Citi Leisure and Travel Analyst James Hardiman joins Yahoo Finance Live to discuss Six Flags earnings, travel and tourism tailwinds, U.S. inflation, the consumer, and cruise stocks.
Video Transcript
BRAD SMITH: Six Flags out with quarterly results this morning. The theme park operator recently added numerous improvements across the park operator's various regions in a bid to boost margins. But as families across the US, they feel the squeeze of inflation, are theme parks poised for a rebound in the post-COVID economy? Or are consumers spending their dollars elsewhere in the experience economy? Citi Leisure and Travel Analyst James Hardiman joins us now to weigh in. James, great to speak with you and get some of your insights, as always. So you look back on this quarter, what grade would you give it? And is it at all sustainable for Six Flags?
JAMES HARDIMAN: Yeah, I mean, I think the quarter itself was a solid B, right, which is an improvement over the D, D minus grades that they've gotten over the previous couple of quarters. I think the bigger reason the stock is up today is some pretty optimistic comments with respect to 2023. They think they're going to get to record EBITDA this year, at least on an organic basis, which would be something, right? They're certainly not out of the woods yet. But I think the key phrase from the earnings call that just ended was "course correction." They think they've made the right fixes after what was a pretty rough start to the year.
JULIE HYMAN: It sounds like you're skeptical, James. Just reading it-- maybe I'm reading too much into your tone. It sounds like you're skeptical, though, that they have really turned the corner. We know there's an activist involved at the company too. Do you think Six Flags has made the changes necessary? Is the activist in this situation maybe going to help nudge them along?
JAMES HARDIMAN: Yeah, I mean, I-- what might seem like skepticism is just more-- I think this is a show-me story, right? As they sort of laid out how they were going to get to record EBITDA this year, they're looking to see attendance grow double digits, right? Attendance was down much worse than they thought in 2022. And so off of that unusual low, so to speak, they think they're going to grow attendance quite nicely. We've yet to see any evidence that that's where this is headed.
The end of the year got worse, not better. Now, there were some fewer operating days in there that may have mitigated that. So it's not so much skepticism. It's, I just need to see it, right? We've been here before. Coming out of the first quarter call, coming out of even the second quarter call, they really gave us sort of the assurances that this was heading in the right direction. And it turned out not to be the case. So I think the burden of proof is squarely in management's camp.
BRAD SMITH: James, as you look across leisure and travel right now, we've heard from some CEOs counting about-- talking about and counting on a countercyclical recovery for the experience economy as compared to the rest of the discretionary spend that could be done on goods versus where they're providing a service. All of that in mind, are there specific players that you look at, companies that you expect to underperform even in a travel and accommodation countercyclical recovery?
JAMES HARDIMAN: Yeah, I mean, it's a great question. I mean, to that point, everything that we've seen would suggest that there is this secular trend towards experiences over goods and services. In general terms, I think that theme parks are well positioned to benefit from that, as are the cruise lines, as are some of these other travel names. I think as we think about underperformers within that context, I think you have to look at who their consumers are, right?
And to circle back to Six Flags, right, they have tried to evolve their consumer, is maybe the most generous way of putting it, right? As we think about a potential recession that's driven off of inflation, that has a disproportionate impact on lower income consumers, right? And I think those companies that have an outsized exposure to that consumer are probably going to underperform. Six Flags was absolutely one of those companies. But ultimately, they're trying to change that.
JULIE HYMAN: As you look through the prism of your coverage, are we starting to see at all some of the hardship and spending patterns changing travel from the lower income consumer up that income chain at all? Are you seeing any sign of that?
JAMES HARDIMAN: I think we're seeing at least some of that. It started out certainly with that low-income consumer. We've seen that progress to middle-income consumers. I think the premium-- the wealthier consumers are still doing well, and they're still pricing up, so to speak. Whereas the middle-income and lower-income consumers are not only scaling back some of their purchasing, but some of the features, some of the add-ons, some of the more premium components of leisure spend are beginning to tail off. You know, it's a tough question if this is a matter of when rather than if. But that's where we are today.
BRAD SMITH: Is the cruise line attempted recovery a viable trade for investors that are evaluating that part of the experience economy?
JAMES HARDIMAN: I very much think it is, which is a big departure from where we've been the last couple of years where these companies were just trying to get back on the water. And I think the Street, and I include myself in this, underestimated just how much of a slog that was going to be, how long it was going to take. We've now started to see, I'd say, going back to November, December time frame, when a lot of the COVID restrictions and testing were ultimately lifted, and so people didn't have that sort of fear that if they booked the vacation that they would have to cancel, or worse yet, get stuck.
I think since that point, we've seen a real nice inflection in booking and pricing to finish 2022. And then as we think about wave season, which is that January to March time frame, we've seen really good trends. So, you know, too early to take a victory lap here. But I really think the cruise lines are heading in the right direction.
JULIE HYMAN: James, good to see you, as always. James Hardiman, Citi Leisure and Travel Analyst, on Six Flags and much more. Thanks, James.
JAMES HARDIMAN: Thanks, guys.
