Wynn Beats on Massive Macau Growth

Wynn Resorts Ltd. (WYNN - Analyst Report) reported its second-quarter 2010 adjusted earnings of 52 cents per share, well ahead of the Zacks Consensus Estimate of 40 cents and the year-earlier earnings of 9 cents. On a GAAP basis, net income was $52.4 million or 42 cents versus $25.5 million or 21 cents recorded in the comparable quarter last year.

The results were boosted by higher-than-expected revenues. Net revenue surged 42.8% year over year to $1032.6 million outpacing the Zacks Consensus Estimate of $986.0 million. The outperformance was driven by a solid performance of its Macau operations.
 
Macau Operations
 
Net revenue at Wynn Macau was $714.4 million, up 74.1% year over year, primarily driven by a significant increase in table games turnover in the VIP segment, which rose by a massive 72.2% from the prior-year period to $21.7 billion.

The VIP table games win in the quarter was 3.22% based on turnover, above the expected range of 2.7% to 3.0% and significantly higher than 2.66% experienced in the prior-year quarter.
 
However, table games in the mass market category nudged up 14% year over year to $548.1 million. Mass market table games win rate was 22.9%, above the expected range of 19% to 21% as well as 21.5% recorded in the year-earlier quarter.
 
Average daily rate (ADR) at Wynn Macau was $287, up from $263 in the year-ago period. However, occupancy level declined to 81.3% from 86.7% in the prior-year period, as Wynn added 414 rooms and villas in Macau with the opening of Encore in April end, leading to a modest 2.5% rise in revenue per available room (RevPAR) to $234.

Non-gaming revenues at Wynn Macau shot up 59.2% to $70.8 million from the prior-year quarter, primarily aided by the increase in hotel and retail revenues. These revenues went up 57.9% and 75.5%, respectively, driven by the addition of the Encore rooms and the opening of several new retail outlets.
 
Including Encore, currently Wynn Resorts has 474 tables (239 VIP tables, 224 mass market tables and 11 poker tables) and 1,193 slot machines at Wynn Macau. The company had budgeted around $550 million as the total development and construction cost for Encore at Wynn Macau. At quarter end, Wynn Resorts incurred $537.3 million associated with these costs.

Wynn Macau’s contribution to the company’s earnings has increased significantly in the last few years. Macau, the only Chinese city where gambling is legal, has survived the economic downturn relatively well.
 
Las Vegas Operations

Wynn Resorts’ revenue from Las Vegas operations increased marginally by 1.7% to $318.2 million. Net casino revenue was $117.2 million, down 5.8% from the prior-year period. Gross non-casino revenues upped 5.3% year over year to $244.2 million, primarily helped by increased revenues from nightclub operations and the newly opened Beach Club.

Reflecting persistently challenged conditions in Las Vegas, Wynn reported a drop in hotel revenues, which were down 3.2% year over year to $78.8 million. This was on account of a 9.6% drop in Average Daily Room Rate (ADR) at $197, while occupancy level registered a modest growth at 92.6% from the year-ago level of 86.6%. Consequently, RevPAR decreased to $182 in the quarter compared with $188 in the year-ago period.

Balance Sheet

Exiting the quarter, Wynn Resorts’ total cash balances were $1.9 billion. Total debt outstanding was $3.2 billion, including approximately $2.5 billion of Wynn Las Vegas debt and $681 million of Wynn Macau debt.
 
Our Take
 
We remain optimistic on the company based on its improving fundamental growth prospects and expansion strategy in Macau. We expect this expansion to significantly add to Wynn Resorts’ top line going forward. Additionally, with global economy showing a gradual recovery, the company is experiencing an increase in demand. Its Las Vegas business, which was the worst hit at the time of the slowdown, is also rebounding, although at a slow rate. Hence, we currently have a Zacks #2 Rank for the stock, which translates into a short-term Buy rating.
 
Wynn Resorts’ close competitor Las Vegas Sands Corp. (LVS - Analyst Report) reported its second-quarter earnings, yesterday. Las Vegas’s second-quarter 2010 earnings of 17 cents per share were ahead of the Zacks Consensus Estimate of 9 cents. Wynn Resorts’ another competitor MGM Resorts International (MGM - Analyst Report) is slated to release its second-quarter earnings on August 3, 2010.

Read the full analyst report on WYNN

Read the full analyst report on LVS

Read the full analyst report on MGM