1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Robert Stephens, CFA
Robert Stephens, CFA
Articles (373) 

How Strategy Changes Could Catalyze Cedar Fair’s Turnaround

The company’s stock price has recovery potential

February 15, 2019 | About:

An evolving strategy could boost Cedar Fair LP's (NYSE:FUN) financial performance. The amusement park operator is in the process of moving toward a long-term relationship-based program that focuses on the lifetime value of guests. It is also investing in its loyalty program as well as a customer relationship management system that offers greater personalization.

Increased marketing will be focused on underpenetrated audience segments, which is expected to broaden its customer base. It will also invest in interactive events that are available throughout the year in order to expand its operating season.

Although rising costs have been a cause for concern, the company is investing in a new system to improve its workforce efficiency.

Having declined 25% in the last year versus a 1% rise for the S&P 500, the stock could have recovery potential.

2061664116.png

Increasing customer visits

The company is making investments that are less capital-intensive in order to allow for more consistent customer spending throughout the year. This is expected to create a greater urgency to visit among customers, which could lead to multiple visits per customer and higher engagement throughout the year.

It also intends to add winter events to more of its locations in order to expand more of its locations' operating season into November and December. This is expected to encourage new unique visitors, while increasing the value proposition for season passes so those customers will visit more often. Increased investment in interactive, multi-layered events where customers become part of the story are due to improve guest engagement and may enhance Cedar Fair's competitive advantage.

Cedar Fair also hopes to increase unique visits by targeting growing and underpenetrated audience segments. It intends to use market research and data analytics to identify segments that could produce attractive returns if it uses the right distribution channels. Although this will require increased marketing spend, the company will reallocate some of its additional advertising budget from mature segments to areas where its impact could be more significant in increasing visitor numbers.

Evolving strategy

The company is in the process of transitioning from a seasonal transaction-based program to a long-term relationship-based program. This will be focused on the lifetime value of its guests, with the company offering greater payment flexibility. This includes an installment payment program that offers the opportunity for the upsell of new products and benefits such as all-season dining and beverages.

Greater focus on its loyalty program is set to drive renewal rates higher. Cedar Fair has invested in new technology to provide passholders with the opportunity to earn and redeem rewards throughout the operating season. An investment in a customer relation management platform compiles visitor data into a simpler system, offering greater personalization in marketing materials. Since it was introduced, the system has helped double season pass sales.

Risks

The financial performance of Cedar Fair in 2018 was relatively disappointing. Revenue grew 2%, while attendance and average in-park guest spending increased 1%. This was less than the 3% rise in operating costs, which caused the companys adjusted earnings before interest, taxes, depreciation and amortization to decline 2% from the previous year.

Cedar Fairs costs increased during the year as a result of increases in the minimum wage. A tightening U.S. labor market put pressure on wage rates and increased competition for its seasonal workforce. In response, the company is implementing a new workforce management system that will provide a wider range of tools to more efficiently manage its employees. This is expected to help offset possible wage increases, which may boost its margins over the medium term.

Verdict

From an investment perspective, the last 12 months have been disappointing for Cedar Fair. It has underperformed the S&P 500, with there being little sign of its stock mounting a sustained recovery in recent months.

The company, though, seems to be putting a sound strategy in place, which could lead to rising visitor numbers. Simple changes to its capital investment program may create greater urgency among consumers to visit more frequently. While previously a seasonal business, a strategy that offers year-round attractions could lead to revenue growth. Meanwhile, investment in a wide range of areas, such as its loyalty program and more interactive attractions, could enhance its appeal among consumers.

With Ceder Fair's earnings per share forecasted to grow 15% in 2019, its price-earnings ratio of 22 could represent good value. As a result, the stock could offer turnaround potential.

Read more here:


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:



Performances of the stocks mentioned by Robert Stephens, CFA


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)