Majestic Research

Las Vegas Review Journal

Turnaround for Wynn: Resort Cutting Losses, and Boss Sees Room to Improve

By Rod Smith
Published: August 02, 2006

Although Wynn Las Vegas operator Wynn Resorts Ltd. generally met or beat Wall Street expectations in the second quarter of 2006, Chairman Steve Wynn Tuesday said there is still room for cost cutting to improve performance.

Deutsche Bank analyst Bill Lerner said the underlying fundamentals for the company, which reported that its losses fell by more than 50 percent from a year ago, were very strong in the second quarter.

The company lost $20.1 million in the three months ending June 30, cutting its loss of $41.7 million a year earlier by 52 percent.

It lost 20 cents per share after losing 43 cents per share in the same period a year earlier.

Excluding one-time items, the company earned a profit of 5 cents a share, matching the average analyst estimate, as compiled by Thomson First Call .

Wynn Resorts reported revenue of $273.4 million, up 35 percent from $201.1 million a year earlier.

Wynn noted during a conference call with Wall Street analysts and investors that revenue at Wynn Las Vegas jumped despite talk of a weak market because “people like the property, just like The Mirage, Treasure Island and Bellagio.”

Brian Gordon, a partner in Las Vegas-based Applied Analysis, said: “The business and gaming volumes are obviously there. This is a company that should gain efficiencies as they go forward.”

Wynn said that with a new property such as Wynn Las Vegas, it quickly becomes clear when something is being done wrong and his company acts quickly to make necessary corrections and grow revenue.

To deal with costs as well as revenue, Wynn Las Vegas President Andrew Pascal said he will continue to “refine the cost structure.”

Wynn said the cost of running Wynn Las Vegas is just under $2.2 million a day.

“We have room to lower that number,” he said.

However, he said moving into the second year of operating the only property he has open, he will be cautious in making adjustments.

“We have a good operation. It has a good reputation. I’m very careful about any changes,” he said.

Net income adjusted for pre-opening expenses of Wynn Macau, property charges and increases in swap fair value dropped to a loss of $4.9 million compared with $7.4 million in the second quarter of 2005.

Cash income, commonly earnings before interest, depreciation, taxes and amortization, in the 2006 second quarter climbed to $73.2 million, up 25 percent from $58.7 million in the same period a year earlier.

Lerner said Strip resort’s “run rate” cash flow of $90 million was “phenomenal.”

“They just got beat up on the hold starting June 10. Excluding hold, we feel really comfortable with what we saw,” he said.

Gordon said: “Wynn is a $6 billion company that’s only been in operation for a year and there’s only upside to that.”

Wynn said he was delighted with the “robust” performance overall and that his Las Vegas property has been performing above expectations.

He also said it is possible to draw an incorrect conclusion about Las Vegas from recent press reports.

“It’s possible to get the wrong impression.  What is important is our non-casino revenue is up sharply ahead of last year as well as casino revenue,” Wynn said.

However, Matthew Jacob, senior gaming analyst with Wall Street-based Majestic Research, said the company’s salvation came from catering to high-end customers rather than the mass market, where there is evidence of weaknesses.

With his Macau property set to open Sept. 5, Wynn said his executives are fully focused on the opening and operations in the former Portuguese colony off the coast of China.

Wynn acknowledged that he faces new challenges in Macau, but said the company is as well prepared to meet them as possible.

“At every level. We have a wonderful building. It’s more sexy (than other operations in Macau,)” he said.

Lerner said he was particularly pleased to see Wynn Macau coming in on budget and ahead of schedule.

Wynn Resort shares closed Tuesday at $61.76, down $2.31, or 3.6 percent, on 1.9 million shares traded, nearly double normal trading volume of 1.2 million shares.

Wynn Resorts shares recovered, however, in after-hours trading, increasing about 5 percent to $63.42.