As readers will remember, we expect more balance in consumer spending between goods ("stuff") and experiences ("fun") in 2024. This comes after 2023’s ebullient period of "fun", which took wallet share from "stuff" and making it more difficult year for retailers. Better balance will set up retailers for a more favorable year. This week brought a round robin of updates from leisure and entertainment operators. Below we provide a quick summary on each; in total these reports highlight that demand in 2024 is less than substantial additional supply added for the year; moreover, consumers are seeking out greater value and absolutely lower prices.
Norwegian Cruise Line Holdings reported 8% revenue growth and occupancy of 105.9% (that’s right, occupancy sits above 100% as high demand is packing in the state rooms), and management raised their revenue and profit outlook for the full year. Recall that cruises' relative value over destination theme parks is allowing the category to gain share. For context, Comcast's Universal Studios reported a very soft quarter with revenue down 11% (and domestic theme parks were down more). United Parks & Resorts reported that its parks (SeaWorld, Busch Gardens, etc.) delivered flattish attendance and revenue year-over-year (and legacy parks likely down year-over-year).
For context, revenue per passenger day on a Norwegian Cruise for the quarter was $296. At Universal, the figure is around $250 (assuming a $100 / head room rate and a lunch picnic off the back of the family’s station wagon). Supporting this “perceived greater value” thesis, we see a large increase by those characterized as “Thrift Habits” by Experian Mosaic for Carnival Cruise’s Terminal F in Miami – a terminal that is at capacity.
On demand, Norwegian CEO Harry Sommer said, “The company continues to experience strong consumer demand. In the second quarter, we continued to see strong bookings with our 12-month forward booked position at the upper end of our optimal range on strong pricing. During the second quarter, we observed continued strength in onboard revenue as well, which was driven by our guests' continued enjoyment of our short excursion and onboard amenities including specialty restaurants and communication services...Additionally, pre-booked onboard revenue per capacity day showed solid growth, increasing by 15% as more guests opted for pre-cruise purchases. And as we've seen from prior experience, higher pre crew spend typically results in higher overall spend throughout the guest cruise journey. As a result, our net yield grew 6.3% during the second quarter, surpassing our guidance by a full 200 basis points.” As shared previously, the cruise industry is all about upgrades to its consumer-facing technology, passenger offerings (including “private” island stops), and the ships; descriptions of those filled the call. Cruise line companies are adding more ships with more capacity. Norwegian plans to add 35% more capacity (berths) in 2025 compared to pre-pandemic levels. Carnival Corporation and Royal Caribbean are also adding capacity. With the theme park industry significantly expanding, it will be an interesting time for the leisure industry and associated CRE in the decade ahead.
Caesars Entertainment reported a 2% increase in Vegas revenue during its Q2 2024 update, whereas the more economically sensitive regional businesses suffered a -5% decline. Competitive encroachment is also weighing on Reno and New Orleans. Recall that in Q1, Caesars reported disappointing results which reflected the onset of normalization and desynchrony caused by the Super Bowl in Las Vegas. As such, Q2 is more of a normalized run rate; wagers on tables and slots were down 5% year-over-year, and food & beverage and hotel revenue was up just 1%. Hotel occupancy remains very high at 99% (i.e., the properties remain at near peak levels, including Caesars, Paris, Harrah’s, Horseshoe, and Tropicana). As shown in the chart below, night visitation to the Strip was down (-5%) in Q2 2024, with April impacted by a calendar shift (four weekends versus five a year ago, plus the Easter shift) and June being the best month despite the brutal weather. (Caesars' regional performance followed a similar pattern.)
These suggest that The Strip overall is also performing at near peak levels, but the pandemic snapback is over. Growth from here demands more properties and venues–which is coming and which we wrote about in our Vegas 5.0 story. As part of that story is more pro sports. Caesars Entertainment President Tom Reeg said, "This was our best World Series [of Poker] ever from a financial perspective. It fills a lot of rooms on the east side of The Strip, at a time when it can be...almost 120 degrees here. [It's] a good time to have a significant group of gamblers in-house. We see benefits in our hotel. We see benefits in table games. We see benefits in slot play and in our food and beverage that's all ancillary and hard to quantify”.
MGM Resorts International CEO Bill Hornbuckle said on investment and upgrades, “We've put over $1 billion into our properties in the last three years, principally focused on the building we're in Bellagio. All of our rooms and suites now have been redone amongst many other new amenities. We're also continuing to explore ways to further connect the heart of Las Vegas Strip meaning Bellagio, Aria and the Cosmopolitan together. Some of you may have seen over the last couple of weeks, a set of plans that was submitted to the county here. We are in the midst of trying to create something that we believe will be unique and special to Bellagio, something deserving, something that will have an experiential component, entertainment component must see as well as retail and ultimately nightlife components that begin to marry itself up with some of the other things we have here that bring nightlife back to Bellagio in the long run. We're excited by that. We'll have more of those plans for the next quarter to announce in terms of content and pricing. But we're excited by launching that product, hopefully, over the next several months here...if you're talking about the, I guess, capturing in-market share of our customers' spend while they're here in Las Vegas. I've never been more optimistic about our ability to do that for both internal and external reasons."
