To revive its waning business, theme park operator Six Flags (NYSE:SIX) began by doing the little things right. It made an effort to keep its parks trash free and to eject troublesome patrons. It added new rides and worked on its image. On the business side, it worked to reduce debt and to forge relationships with major chains to provide services within its parks.
These moves should eventually pay off, but so far the effect on Six Flags' bottom line has been minimal. The company's recent first quarter was lackluster, and now shareholders are left wondering when this turnaround play will finally turn around.
Financial Highlights
In the period ended March 31, Six Flags saw its top line increase almost 35%. Revenue increased to $68.2 million from $50.7 million in Q1 2007. Attendance grew 19% to about 1.4 million visitors. Perhaps the most encouraging sign was that per-capita guest spending rose to $38.95 from $34.44 in Q1 last year.
This shows people are still riding rollercoasters despite a sluggish economy. These growth numbers are noteworthy because of the stiff competition it's witnessed from other major operators including:
- The Walt Disney Co. (NYSE:DIS): The little mouse is big competition, with Disney World in Florida, Disneyland in California and a number of other international locations.
- Cedar Fair (NYSE:FUN): The East Coast is Cedar Fair's specialty. It has a strong presence in Pennsylvania and Virginia, which is right in Six Flags' backyard.
- Great Wolf Resorts (Nasdaq:WOLF): Great Wolf runs a series of resorts with indoor and outdoor water parks on the East Coast. The company provides affordable family packages and could see increased business as consumers tighten their budgets.
Finally, the fact that the company is showing solid top line growth and attendance figures should, I think, help provide some cushion in case the economic slowdown is protracted. (For further reading on competition, check out Economics Basics and Peer Comparison Uncovers Undervalued Stocks.)
Easter Came Early This Year
Attendance for the quarter was boosted by the timing of Easter, which shifted from the second quarter in 2007 to the first quarter in 2008. This fact should be kept in mind when looking at the year-over-year comparison. With the Easter boom lumped into Q1, I'm concerned how Q2 will stack up against the prior year.
Losses Worse Than Expected
Another factor that should be considered is that the company lost $149.9 million ($1.62 per share) in the quarter. Now to be clear, the loss shouldn't come as too much of a surprise given that it was winter, and the fact that the company booked such large depreciation and amortization expenses. However, it is a bit of an issue because the was steeper than the roughly $1.48 a share loss that analysts were expecting.
By extension, I'm concerned that this could lead to less-than-favorable research in the days ahead, and we could see even more pressure on the shares. (For more information, read The Ups And Downs Of Investing In Cyclical Stocks.)
Bottom Line
I think Six Flags has done much to improve its parks, and I'm impressed with the company's attendance and revenue growth. However, its bottom line leaves me wanting more, and I suspect the analyst community feels the same way. Long story short, I'm becoming more of a bull on the stock, but I'd wait another quarter or possibly two before finally pulling the trigger.
