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Howard Stutz

Analysts Say Mandalay Report Doesn't Bode Ill for Other Properties

7 March 2005

The less-than-stellar quarterly financial results that Mandalay Resort Group blamed on January's rainfall totals in Southern California doesn't forecast rough weather ahead for the rest of the Strip, gaming analysts said Friday.

In its final earnings report as a publicly traded company before its $7.9 billion buyout by MGM Mirage is completed, Mandalay said its fourth-quarter earnings declined 28.1 percent from the prior year because January's rainfall -- three times above normal totals in the Los Angeles area, according to the National Weather Service -- kept many California visitors from making the drive to Las Vegas on Interstate 15.

Unlike most traditional reporting periods, Mandalay's fourth quarter ended Jan. 31, rather than Dec. 31.

The news sent shares of MGM Mirage downward on Friday on speculation that the weather would have the same effect on other Strip resorts.

MGM Mirage closed at $75.15 after fluctuating much of the day, dipping to a low of $73.91. Shares in the company were off 52 cents, or 0.69 percent.

Caesars Entertainment, another operator with significant Strip holdings, wasn't affected by the Mandalay news with its shares closing the day at $20.30, up 15 cents, or 0.74 percent.

Gaming analysts tended to think the news was just a one-day blip.

Several notes to investors issued Friday said other indicators show the first quarter, which traditionally ends March 30, will continue to shine brightly on Strip operators.

Larry Klatzkin, a gaming analyst with Jefferies & Co., said Mandalay's lower end properties -- Circus Circus and Excalibur -- that rely on drive-in customers were the properties mostly affected by the weather.

"While the rainfall could possibly have a negative impact on MGM Mirage's first-quarter results, we note that it is an unusual event and not an ongoing concern," Klatzkin wrote.

"Additionally, we believe the Super Bowl and Chinese New Year were strong draws in Las Vegas in February and could offset some or possibly all of the impact of the weather."

Deutsche Bank gaming analyst Marc Falcone said he expected shares of MGM Mirage and Caesars Entertainment would be affected by the Mandalay news. But, the drop would be short-term.

"Mandalay Resort Group's results are not indicative of soft trends across the Strip, in our view," Falcone wrote. "We believe Strip trends for both MGM Mirage and Caesars have been quite strong this quarter."

Susquehanna Financial Group gaming analyst Eric Hausler said based on room price surveys and two recent trips out West, Las Vegas remains a strong customer draw.

Hausler said the Mandalay earnings are not a predictor of an impending business drop-off.

"Our channel checks indicate that March looks robust with record hotel rates posted for March Madness, which is set to begin March 17," Hausler wrote.

"We continue to believe a strong first quarter will be reported by the Las Vegas operators, while the opening of Wynn Las Vegas at the end of April should drive strong traffic to the city in May and June. The convention calendar looks solid with several large conventions taking place in the remainder of first quarter and second quarter. Overall, we do not view Mandalay's results as the first sign of a slowdown in Las Vegas."

Analysts Say Mandalay Report Doesn't Bode Ill for Other Properties is republished from