Hard Rock Hotel’s loss widens in fourth quarter

By Liz Benston (contact)

Wednesday, Feb. 26, 2003 | 11:16 a.m.

Hard Rock Hotel Inc. -- owner of the Hard Rock Hotel & Casino in Las Vegas -- said it had more table game gamblers, slot machine bettors and occupied hotel rooms in the fourth quarter compared to the same period last year.

Still, the property's losses widened during the period, in part because of higher marketing expenses in the casino and for expensive entertainment -- such as the Rolling Stones concert in November -- aimed at driving customers to the property.

The Hard Rock reported a loss of $4.6 million in the fourth quarter compared to a loss of $106,000 for the same period last year.

The company's fourth-quarter cash flow declined by about 80 percent, to $3.5 million from $6.3 million, as the company's table game hold percentage -- an indicator of the percentage of bets kept by the casino -- decreased to 9.7 percent from 13.9 percent for the same period last year.

Without the drop in table game hold, which likely cost the company $3 million to $3.5 million in the quarter, the Hard Rock would have been about even with last year, said John Mulkey, a bond analyst with Bear, Stearns & Co.

The company defined cash flow as earnings before interest, taxes, depreciation, amortization and a loss on the abandonment of a development project.

In general, cash flow was hurt by increased casino, marketing and entertainment expenses, the company said. High-caliber stage entertainment at the property's Joint venue, such as the Rolling Stones in November, led to the extra expenses, it said.

The Hard Rock's strategy of attracting attention with name-brand entertainment has paid off in the past and will likely do so again, Mulkey said.

"I think it will take a couple of quarters to bear out," said Mulkey, who lowered his earnings expectations for the company because of its "aggressive entertainment schedule" during the fourth quarter.

"The Hard Rock property has shown that it has a very strong following," he said. "They had a strong quarter after 9-11 and they continue to do a great business despite competition in the market for their type of customer."

Las Vegas operators used different strategies in the fourth quarter, with Hard Rock and MGM MIRAGE driving business through big-name entertainment and Park Place Entertainment Corp. featuring a relative lack of special events, said Jane Pedreira, a bond analyst with Lehman Brothers.

"With the economy the way it is, there just isn't the same amount of spending going on in the casino," Pedreira said.

While MGM MIRAGE missed Wall Street expectations for the fourth quarter, Park Place's cash flow was actually up during the period, she said.

"Do you cut costs or do you drive revenues by having special events? Historically, the Hard Rock has done OK with its events," which likely means the economy is to blame, she said.

Revenue for the quarter increased 4 percent, to $29 million, primarily due to $1.2 million and $500,000 improvements in food and beverage revenues and hotel revenues, respectively, the company said.

The revenue increase was partially offset by a $400,000 decrease in casino revenues mainly due to the decrease in the casino's table game hold percentage -- or the percentage of the amount gambled kept by the casino.

For the full year ended Dec. 31, the Hard Rock reported a decline in profits to $2.5 million from $2.8 million in the prior year.

The company attributed the earnings decline to a $1.7 million loss on the abandonment of a Pink Taco restaurant development in California during the quarter.

Annual cash flow decreased to $29.1 million from $30.1 million in the prior year.

Hard Rock Chairman and Chief Executive Officer Peter Morton said he was still pleased with the results, which showed business volume increases in all operating segments.

The amount bet by gamblers at table games jumped by 22 percent, slot machine betting was up 14 percent and occupied rooms were up 4 percent from the prior year's quarter, he said.

"We are optimistic that our table games hold percentage will recover and believe that the increased casino, marketing and entertainment expenditures have spread awareness of the property and will continue to drive revenues in the future," he said.