Shares in theme park operator Merlin Entertainments (MERL) have fallen 6.9% at 344.2p on concerns growth has stalled at Legoland.
Cost pressures have also risen amid the UK National Living Wage and higher business rates with the benefits from Merlin’s productivity measures not expected to be realised until after 2019.
IS THE MARKET RESPONSE AN OVERREACTION?
The owner of Thorpe Park and Alton Towers is optimistic it will meet market expectations, while the impact of the terror attacks in 2017 is starting to fade.
In Merlin’s latest trading update for the 40 weeks to 6 October, like-for-like sales grew 1.4%, driven by new business development.
While this growth does not appear impressive, it is higher than forecasts of 1% by broker Numis.
Sunnier skies and successful product investment has helped Merlin’s theme parks enjoy 9% organic revenue growth.
LEGOLAND SALES DISAPPOINT
Sales growth at Legoland is 6.4% although it is concerning that this was driven by the opening of Legoland Japan and a continued roll-out of accommodation. On a like-for-like basis, revenue has declined 0.3%, lower than forecasts of 0.9% growth.
Merlin has blamed ‘marketing challenges’ for one undisclosed park for the underperformance, implying a short-term setback.
Looking ahead, the release of The Lego Movie 2: The Second Part early next year is expected to drive more visitors to Legoland parks.
This would be welcome support for Merlin following recent news that Lego sales dropped in the UK for the first time in 13 years.
Elsewhere in the business, revenue growth for Midway attractions, including The Dungeons and Sea Life, has fallen 0.7%. Investors should note that Numis had expected a 2.2% decline.
AJ Bell investment director Russ Mould warns more restrictive immigration policies and Brexit’s potential impact by limiting free movement could hit employers of lower wage workers such as Merlin.
