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The Memorial Day weekend opening of the $365 million L'Auberge du Lac resort in Lake Charles, La., propelled Las Vegas-based Pinnacle Entertainment to one of the company's strongest-ever quarterly financial reports.
But pre-opening costs of $16 million in the quarter and more than $28 million cumulative that were factored into the resort's overall initial budget, cut into the company's earnings. Still, it didn't deter gaming analysts from singing the property's praises.
"The silver lining is the company will have only about $1 million to $1.5 million in pre-opening costs during the next quarter," CRT Capital Group gaming analyst Steven Ruggiero said after Pinnacle reported second-quarter earnings Tuesday.
"If the results the company had at L'Auberge continue at their high levels and they continue to have excellent results at their other properties, such as Belterra (in Indiana), Pinnacle should do quite well," Ruggiero added."
Including results from L'Auberge, Pinnacle's revenue in the second quarter that ended June 30 were $175 million, up 25.1 percent from $139.9 million for the second quarter of 2004.
Cash flow, described as earnings before interest, taxes, depreciation and amortization, jumped 32.8 percent in the quarter to $36.1 million, compared with $27.1 million last year.
Without L'Auberge, the company's revenue rose 4.1 percent and cash flow was up 3.9 percent in the quarter.
Pinnacle's adjusted net income in the quarter was $9.9 million, or 23 cents a share, compared with $1.4 million, or 4 cents a share, during the same quarter of 2004. With the pre-opening costs from L'Auberge, the company reported a net loss of $4.2 million, or 10 cents a share.
During a quarterly earnings conference call, Pinnacle executives said most of the pre-opening costs for L'Auberge went toward overtime pay for employees, hiring costs and other start-up factors. Pinnacle spent almost $11 million in marketing, primarily television advertising in the neighboring Houston area.
"The good news is we had huge crowds and we did a good a job getting the word out about L'Auberge," Pinnacle President Wade Hundley said. "The results have shown the property has had good customer acceptance and it's allowed us to build a database for future marketing efforts."
During the quarter, L'Auberge reported overall revenue of $29.4 million and cash flow of $7.9 million. The property was operating at 90 percent occupancy -- the hotel's 22 second-floor suites were not expected to open until August -- while in the casino, the average daily win per slot machine was $275 and the average gaming table win per day was $3,000.
Pinnacle Chairman Dan Lee told analysts during the conference call the property's revenue had stayed steady during July, which was not reflected in the quarterly earnings.
"The revenues in Lake Charles are from us growing the market," Lee said. "The L'Auberge team is learning every day how to operate the property even better. As the team becomes more efficient, we expect the property to mature into one of the gaming industry's most successful regional properties."
Pinnacle announced earnings after the close of markets Tuesday. The company ended the session at $21.36, up 35 cents, or 1.67 percent. The company's stock was up almost 4 percent in after-hours trading.
Pinnacle operates the Boomtown in Reno. Competition from American Indian casinos in Northern California drove down revenue during the quarter. The casino had revenue of $2.8 million, down 24.3 percent from $3.7 million a year ago.
Lee said Pinnacle is expected to begin preliminary construction on its two St. Louis casinos during the third quarter while the company continues to seek other development opportunities. Lee confirmed the company is bidding on a waterfront casino in Buffalo, N.Y., with the Seneca Indian Tribe.
"Until the tribe says we're the preferred developer, we consider those projects long shots," Lee said. "We've very interested in that development."
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