May 23, 2008

Six Flags tries to ride it out  

by Jeremiah McWilliams
St. Louis Post-Dispatch

A new roller coaster is rising at the Six Flags water and theme park in Eureka. The ride is a half-mile long, eight stories tall and tops out at 50 miles per hour. It is themed on the exploits of Evel Knievel, the legendary motorcycle daredevil.

The coaster's twists and turns could just as well sum up the fortunes of its owner.

New York-based Six Flags Inc., the world's biggest regional theme park operator, is deep into an effort to shore up its finances, endure a weak economy and pull more families to its 20 parks in Canada, Mexico and the United States.

Time is short, and patience on Wall Street is running thin. The company has lost two-thirds of its market value in the last year.

Now, Six Flags' goal is to "replenish" and "re-position" its brand, improving customer service and giving visitors more bang for their buck. The idea is to speed up waiting lines, provide more high-octane thrills, and offer an experience that is still friendly and affordable for families squeezed by high gas prices.

In addition to opening Evel Knievel in mid-summer, Six Flags is expanding its concert series and slashing ticket prices at the 500-acre Eureka park. To be announced today: Ticket prices for adults will be cut by $10. Adult tickets at the main gate will be $35; online tickets will be $30.

"What we've done the last two years is (provide) better service, better value," said chief executive Mark Shapiro.

Six Flags still faces serious challenges. It carries $2.2 billion in long-term debt and $132 million in current debt, compared to $12.7 million in cash and $131 million available under a credit agreement.

Six Flags sustained a $150 million loss in the first three months of the year. Higher average spending by guests helped narrow the loss compared to the same period a year before, but the company lost $275 million last year and $328 million in 2006.

Shapiro insists his company is pulling itself out of the hole, and that bankruptcy is not looming. Shapiro, a former ESPN executive, says Six Flags can "grow into this balance sheet by improving our core business."

A slowing economy poses its own challenges. Six Flags relies on discretionary spending from its core clientele, blue-collar families. Attracting families with less money to spend is a major goal.

Theme parks have historically been recession-resistant but not recession-proof, according to Stifel, Nicolaus analyst Kit Spring, who cautioned that a recession featuring a big dropoff in consumer spending may hurt Six Flags more than earlier downturns.

If Six Flags cuts its operations too deeply, customer satisfaction and revenue could drop, Spring said in a note to investors. Six Flags aims to trim about $55 million this year, cutting back on labor costs and axing "inefficient" rides.

Shapiro is betting that a down economy could help Six Flags attract local families as they shrink from taking more expensive trips to theme parks in places like Orlando or Anaheim.

"As parents elect to stay closer to home, we want to give them a family-friendly offering that's a better value," Shapiro said. "When the economy tightens, I think we're well-positioned."

Executives predict the company this year will come within $25 million of generating positive free cash flow. Reaching that milestone would mean Six Flags is able to churn out cash even after subtracting for money spent to build and maintain attractions.

Six Flags recently inked a licensing agreement in Dubai -- a deal that executives hope will generate cash flow with little risk to the company.

But according to Standard & Poor's, risk remains on the company's balance sheet. Last week, the international credit rating group said it might cut Six Flags' credit rating deeper into speculative territory. A rating cut would send a signal of financial vulnerability.

In the third year of new management -- Washington Redskins owner Daniel Snyder is chairman and one of the biggest investors -- Six Flags is trying to broaden its appeal. Years ago, the company might have plunged $30 million or more into a single roller coaster to attract thrill-seeking teenagers. Now, the company's aspirations are more down-to-earth: boosting customer satisfaction by offering cleaner parks, faster lines, a longer operating season and more concerts.

"Management has some good reasons for optimism," according to Spring. High internal marks for customer satisfaction, resilience in a relatively weak economy and expected increases in oversees licensing deals bode well, and recent cost cuts "worked splendidly," Spring said.

Six Flags needs people to spend more when they come to the parks. "In-park spending," including money spent on food and beverages, games and merchandise represent most of a theme park's profits, said John Gerner, managing director of Leisure Business Advisors LLC in Richmond, Va.

Six Flags is rolling out more Papa John's, Johnny Rockets and Cold Stone Creamery units in its parks. It has had some success: average guest spending grew 13 percent to about $39 in the first quarter.

But the gap between the time needed to burnish the Six Flags brand and Wall Street's thirst for fast improvement is the crux of Six Flags' dilemma, said Gerner. "They have the right idea, but people are anxious," he said.

If Shapiro is anxious, he doesn't let on, arguing that his company's parks are prettier, cleaner and easier to get around than ever.

"We feel good," he said.


 
       

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