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Best of Howard Stutz

Gaming Guru

Howard Stutz

Wynn, Encore lose $17.2 million in second quarter

26 July 2010

LAS VEGAS, Nevada -- Wynn Resorts Ltd. said Wednesday its two Strip resorts had an operating loss of $17.2 million in the second quarter, more than doubling the loss reported in the same quarter a year ago.

But investors somewhat shrugged off the news.

Shares of Wynn Resorts traded up for most of the day on the Nasdaq National Market, but closed down 1.55 percent as the markets fell in the last two hours of trading.

Analysts said Macau is more important to the company's health. Macau gaming revenues are up more than 75 percent through June, while on the Strip, gaming revenues are up 4.4 percent through May.

"Most investors are well aware of the challenges posed by the Vegas market," Stifel Nicolaus gaming analyst Steven Wieczynski wrote in a research note. "As we have indicated in the past, Wynn shares are driven by Macau with Vegas an afterthought."

The casino operator blamed the loss for the three-month period that ended June 30 on internal costs, including higher health care and employee cost benefits, as well as preopening expenses surrounding the $70 million Encore Beach Club, which opened in May.

The company preannounced just a portion of its financial results because of a separate announcement that the company's Las Vegas unit plans to raise $1.32 billion through a private offering of first mortgage notes due 2020.

Results from the company's two resorts in Macau were not included.

Wynn said revenues grew during the quarter at Wynn Las Vegas and Encore, but cash flow declined. The company plans to release its complete quarterly results on July 29.

Wynn said revenues at the Strip hotel-casinos are expected to be $318 million, an increase of 1.7 percent compared to the same quarter a year ago. Adjusted property cash flow, however, was expected to be $65.1 million, compared with $75.5 million a year ago.

In a statement, the company said the decline in cash flow, described as earnings before income taxes, depreciation and amortization, led to an operating loss of $17.2 million, compared to an operating loss of $8.3 million in 2009's second quarter.

Wynn said table game wagering activity at the two casinos was $485.9 million, a decline of 1.8 percent from a year ago. Also, hold percentage on table games declined modestly. Revenues from slot machines during the same period were $41.1 million, a decline of 1.8 percent.

The two resorts had an average daily hotel room rate of $197 for the quarter, compared with $218 in the same period a year ago. Occupancy grew to 92.6 percent compared with 86.6 percent a year ago, which generated revenue per available room of $182, a decline of 3.2 percent.

"Overall, the Las Vegas results were in line with expectations," Janney Montgomery Scott gaming analyst Brian McGill said. "These results highlight our overall negative outlook on Las Vegas, and specifically MGM Resorts International. We think the lack of airline capacity and the increase in room supply will continue to keep average daily rates on the Strip under pressure longer than many investors recognize."

In late May, the Wynn opened the Encore Beach Club, a 60,000-square-foot remodel that created an elaborate pool deck, with 26 cabanas, eight bungalows and the Surrender Nightclub.

Analysts said the majority of costs for building the facility were taken in previous quarters. Wynn Resorts did have marketing and promotion expenses surrounding the beach club's opening.

In separate statement, Wynn Resorts said the Las Vegas unit plans to raise $1.32 billion through a private offering of first mortgage notes due 2020. It also has started a cash tender offer for any and all of the $1.32 billion notes due 2014.

Jefferies & Co. gaming analyst David Katz said Wynn has executed well in the capital markets during the economic downturn, maintaining a low cost for capital.

"However, the announcement indicates the company's belief that the cost of debt is likely moving higher in the fairly immediate term, given that the notes being tendered do not mature for four years and should be replaced with more expensive notes," Katz said.

Shares of Wynn Resorts closed Wednesday at $81.96, down $1.29, or 1.55 percent.
Wynn, Encore lose $17.2 million in second quarter is republished from