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Wynn Resorts Ltd.’s (WYNN - Analyst Report) first-quarter 2013 adjusted earnings of $2.03 per share breezed past the Zacks Consensus Estimate of $1.55 by 31.0% as well as the prior-year earnings of $1.33 per share by 52.6%.

The earnings upside can be attributed to a strong mass market business in Macau, continued demand in the Las Vegas market and operational efficiency. On a reported basis, earnings per share were $2.00 versus $1.23 in the comparable quarter last year.

Operating income benefited from a 10.4% drop in general and administrative expenses and 22.1% decline in entertainment and retail costs. Operating income improved 28.3% to $333.6 million in the quarter.

Net revenue grew 5.0% year over year to nearly $1.4 billion, which was in line with the Zacks Consensus Estimate. Revenues from the Macau and Las Vegas operations increased 4.4% and 6.6%, respectively and aided year-over-year revenue growth.

Macau Operations

Wynn reports its Macau table games results under two categories: the VIP segment and the mass market segment.

Net revenue at Wynn Macau was $992.1 million in the quarter, up 4.4% year over year. Net revenue benefited from the strong demand for mass market gaming. Table games revenues in the mass market category escalated 13.6%. Moreover, the mass market table games win rate was 35.5%, higher than the year-earlier rate of 30.3%.

The table games turnover in the VIP segment plunged 15.3% from the prior-year period due to overall sluggishness in the VIP market. However, VIP table games win rate as a percentage of turnover was 3.14%, higher than the expected range of 2.7%–3.0% as well as the year-ago level of 2.59%.

Average daily rate at Wynn Macau was $315, down 2.7% year over year. However, the property’s occupancy level was 93.8%, up from 91.3% in the prior-year quarter. Combining both the effects, revenue per available room (RevPAR) was flat at $296. Gross non-casino revenues dipped 0.9% to $105.3 million.

Wynn Resorts is building a full-scale integrated resort on the Cotai land at Macau and at present expects the project to cost around $3.5–$4.0 billion. During the first quarter of 2013, Wynn spent around $76.3 million on the Cotai project. The resort is slated for a 2016 opening.  

Las Vegas Operations

Wynn Resorts’ revenues from Las Vegas operations witnessed an upside of 6.6% year over year to $386.6 million as net casino revenues surged 11.8% from the prior-year period to $176.3 million. Moreover, gross non-casino revenues nudged up 1.6% to $256.4 million, benefited by improved revenues from the hotel, and food and beverage segments, offset somewhat by lower retail and entertainment sales.

During the quarter, average daily rate inched up 1.4% to $258 but occupancy was 360 basis points higher at 82.9%. Both the matrices led to an increase of 6.0% in RevPAR. EBITDA margin was 31.1% in the first quarter of 2013, up 11.9% year over year.

Our Take

Wynn Resorts has benefitted from continued improvement in the Las Vegas business and the recovery of the mass market category in Macau. Additionally, its cost control efforts in the quarter also deserve a mention.

However, the VIP market in Macau also remains sluggish. Further, the company’s upcoming project at Cotai will also face extreme peer pressure from several Chinese casino operators and the U.S.-based company Las Vegas Sands Corp. (LVS - Analyst Report). Another U.S.-based casino giant MGM Resorts International (MGM - Analyst Report) has also received land approval to construct a casino at Cotai.

Wynn currently retains a Zacks Rank #3 (Hold). However, another casino operator Melco Crown Entertainment Limited (MPEL - Snapshot Report) is better placed currently with a Zacks Rank #2 (Buy)

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