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Earnings Results: Why Six Flags’ attendance fell so much, and what the company plans to do about it

Shares of Six Flags Entertainment Corp. plunged Thursday toward the second-worst performance in the theme park operator’s 12-year public history, after a big miss in attendance led to a surprise drop in second-quarter revenue, even as spending-per-guest jumped.

Net income fell to $45.4 million, or 53 cents a share, from $70.5 million, or 81 cents a share, in the year-ago period, and well below the FactSet earnings consensus of $1.01 per share.

Revenue declined 5.3%, to $435.4 million from $459.8 million, while the FactSet consensus called for an increase to $518.5 million.

Attendance dropped 21.2% to 6.7 million, or about 18% below Wall Street expectations of 8.2 million.

The stock
SIX,
-21.31%

plummeted 21.9%, putting it on track for the lowest close since Oct. 28, 2020. The selloff is also closing in on the biggest-ever decline since Six Flags went public in May 2010, which was the pandemic-induced 22.1% plunge on March 12, 2020.

Chief Executive Selim Bassoul explained on the post-earnings conference call that lower attendance was the result of a conscious decision to change the customer base to those who are willing to pay more and to create a better guest experience by having fewer people in the parks.

In one way, it worked, as guests spent significantly more, and guest satisfaction scores have gone up “tremendously.” Total guest spending per capita spiked up 23.0% to $63.87, with admissions spending rising 26.7% to $36.35 and in-park spending climbing 18.3% to $27.52.

Bassoul acknowledged, however, that the decline in attendance went a little too far.

“We estimate that the optimal attendance level that allows us to deliver an exceptional guest experience while maximizing our profit represented a 20% to 24% decline related to 2019,” Bassoul said, according to a FactSet transcript. “Our year-to-date attendance through July is down approximately 35% versus 2019. So, our current attendance trends are about 10% to 15% below that we would like.”

He highlighted several areas in which execution can improve to rebuild the attendance base in a “healthy and profitable” way.

The company will be reevaluating what the “optimal” marketing spend will be going forward, after it was cut “substantially” this past year to cut costs. In addition, the company will be introducing a new dining plan, “bigger and better” activities to attract more families and a new Oktoberfest event.

“We believe these and other initiatives will help us grow out attendance and recapture a portion of our lost active base holders in advance of the 2023 season,” Bassoul said.

CFRA analyst Zachary Warring recommended investors not assume the initiatives will work, given the current macroeconomic environment. He downgraded Six Flags to hold from buy, and trimmed his stock price target to $23 from $24.

“We would sit on the sidelines until [Six Flags] can prove it can grow its top and bottom line with its new premium strategy, especially as the consumer slows spending on discretionary services as inflation boost consumer debt and lowers savings,” Warring wrote in a note to clients.

Six Flags’ stock has plummeted 52.7% year to date, while the S&P 500 index
SPX,
+0.49%

has lost 11.3%.

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