Wednesday, February 25, 2009

Wynn Resorts (WYNN) Misses by a Country Mile

The beat goes on in Las Vegas... down. As long time readers know I use Las Vegas as a canary in the coal mine for all things American - and we were early on the beat saying it would get bad there. [Feb 13, 2009: Leaving Las Vegas.... Literally]

With apologies to Sheryl Crow one of the areas we've been targeting since 2007 [Oct 3, 2007: A Top in Casino Names? Wynn and Las Vegas Sands] [Nov 1, 2007: China Can't Save Las Vegas Sands - It's Getting Crox'd], before it was fashionable to pick on the Strip is showing some breakneck degradation.

It really is amazing to see stocks that have been bludgeoned simply have no lifts [Feb 5, 2009: Jaw Dropping Action in Casinos]. Considering that Wynn is "best of breed" you can only imagine what is going on at MGM Mirage (MGM) or Las Vegas Sands (LVS).

Let's hear the latest from Wynn...
  • After the close of trading Wynn Resorts said that it lost $159.6 million, or $1.49 a share, in the period, a turn from a profit of $65.5 million, or 57 cents a share, in the year-ago quarter.
  • Revenue stood at $614.3 million, down from $711.3 million, as the company experienced not only across-the-board declines in gambling but a lower than normal hold percentage (the amount the house typically wins) and an overall reduction in non-casino revenue on the Las Vegas Strip.
  • In Sin City, gambling revenue was cut nearly in half, falling to $90.7 million while other revenue fell 17% to $171.9 million with the hotel's average daily rate falling form $298 to $281 and occupancy plunging from 94.3% to 79.7%. Revenue-per-available room was off more than 20%. (occupancy plunge is quite staggering)
  • "Starting in October, we experienced a dramatic deceleration in business from the casino and non-gaming departments," the company said in the earnings report. "The Thanksgiving to Christmas period has traditionally been one of the weakest times of the year in Las Vegas but the fourth quarter of 2008 was substantially worse than during the prior year as consumers chose to stay at home and significantly reduced their leisure budgets."
  • Things were rather better - though not exactly vibrant -- across the Pacific where Wynn Macau took in $392.2 million in revenue an increase of about 1% even as table games turnover posted slight declines in both the VIP and mass market segments.
One of my favorite CEOs is Steve Wynn... some of his comments
  • Billionaire chief executive Steve Wynn told investors during a conference call that he believes casino customers' habits are changing. "People are being more cautious -- when they win, they're playing for shorter periods of time," Wynn said. "A blackjack player gets up or a baccarat player gets up at the table, he jumps up and leaves if he's a winner, whereas before they said, 'Oh boy, we got the house's money, let's play longer.'"
  • "There is no good news. Business is tough in Las Vegas," Wynn said on a conference call with analysts and investors. "People are being more cautious, when they win they are playing for shorter periods of time."
  • But Wynn also said lowering rates is not necessarily best for business. "Occupancy in and of itself is not the answer. We need people in our beds, in our rooms that can afford our restaurants and our various other amenities," Wynn said. "If we don't have that, then our non-casino revenue expectations per occupied room blow up, and that's no good."
  • Wynn said he told company officials before the Encore opened to drop prices to whatever was needed to ensure an animated opening, but he said the company has backed off that approach, opting for the wealthiest spenders instead. "We're not hunting with a shotgun, we're hunting with a telescopic rifle again," he said. [Dec 23, 2008: Wynn Encore Casino Struggling to Fill Rooms During Launch]
Analysts chime in
  • "The Las Vegas numbers were very bad," said Susquehanna Financial analyst Robert LaFleur. "It looks to be a very difficult environment for the foreseeable future." He also noted the Wynn continues to have "a strong balance sheet," unlike some of its competitors.
  • "Las Vegas suffered from the growing domestic malaise and Macau is on a similar, but not quite so steep path," the analyst wrote in a note to clients. While Forst is upbeat on the company's long-term prospects due to its growth plans and fairly conservative balance sheet, the analyst is more cautious near term.
  • "The skittish investment climate today does not augur well for most gaming companies, and we believe Wynn's shares will continue to underperform over the near term as investors digest the new estimates and gaming climate," he said.
Wynn remains the best house in a very awful neighborhood - missed this opportunity and kicking myself.

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