Yesterday’s earnings report from the Walt Disney Company (DIS) were better than analysts had been expecting, but not good enough for DIS shares to buck the news of a bigger U.S. trade deficit in December. Disney shares are off nearly 2% this morning.
In an otherwise solid report, the company reported flat revenues and slightly worse operating income in its parks and resorts division. Its Disneyland Paris park had lower attendance and lower hotel occupancy. In the U.S., attendance was up, but ticket prices had been lowered and visitors spent less on food, drink and souvenirs.
The story is much the same at McDonald’s (MCD). The company reported yesterday that January 2010 sales rose 2.6%, well above estimates of 1.4%, but in the U.S. same store sales were down 0.7%. The drop is the result of a continuing price war for market share in the fast-food business.
What Disney and McDonald’s are telling us is that the slow-down in consumer spending is not over. And the reason, most probably, is unemployment or the fear of unemployment.
While a family vacation at a Disney theme park may be cheaper than a week in London, it’s still too costly. Unless a family believes its income is virtually guaranteed, a trip to Disneyland can wait another year, discounts or not. And how many people believe that they are now immune from firing?
The same thing goes for those low-priced meals at McDonald’s and other restaurants. They are cheap, but not cheap enough. A great many fast-food customers are either young or minorities or both. These groups have been hit the hardest by unemployment. The little discretionary income they did have has all but disappeared. Worse, there seems to be little hope on horizon.
While a meal at McDonald’s or a trip to a theme park may be relatively cheap, it’s cheaper still to eat at home and watch TV. Uncertainty about jobs, lack of credit availability and eroding house values present an alarming picture to most consumers.
Until that picture brightens up, spending on restaurants and theme parks will have to be wrung out of customers with even lower prices and better deals. That picture is unlikely to brighten much in 2010.
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