirus (“COVID-19”) pandemic.
For some perspective, Q2 spanned December 29, 2019 – March 28, 2020. The domestic parks and cruise line only account for about 2 weeks of the Q2 COVID issues. Q3 started March 29th, and already surpassed Q2’s number of days the cruise and domestic parks have been shutdown.
The Parks, Experiences and Products segment (which includes Disney Cruise Line) saw revenues for the quarter decreased 10% to $5.5 billion, and segment operating income decreased 58% to $639 million. Lower operating income for the quarter was due to decreases at both the domestic and international parks and experiences businesses and to a lesser extent, at Disney’s games and merchandise licensing businesses.
As a result of COVID-19, Disney closed thier domestic parks and resorts, Disney Cruise Line business and Disneyland Paris in mid-March, while the Asia parks and resorts were closed earlier in the quarter. As a result, volumes were negatively impacted in the quarter. The Walt Disney Company estimates the total impact of COVID-19 on segment operating income in the quarter was approximately $1.0 billion.
Prior to the closure of the domestic parks and resorts, volumes and guest spending were higher compared to the prior-year quarter.
Costs for the quarter were higher compared to the prior-year quarter due to an increase at the domestic parks and experiences driven by expenses for new guest offerings, which included Star Wars: Galaxy’s Edge, the net cost of pay to employees who were not performing services as a result of actions taken in response to COVID-19, and inflation.
Lower operating income at our games business was due to the prior-year sale of rights to a video game and lower royalties from the licensed title Kingdom Hearts III.
The decrease in merchandise licensing operating income was due to lower minimum guarantee shortfall recognition and a decrease in revenue from merchandise based on Mickey and Minnie and Avengers, partially offset by higher revenue from Frozen merchandise. Revenues from merchandise based on Mickey and Minnie in the prior-year quarter included the benefit of Mickey’s 90th birthday. Merchandise licensing results for the current quarter were adversely impacted by COVID-19.
There was no specific details regarding Disney Cruise Line in the press release. We will update this post if we hear anything during the earnings call and Q&A.
During the Q&A, a caller asked about the cruise line, the response included a brief overview of the financial impact the cruise line has on the parks segment and then further went on to mention they anticipate Disney Cruise Line will be the last business unit to resume operations, but expects it to rebound. The caller asked about the new builds on order, but this question was not directly answered.
For more information and an overall report click over to the Q2-2020 Earnings Report.
Shanghai Disneyland Reopens with Controlled Capacity on May 11
During the earning call, the company announced details for the reopening of Shanghai Disneyland Reopens with Controlled Capacity on May 11, 2020. There was no mention of when or how the domestic parks will reopen the following could provide an indication of measures that could be utilized at the other Disney Parks across the globe.
As residents in Shanghai and its neighboring provinces gradually return to more normal life – including at workplaces, schools, shops, restaurants, and entertainment destinations – Shanghai Disney Resort announced today that Shanghai Disneyland will re-open to the public on May 11, 2020.
“We know how much our guests have been looking forward to returning to Shanghai Disneyland, and our cast is excited to begin welcoming them back,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “As the park reopens with significantly enhanced health and safety measures, our guests will find Shanghai Disneyland as magical and memorable as ever.”
During this initial re-opening phase, Shanghai Disney Resort instituted enhanced measures and procedures that comply with government directives and focus on the needs of guests and cast members. The initial park re-opening will demonstrate a deliberate approach, drawing on the experience from the successful re-opening of Disneytown, Wishing Star Park and Shanghai Disneyland Hotel in early March, and implement enhanced health and safety measures. At opening, these measures and procedures include:
- Limited and pulsed attendance with an advanced reservation and entry system: Guests are required to purchase admission tickets valid on a selected date only and Annual Pass holders must make a reservation prior to arrival.
- Controlled guest density: Capacity will be recommended and managed in queues, restaurants, ride vehicles and other facilities. Queues will be structured and ride vehicles will be loaded to promote social distancing.
- Implementing required government health and prevention procedures: This includes temperature screening and the use of the government-issued Shanghai Health QR code, a contact tracing and early detection system used in China. Additionally, guests must wear a mask during their visit, except when dining.
- Increased sanitization and disinfection measures: Hand sanitizers will be available at queue entries and attraction exits. High-touch locations, such as ride vehicles, handlebars, queue railings and turnstiles will have increased sanitization.
- Training for cast members: Cast members will receive training on procedures with an emphasis on contactless guest interaction, cleaning and social distancing and will receive additional protective equipment including masks.
Shanghai Disney Resort plans to recognize and celebrate the contributions of medical professionals, with additional details announced soon.