Precipitous drop in gambling revenue guts casino stocks
Chicago (MarketWatch) — Casino stocks were battered again Thursday, with shares of the big players scraping to multiyear lows on the back of news of a precipitous drop in Nevada’s gambling revenue.
Statewide, gambling revenue in May slumped 15%, with a roughly similar pace of decline in table games and slot machines alike. Things were even worse on the Las Vegas Strip, where total gambling revenue fell 16.4% — the largest decline yet in 2008, and one that is at an increasing rate as quarter-to-date revenues for the Strip are off 9%.
„The decline in Strip revenues is worse than the period immediately following Sept. 11, 2001 and except for January 2002 is the worst monthly performance in more than 10 years,“ analyst Robin Farley of UBS wrote in a research report. „The weakness in gaming revenues was not confined exclusively to the Strip as the Las Vegas locals market declined 19.5% in May, bringing year to date revenues down 8.7%.“
The figures brought another round of pain to shareholders of the gambling giants, as MGM Mirage fell nearly 22% to USD 23.14, its lowest mark since late 2005; Las Vegas Sands Corp. was taken down 11% to USD 34.015, a three-year-low; and Wynn Resorts Ltd. was off 9.8% to a level not seen since 2006.
Boyd Gaming Corp., which specializes in the Las Vegas locals market but is in the process of building its multibillion dollar Echelon property, fell more than 6% to USD 9.28.
By way of contrast, last fall MGM shares cracked USD 100 at one point; Sands was nearly USD 150; Wynn traded above USD 176 and Boyd hit almost USD 55.
Joe Greff of J.P. Morgan said a reporting method includes the slot drop from the last two days in May, but not the win, reduced revenue by roughly USD 10.5 million for the month, but „we note that even after adjusting for this issue, results on the Strip were still pretty ugly.“
Then, after the market closed on Thursday, Wynn Resorts said it expects Las Vegas operating income to drop by two-thirds to the USD 18 million to USD 22 million range, compared with USD 63.4 million last year. In Macau, however, operating income is expected to be in the range of USD 100 million to USD 106 million, compared with USD 53.2 million in the year-ago period, the company said.
Revenue away from the casino floor, now typically more than half of the total at most Strip resorts, also have been under pressure as cash-strapped airlines hike fares and cut capacity at McCarran International Airport. That in turn pushes down room rates and occupancy levels while leading to lower spending by visitors who do come.
„The decline appears to be accelerating,“ said Nick Danna, an analyst with Stern Agee & Leach. „Their reliance on nongaming revenue is really hurting them,“ as the spend per visitor drops.
He sees no immediate end in sight either: „We are recommending that investors avoid the Las Vegas-centric stocks as it appears that market is performing worse than some of the regional ones. People are just staying closer to home.“
Jim Murren, president of MGM Mirage, remains relatively sanguine and thinks that the market reaction has been overblown.
„We go through cycles in hospitality, we go through cycles in Las Vegas,“ he recently told MarketWatch. „There seems to be a kind of piling-on effect right now with folks worried about any of myriad issues. We think we have a handle on this. We have been through this before.“
He pointed out that the company is still running occupancy in the 90% range.
„Sure, we have had to lower rates to do that but we are filling up these rooms,“ Murren said. „And we are generating strong profits. Are we making as much money as last year? No. But we are making more money than we did in 2005 and 2006, and we felt pretty good about ourselves back then.“
Total visitation to Las Vegas fell 1.5% in April, according to figures compiled by the Las Vegas Convention and Visitors Authority, which pushed the year-to-date figure to a dip of 0.1% while hotel occupancy levels fell 3.8% that month, or 1.7% since the start of 2008.
In his most recent survey, Greff at J.P. Morgan found that room rates on the Strip for the week of July 27 through August 2 plummeted 23% to an average of USD 156, with weekday rates down 24% and weekend rates off 20%. For the third quarter to date, rate are down 16% overall, compared with a 13% decline in the first quarter.
„We believe that the results of the survey reflect the impact of a slowing economy on travel to and spend on the Strip; it also reflects aggressive pricing/discounting of room rates,“ he said. „When it stops is tough to forecast with any great precision, though we think this continues through the summer.“
A recent report by LasVegasAdvisor.com found that many resorts are discounting room rates to their lowest levels since 2003. The Web site surveyed 84 casino-hotels and found that more than half had available rates of USD 50 or less in July.
This isn’t just for the lower-tier hotels, it reported: „Despite efforts to disguise discounting on the high end, many of Las Vegas‘ luxury resorts are slashing rates“ as well as offering additional lures including meal credits, free play and even airfare and gasoline rebates.
That survey found prices below USD 90 at Luxor, MGM Grand, Flamingo, Hard Rock, Mirage, Palms, Planet Hollywood and Paris, while „a rate check of comparable accommodations in New York, Los Angeles, San Francisco and Orlando yielded only two hotels with a sub-USD 50 rate.“
Of course, any slump on the Strip ripples into the locals market, he added, leading to lower employment rates and more suffering in an already beaten-down housing market.
„We are seeing it across all market segments in Las Vegas, whether it is the tourist market or the locals market,“ said Keith Smith, chief executive of Boyd Gaming. „Unemployment is up and lot of those people are our customers who come to [play] at our properties.“