Mandalay posts loss, cites Jean properties

David Strow

Friday, March 1, 2002 | 11:07 a.m.

Mandalay Resort Group posted a substantial loss for its fourth quarter Thursday, as the post-Sept. 11 slowdown, poor table game hold and write-offs all took their toll on the Las Vegas casino operator's earnings.

But Glenn Schaeffer, president and chief financial officer, sent a clear message to investors Thursday afternoon -- business is coming back.

"As we look into the (first) quarter, the Las Vegas Strip is shaping up, and coming off the bottom we saw in the last two quarters," Schaeffer said. "The first quarter will exceed expectations on Wall Street, and will rank among our better performances (for a first quarter)."

Schaeffer cautioned, though, that results in the first quarter would still be below last year's record performance. "Even without Sept. 11, we would have had a tough comparison," Schaeffer said.

"The comeback from 9/11 will not be instantaneous, but the upslope has been established," Schaeffer said.

For the quarter ending Jan. 31, Mandalay reported a loss of $48.2 million, or 66 cents per share. In the year-ago period, Mandalay earned $3.4 million, or 4 cents per share.

Much of the loss came from a one-time charge of $52 million, reflecting a write-down in the value of Mandalay's two casinos in Jean, which is near Las Vegas on Interstate 15 near the California/Nevada border. The company said it took the write-down at the Nevada Landing and the Gold Strike to reflect a downturn in business.

The downturn in Jean, Schaeffer said, was the result of "the outbreak and increase of Indian gaming serving a similar feeder market (California)."

"That's been the course of events over several years," Schaeffer said.

Without this non-cash charge, Mandalay's loss was 10 cents per share -- coming in line with the company's November prediction of a "double-digit" loss for the quarter. Revenues fell 9 percent to $539.2 million, while operating cash flow was off 19 percent to $101.2 million.

"There are really no surprises," Dennis Forst, gaming analyst with McDonald Investments, said. "The past is the past. It's really irrelevant, and there's not much they could have done differently."

Schaeffer pointed to a variety of issues that led to Mandalay's quarterly loss. Not surprisingly, the post-Sept. 11 slowdown was a key factor.

But there were other issues as well, Schaeffer said. One was below-normal table game hold at Mandalay Bay, which shaved 5 cents per share from the company's earnings. Another was the shift of Chinese New Year and the Super Bowl from January -- which comes in Mandalay's fourth quarter -- to February, which is in the company's first quarter.

"I don't think Chinese New Year's would have meant that much to us, but the Super Bowl is worth a few cents per share," Schaeffer said.

In line with other large gaming companies, Mandalay's earnings were a tale of two markets -- plunging cash flow in Las Vegas, offset somewhat by soaring performances outside of Nevada.

Mandalay Bay, the company's flagship property, saw cash flow decline 42 percent to $16.8 million. At Luxor, cash flow fell 39 percent to $15.3 million; at Circus Circus, cash flow was down 30 percent to $9 million; and at the Excalibur, cash flow declined 22 percent to $13.5 million.

Monte Carlo, jointly owned by Mandalay and MGM MIRAGE, recorded cash flow of $13.2 million, down 37 percent.

Elsewhere in Nevada, Mandalay saw cash flow fall 38 percent to $5.2 million in Reno, and 89 percent to $200,000 in Jean. Laughlin was the sole bright spot in the state, as Mandalay's casinos there posted $3.8 million in cash flow, compared to a cash flow loss of $800,000 in the year-ago period.

By contrast, Mandalay's operations in Mississippi, Michigan and Illinois showed strong results. Leading the way was Detroit's MotorCity casino, which reported $30.8 million in cash flow, up 73 percent. Mandalay owns 53.5 percent of this property, which opened in November 2000.

Cash flow rose 17 percent to $34.7 million at the Grand Victoria in Elgin, Ill., which is 50 percent-owned by Mandalay. And cash flow increased 12 percent to $3.8 million at the Gold Strike in Tunica, Miss.

Overall, the results weren't strong, though Schaeffer said things have been trending upward since mid-December. Room rates are recovering, midweek occupancy is rebounding "sharply," and occupancy in the quarter ending March 31 should run at 90 percent or higher, Schaeffer said. During the fourth quarter, occupancy at the company's Strip casinos averaged around 70 percent, he said.

Only two analysts have put out estimates for the first quarter. One estimate stands at 29 cents per share, the other at 52 cents.

"If you take the middle, we'll be past that number (in the first quarter)," Schaeffer said.

In giving signals of a strengthening first quarter, Mandalay echoed the tone of other Strip operators during conference calls several weeks ago. And that gave Forst a reason to be cautiously optimistic about the future.

"They're still down a year ago, but the decline is getting better," Forst said. "We'll still have to see what happens to (room) rates, but everything is moving in the right direction."