Mandalay turns corner, reports growth

David Strow

Tuesday, April 23, 2002 | 11:22 a.m.

Earnings season has been good to the casino industry so far. On Monday, Mandalay Resort Group said it is about to get better.

The Las Vegas casino giant announced Monday it expects it will report on May 23 net operating income of more than 70 cents per share for the quarter ending April 30 -- a quarterly record for the company. This will be at 15 percent higher than the year-ago quarter -- and well ahead of the 49 cents per share analysts had been predicting.

Some of that growth will come as a result of Mandalay's share buybacks, rather than growth in net income. The company said it has reduced its share base by 8 percent since the year-ago quarter.

On a cash flow basis, analyst Dennis Forst of McDonald Investments projects that Mandalay's results on the Las Vegas Strip will be even with last year's levels, and will show growth at Detroit's MotorCity.

"To be able to generate flat cash flow for the April quarter is a tremendous accomplishment, and it augurs well for everyone on the Strip," Forst said.

Mandalay executives also used that word that hasn't been heard on the Strip since Sept. 11 -- growth.

"Our recovery trend has switched to a growth trend going forward," Glenn Schaeffer, president of Mandalay, said. "If trends hold up, prevalent earnings expectations are definitely on the low side for this year and the next."

Beating earnings expectations has been far from unusual so far this quarter. Six gaming companies have reported earnings for the March quarter so far, and all six have beaten analyst expectations. Three operators -- Harrah's Entertainment Inc., Boyd Gaming Corp. and Station Casinos Inc. -- posted net income increases for the quarter.

MGM MIRAGE and Park Place Entertainment Corp., while also able to beat earnings expectations, both reported net income declines. Both said business on the Strip remained below last year's levels, though each reported steady improvement from January to March.

Mandalay took a similar tone in late February, when company officials told investors to expect earnings below last year's levels for the April quarter -- though still ahead of analyst expectations.

But so far in April, Schaeffer said, room rates are running ahead of April 2001 levels.

"Each month, we've seen an improvement on the month prior all through the quarter, particularly in March, which was a strong month," Schaeffer said. "The turning point, with respect to our REVPAR (revenue per available room), is April. A lot of credit belongs to the travel consumer, for whom Las Vegas is a lifestyle staple."

Room revenues should receive another boost in early 2003 when the convention center at Mandalay Bay opens, Schaeffer said.

The trends that triggered Mandalay's strong quarter will affect other Strip operators as well, said Harry Curtis, gaming analyst with JP Morgan.

"Our view has been that, by virtue of very strong household income trends and some of the other leisure-related numbers we've been following, that Las Vegas demand would be stronger than most had forecasted," Curtis said. "By the second quarter, most casino companies will be operating at levels comparable with last year, with growth beyond that."

Mandalay stock advanced $1.71 this morning to $36.70 on the news.

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