Oriental Land Co Ltd

TSE:4661

Earnings Call Analysis

Growth and Expansion Amidst Cost Pressures

In the first quarter of fiscal year 2025, net sales increased due to higher attendance at the Theme Park segment, up by JPY 4.8 billion to JPY 121.4 billion. However, operating profit decreased by JPY 4.2 billion to JPY 28.1 billion because of rising costs, including labor and maintenance. The Hotel segment also saw a sales increase of JPY 2.4 billion, but operating profit fell due to renovation costs. The company launched a new Cruise business with an expected JPY 330 billion investment, aiming for JPY 100 billion in annual sales and 400,000 guests. Despite risks, no revisions were made to future forecasts .

Overall Financial Performance

In the first quarter of the fiscal year ending March 2025, the company experienced a notable rise in net sales, predominantly fueled by increased attendance in its Theme Park segment. However, this success was tempered by a decrease in operating profit, which was largely attributed to swelling costs.

Theme Park Segment Performance

The Theme Park segment saw a net sales increase of JPY 4.8 billion to JPY 121.4 billion. This boost was significantly driven by the opening of Fantasy Springs and a rise in the number of overseas guests. The easing of daily attendance limits since October 2023 also contributed to this growth. Despite the revenue rise, operating profit declined by JPY 4.2 billion to JPY 28.1 billion due to increased costs in raw materials, personnel, and maintenance.

Detailed Attendance and Revenue Trends

Overall attendance grew by approximately 3% year-on-year. There were fluctuations throughout the quarter, with a 2% decline in April, but increases of 7% and 5% in May and June, respectively. Net sales per guest rose slightly, and revenues from attractions and shows improved due to higher-priced tickets and increased Disney Premier Access sales. On the downside, merchandise revenue dropped due to the end of the Tokyo Disney Resort 40th anniversary product line, while food and beverage revenue saw positive growth from new outlets in Fantasy Springs.

Hotel Business Segment Insights

Net sales for the Hotel Business segment increased by JPY 2.4 billion to JPY 22.7 billion, driven by higher accommodation revenue following the opening of the Tokyo DisneySea Fantasy Springs Hotel. However, the occupancy rate at Disney Hotels decreased by 4.7 percentage points to 94.2%, primarily due to renovations. The average room charge grew by JPY 6,796 to JPY 56,603. Operating profit in this segment decreased by JPY 1.6 billion to JPY 4.3 billion, mostly due to costs associated with the new hotel.

Other Business Segment Performance

The Other Business segment achieved a modest net sales increase of JPY 0.5 billion to JPY 4.2 billion, driven mainly by higher sales in the Monorail business. Operating profit in this segment also rose by JPY 0.4 billion to JPY 0.6 billion, thanks to increased net sales and deferred miscellaneous costs.

Performance Vs. Forecast

First-quarter results exceeded the company's projections for both net sales and operating profit, mainly due to better-than-expected attendance and deferred costs. Attendance beat the forecast by about 1%, with notable variances across different months. Net sales per guest aligned with projections, balancing underperforming merchandise sales and strong food and beverage sales. Despite these gains, the company has opted not to revise its full-year forecast because of potential weather-related risks.

Launch of the Cruise Business

The company announced the launch of its Cruise business, set to be a new venture aimed at sustainable growth. Partnering with Disney Enterprises, Inc., the concept is inspired by the Disney Wish cruise ship, offering a highly immersive Disney experience. Total investment for this project is estimated at JPY 330 billion. The company anticipates around JPY 100 billion in net sales and about 400,000 guests annually within the first few years of operation. The operating margin is expected to be comparable to that of the Theme Park segment.

Future Prospects

The cruise market in Japan, which had been growing steadily before the pandemic, is expected to revive and expand. The company aims to leverage Disney's unique entertainment offerings to attract families and younger guests. By moving beyond Maihama and pioneering a new cruise business, the company hopes to bring happiness to a wider audience, ultimately benefiting all stakeholders.

Earnings Call Transcript 2025-Q1

[Tomoyuki Shimoda, executive]

First of all, I'd like to provide you with an overview of our financial results for the first quarter of the fiscal year ending March 2025. Results for the first 3 months are as shown here. In comparison with the same period of the previous fiscal year, net sales increased primarily due to a rise in attendance in the Theme Park segment, but operating profit decreased owing to increases in costs.

I will explain the results by segment and the reasons for changes. Net sales for the Theme Park segment increased by JPY 4.8 billion to JPY 121.4 billion. Attendance grew year-on-year, primarily due to an increase in the number of overseas guests and the opening of Fantasy Springs, et cetera. Please note that the capacity of both parks has increased as a result of the daily attendance limit having been eased since October 2023. And also that of Tokyo DisneySea has increased due to the opening of Fantasy Springs on June 6.

For your reference, I'd like to explain the attendance trends in comparison with the same period of the previous fiscal year. In the 3 months under review, attendance increased year-on-year by approximately 3%. On a monthly basis, attendance decreased by around 2% in April, but increased by around 7% and 5% in May and June, respectively.

Net sales per guest slightly increased overall year-on-year.

Revenue from attractions and shows increased year-on-year, owing to a larger proportion of higher-priced tickets based on variable pricing, along with an increase in revenue from Disney Premier Access on the back of the opening of Fantasy Springs.

Merchandise revenue decreased year-on-year as a result of the termination of the sale of products related to the Tokyo Disney Resort 40th anniversary.

Food & Beverages revenue increased year-on-year due to the opening of restaurants and refreshment outlets within the newly opened Fantasy Springs.