"Internally, we've invested capital to connect our properties, particularly here in the center Strip. Of course, our acquisition of the Cosmopolitan and disposition of the Mirage made much of that possible. Culturally, our casino marketing teams and our convention sales teams work as one, presenting the entire portfolio to our customers and encouraging them in many ways to stay within the portfolio. And there are many other things we've done internally to drive that. Externally, just our positioning geographically in Las Vegas in the center and South Strip is where so much of the investment in activity is going on, that whether it be NFL or T-Mobile or even F-1, there's really no better place for the As, no better place to B than within our portfolio.” Of note, management called out initial softness in bookings during the upcoming F-1 race (November event), citing ticket sales down versus last year and average daily rates (ADRs) currently running below last year’s weekend. The company also called out some pressures in entertainment related food and beverage given higher supply of events across the Strip. These again align with our central theme that excess supply was set up going into 2024, with “fun suppliers” airlines, theme parks, hotels, restaurants all expected another magnificent year like 2023. Nope.
Placer show’s supporting evidence of the allure of the South Strip. June was a better month for the Strip overall given the extreme heat, where revelers were seeking out a spot that they could roam in comfort within a dome of AC. As shown in the table below, high-income households sheltered out the heat on both ends of the Strip. Time spent at the Bellagio was up an incredible 41%. Conversely, time spent at the Wynn Resorts was up only 20%. (We look forward to reviewing their quarterly results when the report next week.)
Live Nation reported another record Q2 2024, for concert revenue, up 89% from 2019 with half of the growth coming from more seats and half due to higher prices. Q2 2024 is typically the second largest period of the year for concerts, and this year’s Q2 grew sequentially at only 90% of last year’s seasonality. Again, that snapback has passed. Live Nation CFO Joe Berchtold said, “In terms of the specific fan count numbers that we've seen over the quarter and over the first half of the year, I think it really is venue type driven. It's not so much geographic driven. It's very consistent with what we've been saying for the past year. This was not going to be a big stadium year. You're seeing that play out in terms of lower stadium shows, lower fan count...in North America, where we've had very strong performance, particularly on the amphitheater side. As you see here, we said amphitheater attendance up 40% for the second quarter. It's really that amphitheaters are up very strongly year-to-date. Arenas, theaters and clubs, all up double digits as well. So you're seeing, in totality, continued growth despite not having the stadium shows this year. As we head into the back half of the year, no underlying issues on fan demand at all. We expect to see continued growth in the fan count over the course of the second half. I think most of that will come in Q4. Q3, you'll see the continued impact of the stadium show count. And I think if we just look at the summer season, Q2, Q3, probably about two-thirds of your amp growth in terms of shows and fans was in Q2 as we got started earlier in the year and the majority of arena shows as well. So --we expect still solid fan demand growth overall for the second half of the year, again, probably more in Q4 than Q3.” Said differently, last year the Taylor Swift and Beyonce tours diverted dollars from discretionary retail and in-market spending on "fun". That lack of these event phenomena in 2024, gives these other consumer categories more opportunity to have their time in the sun as well. As to next year, Live Nation CEO Michael Rapino said, “So the good news is, as we predicted, 2025 looks like to be a big banner year again. We're looking right now at our stadium pipeline for 2025. It's bigger right now than it was 2 years ago for 2023. Our amp and arena is bigger right now than it was last year at this time in terms of our pipeline.”
Summerfest in Milwaukee is one of the bigger music events of the year and the American Family Insurance Ampitheater is the largest venue at the festival. For the opening weekend, 2024 was just modestly below 2023’s level. Last year was Eric Church with Elle King, Zac Brown Band with Marcus King, and James Taylor with Sheryl Crow – those are hard acts to beat.
We’ve been writing this year how many categories are normalizing against really three unprecedented occurrences: (1) the pandemic, (2) the pandemic recovery, and (3) high inflation that most consumers have never experienced. Many call that lapping their “Pandemic Super Cycle”, be it athletic/yoga wear, consumer electronics, home improvement, and the spirits industry.
Just focusing on the spirits industry, the industry enjoyed great revenue growth in 2020-2022 despite the pandemic’s hit to bars & restaurants as consumers, flush with stimulus cash, bought higher levels of liquids. For example, Cognac experienced a massive lift in 2022 with Remy Martin reporting a 50% (no typo) increase in sales in the U.S. for the 2H 2022 compared to the 2H 2019. Well, the spirits industry suffered a difficult hangover in 2023 and that has expended into 2024. With the hangover taking the form of consumer trading down, curtailing the number of drinks consumed when they go out, and cutting down on their nights on the town. Below we show our Nightlife Index, which is 23 nightlife districts around the U.S. which cater to the local crowd (vs. for example Vegas, which is a destination). Nightlife activity for the past three months has been down roughly -2%.
Diageo, the world’s largest spirits company, reported organic sales in the U.S. down -3% for the 1H 2024 and implied a similar trend for the 2H 2024. Sales of Diageo’s star tequila (Casamingos) declined 22%, its vodka (Ciroc) fell 28%, and Johnnie Walker fell 10% as consumers traded down. CEO Debra Crew said, “Consumers remain cautious, with wallets under pressure and with higher interest rates, retailers remain cautious as well...As inflation has persisted throughout the year and consumers faced 30-year high food basket prices, you can see how that has impacted the industry, which continued to deteriorate in the [first half of 2024]...[As to the next twelve months], what we're saying there is when the consumer environment improves, we will return to growth. So as far as where does that land upon the year, it really does depend upon when we start seeing some of these better trends on the consumer. While we certainly exited the year with more momentum with our share gains, the category in the industry more limped into the end of the fiscal. And so that's what we're pointing out. So whether it's going to be flat or above will depend upon when that consumer environment improves. And so that's why we're flagging that exit rate on the industry in the U.S.” In other words, a lot less celebration is going on.
