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Arnold M. Knightly

Golden Nugget revenue falls in Vegas, Laughlin

23 July 2009

LAS VEGAS, Nevada –- Gambling revenue at the Golden Nugget properties in Las Vegas and Laughlin fell 15.1 percent to $56.5 million in the second quarter, and management blamed the decline on competitors and an unwillingness by customers to spend money.

The dip was included in the second-quarter financial results released Wednesday from Landry's Restaurants Inc., the Houston-based parent of the two Nevada hotel-casinos.

"I feel very good about restaurant hospitality; I do not feel very good about gaming," Landry's President and Chief Executive Officer Tilman Fertitta said during a conference call to discuss the results.

Landry's revenue was $282 million in the second quarter, compared to $308.1 million during the same period last year. Earnings per share were 23 cents, compared to 74 cents last year.

Landry's owns 175 restaurants, including the Chart House, Saltgrass and Rainforest Cafe brands, along with amusement parks and marinas in addition to the Golden Nugget properties.

The company was hurt last year when Hurricane Ike hit Galveston and Kemah, Texas, and forced the closure of more than a dozen restaurants. The national economy began its nosedive around the same time.

It's beginning to recover at the restaurants, Fertitta said, citing a newspaper print and radio advertising campaign in Texas that helped improve results.

"At Saltgrass, we did do some advertising that tremendously helps," he said. "We had pulled back a lot of advertising because we didn't know necessarily if it would pay for itself."

Management says results at the Golden Nuggets suffered because daily rates on the Strip fell 23 percent compared to the same quarter last year, which decreased how much managers at the Golden Nugget in downtown Las Vegas could charge. Also, "the discounted room rates appear to have attracted a clientele who are spending less on gaming and other amenities," managers said in a statement with the financial report.

Fertitta said luxury resorts on the Strip such as Encore, Bellagio and MGM Grand are lowering rates and throwing in freebies to "buy business" and making it hard for the Golden Nugget to compete.

"You ought to go online and look at some of these rates and packages you can get," Fertitta said. "That is where we are just being murdered, trying to be competitive with the MGM and the Bellagio."

Nevertheless, Fertitta said, the company still intends to complete construction of a $150 million, 500-room hotel tower by the end of the year.

Downtown Las Vegas analyst Frank Martin said he is surprised Landry's hasn't delayed completion of the tower, considering the surplus of luxury rooms that continues to drive down rates in Las Vegas and will be exacerbated when CityCenter opens on the Strip in the fourth quarter.

"I just can't believe they're going to open that," Martin said. "The company is in serious trouble."

Martin said the gaming division of Landry's is in an especially bad position relative to other downtown Las Vegas companies, such as Boyd Gaming Corp., which has three properties downtown.

That's because Boyd's properties have remained relatively unchanged in recent years, which keeps costs consistent.

Landry's has spent more than $200 million on improvements at the Golden Nugget since purchasing the property in 2005 for $295 million in cash and debt assumption near the height of the bygone Las Vegas boom.

"They dumped so much money into that thing to have it essentially be doing worse," Martin said.