Mandalay plotting long-term expansion plans for Strip

David Strow

Thursday, March 1, 2001 | 11:33 a.m.

Despite a flat quarterly earnings report, Mandalay Resort Group officials are maintaining a cautiously optimistic outlook on the Las Vegas market for the remainder of 2001.

But the long-term outlook is rosy enough that the Las Vegas company is indicating a new Strip resort casino could be in the works at some point in the next several years.

"We will add rooms at a point, though it's too early to say when today," said Mandalay President and Chief Financial Officer Glenn Schaeffer. "There should be relative supply stability on the Strip in the next five years. It's a fair expectation that some time in that window we will be in the development business again."

Mandalay owns much of the undeveloped property on the west side of the Strip between Tropicana Avenue and Russell Road. It has referred to these land parcels in the past as the site of "Project Z," an unnamed future casino development.

Schaeffer also said the company is still actively pursuing plans to develop a retail project between Mandalay Bay and Luxor, but provided few new details.

"We're confident we'll eventually have a retail bridge between Luxor and Mandalay Bay on the Strip," Schaeffer said. "(Retail) has been a growth business on the Las Vegas Strip in the past few years, and it's one more element that can help drive (daytime slot revenues) at Mandalay Bay."

Talk of potential future expansion came during a conference call Wednesday afternoon following the company's earnings report for the quarter ending Jan. 31.

Mandalay reported earnings of 1 cent per share before non-recurring items, meeting last year's earnings number. The company had previously warned investors that it would show no earnings growth for the quarter.

The company's actual net income was $3.4 million, or 4 cents per share, up from a net loss of $5.4 million, or 6 cents per share, in the year-ago quarter. Earnings were boosted in the current quarter by a $3.6 million gain recorded when Mandalay adjusted a liability assumed in 1995 with its acquisition of the Hacienda; the year-ago quarter saw $9.1 million in charges connected to the opening of Mandalay's MotorCity casino in Detroit.

Company revenues rose 15 percent to $598.8 million, while operating cash flow increased 13 percent to $125.7 million.

Las Vegas was the biggest driver of company earnings for the quarter. At Mandalay Bay, operating cash flow rose 63 percent to $29.1 million, while Luxor saw cash flow increase 23 percent to $24.9 million. Mandalay in particular was boosted by gains in room rates and high-end play, Schaeffer said.

"Mandalay Bay and Luxor were the stars of the quarter," Schaeffer said.

Cash flow at Circus Circus rose 16 percent to $12.8 million, but Excalibur showed little change from the year-ago quarter at $17.2 million. Monte Carlo, jointly owned by Mandalay and MGM MIRAGE, saw cash flow increase 11 percent to $21.1 million. The company's Reno properties posted $8.4 million in cash flow, up 16 percent.

Other markets did not perform so well, hurting Mandalay's performance. Laughlin was hit hard from competition from California Indian casinos, as the Colorado Belle and Edgewater posted negative cash flow of $800,000. One year ago, the properties reported cash flow of $3.4 million. Schaeffer called it a "lousy performance."

"It's clear that the addition of new and better slot machines in California has had some bite," Schaeffer said. "When all is said and done, we'll probably see some decline in Laughlin for the full year (2001)."

Severe winter weather drove cash flows at Grand Victoria in Elgin, Ill., down 2 percent to $29.7 million, and down 48 percent in Tunica, Miss., to $3.4 million. MotorCity in Detroit, however, posted $17.8 million in cash flow, up from $7.7 million in a partial quarter last year. MotorCity became the city's top cash flow producer in January 2001, the company said.

Schaeffer acknowledged there are concerns that the Las Vegas market could be softening, and he noted that Mandalay, more than any other gaming company, is sensitive to demand for hotel rooms on the Strip. Though cautious, Schaeffer said he's optimistic about the outlook for the Strip, saying that reservations and room rates remain strong.

"In Las Vegas in the month of January, the tone of business had softened a bit from what we saw going into the month," Schaeffer said. "There has been a bounce-back in February, so it's too early to say if the sense of slowdown ... has come to Las Vegas.

"So far, so good, but we read the same newspapers as everyone else. Beyond that issue, I think we feel pretty good about the year."

Earnings per share for the quarter ending April 30 probably will be below last year's number of 58 cents per share, Schaeffer said, simply because the year-ago quarter was so strong. But Schaeffer said he believed the company would still post earnings growth for all of 2001.