Mandalay Resort Group sees revenue, profit fall

By Liz Benston (contact)

Wednesday, Aug. 28, 2002 | 11:20 a.m.

Mandalay Resort Group reported a decline in earnings for the second quarter and missed Wall Street expectations by a hair.

Including one-time events, the company earned $29.3 million, or 41 cents per share, down from $30.5 million, or 40 cents per share, for the second quarter of last year. A stock repurchase program this year resulted in the increased earnings per share.

The company reported second quarter earnings of 51 cents per share, excluding non-recurring items such as pre-opening expenses and a write-down of some retirement investments. That compares to analysts' average estimate of 52 cents per share.

On a conference call with analysts Tuesday, Chief Operating Officer Glenn Shaeffer said the company expects to meet analysts' estimates, now averaging 51 cents per share, for the third quarter and said it would be the best in the company's history.

Schaeffer also dismissed fears of a tax hike on gambling revenues in Nevada, noting the state's dependence upon the jobs and other infrastructure made possible by the casino industry.

Schaeffer also said it's a "fair expectation" that the company will apply for a casino license up for grabs in Illinois.

A tax increase in Illinois last month, which raised the top-tier tax on gross gambling revenues from 35 percent to 50 percent, slashed the company's quarterly earnings by 2 cents per share. Mandalay's half-owned Grand Victoria casino in Elgin, Ill., took a hit, producing 15 percent less cash flow, at $28.6 million, compared to a year ago.

Mandalay expects an annual cost of 20 cents per share due to the tax. Mandalay Bay's new Las Vegas convention center, expected in January, and an additional hotel tower due later that year will offset the decline by increasing room rates and traffic to the property, Schaeffer said.

The company's cash flow is especially sensitive to room rates, as the company is among the biggest operators of rooms on the Strip. Rates at the Luxor, the company's mid-market casino, were especially hurt by a summer "price war," Schaeffer said.

Still, the company's revenue per available room -- a measure of hotel occupancy as well as room rates -- will likely increase in August, which is shaping up to be a better month than expected, he said.

"(W)ith August showing positive (revenue per available room) and (cash flow) comparisons in Las Vegas, it appears as if the weakness in travel trends may have been temporary," Joyce Minor, a casino industry analyst for Lehman Brothers, wrote in a research note today.

The Luxor was the company's worst performer for the quarter, producing about 19 percent less cash flow from a year ago, or $23.3 million. Cash flow at Excalibur, Circus Circus and Mandalay's 50 percent-owned Monte Carlo properties also fell somewhat during the period.

The company's biggest growth engines -- the upscale Mandalay Bay on the Strip and Detroit's MotorCity Casino -- reported significant gains.

Cash flow at Mandalay Bay jumped about 17 percent, to $38.8 million, in part due to post-Sept. 11 cost controls. MotorCity, which is 54 percent owned by Mandalay, posted a 39 percent increase, to $33.7 million.

Shaeffer also announced an "aggressive" program to buy back 7.7 million shares of stock, or about 15 percent of the company's outstanding shares.

Mandalay stock is "distinctly undervalued" relative to other casino companies as well as stocks in other business sectors, he said.

Mandalay stock rose 5 percent to nearly $30 per share this morning.