Mandalay Resort Group earnings fall 21 percent

David Strow

Wednesday, Nov. 21, 2001 | 11:03 a.m.

Mandalay Resort Group reported net income fell 21 percent for the quarter ending Oct. 31 -- the least severe decline reported by the Las Vegas Strip's largest casino operators in the post-Sept. 11 earnings season.

The Las Vegas-based company on Tuesday reported net income of $23.3 million, or 32 cents per diluted share, compared to $29.4 million, or 38 cents per share, in the year-ago quarter. This fell in line with the 32 cents to 34 cents per share earnings estimate Mandalay gave on Nov. 6.

By comparison, Park Place Entertainment Corp.'s net income was down 75 percent before one-time charges for the quarter ending Sept. 30, and MGM MIRAGE's net income was off 59 percent before one-time charges. Both companies posted losses for the quarter after one-time charges.

Before the Sept. 11 attacks, Mandalay President and Chief Financial Officer Glenn Schaeffer said his company was on track to earn more than 50 cents per share, following a strong August.

"Our third quarter was a tale of two quarters," Schaeffer said. "We had an exceptional quarter shaping up until Sept. 11, and we had a slumpish quarter after that."

Revenues were off 3.4 percent to $609.4 million, while cash flow fell 11 percent to $152.6 million.

A big reason Mandalay was able to post a relatively strong quarter compared to its Strip rivals, however, was lucky play at flagship property Mandalay Bay. The property had an above-normal table game hold percentage during the quarter, compared to below-normal hold in the year-ago quarter. As a result, the property's cash flow was down just 1.6 percent to $30 million.

Mandalay's four other Strip properties all reported cash flow declines exceeding 10 percent. Luxor's cash flow was down 17 percent to $27 million, Excalibur was off 13 percent to $21.1 million, Circus Circus fell 15.5 percent to $14.7 million, and Monte Carlo (jointly owned with MGM MIRAGE) declined 22 percent to $19.6 million.

Mandalay was successful in keeping its room rates even with last year's levels, with a citywide average daily rate of $94, though occupancy fell 11 percentage points to 84 percent. Mandalay drives a larger portion of its revenues from rooms than other Strip operators.

"We defended our rate structure relatively well, negative events not withstanding," Schaeffer said. "This was a management decision, given the importance of (room revenue) in our profit picture.

"When you cut your room rates decidedly, you change the nature of your clientele. We're holding the line (on room rates) the best we can."

The picture was brighter in certain spots outside of Las Vegas, and this helped prop up Mandalay's earnings. With $29.5 million in cash flow, Mandalay's MotorCity Casino in Detroit was up 12 percent over the year-ago period. Schaeffer said the property benefited from tighter border restrictions at the U.S.-Canada border, which deterred some Detroit gamblers from crossing over to play at Casino Windsor.

The Grand Victoria in Elgin, Ill., also fared well, with cash flow rising 8.4 percent to $33.5 million. Mandalay owns 53.5 percent of MotorCity, and 50 percent of the Grand Victoria.

Cash flow was down 5 percent at Circus Circus-Reno and Silver Legacy, 17 percent at the Colorado Belle and Edgewater in Laughlin, 31 percent at the Gold Strike in Tunica, Miss., and 80 percent at the Gold Strike and Nevada Landing in Jean. Mandalay blamed the rise of Native American gaming in California and the Sept. 11 attacks as factors in Jean's precipitous decline.

Looking ahead, Mandalay warned investors to expect a loss in the quarter ending Jan. 31, typically Las Vegas' slowest period. In the year-ago period, the company reported net income of 4 cents per share.

"The calendar in the fourth-quarter this year is soft ... it doesn't have any bright spots," Schaeffer said. "Comdex was a non-event this year by its usual standards ... and New Year's is slow in its rate of bookings, similar to (New Year's 2000)."

Both Super Bowl weekend and Chinese New Year's, both big periods for Las Vegas, do not fall in the fourth quarter this year, as they did in the fourth quarter of fiscal 2001.