Rivals hurt Station profits, Reserve getting Fiesta brand

David Strow

Monday, April 23, 2001 | 11:15 a.m.

Station Casinos Inc. today reported a big earnings dip for the quarter ended March 31, primarily from the sale of its two Missouri properties in December.

The Las Vegas locals casino giant reported net income before one-time items of $11.4 million, or 19 cents per share, down 49 percent on a net income basis and 46 percent on a per-share basis. The earnings were in line with analyst expectations for the quarter.

After pre-opening expenses and losses on the retirement of debt, Station posted net income of $6.5 million, or 11 cents per share. Net revenues declined 18 percent to $209.7 million, while cash flow was off 21 percent to $58.8 million.

"2001 is a transition year for our company," said Glenn Christenson, chief financial officer for Station, on a conference call with investors and analysts. "We continue to have great confidence in the fundamentals of our business, and we have an excellent pipeline of growth opportunities."

Despite these reassurances, Station fell 54 cents this morning to $14.08.

The largest bite out of Station's earnings came from the sale of its Kansas City and St. Charles, Mo., casinos to Ameristar Casinos Inc. in December 2000. In the year-ago quarter, those casinos contributed $22.2 million in cash flow and $82.5 million in net revenues.

But that wasn't the only drag on Station's earnings.

Station's Las Vegas operations reported $197.3 million in net revenues, up 23 percent, while cash flow was up 9 percent to $63.1 million. Yet these increases came only because of Station's acquisition of the Santa Fe last October, and the Fiesta and Reserve in January.

Without the addition of these three properties, Station's Las Vegas operations would have reported a 6 percent decline in net revenues, and a 13 percent decline in cash flow. Station blamed a variety of factors, including tough comparisons to a record period last year, competition from Coast Resorts' Suncoast hotel-casino, road construction outside of Palace Station, high energy costs and "competitive supply increases" on the Boulder Strip.

With regards to the Suncoast impact, "I think we have stabilized, and personally I think we've seen the worst of it," said Frank Fertitta III, chairman and chief executive of Station. "It feels like things are starting to build back (in North Las Vegas and northern Las Vegas), and hopefully things will stabilize from here."

Christenson warned investors to expect a 4 to 6 percent decline in "same-store" cash flow -- that is, cash flow primarily from Palace, Texas, Boulder and Sunset Stations -- offset somewhat by "sequential improvement" from Santa Fe, Fiesta and Reserve. Soaring energy costs will likely boost expenses by as much as $3 million this year, the company said.

For the year, Station expects "flat to slightly down" cash flow from its four original properties, and $60 million to $65 million from its three new properties. That should add up to about $250 million in cash flow for 2001, Christenson said, roughly equal to 2000.

However, Fertitta said he remains "very bullish on 2002, 2003."

Station also announced a big change for its newest property, the Reserve in Henderson. As expected, Station will convert the property into "Fiesta Henderson" by year's end. The name change will cost $12 million, on top of $8 million in renovations currently underway at the property.

"We decided to change the brand in order to fully realize the value of the Fiesta brand," Christenson said. "It strengthens the brand, unlocks the value of land parcels held for development, and allows for economies of scale between the two properties."

The original Fiesta in North Las Vegas will become "Fiesta Rancho."

Station officials also said they're still considering a gaming development on Martin Luther King Boulevard near Craig Road, following the state Gaming Policy Committee's rejection of plans by Station to build a new property near Craig Ranch Golf Course on Craig Road. Station had planned to use the 36-acre land parcel as an alternative to developing the MLK site.

"If we do something there (on MLK Boulevard), it'll be a much more scaled-down version," Fertitta said. "We do not see ourselves doing a large project there."