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Chris Jones

Wynn Hotel Expects More Job Cuts

4 November 2005

LAS VEGAS -- Wynn Resorts Ltd. will lay off more workers after reporting a third-quarter loss of nearly $14.2 million, company officials said Thursday.

After trimming 1,400 jobs from its opening day work force of 9,600, more cuts will be made Monday at the $2.7 billion Strip hotel-casino.

The reduction in full-time workers will be "another major adjustment," since the megaresort debuted April 28, Steve Wynn, the company's chairman and chief executive officer, said in a conference call with several Wall Street analysts.

"There's a proper level with each of these hotels where you have a certain amount of people to run the business, there's no waste, and you can't go any lower ... (without) compromising the service level of the company substantially," Wynn said. "We're not there yet."

The job reduction process historically requires six to 12 months to complete, Wynn said.

Maintaining too many employees was a key drag on Wynn Resorts' performance, President Ron Kramer said. He declined to provide guidance for the fourth quarter, outside of stating, "There's room for both revenue enhancement and cost reduction."

Despite the loss, Wall Street was largely pleased with the company's direction. William Lerner, a New York-based senior gaming analyst with Prudential Equity Group, in a Thursday investor note rated Wynn Resorts as "overweight," believing its stock value is closer to $95 rather than the $50.01 mark posted at the close of Thursday trading.

Cash flow was better than expected, while table win, occupancy rates and average daily room rates were in line with Prudential's projections.

"With a more favorable calendar in (this year's fourth quarter), we are even more optimistic about hotel results," Lerner wrote.

Robin Farley, leisure and gaming analyst with UBS Investment Research, maintained a "neutral" rating for Wynn Resorts' stock.

In a research note, she wrote that the company's gaming revenue total exceeded estimates while its nongaming revenue was close to expected. However, higher-than-expected allowances -- including $36 million for promotions, well above UBS' estimated $22 million -- ultimately hampered the stock's performance, Farley concluded.

Wynn Resorts' operating cash flow, a key casino performance indicator generally defined as earnings before interest, taxes, depreciation and amortization, was $73.2 million during the three months ended Sept. 30. That's up from $3 million a year ago, when the company's first hotel-casino was still several months from opening.

Its quarterly loss narrowed to $14.2 million, or 14 cents a share, from $22.7 million, or 26 cents, a year earlier. Revenue was $251.4 million, up from $100,000.

Wynn participated in Thursday's 7:30 a.m. conference call from Macau, where it was 11:30 p.m. His presence in Asia was appropriate, he said, given Macau's growing importance to Wynn Resorts.

"We're looking forward to a very serious future here with multiproperty development," said Wynn, who will open an employment center in Macau within days. "We really haven't seen the depth of the Macau market yet because the development is still several months away."

The company's first Asian resort, the $1.1 billion Wynn Macau, is on pace to open next August or September, Wynn said. He also pledged to build a second Macau resort in Cotai -- a developing strip of reclaimed land between the islands of Taipa and Coloane -- and added his company may soon sell a Macau subconcession to another developer.

Plans are still developing for Encore, the proposed 2,000-room resort adjacent to Wynn Las Vegas. Wynn said it's too soon to discuss the project in detail, though its rooms would offer more than those at its sister resort that better appeal to business travelers.

Kramer added $1.4 billion in existing financing options "would be adequate" to pay for Encore's development, though Wynn said a total cost has not been determined.

Wynn downplayed the likelihood that his company would build a large convention center on land east of Wynn Las Vegas now used as a golf course. He prefers a "balanced" tourist resorts similar to Bellagio over a convention-dependent property like The Venetian.

Wynn Las Vegas already benefits from its proximity to the Las Vegas Convention Center and The Venetian's Sands Expo and Convention Center, he added, which allows it to sell rooms, meals and gaming to conventioneers without the expense of building a major trade show venue.

"We like very much to be near exhibition space, but there's plenty of it in Las Vegas," Wynn said.

Rumors circulate that "Avenue Q" is struggling to attract paying ticket buyers. But Wynn Resorts bosses did not discuss the financial performance of the much-ballyhooed Broadway musical that debuted Aug. 27.

Ticket sales for the critically maligned "Le Reve" production have improved, the company said, adding acclaimed director Franco Dragone's production on Oct. 1 began operating 10 shows per week, double the number initially performed at Wynn Las Vegas.

The company's self-described "limited third-quarter conference call" proved limited indeed. Technical problems frequently kept analysts from asking questions, and company executives openly chided provider Thomson Financial for its poor webcast service.

"We'll find a new technology provider to be able to better serve you next quarter," Kramer told analysts after the troublesome call.

This was also Wynn Resorts' first earnings report covering a full quarter, although the company issued a limited report in August covering the Strip resort's first two months of operations.