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Best of Howard Stutz

Gaming Guru

Howard Stutz

Boyd Finds Downtown to Liking

27 July 2005

While some downtown casinos had their struggles over the past few months, Boyd Gaming's three properties centered around Fremont Street flourished during the second quarter, the company announced Tuesday.

Net income rose to $48.6 million, or 54 cents per share, for the three-month period ended June 30, from $15.5 million, or 23 cents per share, a year ago.

Excluding preopening expenses and special items, Boyd Gaming earned 56 cents a share, up from 27 cents a share a year ago. The figure beat the average estimate of analysts polled by Thomson First Call by a penny.

Revenue rose 62.1 percent to $554.3 million from $341.9 million.

The earnings reflected Boyd Gaming's results from the four Coast Casinos properties the company purchased a year ago, and a full quarter of earnings from Sam's Town Shreveport (La.), which was acquired on May 19, 2004.

"I would call it a very strong quarter even without Coast," Boyd Gaming President Keith Smith said. "The Stardust was up for the sixth straight quarter and all six of our business units were at a record or near record. We hope this is a continuation of a trend."

During the quarter, cash flow, defined as earnings before interest, taxes, depreciation and amortization, was up 33 percent, from $11.2 million to $14.9 million on the Boulder Strip, which includes Sam's Town, and up 21.7 percent, from $4.6 million to $5.6 million, at the Stardust.

"This was a very positive quarter for Boyd Gaming," said Steven Ruggiero, gaming analyst for CRT Capital Group, adding that same-store sales, which compares revenue from casinos the company operated a year ago, were up 4.7 percent.

"That's a great indicator of how well Boyd is doing," Ruggiero said.

Downtown Las Vegas provided additional evidence, analysts said.

Boosted by a loyal base of Hawaiian visitors, Boyd's downtown casinos -- California Hotel, Main Street Station, and Fremont -- reported revenue of $67.2 million for the quarter, a 13.9 percent increase from $59 million for the same quarter a year ago. Pretax earnings during the quarter were $14.3 million for downtown, a 62.5 percent increase from $8.8 million in the second quarter of 2004.

According to statistics collected by the State Gaming Control Board, total gaming win at all downtown casinos in April and May was off 3 percent each month.

Boyd's second-quarter figures for downtown flew in the face of those numbers.

"The Fremont Street Experience is bringing traffic downtown and the Fremont benefits being right in the middle," Smith said. "But our emphasis on the Hawaiian visitor remains strong. We've had a consistent presence in Hawaiian market for almost 30 years, and that has helped our ability to bring customers into those properties."

Smith said the downtown casinos also benefit from Hawaiian visitors who now live in Las Vegas and California.

Vacations Hawaii, the company's Honolulu travel agency, reported revenue of $14.8 million, up 32.1 percent compared with revenue of $11.2 million a year ago, which were figured into the downtown total.

Boyd's downtown casinos may also have benefited from passenger traffic from Hawaiian-based airlines.

In passenger data released Tuesday by the Clark County Aviation Department Hawaiian Air, which operates twice-daily service between McCarran International and Honolulu, reported 26,755 June passengers on the route, a 79 percent increase.

While much of that growth came at the expense of rival Aloha Airlines, whose June traffic at McCarran slipped by 54 percent, the number of local passengers who used those two carriers in June was still nearly 6,000 more than the same month a year ago.

"The Hawaiian visitors business model is very much like a local customer business model," Boyd Gaming Chief Financial Officer Ellis Landau said during a conference call with analysts and investors. "There is a lot of loyalty and repeat business. The strong Hawaiian economy has helped fuel business to our downtown casinos."

The Borgata in Atlantic City, Boyd Gaming's joint venture with MGM Mirage, reported gaming revenue of $170 million, up 13 percent from a year ago, and nongaming revenue of $61 million, an increase of 7.8 percent.

During the conference call, Smith said the $600 million South Coast is on track to open in early 2006 while redevelopment of the 63-acre Stardust site is ongoing.

"We hope to have something to tell you by end of the year about the Stardust," Smith said. "We're taking our time to do what we want to do with the site."

Boyd Gaming reported earnings after the stock market closed Tuesday.

Shares of the company ended trading up $1.07, or 1.99 percent, at $54.82. Company shares fell almost 5 percent in after-hours trading. Analysts said investors may have been disappointed the company didn't beat estimates by a larger margin.