Revenue soars at Mandalay

Friday, Dec. 3, 2004 | 11:16 a.m.

Soaring room prices in Las Vegas helped boost Mandalay Resort Group's fiscal third quarter earnings by 65 percent, blowing past analysts' expectations and boosting shares of MGM Mirage, which is in the process of acquiring its competitor on the Strip.

Revenue per room rose 18 percent across the company's five Las Vegas Strip resorts, up from a double-digit increase achieved a year ago as the Strip recovered from the Sept. 11 attacks. The increase was a third-quarter record for the company.

"The Las Vegas Strip is operating in record territory and we don't see any break in that momentum at present," Mandalay Resort Group President and Chief Financial Officer Glenn Schaeffer said during a conference call with investors Thursday.

Mandalay is on track for a "record January" because of expectations of a strong kick-off to next year's convention business, Schaeffer said.

The company reported profit of $67.1 million or 99 cents per share, in the third quarter ended Oct. 31 compared with profit of $40.6 million or 63 cents per share for the same quarter of last year. Analysts expected the company to earn 88 cents per share.

MGM Mirage stock rose more than $1.50 per share, or 3 percent, in early trading today. Analysts said Mandalay's strong performance is likely to continue and will raise MGM Mirage's stock price higher than expected.

UBS Warburg analyst Robin Farley said the news is worth at least another $1.50 in earnings per share for MGM Mirage in its first year owning Mandalay.

In a research note to investors today, Farley said the MGM Mirage stock could rise another $6 from the Mandalay deal in the first year.

Mandalay shares rose 41 cents to $70.10 in early trading today. MGM Mirage is buying Mandalay for $71 per share.

Deutsche Bank Securities analyst Marc Falcone said Mandalay's results were "impressive" and bode well for all Las Vegas operators, particularly Venetian resort owner Las Vegas Sands Inc. and MGM Mirage.

"We believe (Mandalay's) impressive third quarter and bullish outlook provides further verification that fundamentals on the Strip are thriving," Falcone said in a research note today.

Mandalay executives declined to comment Thursday on the $7.9 billion merger, which is expected to close by the end of the first quarter of next year.

Mandalay shareholders are expected to vote on the deal at their annual shareholder meeting Dec. 10.

Besides ending on a high note, Thursday's conference call turned into a goodbye of sorts for Schaeffer and other top executives, who are expected to leave the company once the merger with MGM Mirage is complete.

Room revenue got a big boost in October, when revenue per room rose 28 percent, a year-over-year record, Schaeffer said.

Cash flow at the company's Las Vegas Strip resorts rose 33 percent to $42.4 million in the third quarter, another record for the quarter, Schaeffer said. Casino revenue on the Strip rose 14 percent.

More filled rooms at higher rates means more customers spending money in the casinos, Schaeffer said.

The company's Mandalay Bay flagship posted $66.2 million in cash flow, a 48 percent increase from a year ago. The resort's newer hotel tower posted a 90 percent occupancy rate and an average room rate of $232 per night. Occupancy also ran about 90 percent at Mandalay Bay, with room rates averaging $212.

By next year, Mandalay Bay is expected to rent at least 40 percent of its rooms to convention-goers, Schaeffer said.

Casino revenue at Mandalay Bay rose 13 percent even as gamblers were luckier than usual against the house, he said. A lower percentage of bets won by the casino cost the company about 3 cents per share during the quarter, he said.

Cash flow at Luxor rose 28 percent to $40.3 million and casino revenue rose 24 percent. The Mandalay Place mall, which opened in 2003 with more than 40 boutique shops, continues to drive customer traffic from Mandalay Bay to neighboring Luxor, Schaeffer said.

Cash flow at neighboring Excalibur rose 22 percent and casino revenue rose 12 percent. At Circus Circus, cash flow rose 24 percent and casino revenue was up 8 percent. Monte Carlo, which is jointly owned with MGM Mirage, posted a 28 percent increase in cash flow and a 16 percent increase in casino revenue.

Across the company, cash flow rose 20 percent to $201.1 million. Revenue rose 15 percent to $720.3 million.

Health care costs for employees rose $4.6 million or 12 percent from the prior year, cutting into profit. Health care costs, up about 14 percent from last year, will likely continue to rise in the near term, Schaeffer said.

Expenses related to the merger cost the company about 10 cents per share in earnings, he said.

The company has reduced its debt burden from about $3 billion last year to $2.6 billion and will continue to reduce debt over the next few months, he said.