Walt Disney was dealt another COVID-19 pandemic-related setback on Monday, March 21, when the firm announced the temporary closure of the Shanghai Disney theme park and resort. That part of China has been particularly heavily struck by the omicron variety, increasing infection rates.
China’s government has imposed more limitations on the spread of coronavirus than other big countries, partly because Chinese-made vaccines have not proven as efficient in combating the disease.
While the duration of the current Disney property closures is unknown, it will be long enough to influence the company’s revenue this quarter. Let’s take a deeper look at the potential impact on investors.
Shanghai Disney will close for a while
A notification was put on the Shanghai Disney website:
“Shanghai Disney Resort, which includes Shanghai Disneyland, Disneytown, and Wishing Star Park, will be temporarily closed beginning Monday, March 21, 2022, because of the current pandemic.
We will continue to monitor the pandemic situation, cooperate with local authorities, and contact guests when a definitive date for operations resumption has been established.
We regret the inconvenience and will issue refunds or exchanges to all visitors impacted during this period. We appreciate your patience and cooperation! We hope to see you soon!”
Investors should consider that Disney generates a substantially smaller portion of sales and operating income from overseas theme parks.
Before the epidemic, Disney’s domestic theme parks earned $17.4 billion in sales and $4.4 billion in operating income in fiscal 2019. Meanwhile, the international parks earned sales of $4.2 billion and operating profits of $507 million.
Disney holds a minority investment in the Shanghai site of the Shanghai Disney (which celebrates its fifth birthday this year).
Nonetheless, the shutdown will have a detrimental effect on the company’s recovery from the epidemic. Disney derives a significant portion of its sales and earnings by bringing people together, so this is unsurprising.
Disney’s domestic theme parks quadrupled sales yearly to $4.8 billion from $1.5 billion in the most recent quarter ending January 1.
International parks increased income by more than $861 million from $378 million. Domestic operating income increased to $1.5 billion while overseas operating income increased to $21 million.
During lockdowns and closures, management took the opportunity to improve park operations, including the addition of mobile ordering at restaurants and a computerized reservation system.
Additionally, the firm increased admissions, parking, and concessions pricing, which aided the division in achieving the good revenue and operating income results indicated previously.
The temporary shutdown of one of its worldwide parks is unlikely to affect total profitability negatively. Certain clients who planned to come during the temporary shutdown could reschedule their visits.
Furthermore, overseas theme parks provide just a small portion of the segment’s operational profits. If Disney’s stock price falls due to this news, long-term investors may be able to purchase shares at a discount.