Mandalay hurt by results outside of Las Vegas

David Strow

Wednesday, Nov. 22, 2000 | 10:55 a.m.

Mandalay Resort Group posted an increase in earnings for the quarter ending Oct. 31 on Tuesday, but said poor results in markets outside of Las Vegas dragged down a strong quarter for the company's Strip properties.

Mandalay reported $29.4 million, or 38 cents per diluted share, in net earnings. That's up 23 percent on a per-share basis, but just 2 percent on a net income basis. Once non-recurring items were factored out, Mandalay's earnings per share rose just 1 cent.

Initial expectations had been higher, but Mandalay warned on Oct. 31 that earnings for the quarter would be in line with last year's quarter because of weakness in markets outside of Las Vegas. The company also said that lower-than-normal hold at Mandalay Bay reduced earnings by about 6 cents per share.

"There was very little of a surprise on the negative front," said David Anders, gaming analyst with Merrill Lynch. "Most investors took comfort at the Las Vegas performance."

In a conference call with analysts Tuesday, Mandalay President and Chief Financial Officer Glenn Schaeffer said analyst expectations of 19 cents per share for the current quarter was "a high estimate."

"Nineteen cents is on the high side, but we'll know more by the middle of the quarter," Schaeffer said.

Company revenues reached $638.5 million for the quarter, up 17 percent from the year-ago quarter, while cash flow increased 12 percent to $171 million.

Las Vegas wasn't the problem for Mandalay, as cash flow increased at each of the company's five Strip properties. The strongest cash flow increase came at Circus Circus, which saw cash flow rise 18 percent to $17.4 million. Other strong increases came at Mandalay Bay, where cash flow rose 12 percent to $30.5 million; Luxor, up 17 percent to $32.6 million; and Excalibur, up 6 percent to $24.3 million. Monte Carlo, a joint venture between Mandalay and MGM MIRAGE, saw cash flow increase 9 percent to $25.1 million.

Revenues per average room (REVPAR), a measure of strength in hotel business, rose by $9 from the previous quarter, Schaeffer said. Growth "paused" in September, but was strong again in October, he said.

"It's shaping up well for the fourth quarter, and we clearly expect a better holiday than a year ago," Schaeffer said. "Our hope for next year is a continued up trend in visitor counts on the Strip."

And Anders said his own surveys show room rate growth continuing into December.

"I think business is reasonably strong in Las Vegas right now, which should enable most companies to meet their (earnings) projections," Anders said.

The Grand Victoria in Elgin, Ill., 50 percent owned by Mandalay, posted cash flow of $30.9 million, up 2.5 percent. The MotorCity Casino in Detroit, 53.5 percent-owned by Mandalay, recorded cash flow of $26.3 million; the property opened in December 1999.

But matching those increases were downturns in Reno, Laughlin and Tunica, Miss. Cash flow was off 24 percent in Laughlin to $5.3 million, and cash flow fell 15 percent in Reno to $14.3 million. Tunica fell 13 percent to $8.1 million.

"You won't see much growth (in Reno or Laughlin), given the increase of gaming in California," Schaeffer said. "We're looking at very small numbers here. They have little or nothing to do with the future of this company."

Those relatively small downturns in cash flow were magnified in earnings per share because of Mandalay's policy of pursuing heavy share repurchases. In the 10 months ending Oct. 31, Mandalay repurchased 14.5 million shares for $247 million.

Mandalay is authorized to buy an additional 8 million shares, and Schaeffer said those buybacks are continuing. Shares are primarily being bought through "future purchase contracts," which allow Mandalay to lock in a share price and pay for the stock later with cash flow. The company also spent $80 million to pay down debt during the quarter; Schaeffer did not specify how many shares the company repurchased in the quarter.

"I can expect to buy the stock cheaper today than I can a year from now," Schaeffer said.