Budget resorts, locals casinos struggle in third quarter
VEGAS INC archives
Third-quarter financials are in for the Las Vegas gaming industry, and they show continued difficulties for two of the valley’s three main casino sectors.
While most high-end Strip resorts saw profits in the quarter ending Sept. 30, mass market Strip casinos struggled, as did locals casinos.
The Strip’s budget properties faced an uphill battle trying to get recession-weary customers to part with their dollars. Some of the casinos also played unlucky, meaning they didn’t win as much as usual from gamblers.
Locals casinos also underperformed as valley residents continued to reel from the recession. The Las Vegas area’s unemployment and foreclosure rates remain elevated, and many locals aren’t inclined to gamble, eat or see shows at their neighborhood casino.
On the bright side, the Strip’s luxury resorts turned in a good performance, with Wynn Resorts and Las Vegas Sands reporting strong overall numbers despite softness in the hotel sector. The Cosmopolitan, in the meantime, grabbed more market share from its competitors.
Locals leader Station Casinos reported net revenue of $295.7 million during the third quarter, up 4.7 percent from a year ago. The company also reported a profit of $11.2 million.
That’s a vast improvement from the losses it saw last year but was due to a series of one-time transactions.
Factoring out special items, Station was less profitable in the third quarter as expenses rose. Its operating income was $14.7 million, down from $26.7 million. Station executives told analysts they’re hopeful that heavy promotional spending can be curbed in the future.
Station appears to be continuing to expand its share of the locals market. The number of guests served at the company’s restaurants and buffets — a good indicator of traffic — increased 5.4 percent year over year.
Most locals competitors had a difficult quarter.
Cannery Casino Resorts said net revenue at its two properties fell $2 million year over year. Revenue at two Arizona Charlie’s casinos fell 4.4 percent. And Boyd Gaming saw net revenue decline from $145.9 million to $138.8 million at its locals properties.
Analysts say they are concerned about the overall health of the locals market going forward.
“We remain wary of the locals market recovery,” Deutsche Bank analyst Andrew Zarnett wrote in a report on Station’s earnings. “We continue to believe the locals market will continue to experience a period of slower growth through 2013 as consumer spending moderates and comparisons (to previous periods) get more difficult.”
Mass market Strip properties
Although visitation to Las Vegas continued to edge upward, casinos catering to budget travelers also took a hit during the third quarter. The Strip continues to have a glut of hotel room inventory.
Caesars Entertainment, which owns some of the Strip’s larger mass market resorts, doesn’t break down revenue by property but said its average daily room rate slipped from $89 in the third quarter of 2011 to $87 this year.
MGM Resorts International said daily revenue per available room at the lower-tier Circus Circus fell from $46 to $44, while at the Excalibur it slipped from $65 to $64 and at the Luxor it dropped from $83 to $78.
Americans were bombarded this summer with conflicting economic data, including campaign commercials about jobs and the economy and the potential pending fiscal cliff, which contributed to what MGM Resorts CEO Jim Murren called a “challenging consumer environment.”
High-end Strip properties
On the flip side, even as demand for hotel rooms softened, high-end gamblers dropped big money at the Strip’s luxury resorts. Fewer gamblers were in town, but those who were here spent more.
Caesars, meanwhile, said that even as visitation fell slightly, visitors spent 7.8 percent more this year than a year ago. That’s thanks in large part to high-end international visitors, many of whom play baccarat at Caesars Palace.
And the Cosmopolitan, the newest force in Las Vegas’ high-end market, boosted its room rates from $233 to $257, even as it added 458 rooms to its portfolio.
The Wynn and Encore also saw an increase in average daily room rate, of 1.9 percent to $244. The resorts’ net revenue rose by 11.8 percent to $388 million, thanks to strong business on the casino floor and in nightclubs.
As for guest stays, hotel occupancy was off 2.6 percentage points to 85.7 percent at Wynn properties and fell 5.4 percentage points to 87.3 percent at Las Vegas Sands properties. The MGM’s Bellagio saw a similar trend. Occupancy there fell from 96.8 percent to 92.7 percent.
MGM Resorts attributed the softness to reduced consumer spending. Company officials said they expect to see improvement, at least to a flat level, in the fourth quarter.