Shorting SeaWorld

Aug.13.14 | About: SeaWorld Entertainment (SEAS)


SeaWorld’s Q1 results were the worst the company has seen since its IPO.

SeaWorld will release second quarter earnings on Wednesday, August 13.

According to CEO Jim Atchison, Q1 park attendance was low due to the shift of Easter and Spring Break period to the second quarter and weather.

If Atchison proves true, any temporary lift in price after Q2 earnings should be taken advantage of to short shares before the stock further deteriorates.

SeaWorld Entertainment Inc. (NYSE: SEAS) will release second quarter earnings on Wednesday, August 13. Results for the first quarter of 2014 were the worst SeaWorld has seen since its IPO. The company reported revenue of $212.3 million, missing the consensus estimate of $217.51 million. Quarterly revenue was down by a big 11% on a year-over-year basis. From this time last year, the stock price is down 23% percent and I don't believe the company has seen the worst of it yet.

Arguably, the biggest cause of SeaWorld's poor performance is "Blackfish." "Blackfish" is a CNN documentary that exposed poor treatment of both the orcas and their handlers at SeaWorld. There was a huge negative reaction to the film from the public. The backlash from the negative PR caused attendance to drop 13%, which has led to a weak financial position and blows to their brand. Looking at the company's current financial position, we see:

  • Net income down 22.5% from Q1 2013.
  • Debt-to-equity ratio of 2.8 - higher than the industry average
  • Quick ratio is at 0.32 - suggesting inability to cover short-term cash needs if attendance does not increase.

Beyond the poor financials, Southwest Airlines (NYSE:LUV) announced at the end of July that the company and SeaWorld are ending a 26-year marketing partnership. Southwest attributes the decision to "shifting priorities." However, the 32,000 signatures on the petition against the partnership lead me to believe there were other motivations for Southwest. Not only is this a huge loss for SeaWorld exposure, but also suggests a pattern of more and more businesses (and people) beginning to dissociate with the brand.

Jim Atchison, CEO and President of SeaWorld, blames the poor attendance this quarter on the shift of Easter and Spring Break period to the second quarter and "particularly above average precipitation in the Florida market." If that is correct, we should see a lift in the stock price after Q2 results are announced. This provides a perfect time to short the stock to avoid the long-term trouble the company faces.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.