Cash flow improving at Stratosphere, Reserve

Friday, Nov. 12, 1999 | 11 a.m.

Increased competition on the Strip caused Stratosphere Corp.'s revenues to decline in the third quarter, though the company still managed to make a small profit.

The hotel-casino reported net income of $101,000 for the quarter ending Sept. 26. One year ago, the property earned $3.86 million, prior to a $153 million gain recorded from the discharge of its debt in bankruptcy court.

However, Stratosphere's profit of a year ago was caused entirely by $4.3 million in reorganization gains. On an operating income basis, Stratosphere earned $156,000 for the third quarter, up from a net loss of $53,000 a year before.

Stratosphere's revenues fell 4.7 percent, to $30.7 million. The drop was caused by a 10 percent decline in casino revenues, and a 9 percent decline in tower and retail revenues. The company blamed both declines on the opening of four new properties -- Bellagio, Venetian, Mandalay Bay and Paris -- and other new attractions on the Strip over the past 12 months.

Hotel occupancy for the quarter was 93 percent, up slightly from a 92 percent rate in the year-ago quarter. However, visits to the property's trademark tower fell 5 percent during the quarter, to 585,420.

The company has been implementing expense control measures, primarily by cutting back on "comps" issued to customers. Comps were cut $700,000 in the third quarter, while cuts in entertainer fees and showroom payroll costs reduced expenses an additional $800,000. Total expenses fell 5.4 percent, to $30.6 million.

Separately, Ameristar Casinos Inc. of Las Vegas reported a third quarter profit of $287,000 or 1 cent per share vs. a loss of $1.1 million or 6 cents per share in the year-ago quarter.

Ameristar owns the Reserve hotel-casino in Henderson, which opened in February 1998.

Ameristar reported net revenues for the Reserve were $12.9 million and $38.8 million for the three and nine months ended Sept. 30, respectively, compared to $12.0 million and $32.4 million for the three and nine months ended Sept. 30, 1998, respectively.

The Reserve had 230 days of operations during the first nine months of 1998.

The operating loss for the Reserve decreased to $1.9 million for the third quarter of 1999 compared to a $4.8 million loss for the same period in 1998. For the nine months ended Sept. 30, the Reserve's operating loss was $5.9 million compared to $12.1 million (before preopening costs) in the shorter 1998 period. The operating loss after preopening costs of $10.6 million in the first nine months of 1998 was $22.7 million.

"The company has continued to implement aggressive revenue-generating programs at the Reserve to improve operating performance, including direct mail marketing, promotions and a cash-back program for players' club members. Along with improving revenues, material reductions in labor and food cost have contributed to the property's improved operating performance," Ameristar said.

Ameristar said the cash flow loss at the Reserve declined from $3.1 million and $7.7 million for the three and nine months ended Sept. 30, 1998, respectively, to breakeven EBITDA (cash flow) for the three-month period ended Sept. 30, 1999, and an EBITDA loss of $300,000 for the nine-month period ended Sept. 30, 1999.

Companywide, Ameristar reported quarterly net revenues of $77.6 million and income from operations of $6.7 million. For the third quarter of 1998, net revenues were $69.3 million and income from operations was $4.4 million.

"The company's revenue and EBITDA (cash flow) continue to improve compared to 1998," said Ameristar President and CEO Craig Neilsen. "I am particularly pleased with the improved market share positions of our Vicksburg, Council Bluffs and Las Vegas facilities."

Besides the Reserve, Ameristar owns Cactus Petes Resort Casino and the Horseshu Hotel & Casino in Jackpot, Nev.; Ameristar Casino Vicksburg in Vicksburg, Miss.; and Ameristar Casino Council Bluffs in Council Bluffs, Iowa.