Wynn, Encore 2Q operating loss widens to $17.2M

By Steve Green

Published Wednesday, July 21, 2010 | 7:02 a.m.

Updated Wednesday, July 21, 2010 | 8:53 a.m.

The first second quarter financial results for the Las Vegas Strip are out and they show continued downward pressure on room rates because of the oversupply of hotel rooms in the market.

Wynn Resorts Ltd. today said Wynn Las Vegas and Encore at Wynn Las Vegas posted an operating loss of $17.2 million vs. an operating loss of $8.3 million in the year-ago quarter. Net revenue increased 1.7 percent to $318 million.

Adjusted property EBITDA -- a profitability measure meaning earnings before interest, taxes, depreciation and amortization -- was $65.1 million, down from $75.5 million.

Wynn attributed the EBITDA decline to higher employee health care and benefit costs, higher marketing expenses and higher repair and maintenance costs.

The properties achieved an average daily hotel rate of $197 for the quarter ended June 30, down from $218 in the second quarter of 2009.

The properties' occupancy was 92.6 percent, compared to 86.6 percent during the prior-year period, generating revenue per available room of $182 in the 2010 period, down 3.2 percent.

Table games drop decreased 1.8 percent to $485.9 million while slot machine win of $41.1 million was down 1.8 percent.

Today's numbers are preliminary and don't include results from Wynn Resorts' operations in Macau. Wynn's final second quarter numbers are scheduled to be released July 29.

Wynn disclosed the Las Vegas numbers today as it announced plans to replace some $1.3 billion of debt maturing in 2014 with $1.3 billion of notes due 2020.

Second quarter financial results from competing companies including Las Vegas Sands Corp., MGM Resorts International and Harrah's Entertainment Inc. are likely to further illustrate the pressure on room rates in the U.S. casino capital.

The Las Vegas Convention and Visitors Authority reports visitation to the city this year through May totaled 15.4 million people, up 1.5 percent from 2009. But with the room inventory increasing 5.6 percent to 148,542 due to the opening of CityCenter and other projects, room occupancy was down 2.9 percentage points to 80 percent and the average daily rate was off 0.5 percent to $97.11.

In previewing the industry's second quarter results, Deutsche Bank securities analyst Andrew Zarnett last week said he continues to believe the industry recovery from the recession will take longer than some investors are anticipating.

"Thanks to easy comparisons (to 2009) and somewhat better gaming volumes in April and May, it may seem that business conditions are getting better in Las Vegas, however, we remain cautious of the supply additions made to the Las Vegas Strip, coupled with weak convention business (mid-week), which we believe continues to exert downward pressure on Las Vegas room rates and gaming play," Zarnett wrote.

In another report Tuesday, Zarnett said negative economic conditions in Nevada highlighted in the U.S. Senate race between Sen. Harry Reid and Sharron Angle may harm Las Vegas locals casino operators such as Boyd Gaming Corp., Station Casinos Inc. and Cannery Casino Resorts.

"We believe the drumbeat of the election campaign that highlights the state’s record unemployment (14.2 percent in June statewide; 14.5 percent in Las Vegas) and a worsening Nevada economy may further negatively impact casino spend. We see no upside to a harsh campaign that reinforces the poor condition of the local economy and aggressively reminds residents of the economic crisis that afflicts their economy. We believe this may add to the negative impact on the Las Vegas locals market," he wrote.