Merlin Entertainments Share News (MERL)

(Sharecast News) - Merlin Entertainments reported a disappointing performance from its Legoland parks in the key summer period, though this was offset by very strong trading from its other resort theme parks. Updated the market on its trading performance for the 40 weeks ended 6 October on Tuesday, including the key summer trading period of July and August, Merlin reported 4.7% growth in group organic revenue year-to-date - or 2.6% growth at reported currency.The FTSE 250 company said that was driven primarily by new business development, having launched two new brands during the period - Peppa Pig World of Play in Shanghai, and the Bear Grylls Adventure in Birmingham. Group like-for-like revenues were up 1.4% for the year to date.Organic revenue growth in resort theme parks was 9.0%, with the firm reporting "particularly strong" like-for-like trading due to successful product investment and favourable weather.Legoland Parks organic revenue growth was 6.4%, driven by the full-year contribution of Legoland Japan and the continued successful accommodation roll-out, offset by flat like for like growth.Midway attractions organic revenue growth was said to be flat, reflecting the expected decline in like-for-like revenue, with the new openings schedule phased towards the end of the year.Accommodation revenue grew by 27.7% on a constant currency basis, which Merlin said reflected the continued success of the resort positioning strategy."Group trading has been in line with expectations, with variances by operating group reflecting the diversified nature of the portfolio," said Merlin Entertainments chief executive officer Nick Varney."We have opened a record 644 rooms, and six new midway attractions which has resulted in organic revenue growth of 4.7%."Continued strong guest demand for our themed accommodation offering and the ongoing trend towards short breaks has driven 27.7% growth in accommodation revenue."Merlin said it had successfully mitigated significant cost pressures in recent years, resulting from legislative changes such as the UK National Living Wage and a significant increase in business rates.The board said that had been achieved through largely attraction-level savings and efficiency improvements.It said the company remained focused on maintaining that cost discipline across the group, but was mindful of increasing cost pressures as a result of the tighter labour markets in a number of the regions in which it operated.Merlin's 'productivity agenda' was expected to provide significant mitigation, although the full benefits of that were not expected until beyond 2019."The impact of terror attacks which adversely affected performance from early 2017 has started to abate and we have seen early signs of recovery in the London tourism market over the summer," Nick Varney added."We are excited by the recent launch of our two new Midway brands - the Bear Grylls Adventure in Birmingham, UK, and Peppa Pig World of Play in Shanghai. It is too early to comment on their commercial success, which as for all new brands could take time to build, but the attractions look fantastic and we are pleased with early guest feedback."Looking ahead at the rest of the year, Merlin's board said trading to date had been in line with expectations, although there remained a number of important trading weeks over the Halloween and Christmas periods.Reflecting the trends experienced to date, the board anticipated reporting 2018 results in line with market expectations."The underlying fundamentals of our markets are strong and we remain excited by the global opportunities that Merlin enjoys," Varney said.Merlin's shares fell almost 7% to 345.5p by midday on Tuesday.While the headlines are 'in line', the shape of the business is "very different", said Liberum analyst Anna Barnfather, with very strong resort theme parks offsetting disappointing performance within Legoland.She said Legoland, which represents circa 38% of revenues reporting LFL sales down 0.3% was due to a tough comparative from last year and marketing challenges at one park, though 644 new rooms and a full year of Japan helped organic revenue growth of 6.4%.Resort theme parks, at 28% revenues, with LFL sales of 8.3% and organic of 9.0% was helped by the addition of 76 rooms, new rides and favourable weather. Cost pressures remain, particularly labour costs globally."We do not expect to make significant changed to our forecasts for 2018E for EBITDA of £485m. PBT of £268m and EPS of 20.4p which are already at the low end of consensus range."Nicholas Hyett, analyst at Hargreaves Lansdown, said while topline revenues were moving in the right direction, but Merlin seemed to be struggling to get customers through the gates."The smaller Midway attractions have been weak for some time, largely because of terrorist attacks on London dampening the tourist market in the group's single largest destination. But the worrying thing in these numbers is that the previously strong Legoland business seems to be joining the slump. The Lego Movie 2, due for release early next year, should provide a boost in 2019. But it's far from ideal."He said the rising cost base was making matters worse, particularly in the UK where business rates and the National Living Wage are both putting pressure on margins, with new attractions keeping turnover sales moving forwards, "but LFLs need to be heading in the right direction too, especially since new rollercoasters and theme parks don't come cheap".He added: "It would be a mistake to lose sight of Merlin's long term strengths - namely an increasing demand for experiences over material goods and some excellent brands - but the group is undeniably going through a rough patch."