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The Walt Disney Company: China Economy Not a Concern for Shanghai Resort

By Daniel Sparks – Feb 29, 2016 at 9:25PM

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Disney management is convinced economic headwinds in China won't stifle the company's iconic brand.

Rendering of Shanghai Disneyland. Image source: Disney.

Disney's (DIS 1.60%) grand opening of its Shanghai Disnelyland resort is just three and a half months away. With Parks and Resorts revenue representing over a fourth of the media company's revenue, and considering the sheer size of the China market, investors are watching Disney's important international park opening closely.

One key question some investors may have is whether or not management is concerned with the timing of economic headwinds in China ahead of the company's Shanghai resort debut on June 16. But management appears undeterred.

The 10,000-foot view is what matters
The resort is just as important to the company as is to investors. It is Disney's "most important single new initiative" for its Parks and Resorts segment, said Disney COO Tom Staggs, who continues to play a critical role in overseeing the Shanghai Disneyland even after being named COO about a year ago, during the company's first fiscal quarter earnings call of 2016 (via Reuters transcript).

The stakes are high for the park to be an excellent performer for the company. Disney has invested heavily in Disneyland Shanghai. Staggs even dubbed referred to it as "one of the most extraordinarily creative and innovative projects in the history of [Disney]."

But could economic headwinds become a hurdle for Disney's Shanghai at least initially?

Staggs isn't concerned. The focus for Disney, he explains goes much further than near-term economic struggles.

"This is a very long-term proposition, so what's going on in the economy at any given moment is not a big concern for us," explained Staggs during a recent Wall Street Journal interview." We look at the trends over the long term and continue to be as bullish as we've ever been in terms of the number of income-qualified people, the prospect for continued growth of the middle class in China, etc.

While Staggs said during the WSJ interview Disney was hoping for a big initial reception, he emphasized that the company builds parks "for generations."

"We won't judge where we are a week out, a month out, or even a year or two out," he said.

Planning for a big launch
The company's bet on a big opening is evident. Disney's resorts and parks operating income benefited from growth in domestic operations during the company's most recent quarter but growth was partially offset by lower operating income in Disneyland Paris "as well as pre opening spending at Shanghai," Staggs explained in Disney's earnings call.

Rendering of Peter Pan's Flight ride at Shanghai Disneyland. Image source: Disney.

Though the company isn't jumping in to Shanghai Disneyland blindly; management has reason to believe the opening will be a hit. A recent announcement that tickets will go on sale on March 28 was "incredibly well-received in China," Staggs said during Disney's earnings call. "[T]he anticipation is palpable and growing," he explained.

Staggs predicts Shanghai Disneyland represents "an attractive and profitable place to deploy Disney's capital for the long term," he said in the first-quarter call.

If Shanghai turns out to be what management expects, investors will likely welcome the international resort with open arms as it begins to contribute to Disney's revenue and bottom line.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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