The Lousy Economy

There are several things in the Parks & Resorts business for Disney these days that are presenting significant headwinds to financial improvement as the summer rolls on.

Here are the several items that I’ve noted in recent weeks that don’t bode well for an uptick anytime soon:

1. On Friday, the parent company of Six Flags filed for bankruptcy in what had bee rumored to be in the works for quite some time.  It’s true that the parks continue to operate and seem to be doing well in terms of attendance.  However, it also has to be true that they wildly over anticipated demand and guest expenditures to get into that kind of debt in the first place. 
   
   Well, I guess there is the off possibility that the folks who made the loans should be taken out and beaten…  Either way, it shows that the theme park business is hanging (not cratering) but probably not growing much either.
   
2. As discussed on Jim Cramer’s Mad Money on CNBC (and other places and here) Home Depot last week announced upward adjusted earnings guidance for their current fiscal year (it’s still negative however).  At first blush that’s great news, but Jim pointed out (and so did Citigroup analyst Deborah Weinswig in the second link above) that almost all of that ‘growth’ is coming from reduced expenses and improved operations, NOT from increased spending on consumers parts. 
   
   Sounds familiar to a place like the Happiest Place on Earth no?  Still making money, but doing so in a large part due to reduced spending.
   
3. Gas prices are once again on the march up.  For Florida in particular that’s ALWAYS bad news, and I’m sure someplace deep in Disney’s finance department they have a model that helps guide them on what higher gas prices do to park attendance and spending. 
   
   Oil closed at it’s highest point since early last October at 72.25 on Friday, and it’s been straight up since April.  Higher oil ultimately of course means higher gas prices (which depending on which economist you believe is either a tax or inflationary, but either way makes you and I poorer for the pump), which leads to higher prices for everything you and I buy which ultimately leads to less discretionary income (i.e. money for vacations to Disney World). 

So in my opinion all of that (and probably other data too, like unemployment, etc.) is leading up to a rough 3rd and 4th quarter for the theme park business.