Station Casino Q2 Earnings Surge

LAS VEGAS -- The secret to Station Casinos' record second-quarter earnings isn't difficult to locate.

Chances are, thousands of customers are standing atop it at this very moment.

The Las Vegas gaming giant's ongoing strategy of buying up any and every prime locals gaming site it can obtain in Southern Nevada has paid off richly in recent months, particularly as the local tourism and real estate markets have surged.

And because Station still owns several sites it's yet to fully develop, the company's recent dominance of the locals gaming market is likely to continue for years to come, company executives said during a Wednesday conference call.

"There are still 6,000 to 8,000 people moving to Las Vegas each month ... and that's showing up in our numbers," said Glenn Christenson, Station executive vice president and chief financial officer. "We continue to be very excited about our prospects."

Station on Wednesday reported net revenue of $240.2 million during this year's second quarter ending June 30, up 14 percent compared with the $210 million it reported during the same period a year ago.

Quarterly net income climbed to $29 million, up nearly 41 percent, while its $93.4 million quarterly cash flow was up 37 percent from a year ago.

Cash flow is defined as earnings before interest, taxes, depreciation and amortization and is a widely used measure of casino industry profitability.

In Southern Nevada, Station's holdings range from large, upscale properties like Green Valley Ranch (a 50 percent venture with the Greenspun family, publishers of the Las Vegas Sun) and Sunset Station to smaller slot joints like the Wildfire on Rancho Drive. The company's properties offer a wide array of gaming, dining and entertainment products, most of which have proven extremely popular among residents in the booming Las Vegas Valley.

Along with its steady employment and population growth, Christenson said the recent growth in the local real estate market has also generated a "wealth" effect among locals who have cashed out their home equity and spent those funds at local businesses like Station. However, the company's largest strength remains the supply-demand imbalance brought on by a 1997 law that limits the expansion of neighborhood gaming sites.

Senate Bill 208 dramatically reduced the number of off-Strip casino sites in Clark County, and Station has locked up many of the best undeveloped sites.

Christenson said expansions at Green Valley Ranch, the Sante Fe Rancho and Sunset Station are on time and under budget, and the controversial Red Rock Station project is now rising above the ground near Charleston Boulevard and the Las Vegas Beltway.

That resort is expected to open in late 2005 or early 2006 and will likely be followed by the 2008 debut of a renovated Wild Wild West resort off Tropicana Avenue just west of Interstate 15.

Chief Executive Officer Frank Fertitta III also addressed the recent purchase of 51 acres near Cactus Road just east of Las Vegas Boulevard South, saying "We think that the south Las Vegas Strip, with the tremendous population growth in that part of the valley, is a place we need to be."

Added Christenson: "We expect to continue to develop a series of excellent projects."

For the third time this year, Station revised its expected cash flow total to $360 million to $370 million, based largely on the strength of its Las Vegas operations.

The company's tribal gaming ventures, particularly the Thunder Valley casino it runs near Sacramento, Calif., in conjunction with the United Auburn Indian Community, also offer high growth potential now that California will allow an unlimited number of slot machines at Indian casinos.

Station's quarterly performance and ongoing business model earned new praise from Wall Street on Wednesday.

"We believe Station's three-pronged strategy of same-store sales, new unit growth in Las Vegas and pursuit of tribal management contracts is attractive over the long term," Steven Kent, a New York-based analyst with Goldman Sachs Group, wrote in a Wednesday investor report.

Joe Greff, gaming analyst at Fulcrum Global Partners, called Station "the best growth story with the most visibility among the gaming operators," citing other upcoming company projects like the Chico (Calif.) and the Gun Lake tribal projects to open in 2005 and the Graton Rancheria and North Fork projects in California in 2007.

"There is no other gaming operator out there with such a visible, attractive growth profile," Greff wrote Wednesday.

Station Casino shares closed Wednesday at $46.10, down $1.50 or 3.15 percent. Volume was slightly more than 2.8 million shares.