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Best of Liz Benston

Gaming Guru

Liz Benston

MGM Mirage Profit Soars 50%

21 April 2004

Profit at MGM Mirage more than doubled in the first quarter as the improving economy and special events including Chinese New Year and the Super Bowl boosted results at the company's resorts in Las Vegas, the company reported today.

Company officials said they still don't know what caused two of the Bellagio's main power cables to fail April 11, which led to a blackout at the resort for more than three days. Mirage Resorts Inc. President and Chief Executive Officer Bobby Baldwin said the resort continues to investigate the cause of the failure. The company's emergency systems "worked flawlessly" during the incident, however, he said.

MGM Mirage previously said the blackout could cost the company about 2 to 3 cents per share in the second quarter and today said it would shave about 1 cent per share from earnings after it recovers from its insurers.

Meanwhile, construction is continuing on a roughly 930-room hotel tower adjacent to the Bellagio that is due to open by mid-December, officials said.

MGM Mirage shares rose 41 cents to $46.56 in early trading today.

The company reported profit of $105.8 million in the first quarter compared to profit of $51 million the same quarter of last year, an increase of 108 percent and the company's most profitable quarter in history. On a per share basis, the company earned 72 cents per share compared to 33 cents a year earlier.

Officials said analysts' estimates of 51 cents per share in profit for the second quarter were "reasonable."

"These results further validate our strategy of operating the premier resorts on the Las Vegas Strip," MGM MIRAGE Chairman and Chief Executive Officer Terry Lanni said. "We expect to build momentum throughout 2004 as we continue to roll out new and exciting guest amenities at several of our resorts."

Officials also said they are bullish on expansion plans in the United Kingdom, where MGM MIRAGE has struck deals with several companies to develop casinos should that country deregulate its gambling industry as anticipated.

The company was recently outbid on its offer for Wembley Plc, a British owner of dog tracks as well as a lucrative racetrack in Rhode Island.

MGM Mirage executives declined to specify how the company would respond to the higher offer other than to say they were "considering available options." The acquisition of Wembley isn't a critical factor in MGM MIRAGE's U.K. growth plans, executives said. Moreover, Lanni said, MGM MIRAGE has always viewed the Lincoln Park racetrack in Rhode Island as a key asset rather than the British dog tracks, which don't pose much opportunity for expansion under deregulation.

The company's Bellagio and MGM Grand resorts also reported their most profitable quarter ever, company officials said. The Bellagio is one of the most profitable resorts on the Strip and the MGM Grand remains the largest.

Goldman, Sachs & Co. analyst Steven Kent told investors the results "demonstrate that Las Vegas is extremely popular -- a theme that we believe will come through when other companies report (earnings) as well."

Deutsche Bank Securities analyst Marc Falcone said Bellagio's results were "particularly impressive given the rooms renovation program was still active in January and February." By mid-February, the resort had completed a renovation of all of its rooms in phases, company officials said.

Casino revenue increased by 13 percent to $558.7 million, helped by strong Chinese New Year and Super Bowl events and continued improvement in the U.S. economy, officials said. The company typically makes more money in the first quarter than any other because of such events, they said.

Slot revenue was up 10 percent led by double-digit gains at several resorts including MGM Grand, New York-New York and The Mirage.

The company's slot machines are "picking up a lot of market share" from other properties, in part because of the rollout of the company's slot player loyalty club, Murren said.

Higher room rates helped boost hotel revenue 10 percent to $235 million. Food and beverage revenue jumped 16 percent to $217.8 million as new restaurants were added across company resorts. Entertainment revenue was up 3 percent to $67.2 million in spite of the closure of the Siegfried & Roy show in October 2003 and fewer performances by singer Danny Gans at The Mirage. Retail revenue climbed 10 percent to $45.1 million.

Revenue at the Bellagio rose 16 percent to $278.6 million and cash flow -- a key performance indicator in the casino industry -- rose 45 percent to $99 million. Occupancy rose 2.7 percentage points to 95.4 percent and the average daily room rate rose $17 to $255.

Revenue and cash flow rose at all of the company's other major resorts save for The Mirage. Revenue at that property fell 7 percent to $139.1 million and cash flow fell 5 percent to $40.1 million. Several factors contributed to the decline including the closure of the Siegfried & Roy show and the property's buffet as well as a lucky quarter for gamblers at the casino tables, Baldwin said.

Not including certain one-time expenses, the company reported profit of $102.4 million or 70 cents per share -- easily beating analysts' expectations of 47 cents per share. That compares to profit of $57.9 million or 38 cents per share a year ago.

Revenue grew 11 percent to $1.17 billion. That doesn't include promotional expenses of $108.4 million -- up 4 percent from last year.

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