LONDON (Reuters) - Merlin Entertainments’ (MERL.L) Legoland parks fell short of revenue expectations over the summer and the tourist attraction firm also highlighted rising labour costs in a trading update on Tuesday, sending its shares sharply lower.
Shares in the operator of Madame Tussauds waxworks and the London Eye dropped as much as 8.4 percent, extending the year-on-year fall to over 23 percent.
Merlin forecast overall 2018 results in line with market expectations, thanks to a strong performance at its theme parks business, which includes Britain’s Alton Towers.
Like-for-like revenues jumped 8.3 percent in that business in the 40 weeks to Oct. 6, outweighing a 0.3 percent fall at the company’s eight Legoland parks.
Chief Executive Nick Varney said “marketing challenges” relating to one Legoland park, which he declined to name, contributed to the division falling short of the expected “low single digits” like-for-like revenue growth.
“My view is that it’s just a blip,” he told Reuters. “It’s not a particularly terrible blip because the overall group is incredibly strong,” - delivering like-for-like revenue growth of 1.4 percent over the 40 weeks.
He forecast Legoland’s performance would bounce back in the 2018-19 fiscal year on the back of marketing and promotional tie-ups with “Lego Movie 2”, due for release in February.
“Anybody writing-off Legoland and reacting on the share price - I will happily sit down with them in the hat eating saloon at the end of the (2019) year,” said Varney.
He said the share price fall reflected the “febrile nature of the markets” rather than the underlying value of Merlin.
Merlin also highlighted cost pressures, with tighter labour markets in many parts of the world adding to legislative changes such as the National Living Wage in Britain.
It said the impact of terror attacks that hit performance from early 2017 had started to abate, with signs of recovery in London tourism over the summer.
About 70 percent of Merlin’s core annual earnings are typically generated in its second half and two thirds of annual profits are made outside Britain.
Varney said the biggest danger of a disorderly Brexit would be visa requirements for in-bound visitors from the European Union. “That would be disastrous because they make up about 50 percent of the visitation to London,” he said.
The CEO said it was also important for the hospitality industry that low- and un-skilled workers were not prevented from coming to Britain.
Prior to Tuesday’s update, analysts were on average forecasting 2018 earnings before interest, tax, depreciation and amortisation (EBITDA) of 486 million pounds ($639 million), up from 474 million pounds in 2017.
“We remain concerned that reduced earnings visibility will weigh on near term returns whilst raising leverage,” said Liberum analysts.
“Against this backdrop, it is hard to see a case for a sustained re-rating,” they said, keeping their “hold” recommendation.
($1 = 0.7601 pounds)
Reporting by James Davey, Editing by Paul Sandle and Mark Potter