Section B:
Not to Expect Profits Soon from Euro Disney
The Euro Disney Corporation, acknowledging that its elaborate theme park had not performed as strongly as expected, announced Thursday that it would sustain a net financial loss of unpredictable scale in its first financial year.
At the time of the April opening of the park, which stands on a 4,800-acre site 30 kilometers (20 miles) east of Paris, Euro Disney officials said they expected to make a small profit for the financial year ending September 30. But since then the park has been hit by a number of problems.
"We were geared up for a very high level of operations," John Forsgren, the company's chief financial officer said in a telephone interview. "It has been very strong, but not as strong as we geared up for."
"While attendance is very strong," he said, "our cost levels do require adjustment for the current revenue level."
The parent company, Walt Disney Corporation, said Thursday that its income rose 33 percent in the quarter. But it warned investors against expecting profits soon from Euro Disney, of which it owns 49 percent.
Euro Disney said that although attendance levels had been high, "the company anticipates that it will sustain a net loss for the financial year ending September 30, 1992". It added that "the amount of the loss will depend on attendance and hotel use rates achieved during the remaining portion of the critical European summer vacation period". The announcement amounted to an extraordinary reversal for Euro Disney, which opened amid immense celebration and widespread predictions of immediate success.
At the time of the opening, on April 12, the company's shares were trading at 140.90 francs ($28.07), and had been as high as 170 francs earlier in the year. They dropped 2.75 percent Thursday to close at 97.25 francs. Mr. Forsgren said he thought the market had "reacted a bit emotionally to preliminary information". He added that "by all objective standards the park is very successful. The long-term acceptance is strong, the rest is just details."
The company said that 3.6 million people had visited the park from April 12 to July 22, a performance superior to that of comparable start-up periods at other Disney theme parks. But it warned that, given the likely strong seasonal variation in attendance, it was not possible to predict future attendance or profits.
Reacting to the announcement, stock market experts Paribas Capital Markets Group issued a "sell" recommendation on Euro Disney stock, saying that attendance levels for the period were 15 percent below its expectations and spending on food and other goods was 10 percent below. It predicted that the company would lose 300 million francs in the current financial year and continue losing money for two more years.
The main problem confronting Euro Disney appears to be managing its costs and finding an appropriate price level for its over 5,000 hotel rooms. Clearly, costs have been geared to a revenue level that has not been achieved, and the company is beginning to drop hotel prices that have been widely described as excessive.
Mr. Forsgren said the number of staff, now at 17,000, would "come down significantly in the next two months, mainly through the loss of seasonal employees". Of the current staff, 5,000 are employed on a temporary basis, he said.
He also acknowledged that the lowest-priced rooms at the resort had been cut to 550 francs ($110) from 750 francs at the time of the opening, and that some rooms were being offered at 400 francs for the winter season. Analysts believe hotel use has been running at about 68 percent of capacity, although it is currently over 90 percent.
"The key issue is costs," said one financial expert. "They have no idea what their winter attendance levels will be and they're battling to get costs to an appropriate level. The stock's still too expensive, but I think in the long term they'll get it right."
Still, huge doubt hangs over the company's plans to keep the theme park open through the cold European winter — something no other theme park in Europe has ever attempted. Last month, the company said it was having difficulty attracting people from the Paris region. Mr. Forsgren said that French attendance was improving and accounted for 1 million of the 3.6 million visitors, with most of the rest coming from Britain and Germany. Only 1 percent of visitors have been American.
For its third quarter ending June 30, the first in which the park had been operating, the company announced revenues of 2.47 billion francs ($492 million), but gave no profit or loss figures in line with the French practice of only giving such figures at year's end. In the first half, the company earned 75 million francs, mainly from investment income and sale of construction rights on its site.