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Ardent Leisure Group (ASX:AAD) shares fall 4% on trading update

One of the worst performers on Monday has been the Ardent Leisure Group (ASX: AAD) share price.

At the time of writing the embattled entertainment company’s shares are down 4% to $1.93.

Why are Ardent Leisure’s shares in the red?

This morning Ardent Leisure released an update on its preliminary, unaudited full-year results and advised of non-cash valuation adjustments and impairment charges.

According to the release, the Dreamworld operator expects to report revenue of between $545 million and $550 million in FY 2018. This compares to $585 million in FY 2017.

Management expects to post a loss before interest, tax, depreciation, and amortisation of between $50 million and $55 million, and a loss after tax in the range of $84 million and $94 million.

These losses are related to non-cash valuation adjustments and impairment charges totalling $117 million which include a $75 million property revaluation decrement for its Dreamworld business and a $38 million non-cash impairment charge associated with five underperforming Main Event locations.

One slight positive is that revenue would be higher year-on-year if you exclude its disposed businesses. Revenue excluding disposed businesses is expected to be $420 million to $425 million, compared to $370 million last year.

The main driver of this top line growth has been its Main Event business in the United States. Revenue from Main Event grew approximately 19% in FY 2018 to between $355 million and $357 million. Like-for-like sales growth of 1.6% and increasing store numbers were behind the rise.

This offset weakness in its Theme Park segment which is expected to achieve revenue of $67 million to $70 million, down from $71 million a year earlier.

Management has blamed this poor performance on the slower than expected recovery following the Thunder River Rapids ride tragedy, discounted ticket pricing, and some adverse weather conditions.

Should you buy the dip?

I think Ardent Leisure has a lot of promise thanks to its Main Event brand, but it remains a high-risk investment option due to the continued underperformance of its Theme Park segment.

For now, it might be best to keep Ardent Leisure on your watchlist along with fellow turnaround candidate Village Roadshow Ltd (ASX: VRL). I would suggest investors look at the likes of Crown Resorts Ltd (ASX: CWN) or SKYCITY Entertainment Group Limited (ASX: SKC) as alternatives.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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