Mandalay Resort Group reports earnings increase

David Strow

Friday, Aug. 25, 2000 | 11:36 a.m.

Mandalay Resort Group reported sharply higher earnings Thursday afternoon, led by a powerful boom in business at its flagship property on the south Strip.

The casino operator posted net income of $38.1 million, or 48 cents per diluted share, for the quarter ending July 31. That's an increase of 61 percent overall, and 84 percent on a per-share basis over the year-ago quarter.

The strong earnings beat analyst consensus expectations by 1 cent per share. Mandalay released the earnings after the market closed Thursday; this morning, Mandalay rose 75 cents to $27.

Opening charges associated with the new Shark Reef at Mandalay Bay underwater attraction reduced the company's earnings by 2 cents per share.

Mandalay also showed strong top-line improvements during the quarter. Revenues for the company increased 25 percent to $647.4 million, while income from operations rose 43 percent to $130.9 million.

"What stands out is just continued evidence of strong Las Vegas trends driven by the new properties, the strong economy and a very healthy convention business," said Jason Ader, gaming analyst with Bear Stearns.

With more hotel rooms than any other Strip operator, Mandalay's earnings are particularly dependent on demand for rooms. Record demand for Strip rooms resulted in powerful increases at all of Mandalay's Strip properties in the quarter.

No increase was starker than Mandalay Bay. For the quarter, the company's newest property posted $30.9 million in operating cash flow, a whopping 66 percent increase over the year-ago quarter.

During the quarter, Mandalay Bay posted a 25 percent increase in room rates and a 36 percent increase in revenue per average room, said David Anders, gaming analyst with Merrill Lynch.

"We are seeing similar types of increases (on the Strip), but nothing to the extreme that Mandalay (Bay) registered," Anders said. "It's kind of a sweet victory for the company, because last year at this time, everyone was questioning the earnings power of Mandalay Bay.

"In general, across the entire Mandalay portfolio, the strength of Las Vegas is obviously the critical driver. But I would argue that, as far as Mandalay Bay goes, it is a reflection on the excitement surrounding the property. It continues to develop a reputation."

Mandalay's other three Strip properties also posted respectable gains for the quarter. Luxor's operating cash flow rose 12 percent to $30.1 million, Excalibur's shot up 28 percent to $25.8 million, and Circus Circus increased 15 percent to $21.1 million.

At all four properties, average rates per available room rose $13 for the quarter, and Mandalay noted those increases are continuing in August.

"It also looks like Glenn (Schaeffer, Mandalay president) was comfortable with the 50 cent (estimate) for the third quarter, indicating the likelihood of healthy trends in the third quarter," Ader said.

The strongest increase outside of Las Vegas came at the Grand Victoria riverboat in Elgin, Ill., 50 percent owned by Mandalay. As a result of the introduction of "open boarding" in Illinois, Grand Victoria saw cash flow rise 33 percent to $30.8 million.

Increases also were posted at Mandalay's casinos in Reno and Laughlin. Total Reno cash flow totaled $18.6 million for the quarter, up 9 percent, while cash flow crept up 4 percent in Laughlin to $7.9 million.

The company's new casino in Detroit also contributed to Mandalay's strong quarter. The MotorCity Casino, 53 percent owned by Mandalay, posted cash flow of $22.8 million. The casino opened in December.