Operating profit for the Theme Park segment decreased year-on-year by JPY 4.2 billion to JPY 28.1 billion due to increases in costs.

The merchandise and food/beverages cost ratio rose year-on-year, primarily owing to a surge in raw material prices.

Personnel expenses increased year-on-year, primarily as a result of a rise in the number of hours worked due to the opening of Fantasy Springs, as well as an upward revision of wages.

Miscellaneous costs increased year-on-year, chiefly due to a rise in maintenance costs for addressing age-related deterioration.

Depreciation and amortization expenses increased mainly due to the acquisition of new assets.

Net sales for the Hotel Business segment increased year-on-year by JPY 2.4 billion to JPY 22.7 billion as a result of an increase in accommodation revenue on the back of the opening of the Tokyo DisneySea Fantasy Springs Hotel, et cetera.

The occupancy rate at Disney Hotels during the first quarter decreased year-on-year by 4.7 percentage points to 94.2%, primarily due to renovations carried out at the Tokyo Disney Celebration Hotel. The average charge per room rose by JPY 6,796 to JPY 56,603.

Operating profit decreased by JPY 1.6 billion to JPY 4.3 billion, chiefly due to increases in costs resulting from the opening of the Tokyo DisneySea Fantasy Springs Hotel.

Net sales for the Other Business segment increased year-on-year by JPY 0.5 billion to JPY 4.2 billion, primarily owing to an increase in net sales from the Monorail business, driven by a rise in attendance.

Operating profit increased by JPY 0.4 billion to JPY 0.6 billion, chiefly due to an increase in net sales and the decrease in miscellaneous costs.

When we compare the first quarter results with our forecast, both net sales and operating profit were higher than projected due primarily to higher-than-expected attendance and the deferral for miscellaneous costs.

Attendance outperformed our forecast, mainly owing to an increase in the number of overseas guests. For your reference, I'd like to explain the attendance trends in comparison with our forecast. In the 3 months under review, attendance exceeded our forecast by approximately 1%. On a monthly basis, attendance fell short of our forecast by around 3% in April, exceeded our forecast by around 8% in May and fell short again by around 2% in June.

Net sales per guest were roughly as projected overall. This was attributable to merchandise revenue falling short of our forecast due to our having temporarily restricted sales in consideration of the demand expected for products related to Fantasy Springs, which was offset by higher-than-projected food and beverage revenue, resulting from the strong performance of food items souvenirs related to Fantasy Springs and special events.

Operating profit was higher than projected, owing primarily to a decrease in miscellaneous costs due to a deferral to 2Q and after.

In consideration of weather risks, including risks of severe heat and heavy rain as well as other factors, we decided not to revise our forecast for 2Q and the full fiscal year at this point in time.

Next, I'd like to discuss the launch of the Cruise business, which we announced earlier on July 9. In April 2022, the OLC Group upheld our goal for 2030 with the aim of contributing to the creation of a sustainable society and achieving long-term sustainable growth. As part of this endeavor, we have been discussing the launch of a new business that is likely to bring new earning opportunities.

Our new business needed to be in alignment with the OLC Group's corporate philosophy, help increase the value of our existing businesses and be likely to serve as a new growth opportunity. We decided to launch the Cruise business as it fulfilled all these requirements.

The new cruise business constitutes a venture into a field that is completely different from the Theme Park or hotel business and represents a bold step out of Maihama. We will nevertheless continue to provide highly original and spectacular Disney experiences, generating new experience value.

When considering launching the Japan-based cruise business, we discussed the matter carefully with Disney Enterprises, Inc., and entered into a license agreement on July 9, 2024.

Disney cruises were first launched in 1998 in the United States. With a fleet of 5 ships currently in operation in the U.S., 3 more to be added by 2025. Our ship in Japan will be designed based on Disney Wish cruise ship, the largest in scale among existing Disney cruise ship vessels.

Guests on board will be able to immerse themselves in the unique world of Disney, complete with a wide range of culinary offerings, hospitable services, shows featuring Disney characters and more.

Total investment of approximately JPY 330 billion is projected, including shipbuilding and startup preparation costs, et cetera. The investment will be as large and impactful as that for Fantasy Springs. By offering family entertainment crew services as a novel type of leisure activity, we are convinced that we can provide unprecedented kinds of happiness that differ from that which can be enjoyed as our Theme Parks.

Cruise businesses in Japan had been expanding on a continued basis up until the pandemic struck. Following the temporary slump, the market is expected to continue growing in the future. International cruises stopped operation in March 2020, but have fully resumed since March 2023.

Targeting families with children and the younger generation, our cruise business will leverage Disney's highly original activities and entertainment as well as our expertise in human resources fostered in our existing businesses and will contribute to the development of the cruise market in Japan.

Within the first several years of launch, we project our cruise business will achieve approximately JPY 100 billion in net sales and attract around 400,000 guests a year. With the operating margin expected to be on a par with that of the Theme Park segment, the business is short to drive the growth of the entire group.

While looking to operate the fleet of several ships in the future, we will initially focus on getting our first ship on track.

We have long created and offered happiness to guests through Tokyo Disney Resort. By boldly stepping out of Maihama at long last and launching the cruise business, we will be able to deliver happiness to even more people, which is our greatest delight. And it is our determined hope to bring happiness to not only our guests, but also to all our stakeholders.

We hope to continue delivering the kind of dream world that only our group can create, and we'll keep endeavoring to put smiles on the faces of as many people as possible.

I hope you will look forward to Japan's first Disney cruise. This will be all from me. Thank you very much.