SeaWorld Entertainment (SEAS) opened higher today (+5.4%) after
guiding Q3 revenue above market expectations last night. SeaWorld, a household
name, is a theme park and entertainment company. It owns or licenses a
portfolio of brands that includes SeaWorld, Busch Gardens, Aquatica, Sesame
Place, and Sea Rescue. It operates 12 destination and regional theme parks throughout
the U.S., including in Florida, Texas, and California, featuring a diverse
array of thrill rides, water slides, shows, and other attractions, including educational
presentations, dining, parades, and animal encounters.
SEAS cares for what it believes is one of the largest zoological collections in the world and has helped lead advances in the care and enrichment of animals. The company rescues and rehabilitates marine and terrestrial animals that are ill, injured, orphaned, or abandoned with the goal of returning them to the wild. The SeaWorld rescue team has helped more than 33,000 animals in need, from hurricane-displaced sea lions to oil spill endangered penguin chicks, over the course of the last 50 years. Many of SEAS’ locations, including the members of the SeaWorld and Busch Gardens families, offer guests the chance to observe, learn about, and even interact with marine and land animals.
Turning to the Q3 guidance, SEAS reported that total attendance increased by approximately 0.7 mln guests, or 10%. Total revenue is expected to increase by 9% year/year. These were some nice improvements from Q2, during which attendance grew by 4.8% year/year and revenue grew by 4.9% year/year. Those results were much better than expected at the time, and the Q3 guidance shows that momentum has continued during Q3.
So, what is driving this momentum? SEAS provided little detail in last night's press release. However, management commentary on the topic delivered during August’s Q2 earnings report is likely still relevant here. At that time, SEAS management attributed strong business results to its rolling out of new pricing strategies, new marketing and communications initiatives, and a beneficially positive reception of new rides, attractions, and events. SEAS said it was particularly pleased with its Q2 attendance growth, which more than offset negative impacts from unfavorable weather across several markets during the quarter and the earlier timing of the Easter holiday in 2018, which benefitted Q1 at Q2’s expense. Season pass sales revenue increased by double digits during that quarter, and year/year attendance growth was made even more notable in terms of revenue impact by the company’s realization of an increase in total revenue per capita during the quarter, driven by a 6.5% increase in in-park per capita spending and partially offset by lower admissions revenue per capita due to new pricing strategies and to visitation mix.
At the time of the Q2 report in early August, SEAS said it was encouraged by the strength of year-to-date results through July -- which falls in the company’s third quarter, as well as at the height of its crucial summer season -- for attendance, season pass sales, and total revenue.
SEAS has been pleased with the positive guest reception of its new rides, attractions, and events across its parks. Its Electric Ocean event, a sundown spectacular that shone a spotlight on glowing sea creatures and aerial feats and fireworks displays, was in full swing at each of its SeaWorld parks from June until early September, and its extend hours Summer Nights event operated at each of its Busch Gardens parks, offering guests exciting and differentiated experiences during the season’s lengthened park days. SEAS parks will continue to present seasonal festivity in coming months, such as by again instating extended night hours, this time to offer special Halloween-themed thrills throughout October at SeaWorld San Antonio. In further attractions news, the company also recently announced the spring 2019 launch of a new thrill ride, the Tigris roller coaster, at Busch Gardens Tampa Bay, while a second new thrill ride will be added there in 2020.
While we cannot be quite sure how Q3's final results will come out before their official release, expected in early November, it seems that the momentum seen in Q2 continued in Q3, during peak season at the company’s parks. Q2 was a breakout quarter for SEAS with nice upside, especially on the revenue line. After two EPS misses in a row in Q3 and Q4 of last year, SEAS posted back-to-back upside quarters in Q1 and Q2. Judging by this guidance, 2H18 seems to have gotten off to a similarly nice start.
Looking ahead, the company‘s popular Halloween and Christmas events should continue to drive further attendance growth. The company has also been looking to reduce costs by reducing unnecessary expenses and finding ways to operate the business more efficiently.
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