Primm casinos’ revenue falls despite opening of mall

Friday, Oct. 16, 1998 | 11:55 a.m.

Primadonna Resorts Inc. today reported revenues declined in the quarter ending Sept. 30 at its Primm casinos -- despite the July opening of an adjacent $75 million outlet mall.

Primadonna had hoped the 104-store Fashion Outlet of Las Vegas would bring more business to its complex of three hotel-casinos at Interstate 15 on the California-Nevada border.

That may have happened. But the mall didn't bring in enough business to prevent quarterly revenue from falling at the Primm properties. Revenue there of $60.6 million was down from $60.8 million in the year-ago quarter.

Salomon Smith Barney gaming analyst Bruce Turner says the disappointing results reveal a "fundamental flaw" in the theory that the mall would help boost volume for Primadonna.

"Our concern has always been that providing a core customer whose length of stay is already measured in hours (rather than days) with a large shopping experience had a reasonable chance of siphoning customer time and money from the assets owned by the company," Turner said in a recent research report. "Under our scenario, it is the casino which we thought would feed the mall, rather than the inverse."

Company executives acknowledged the mall "does not appear to be generating the stimulative impact to the Primadonna casino complex that they had hoped for," Turner said.

Andrew Zarnett, a gaming analyst with Ladenburg, Thalman & Co., New York, today said he wasn't surprised by Primadonna's numbers being down.

"It is predictable that in advance of the opening of new hotel properties (in Las Vegas) that visits are down prior to it," Zarnett said. "Some people who may have planned to visit Las Vegas have been waiting for some of the openings."

Zarnett said Primadonna shareholders shouldn't panic about the fortunes of the mall.

"The new outlet mall isn't doing as well as they thought it would do, but at the same time, it wasn't their capital that built it," Zarnett said. "We're going to have to see what happens in the next six months, if large volumes of Southern Californians come to Las Vegas to see what (Steve) Wynn has built. That traffic is important to Primadonna."

Wynn is chairman of Mirage Resorts, which Thursday opened its Bellagio hotel-casino in Las Vegas.

The Fashion Outlet is owned and operated by TrizecHahn Development Corp. and Gordon Group Holdings Ltd. It's being sold to the Rouse Co., owner of the Fashion Show Mall and the Howard Hughes Corp. in Las Vegas.

"Primadonna Resorts and the owners of the mall continue to explore marketing and operational opportunities to benefit both companies," Primadonna said in today's earnings statement.

The stagnant performance at Primm contributed to a decline in Primadonna's quarterly profit from $7.7 million or 27 cents per share in the 1997 quarter to $4.7 million or 16 cents in the most recent quarter.

There were 28,886,133 shares outstanding in the quarter, compared to 29,030,241 in the third quarter of 1997.

Net income for the nine months ended Sept. 30 was $17.4 million, or 60 cents per share vs. $28.7 million or 97 cents in the year-ago period.

Net revenues for the most recent quarter were $70.5 million, a decrease of $3.3 million, or 4 percent, from $73.8 million in the prior-year period.

Operating cash flow -- earnings before interest, taxes, depreciation and amortization -- was $22.6 million for the third quarter of 1998, compared with $25.1 million a year earlier.

Primadonna's share of operating income from New York-New York hotel-casino on the Las Vegas Strip in the third quarter declined by $3.1 million, to $9.9 million from the $13 million generated in the 1997 third quarter when the property was considered a must-see new attraction.

Primadonna and MGM Grand Inc. are partners in New York-New York. Primadonna recently rejected a takeover offer by MGM.

"New York-New York continues to exceed our pre-opening expectations, and is one of the most successful properties in Las Vegas history from the standpoint of operating margins and return on invested capital," Primadonna Chief Executive Gary Primm said.

Despite the revenue decline at Primm, Primadonna said operating cash flow there increased due to higher operating margins. The company noted lobbying expenses increased $400,000 as Primadonna fought a California ballot initiative that would expand Indian gaming.

"The management initiatives we implemented in the first quarter of 1998 continue to improve marketing and operational efficiency," Primm said. "Revenues were stable this quarter, even though promotional allowances were $1.7 million or 35 percent less than last year. Our focused marketing efforts combined with more choices in gaming, dining, shopping, and entertainment are yielding better results per dollar spent, and more efficient operations are producing higher margins."