Wynn Resorts loses $44m in Q1 as Macau drags down results

wynn-resorts-macau-lossesCasino operator Wynn Resorts posted a rare net loss in Q1 as Macau’s nearly year-long slump continues to wreak balance sheet havoc.

Revenue in the three months ending March 31 fell 27% to $1.09b and earnings fell 34.7% to $323m. Wynn posted a net loss for the quarter of $44.6m compared to a $227m profit in the same period last year. The bad news didn’t end there, as Wynn was forced to cut its quarterly dividend to a mere 50¢ per share, down from the $1.50 handed out in February and $2.50 last October.

Wynn Macau revenue fell 37.7% to $705.4m, while earnings fell 44.7% to $212.3m. VIP gaming table turnover was down a hefty 52.4% while mass market table drop fell a more modest 14.5% and mass table win was down only 7%. Slots handle was down 25.7% and slots win was off 31.2%.

Occupancy at Wynn Macau dipped 0.6 points to 97.5% and revenue per available room fell 2.4% to $323. Total non-gaming revenue fell 21.8% to $88.4m.

The news was better stateside, where Wynn’s Las Vegas operations saw revenue rise 1.6% to $387m and earnings were flat at $110.7m. Gaming revenue was up 4.2% to $161.8m as table win rates improved slightly and slot handle rose 2.5%. Room revenue fell 3.3% to $99.6m as occupancy fell 4.8 points to 83%. Food and beverage revenue was flat at $114.5m.

On the analyst call, Wynn boss Steve Wynn (pictured) warned that the company wouldn’t hesitate to slash dividends in future, an act Steve said he’d do “without a second a thought and without any apology.” Steve said it was “foolish to issue dividends on borrowed money” and added that, as the company’s single largest recipient of dividends, this hurt him more than it hurt other investors.

Steve said the company’s expectations for a Q1 rebound due to the Chinese New Year “proved incorrect.” Wynn said “certain simple truths have emerged” in Macau, such as no one knows when Beijing is going to back off the corruption crackdown that is the source of Macau’s current dilemma.

That said, Steve remains bullish on Macau’s long-term future. Steve said the reduced numbers in Macau only seemed “morbid” due to the torrid pace of the past few years.

The new $4b Wynn Palace is on schedule to open in Q1 2016 and its 1,700 rooms will make it “the most extravagant, beautiful hotel in the world.” Steve addressed the uncertainty regarding how many gaming tables all the new Cotai properties could expect to receive, saying he hoped that Wynn Palace would get “enough tables to allow it to prosper.”

Steve noted that Macau officials have publicly stated that a primary factor in allocating new tables will be the amount of non-gaming amenities each property has to offer. Steve said Wynn Palace was “primarily a non-casino attraction” and a “destination-creating” property. Steve said the property’s non-gaming razzle-dazzle “will be a photo-op in China.”

Steve said the Macau government had been “tentative at best” in responding to Wynn’s requests for clarity on the table issue. Steve said this likely reflects “their own uncertainty … as far as predicting where to go tomorrow, or in the near future” as they attempt to stay in sync with Chinese President Xi Jinping’s program. Steve said Macau’s gov’t is “walking a tightrope” to satisfy Beijing’s orders and the needs of Macau residents.

Steve got a little emotional when he talked about how each of his Macau employees was a shareholder and thus the cut in dividends was like eating into their savings. The current situation in Macau was threatening these employees’ futures and Steve warned that continued uncertainty could result in “protests against the government if it isn’t settled soon.”

Steve attempted to “lower expectations” for the Vegas operations’ future performance, saying the much reported economic recovery in the US was “a complete dream.” Steve said he’d be “thrilled” if Vegas’ non-gaming revenue remained flat in Q2 but his guess was that this would be “a struggle.”

Steve said he’d never seen such “madness” surrounding the Mayweather v. Pacquiao fight in his 40-year history in Vegas. Steve said people were paying ‘outrageous” sums for tickets and suggested the two fighters would have to not only fight but “do a chorus line to justify the cost.” Steve said the net effect of the fight would be like having an extra Chinese New Year but it wouldn’t overcome the market’s generally flat trend.

In Massachusetts, Wynn hopes to break ground on its Everett casino project by the end of 2015 with an opening date of late 2017. Steve said much would depend on the state’s “substantial and formidable regulatory hurdles,” as evidenced by the fact that the company had already spend $200m on the project and expects to spend another $100m before the year is through, all without turning a single shovel’s worth of dirt. Or, as Steve put it, “welcome to the regulated businesses of America.”