Results are disappointing as Venetian room rates weaken

By Liz Benston (contact)

Tuesday, Aug. 6, 2002 | 10:57 a.m.

The $1.5 billion Venetian Casino Resort on the Las Vegas Strip today reported lower earnings for the second quarter but said it is managing the high-end property more conservatively by controlling costs, booking its 3,036 hotel rooms with more convention-goers and becoming more selective about high-roller wagers.

Venetian owner Las Vegas Sands Inc., controlled by entrepreneur Sheldon Adelson, reported a second quarter loss of $44.2 million compared to net income of $400,000 for the same period a year ago. This year's loss includes a loss on early retirement of debt of $42.8 million.

Revenue for the second quarter was $128.2 million, compared to $137 million for the same period a year ago.

The decline in revenue was primarily due to lower average daily room rates at the hotel and increased selectivity of high-end gaming play, Las Vegas Sands President and Chief Operating Officer William Weidner said.

Cash flow increased 7.4 percent, from $41.8 million in 2001 to $44.9 million. Cash flow -- defined as earnings before interest taxes, depreciation and amortization -- is a key indicator of casino performance.

Operating costs declined by $12 million in the second quarter, primarily due to better control of casino marketing costs. Promotional allowances also dropped during the quarter compared to a year ago, the company said.

The company accomplished the refinancing of all of its debt in the second quarter, Weidner said.

"The refinancing of our debt provided us with lower interest rates, the funds to add 1,000 rooms to The Venetian to meet unfilled room demand, the flexibility to pursue growth opportunities in Macau and other jurisdictions, added liquidity and a simplified capital structure."

The daily average room rate at The Venetian was $196, compared to $213 for the year-ago quarter, primarily because of lowered June rates in the wake of declining occupancy that month.

Guestroom occupancy was 97.6 percent, compared to 96.5 percent last year.

The hotel's casino was hurt by low table game win of 15.8 percent versus an expected win percentage of 20 percent for the quarter. Game win represents the percentage of wagers won from gamblers.

The company performed slightly below expectations, especially with regard to June room rates, said John Kempf, a bond analyst with Goldman Sachs.

"There is some softness in the market, but that's a little surprising considering what we've heard on other recent conference calls."

The company was somewhat short of revenue estimates and nearly made cash flow estimates, said Ray Cheesman, a bond analyst with Jefferies & Co. The company is making progress, however, he said.

"They have a more conservative operating profile, they've had more success in cost control," he said. "As we put more distance behind the disruption (of Sept. 11) in Las Vegas, we'd expect them to do better."

The Venetian also stands to benefit from early indications of strong convention business next year, he added.

Las Vegas Sands only operates a single property, which makes it more subject to economic swings, analysts say. The Venetian is also a leader in room rates and luxury offerings on the Strip, which means it was especially hurt by the drop in tourism following Sept. 11 that prompted many hotels to lure travelers with cheaper rates.

Besides their Las Vegas ventures, Adelson and fellow casino resort developer Steve Wynn are developing casinos in the Chinese island of Macau.