Wynn profit falls 72% as Macau turns from certainty to weakness

wynn-resorts-profit-fallsIf anyone doubted the severity of Macau’s casino gaming revenue decline, a quick look at Wynn Resorts’ Q2 numbers would convince them.

Wynn reported net income of $56.5m in the three months ending June 30, 72% less than the company reported in the same period a year ago. Total revenue fell 23% to $1.045b, with Las Vegas operations down 6.2% to $423.5m and Macau off 35.8% to $617m.

VIP table game turnover at Wynn Macau was off 41% in Q2 and mass market table drop fell 16.5%. While VIP win rate of 2.92% was flat year-on-year, mass market win came in at 17.5%, nearly four points down from last year, pushing mass win down 33% to $208.6m. Slots handle and win fell 29.5% and 22.5% respectively. Non-gaming revenue was down 22.3% to $78.1m and occupancy fell two points to 96.4%.

In Vegas, gaming revenue fell 26.2% as table drop fell 19% and table win fell nearly eight points year-on-year to 19.5%, below the expected range of 21% to 24%. On the plus side, slots handle nudged up 0.7% while slot win gained 10.6%. Non-gaming revenue was up 5.3% to $330.3m.

MACAU ‘MORE OF A QUESTION THAN A CERTAINTY’
On the post-earnings analyst call, Wynn CEO Steve Wynn said the quarter’s numbers were “probably no surprise to anybody” who’d been paying attention to Macau’s doldrums. Steve said Macau “continues to be more of a question than a certainty” as the year progresses.

Steve said 51% of Wynn Macau’s current room inventory is going to the mass market tables and slot area. The company had “found a very rich stream of customers in the mid-tier, the business class of mass, and that continues to grow for us.” The problems with the junket and premium mass segments were well documented but the situation has been “pretty stable over the last six months” and the decline in retail revenue has “softened considerably.”

The $4.1b Wynn Palace project on Macau’s Cotai strip is on target to open on or around March 25, 2016, although Steve cautioned that the company wanted to have “10 days to two weeks of practice where we let all of our employees stay in all of the rooms” and use the property as a “campus” to see what goes wrong.

Steve addressed the growing consensus that Macau’s government will likely allow casino operators to retain the smoking lounges they’d spent so much time and money constructing on their mass gaming floors just last year. Steve said “there was no reason not to” retain the rooms, and credited Secretary for Social Affairs and Culture Alexis Tam for acknowledging this reality.

Asked whether China’s recent stock market implosion would affect Macau’s casino business, Wynn Macau president Gamal Aziz said he’d seen no evidence of any direct effect. But Aziz suggested that all the margin calls in Beijing were going to affect junket operators’ ability to collect gambling debts from suddenly cash-poor VIPs. That said, Aziz said he felt the overall effect was “short-term noise” that wouldn’t have any lasting impact on Macau.

Regarding the likelihood of Japan’s legislators finally getting around to passing their long-awaited casino bill this year, Wynn president Matthew Maddox – who was in Japan two weeks ago – said there were “a lot of very complicated legislative issues in Japan and that the Integrated Resort Bill is not at the top of the list.” There were other issues that “are much more important” to the ruling Liberal Democratic Party, so Maddox said he was still in “wait-and-see mode” regarding the bill’s chances.

STILL LOOKING FOR THE WELCOME MAT IN MASSACHUSETTS
On the stateside front, Steve said Wynn’s Vegas operations were “comfortable,” in that it was displaying “not aggressive growth by any means, but we are enjoying non-casino revenue that is acceptable.” Steve said Wynn was paying the price for being “the operator of choice” for Chinese baccarat whales, and that the current dearth of said whales meant Wynn was experiencing “more of a penalty” than its competitors.

But Steve said business from Latin America was holding steady, which he suggested at least partially explained why Wynn had “clearly the most powerful performance in this quarter of any operator in America.”

As for Wynn’s troubled in-development property in Massachusetts, which has had to deal with more than its fair share of lawsuits, Steve said he was hopeful that “at some point in the near future we’ll be treated with a little softer hand considering that we’re the largest single private investment in the history of the state.”

Steve acknowledged that Wynn had endured a “little bit of buffeting politically” at the hands of the city of Boston but noted that 85% of the population of Everett – Wynn’s chosen casino site – “was delighted to see us and voted to say so.” Steve said Wynn “haven’t found the welcome mat yet, but I’m the eternal optimist, and I’m hoping it’ll feel good when they stop hitting us.”