No Magic Fix for Huge Losses at Euro Disney : Earnings: The continuing flow of red ink is expected to lead to a re-examination of ambitious expansion plans for the recession-plagued park.
Walt Disney Co.’s first European theme park is proving to be no magic kingdom financially.
The company said Thursday that the park will continue posting hefty losses through the peak summer season. Disney also disclosed that the losses have triggered a “strategic re-examination” of Euro Disney.
Euro Disney’s loss, blamed on Europe’s soft economy, the devaluation of several currencies there and high interest costs, is likely to total $87 million in the third quarter ended June 30. Further losses are expected in the fourth quarter.
Analysts called the bearish disclosures worse than expected, with the quarterly loss twice what some had projected. They are now estimating Euro Disney’s losses could run as high as $300 million when its fiscal year ends Sept. 30. Some European analysts had previously projected that the park near Paris might break even this summer.
Opened in April, 1992, Euro Disney has been plagued by small crowds and weaker than expected food, merchandise and hotel business. In addition, losses are exacerbated by the high interest, lease and depreciation charges stemming from the huge initial investment in the resort. Euro Disney’s debt totals about $3 billion.
Analysts have criticized Euro Disney for keeping its hotel prices high and raising ticket prices amid several major currency devaluations in Europe, and for failing to forecast the lengthy French real estate slump. Euro Disney said its attendance totaled 3.1 million visitors in the second quarter and that hotel occupancy rose to 68.5%, which is below forecasts.
Euro Disney is structured so that Burbank-based Walt Disney owns 49% of the operation, with the rest publicly traded. Walt Disney operates the park as well. The company’s loss on its Euro Disney investment came to $87 million in the six months ended March 31, with analysts expecting another $50-million loss on the investment in the third quarter.
Some analysts expect Walt Disney’s loss on the investment to approach $150 million for the fiscal year. Although Euro Disney is hurting Walt Disney’s earnings, the company is expected to post a substantial profit for the year, thanks in part to the box office hit “Aladdin” and the record-breaking videocassette sales of “Beauty and the Beast.”
Disney added in its statement that a lengthy review of Euro Disney’s financial structuring has been launched, with a plan expected to be revealed next spring. In addition, it was suggested that Euro Disney might delay its next phase of development: a studio tour attraction modeled on the Disney-MGM Studios theme park in Florida.
Philippe Bourguignon, president and director general of Euro Disney, blamed the slow European economy. “It seems reasonable to us to be prudent for the short term even if we and the Walt Disney Co. remain confident in the long term,” Bourguignon said in a statement.
Andrew Hunter, an analyst with Hoare Govett in London, said the current pace of development planned for Euro Disney in the booming 1980s is unrealistic today.
“No one could have foreseen the degree of recession throughout Western Europe. The current stage of development is totally inappropriate for the current conditions,” Hunter said.
Hunter added that he believes Disney, which is promising to fund the park’s capital expansion and working capital requirements through next spring, may eventually increase its Euro Disney ownership to more than 50% if investors are unwilling to pump more money into the operation.
Disney’s stock closed at $38.75, unchanged, after hitting a 1993 low of $37.125 earlier in the day. Earlier this year, the stock was trading as high as $47.875.
